Norway & Australia - The Sovereign Wealth Fund Question

Spilling and filling since before the Dinosaurs accrues an ocean of dense carbons deep beneath the cold and stormy North Atlantic swells. About 60 years ago, technology got us to the point where we humans could finally access it. We built towers over the waves and bolted them to the seabed to get it out.

So happens, that at this convergence of history, approximately 40 clicks west off the Norwegian Anglican fishing village, Stavanger, some American oil explorers were hoping to strike proverbial gold.

And while they succeeded, it was not the pure extraction of resources for cash they had envisaged. Norway knew in their bones that even though they could not have done this themselves, those resources were extracted on Norwegian land, and as such, the right of all Norwegians. How Norway proceeded to maximise this natural resource windfall is the golden standard for any nation so blessed by them because of happenstance geography…

This article would benefit immensely, from a great, longitudinal study charting these three lines, for both Australia and Norway since 1970 with (years on the x axis) and ($ on the y).

• Raw $ amount of extracted natural resources.

• Raw $ amount of tax collected on those resources.

• Adjusted $ return on collected taxes.

In lieu of a research assistant, nor the chops to pull it off myself, I asked ChatGPT to prompt one. I don’t think it’s great, but I don’t think it’s terrible. It directionally tells the tale.

Notice the gap between Australia’s and Norway’s extracted resources and adjusted returns. This is the story.

The long and the short of it is the question of intergenerational thinking. Security and insurance few countries secure. A sheer maximisation from the bounty… a natural resources windfall.

Norway has oil and gas, Australia quite a bit more… through luck and consequence of history, because of the tech to extract it and the market’s to sell it, Australia and Norway can up dig up this historic treasure. And although we’re altogether squeamish about the environmental damage exacted by extraction - we’ve agreed to do it nonetheless. Because it offers us something in return.

Which is, in a word. Wealth.

Pure and simple, prosperity and a further nudge towards unencumbered opportunity.

But despite both Australia and Norway rightfully adorning their respective places as two of the world’s most desirous countries, we differ quite drastically in our treatment of this bounty.

As you’ve observed above, despite Australia extracting significantly more value from beneath our feet than our counter party, the outcomes from those resources are only the same at the most superficial levels. We both wear deep government pockets and both achieve exceptional state capacity. There is (broadly) enough welfare to go around, infrastructure that enables (most) outcomes, a stable currency, cleanliness, modernity, technological adoption, you name it the list goes on, every hallmark of an enviable, endurable country.

But I’d like to make the case that Australia could be doing so much more. Australia spends the bounty immediately, whereas Norway has it compounding away for future generations. We (Australia) collect between 5-10% of ‘royalties’ (taxes) of the raw value at the state level, and then 30% corporate tax on profits at the federal level, which means all in all, we capture between 10-15% of the total value dug up where it’s spent as credit immediately on state and federal budgets accordingly.

Whereas Norway, more dramatically, tax oil and gas profits at 78% (a 55% special petroleum tax on top of the standard 22% corporate tax) and also takes in dividends through substantial ownership in oil production, via recently rebranded Statoil’s - Equinor​. Norway capture between 60-70% of the value generated by the petroleum sector.

Now, I’m not suggesting carte blanche copy paste, but there’s quite a bit of daylight between 60-70% and 10-15%, especially when you take into account how it’s then allocated.

Why can’t we syphon off a few extra percent of state royalties and have that contribute to a national sovereign wealth fund that can transform that one time win into something that outlives us? Just some good old fashioned risk management, hedge against commodity prices, something which grows over time.

I suppose the largest and most unanswerable question in this piece precisely that… why?

What’s the downside here? By imposing an extra cost we risk the competitiveness of our resource industries? When Australia and Rudd mosey’d on down their doomed resource tax policy reform the devastating blow against it was the charge that we would be ‘killing the golden goose’ - biting the hand that feeds us - laying waste to the very source of our prosperity.

I suppose fair enough rhetorically, but I’d want to see it justified compellingly.

I propose the gap between Norway and Australia’s percentage sponge of the resource value is explained between the underlying philosophy regarding intergenerational thinking between the two nations. But thankfully, we’ve got a historical parallel we can refer to, an example where that philosophical difference has played out before as guide.

Aberdeen and Stavanger mark the SW and NE border of the North Sea’s carbon riches. Since the discovery of these oily carbons in the late 60’s, both these towns (attached to their respective countries) extracted close to the same amount of resources (measured in BOE - Barrel’s of Oil Equivalent)

• UK: ~45–50 billion boe over the decades.

• Norway: ~55–60 billion boe (including both oil and gas).

Aberdeen spent all it’s revenue as it came in, it contributed to that same year’s budget and as such Aberdeen prospered for decades, it was one of Europe’s richest and most enviable towns. But there was no intergenerational strategy, no sovereign wealth fund contributions. No investment beyond that years budget and that years costs. Economic decline predicted it’s course as the oil fields matured.

Norway contributes every krone of their oil revenues towards the sovereign wealth fund. They can only contribute the returns from the fund to the national budget. The fund is entirely invested oversees to avoid inflating their currency. It’s worth more than $2,000,000,000,000 at the time of writing which makes it larger than Australia’s entire GDP.

The sovereign wealth fund of a nation of 5,000,000 people is worth more than the entire productivity of a nation of 22,000,000.

Aberdeen adopted pay as you go, Norway opted for the more risky, more politically deadly ‘risk, wait, see’.

Is Australia more like Aberdeen or Norway?

