Super to fund Australia’s future

“We can fund ourselves and…we’re going to fund a lot of it through super,” he said.

“Where the money finishes up will depend a lot on the decisions made in the superannuation sector.”

Mr Maddock said Australia’s superannuation sector will be important for funding new businesses and infrastructure, particularly Greenfield projects.

 

“Banks find it quite hard to invest in new things, but superannuation funds have got much more flexibility,” he said.

“As the super funds get to allocate bigger and bigger shares of Australia’s savings, then they’ll have the capacity individually to take more risk in these sorts of areas.”

Australia’s superannuation system has assets of around $1.8 trillion, which are rapidly growing and are forecast to have assets equal to Australia’s banks in 15 years, he said.

In addition, the superannuation sector is starting to evolve and implement similar mechanisms used by the banks which allow them to pool risk, he said.

“They do have the capacity to become really important institutions to fund new businesses, new investments, new Greenfield infrastructure, and they’re in the process of generating the mechanisms to do that.

“Overtime, I think that we’re going to see the superannuation funds become very, very important conduits for funds into those places which find it most difficult to get it.”

Levers for growth in Australia

Australia cannot use fiscal or monetary levers to generate growth and must tap into investor appetite, according to IFM Investors Chief Executive, Brett Himbury.

 

“Australia and much of the world needs growth, yet is constrained in their ability to fund it,” he said.

“The traditional public sector levers, if you like, are at or near their maximum or comfortable levels.

“Yet we as investors, in aggregate across the retirement savings and superannuation system in Australia … we are overweight (in) capital and short of long-term investment opportunities.”

Mr Himbury said Australia’s superannuation sector has incredible potential as a source of sustainable, competitive advantage.

“Superannuation and retirement savings assets of this country are now slightly in excess of 100 per cent of its GDP,” he said.

“There’s not many other countries in the world that have that.

“Australia has had, clearly, a remarkable period of growth but one of the core drivers that has underpinned that – mining – is clearly not going in the same direction.

“So there’s an opportunity for our world class retirement savings system…to invest more in productive assets.”

Australia’s economic growth post mining boom

Non-mining sectors of the Australian economy need to grow at above average rates in order to offset the fall in mining investment but infrastructure investment may not be enough to offset this, ANZ Banking Group Senior Economist, Justin Fabo said.

 

“The increase in public backed infrastructure investment in Australia, or the mooted increase, is actually pretty modest over the next two to three years outside of NSW,” he said.

"The offset from that as mining investment comes off is very modest indeed in the next couple of years.”

“For the next few years, this transition away from mining investment to other sources of growth, which is happening, is not happening fast enough.

“The non-mining parts of the economy need to grow at above average rates for a few years, and at best it’s approaching average rates at the moment.”

While the global economy is getting better and the Australian dollar will probably fall further, the next few years are going to be challenging for Australia, he said.

Proposing reform

In the medium term, Mr Fabo said he’s concerned that Australia will continue without much needed reform until we have an economic downturn that “focuses the mind”.

“Every time someone puts up a good idea, economic reform, structural reform, there’s always someone that comes out and says it’s a bad idea because some people lose out of it,” he said.

“If we’re going to get anywhere, we’re going to have to have some losers unfortunately. Hopefully, it’s not poor people and less advantaged people that are the losers.”

Trade and investment

Foreign investment remains a critical driver of the Australian economy and will be boosted by trade agreements with three Asian economic giants, Parliamentary Secretary to the Minister for Foreign Affairs, and Minister for Trade and Investment the Hon. Steven Ciobo has said.
“Investment drives global value chains, so for Australia two-way investment with our own region is vital to boosting our national income,” he said.

 

“We all know that Australia’s future lies not just within our own borders but with the way we interact with the world both strategically and economically.”

Mr Ciobo said trade agreements and negotiations with Japan, South Korea and China will help break down barriers and expand in these markets which account for 55 per cent of Australia’s exports.

“Modelling of the Korean FTA (Free Trade Agreement) indicates goods liberalisation in that agreement will be worth nearly $5 billion in additional income to Australia over the next 15 years.

“It predicts manufacturing exports to Korea will be 53 per cent higher than would otherwise have been the case without the agreement.”

Under the Chinese trade agreement, 99.9 per cent of Australia’s $90 billion of exports China will enter duty free and services will “enjoy unprecedented access to growth at the frontier of China’s economic transformation,” he said.

Political landscape

Australian electorates are losing patience with governments but historically, short-term governments are linked to periods of economic volatility, The Australian Financial Review Senior Writer, Ben Potter said.

“Are short-term governments with us to stay?” he said “There is probably something a little bit different in the electorate to the past, a little less patience and so on.”

We’ve seen short-term governments across the globe recently but it’s a phenomenon dating back to the 1970s, he said.

“The 70s was another period of financial and economic volatility…that tends to make voters less patient with their governments,” he said.
 “I would suggest that as soon as we return, in western democracies, to some sort of economic stability and steadily growing prosperity we will see longer lived governments.”

Victorian political landscape

The Victorian State Government has some big challenges ahead, The Age State Political Writer, Josh Gordon said.

“We’re now almost 100 days in and I think Dan Andrews has quite big challenges on his hands,” he said.

Three of these challenges include:

Finding a way out of the East West link contract;

Upholding his pledge to start work on the metro rail link in his first term; and

Dealing with the upper house where Labor holds just 14/40 seats; it will need an extra seven votes to pass legislation that is not supported by the Coalition.

“If Andrews can work through these and other problems and avoid falling into the traps which so wrong-footed the Rudd/Gillard/Rudd Government, the Baillieu/Napthine Government and the Abbott Government, I think he could go on to become a successful Premier,” he said.

 

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