By Mathew Murphy
AUSTRALIA should use the riches garnered from its resource-rich economy to counter its infrastructure backlog instead of establishing a sovereign wealth fund.
That is the view of UBS Global Asset Management, which calculates the infrastructure deficit at about $250 billion.
UBS's head of investment strategy, Mark Rider, and its chief executive, John Fraser, said Australia needed better co-ordination between Commonwealth and state governments, as well as superannuation funds, to overcome its two-speed economy.
Mr Rider said infrastructure needed to be the ''centrepiece'' of the economy's expansion but investment needed to include an increase in skilled migration.
''One of the problems is … that we haven't had an entirely co-ordinated approach to this,'' he said.
''The federal government sets immigration and state governments control how our cities are planned and developed. The solution is immigration but what you have to do as well is build the social and economic infrastructure to deal with it. If you bring people in, you can't plonk them somewhere in an outer suburb where they don't have transport, or schools, or hospitals.
''The one thing we start running out of with unemployment at 5 per cent … is people. And if we don't have enough people, it puts upward pressure on wages and hurts the economy.''
Mr Rider said calls for a sovereign wealth fund to better harness the spoils from high commodity prices were misguided.
''Some people think that a sovereign wealth fund is a better way to get intergenerational transfer of wealth,'' he said. ''I think if you build a good rail system, good ports, good road systems, that is something that not only the current generation benefits from but generations to come.''
Mr Fraser added that sovereign wealth funds often looked for investment overseas.
While the Business Council of Australia and Infrastructure Partnerships Australia put the infrastructure deficit at between $450 billion and $700 billion, Mr Rider said he believed it was ''probably around $250 billion''. He said there was ''no doubt'' that Australia had under-invested in infrastructure for more than 15 years.
''It seems to me that one way we can deal better with the resources boom is to get some switching of spending from current outlays from the Commonwealth to capital outlays and that will help fund that infrastructure,'' he said.
''Part of that story will also be to get super funds involved but there is an issue there about getting the risk-sharing instruments right between the public and private sector. Who is better to wear the risks that are out there?''