Wednesday, November 25, 2009

How to Use Oil

Upon hearing Gerry Brownlee's enthusiastic estimate that crown reserves from prospective oil revenues would ammount to approximately ten billion dollars, the first thing I wondered was where that money would be going. Knowing this apparently act-led government, it would probably be used to finance tax cuts - to my mind, this is exactly the wrong thing to do. What we should be doing by contrast is taking a leaf from the Norwegians and establishing a robust sovereign wealth fund along the lines of their Statens Pensjon Fond Norge - namely, a fund directing that money into domestic investments.

The prime reason why such a fund would be desirable is due to the deletarious consequences of foreign investment in our companies. The surplus wealth generated winds up going overseas in the form of dividends, rather than staying in New Zealand or funding further expansion. If the Government were providing the investment instead, the money would obviously be far more likely to be retained and re-used here. This would be a long-term far more viable national investment strategy than the present enthusiasm for foreign direct investment as a quick capital injection. If National is serious about encouraging beneficial economic growth here as a result of a predicted oil boom, this would seem the logical way to go about it.

Unfortunately I haven't seen any such foresight from the prospective Sheiks in blue.

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