Give and take: a prosperous Australia for a declining manufacturing industry?

Although I believe that the 'Resources Super Profits Tax' as proposed by former Prime Minister Kevin Rudd was poorly conceived, and even less well 'sold' to the electorate, the principle underlying it – namely, that the return to the Australian people from the exploitation of mineral and energy resources should be based on the profits derived from the extraction and sale of those resources, rather than on the volume of resource production – is one that I strongly support. And I think it's regrettable that the Government has backed down.

The Australian Government will of course derive considerable amounts of additional revenue from ordinary company taxes paid by mining companies.

And since, according to research by Reserve Bank economists, 'a little over half the total receipts earned from mining operations' accrue to Australian residents (notwithstanding that foreigners may now own as much as 80% of current Australian mining operations), there will also be a significant indirect increase in tax revenues flowing to the Australian and State and Territory Governments.

A second key challenge arising out of the mining boom will thus be that of ensuring that this additional flow of revenue to government is not frittered away, but that it leaves a lasting legacy.

This is something which Australia failed to do during the first phase of the current mining boom. The Howard Government, in its last term of office, and the Rudd Government, in its first year of office, were unwilling to contemplate budget surpluses of more than 1% of GDP, so they 'gave away' the revenue that would otherwise have resulted in budget surpluses in the form of income tax cuts and cash handouts.

This mistake could have been avoided if Australia had been willing to establish some kind of 'stabilization fund' or 'sovereign wealth fund'.

An Australian 'sovereign fund' wouldn't be created out of the revenue from State-owned commodity businesses like Norway's Staatoil, or Chile's Codelco. Nor would it be funded solely by specific taxes levied on mining companies.

Rather, an Australian 'sovereign fund' should be created from the larger budget surpluses which Australia ought to be running once the mining boom gets into full swing.

An Australian sovereign fund would need to be governed by very tight rules, similar to those governing the Future Fund established by the Howard Government to prevent governments from touching the capital in the fund until the resources boom is 'over' according to some objective criterion.

Such a Fund would most sensibly be managed by the existing Future Fund Management Agency, who have done a pretty good job in managing the $75 billion which it now has under its control.

I've also long argued that such a Fund should be divided into separate accounts (probably though not necessarily of equal size), for some clearly designated purposes such as

• pre-funding some of the costs associated with population ageing;