When the Treasurer, Wayne Swan, makes his budget speech next month, we’re certain to hear a lot about how brilliantly the government is managing our finances.

At a time when most developed countries are struggling with huge budget black holes, Australia remains on track to sharply cut its budget deficit in 2011-12, and to eliminate it entirely the following year.

But amidst all the back-slapping, Swan is unlikely to mention one crucial point. And that’s how much this improvement in the budgetary bottom line is due to the commodity price boom.

It’s clear that surging prices for our commodity exports — particularly for iron ore and coal — has translated into huge profits for the mining companies, higher incomes for those working in resources-related industries, and bigger dividends for investors in mining companies. And the government also reaps huge benefits, because it gets to collect more company and personal income tax, as well as resource royalties.

This fact has certainly not escaped the keen attention of Malcolm Turnbull, the shadow Communications Minister. In a speech in Melbourne yesterday, he pointed to recent work done by Federal Treasury that highlights just how big a bonanza the surge in commodity prices has been for the Labor government.

As Turnbull pointed out, “Treasury now calculates that the resources boom generated revenue windfalls of approximately $65 billion during Labor’s first three years. Of course every cent and more was spent.”

He added that Treasury projects that a further $30 billion is set to flow into government coffers in 2011-12 as a result of the boom. But, he added, “when Wayne Swan delivers the 2011-12 Budget on May 10, you can safely bet every cent of that will be spent too.”

Turnbull raises an important point. Labor has had little hesitation in indignantly accusing the previous Howard administration of  “squandering” the benefits of the early part of the resources boom. Now, it’s in the process of doing exactly the same thing.

But this raises a further question. How can we make sure that Canberra doesn’t fritter away the extra revenue it receives as a result of the commodity price boom, and instead puts some money aside for the future?

The answer, Turnbull says, is to set up a sovereign wealth fund.

Of course, Turnbull isn’t alone in advocating such a fund. A number of business leaders, such as Commonwealth Bank boss Ralph Norris and ANZ Bank chief Mike Smith, have also got behind the idea. And in a recent report on Australia, the OECD recommended pushing all resource tax revenues into a separate reserve fund that would help insulate the budget and the economy from future drops in commodity prices.

Turnbull argues that one of the best reasons for setting up a sovereign wealth fund is to impose much-needed restraint on Canberra. Faced with a budget surplus, politicians “have a very strong temptation to splash money around and while tax cuts are always appealing, cutting taxes at the top of a boom runs the real risk of creating a structural deficit when the boom subsides.”

In contrast, if Australia were to set up a national savings fund, it “would become a matter of real national pride, evidence that we have the discipline and vision to recognise that good times don’t last forever, that demographic changes will place greater demands on future budgets and that thrift is both virtuous and prudent.”

But Turnbull is also a realist. Australia is still many years away from being free of debt, even though we’re enjoying windfall revenues as a result of the resources boom. So as well as committing to a resources boom, he argues that we need to work out what our real budget position is, if we take out the windfall gains we’re reaping from the commodity boom.

This picture is likely to be a far uglier sight than the rosy projections that Wayne Swan will likely present next month. But Turnbull’s point is correct. We need to stop kidding ourselves that our comparatively robust budget position is the product of prudent fiscal management, and to acknowledge the huge boost we’re receiving from the resources boom.

The risk is that, when commodity prices do eventually tumble, we’ll find ourselves confronted with a steep fall in national income and gaping budget deficits. And we’ll rue the fact that, during the good times, we lacked the foresight to set up a sovereign wealth fund.

*This article was originally published at Business Spectator.