A Classic Liberals government will establish a Stabilization/Economic Development Fund to diversify the economy, reduce reliance on mining, and improve access to capital for businesses.
The need to Diversify and De-risk the Economy:
Australia has enjoyed two decades of a major mining boom, yet successive governments have squandered the proceeds. The public sector has grown significantly, welfare dependency is high, and chronic overspending has produced ongoing deficits and rising debt. At the same time, Australia has largely lost its manufacturing and other tradable industries, leaving the economy dangerously exposed to mining.
When the mining boom eventually contracts—as it inevitably will—government revenues will fall sharply while spending remains high. This will widen deficits, increase national debt, and risk a major fiscal crisis. To avoid this outcome, governments must restrain spending to generate surpluses and actively support other tradable sectors to diversify revenue sources.
The need to Improve Access to Capital
National prosperity depends on businesses having ready access to capital to start and grow. Countries that provide the best access attract entrepreneurs and generate higher living standards.
While Australia’s financial markets perform well for large listed companies, they perform poorly for micro-caps and very poorly for unlisted companies. There is no formal equity market for unlisted companies, our superannuation funds invest almost nothing in these companies, wealthy individuals prefer residential property, and regulation discourages such investment.
This market inefficiency must be corrected. Companies that offer attractive risk-adjusted returns should be able to raise capital at appropriate costs.
The Solution – An Economic Development Fund
An effective solution is to create a government-backed Economic Development Fund (also known as a sovereign wealth or stabilization fund). Classic Liberals proposes that government provides the initial capital by issuing long-dated government bonds, currently costing around 5% annually. The capital allocated to the fund would be invested in a diversified portfolio of private-sector opportunities targeting substantially higher expected returns—at least 15% per year. The resulting spread (e.g., 10%) could be reinvested in the fund or used to reduce public debt.
Once the fund demonstrates success, superannuation funds and individual investors are expected to participate, significantly increasing the pool of capital available to micro-caps and unlisted companies.
This fund would strengthen economic resilience, promote diversification, improve capital allocation across the economy, and de-risk its reliance on the mining sector.