Now it’s easy to just point to Norway and say, why don’t we do that here. But Norway’s got quite a lot going for it. The luck to have the specific history, the rightheadedness and willingness to be politically unpopular. The tiny population, the lack of any industry except for industrial fishing, the governance structure to allow for such a sweeping, national policy. Aberdeen was Scotland was UK was Thatcher. How much did Aberdeen’s oil revenues contribute to Welsh debt relief? London welfare? At the time, the UK was 50,000,000 people, Norway 4,000,000. The UK was on the other side of world domination, no great colony to speak of, no competitive advantage in a globalising world. Norway was a backwater of Europe, but looked to it’s Swedish and mainland neighbours and envied their prosper. Their tight rules held at bay the otherwise panic selling which might have ruined their astronomical returns had it been down to the decision making of various CIO’s.

Here is the great natural resource windfall. Let’s not squander it.

Why can Australia not syphon off a marginal rate of these revenues and commit them to a longer term vision beyond this afternoon? We’ve got state interests and national interests. An entrenched political system and a culture which praises the mining riches. The don’t kill the golden goose argument. But among us, how many know how our great natural resource windfall is trickled throughout each crack of the economy? And if they did, how many would want to see it reformed?

Because the Norwegians know. It’s the benefit of a small population and a noticeable increase in prosperity from one generation to the next. It’s something Norwegians are immensely proud of. A symbol to the rest of the world for some type of exceptionalism. But if the recipe is there, and we are so blessed to have all the right ingredients, why won’t we cook?

It seems the losers would be the companies themselves. A generous interpretation might be that it could ruin the industry itself, but how can it be that they operate on so thin a margin when I read the Australia’s Rich List and notice mining name after mining name? It seems the tradeoff we’ve agreed on is the potential for extraordinary wealth for those talented and committed enough to play game versus the less glorified, multi generational fund that could blanket an economy.

That instinct to not slaughter the golden goose runs deep. And rightly so.

Norway felt this from the very start, but they had fight off that instinct. Since it was after all, American companies that made it all happen, not Norwegians. It was Phillips Petroleum in 1969 that took the enormous capital risk. Provided the educated labour, searched and searched and searched and thought they would go home with nothing, every Phillips American abroad foreshadowing their imminent unemployment. It was on their last attempt that the Ekofisk field in the North Sea was discovered and the thesis of natural resource riches was proven true.

American labour, American capital, American risk… brought to you by the Norwegians. It would be pretty rich to then turn around and say thanks for all that, now teach us everything you know, oh, and by the way, we are probably going to tax you more than half of everything you make. One can only imagine the voices against this idea.

But instinctually, the Norwegian’s knew that no matter how fortunate this win, it would be finite. It would not stretch far into the future. Therefore, let’s take as egregious a cut as they’ll stomach, let’s set up an investment vehicle to act as a steward for Norwegian wealth beyond the generations we can count. Grow several branches out of the firmly rooted tree that might create a more interesting, colourful and exciting future for Norwegians beyond oil and gas.

Meanwhile Australia, taking our place behind Aberdeen in the conga line, are spending the money as it comes in. State governments fold royalties into their budgets, and the federal government folds the corporate tax into theirs.

However it’s not all gloomy if you herald from our Earth’s island continent.

We’ve actually already achieved something pretty stellar.

Australia’s superannuation system has bloated to over $3.5 trillion AUD in assets, as of 2024, which more than doubles our GDP and put’s that accumulated value almost on par with Norway’s sovereign wealth fund.

The moneys are diversified. Spent domestically and abroad, therefore hedging against international risk as well as supporting enormous domestic spending. The superfunds are spent on infrastructure projects, the purchase of Australian equities, a capital base to endure external shocks.

You could make the case that all this chat of copy pasting Norway is a redundancy, but there are a few crucial details between the superfunds and a sovereign wealth fund that are worth addressing.

Superannuation is privately owned. In an emergency, or for the unified purpose of a strategic vision, there is no collective claim on this capital. The Superfunds act as a bulwark against sovereign wealth fund reform, therefore leaving the question unanswered, how do we further maximise our natural resource windfall? Foreign companies and investors benefit enormously from our low tax resource extraction, it might sound hyperbolic, but we are in effect shipping tankers of our cash overseas to be spent without any thought of the Australian people.

And as such we return to a fundamental philosophical question. Do we, as Australian citizens have a right to a resource extracted from our land? I’m either or on the answer, but feel it needs to be centrally addressed when thinking about this.

Superfunds cannot be strategically positioned to hedge cyclical trends. When resources are booming, our superfunds are spent buying Aussie equities, we ride the ride each wave as it barrels in rather than sit out beyond the swell looking to the horizon.

Superannuation has no answer to broadening wealth inequality. Australia’s 2025 federal election which has just come and gone featured ‘the cost of living crisis’ front and centre at all times. High income earners through asset ownership and private investments need not rely on a retirement fund. They compound and compound in super whereas a strategically operated sovereign wealth fund could be more circumspect in their spending. Under great stewardship, be more generously and thoughtfully allocated.

In a phrase… we have an immense personal savings system, but a shorterm-est and lacklustre collective one.

I don’t have the answers to these big questions, and have surely missed several of the most critical variables to the argument, but having just moved back to this country, and having had the story of the NBIM and Nicolai Tangen front and centre for a while. I thought it’d be useful to get it all down.

I did a university exchange in Oslo 10 years ago. I noticed how the fund was an enduring source of pride and because I was doing economics, always a present discussion (on campus). A local journalist, Paul Cleary wrote a wonderful book about the history of NBIM (Norway’s Soveriegn Wealth Fund) titled ‘Trillion Dollar Baby’. He featured on the podcast a few years ago as did Alan Krell - one of the deep sea divers who are an unsung and irreplaceable variable in Norway’s success.