This is the burning political question of our time: how best to share the benefits of the resources boom? Thirty years ago, deputy WA Labor premier Mal Bryce had his ideas for sharing more evenly the benefits of the boom of that time and now Premier Colin Barnett has floated his idea.
What do these two ideas from opposite ends of the political spectrum have in common? They both propose the establishment of a State owned and operated sovereign wealth fund aimed at ensuring that the benefits of the booms in mining are not frittered away.
After listening to Mr Bryce, I became a convert to the concept and have followed the fortunes of a number of these funds for many years. I have put proposals similar to this to various governments and all have been rejected.
The sovereign wealth funds of the world are all owned by their governments, most operate in the commercial world free from interference or direction by the government of the day. Some act as investment houses and return all their profits to government; some pay dividends to their citizens; some act as an extension of the Treasury and some remain independent.
Regardless of the structure used, one of the key aims of sovereign wealth funds is to provide economic diversification away from non-renewable resources. What Mr Barnett has proposed is a long-overdue initiative and one that could benefit current citizens. It could also ensure that coming generations get their share of the rewards from our finite resources.
We know little about the Barnett proposal but he is said to favour an Act of Parliament to protect a fund that will provide money for major infrastructure. As infrastructure funding is already a Federal and State budget responsibility, this is where the trap lies. The experiences of funds established on similar grounds around the world demonstrate clearly that the model proposed by Mr Barnett can only lead to jurisdictional cost-shifting, political manipulation and budget balancing acts.
It is the model most likely to produce the worst outcomes for the State and Mr Barnett needs to revisit and revise his aims in establishing a fund on this basis.
Many fossil fuel-rich states have established sovereign wealth funds to provide for the inevitable day when their oil runs out. Because not all the funds are good, there is a lot to learn from their experiences.
WA could do no better than to imitate the successful Alaskan Permanent Fund. Established 35 years ago by constitutional amendment, it came about when Alaskans expressed displeasure at how their politicians had frittered away the proceeds of their 1970s oil boom.
Since establishing the fund, Alaska has become one of the lowest taxing States in the US, has abolished many State taxes, is spending on infrastructure, improving its education levels and is returning annual cash benefits to its citizens.
West Australians are led to believe that they are the owners of the resources and many wonder, if this is so, why they are not sharing directly in the proceeds of the boom. A distinctive feature of the Alaskan fund is that it — independent of any political processes — assesses its performance and pays an annual dividend to its citizens.
Unlike us, Alaskans do get a share of the wealth generated by their resources. Last year, a dividend of $US1174 was paid on application to all Alaskan citizens, including children, who meet the major qualifying requirement of two years permanent residency in the State. Over the 35-year life of the fund $US19.6 billion has been paid to Alaskans and $US19.6 billion has been preserved in the fund.
Blessed with huge reserves of natural resources, WA is in a similar position to the Alaska of the 1970s and many West Australians are questioning where this and other booms have left us. They question why the cost of government and its services are increasing so fast. They wonder how future generations will cope with these increases and debt that the State has incurred. I suspect most WA citizens are tired of the Canberra bashing, sick of the pettiness of our political system and are screaming out for meaningful leadership.
In this regard Mr Barnett deserves credit for raising this matter. Having earned that credit, for him to now backtrack or not progress the issue would be a disaster for the State. Given the kneejerk rejection from Opposition Leader Mark McGowan, it is obvious that there is little chance of an informed political debate over this vital issue.
If Mr Barnett acts promptly, we can have a system in place before the inevitable downturn in our resource sector arrives. The consent of the governed is required in a democracy and there is no better way to achieve that public imprimatur than a referendum. For a minimal cost, a referendum could be held with the next State election, on a question similar to: “Should the Constitution be altered to create an independent sovereign wealth fund by using 25 per cent of the State’s resource royalties?”
While there should be public discussion on the question and the principle, it is hard to see the WA public voting against a measure to give them annual cash payments at the same time as it provides for future generations.
Had we acted when Mr Bryce first raised this, the WA Fund would now have billions of dollars in its cash reserves and the State and every one of its citizens would be better off financially.
Procrastinate now and there is little chance of anything meaningful ever happening and future generations will quite rightly condemn us as wastrels.
Larry Graham is a former ALP and independent State MP