OECD calls on Australia to mull sovereign fund

Australia should look at a sovereign wealth fund to profit from the revenues of its China-fuelled mining boom, the OECD club of rich nations said Friday, describing the robust economy's outlook as positive. The country dodged recession during the financial crisis due to its mining-powered economy, but slowing commodity prices have started to hurt growth while a high Aussie dollar has hit manufacturing and other industries. The Paris-based Organisation for Economic Cooperation and Development, in its 2012 survey of Australia, forecast growth decelerating from 3.75 percent this year to 3.0-3.25 percent in 2013 and 2014. But it praised Australia's "sound macroeconomic policies" with unemployment expected to remain around 5.5 percent in 2013 and 2014 and inflation hovering at 2.25-2.75 percent. Non-mining sectors have struggled with the currency's strength, which has been powered up by the Chinese-led demand for Australia's resources, the OECD noted. "However, fundamentals remain solid with the unemployment rate close to its structural rate and inflation and public debt low," it said. Despite growth easing, it said the outlook was "positive" with Australia less vulnerable to overseas risks than many other OECD countries. But with several major miners shelving or delaying projects amid warnings from the central bank and others that the price boom has peaked, it urged policymakers to plan ahead for a less resources-dominated economy. "The authorities should consider creating a stabilisation fund to accumulate mining-related revenues when they are unusually high to insulate budget and spending, thereby reducing the risk of pro-cyclical fiscal policy," it said. Australia has a "Future Fund", created in 2006 to ring-fence future pensions payments for state employees. But the government of Prime Minister Julia Gillard, which aims to pull its budget back into surplus, has resisted calls for a Norwegian-style sovereign wealth fund to channel state investments, arguing the Future Fund is enough. A spokesman for Treasurer Wayne Swan reiterated that position Friday, saying "a sovereign wealth fund is already in train through another name", referring to the Future Fund. The OECD added that Australia's economic health in years ahead depends on lifting productivity growth, through better standards of education at university level and in vocational training. And it said the central bank, which this month cut the official interest rate to a record low of 3.0 percent, may have to take further action if the economy weakens dramatically, even at the risk of postponing a return to budget surplus. Swan welcomed the report as showing the Australian economy "stands tall amongst our peers with 21 consecutive years of growth, robust economic fundamentals and a positive outlook in the face of acute global challenges".