If only we had the vision to direct super funds to infrastructure needs
Instead of tinkering with minuscule tax changes that spook retirees, the government should be developing plans that deliver respectable returns from super while resolving one the nation's most pressing problems - decent infrastructure.
In the past 12 months I have made 21 interstate visits, amounting to 42 plane trips in and out of Sydney. Most of these were for work. About 70 per cent of the trips were late by 20 minutes or more, 25 per cent were on time, two flights were early and one was cancelled, forcing me to buy another ticket. The reasons offered for the lack of punctuality were varied but typically were sheeted home to delays at Sydney Airport or late plane arrivals from other destinations.
Sydney Airport has become possibly the biggest bottleneck in Australia. The decision by the Howard government to sell the airport to Macquarie Bank in 2002 has proven to be poor, leading to monopoly-like rents and declining services for passengers. Many business travellers are now scared to fly on the morning of a meeting in case they are late. Compounding the problems are traffic delays once you have landed. A productivity nightmare, especially when talk of a second Sydney airport is routinely batted away by state governments.
For the best part of 10 years Australia's productivity levels have been declining, the full impact hidden by the terms-of-trade boom. With the benefits of high commodity prices possibly declining over the next decade, the need to address our productivity woes will become urgent. Otherwise the nation's standard of living declines.
Sydney Airport and many other infrastructure problems are a handbrake on productivity and there is a crying need in both urban and regional areas to spend hundreds of billions or even trillions of dollars on roads, rail, airports and ports in the coming 20 years. Due to several failed tollway projects and the national broadband network calamity, there is neither the funding, nor willingness, of state and federal governments to implement critical infrastructure.
The total value of superannuation assets in Australia sits at about $1.5 trillion, or the equivalent to our annual gross domestic product (GDP). With compulsory super ratcheting up to 12 per cent in the coming years, the total asset value is forecast to double to $3 trillion by 2018 and possibly to $7 trillion by 2030.
Under the current scenario, about 40 per cent of this money will find its way into Australian equities and fixed interest, while another 30 per cent will go offshore into the same asset classes. With the allure of franked dividends, it is easy to see that too much superannuation money will be chasing domestic equities.
Meanwhile, somewhere between 5 per cent and 10 per cent is being allocated to various forms of infrastructure. To meet Australia's needs and to increase productivity, about 15 per cent of superannuation needs to be funnelled towards infrastructure. Reports by industry and economic bodies estimate that $1 of infrastructure spending adds somewhere between $1 and $1.80 to GDP.
From the helicopter view, infrastructure investments and superannuation funds are a match made in heaven. They are both long dated, say 20 to 30 years, and need consistent returns. But superannuation managers are not going to throw a greater percentage of their funds towards key infrastructure unless the return is satisfactory. Recent history, especially in tollroad returns for equity investors, has not helped this cause. Other woeful decisions such as loading up the Future Fund with Telstra stock only to sell at the most inopportune time, have been another body blow.
The only model that has a realistic chance of working is a rethink of the public-private partnership. Federal and state governments have the chance to entice private money (superannuation) into designated infrastructure projects by delivering tax incentives in the early years. A list of must-do projects should be drawn up and the financial rigour attached to the modelling of these schemes needs to improve immeasurably.
To implement these types of reforms, rather than fiddling with tax rates for the wealthy, needs a long-term view and tremendous intellectual capacity. It has become clear the Labor government does not possess these qualities. Moreover, with the Coalition likely to be in charge to at least 2019, there are no signs that any Liberals, bar Malcolm Turnbull, have the competence to develop such a vision about superannuation and infrastructure.
matthewjkidman@gmail.com.au
Frequently Asked Questions about this Article…
According to the article, total Australian superannuation assets sit at about $1.5 trillion today. With compulsory superannuation rising towards 12%, that pool is forecast to double to about $3 trillion by 2018 and could possibly reach around $7 trillion by 2030.
Investors should care because infrastructure investments can boost national productivity and offer a strong long-term match for superannuation money. The article notes infrastructure is long-dated (20–30 year) and stable, and industry reports estimate each $1 of infrastructure spending can add roughly $1 to $1.80 to GDP — benefits that can support returns and the economy that investors rely on.
The article says only about 5–10% of superannuation is currently allocated to infrastructure. To meet Australia’s infrastructure needs and lift productivity, the author suggests roughly 15% of superannuation should be funnelled into infrastructure projects.
Barriers include the need for satisfactory returns, recent poor outcomes in some tollroad investments, high-profile policy and execution failures (such as problems with tollway projects and the national broadband rollout), and political reluctance or lack of funding. These issues have made superannuation managers cautious about increasing infrastructure allocations.
Yes. The article argues a rethought PPP model has the best chance of working: governments could entice private money (including super funds) into designated infrastructure projects by offering early-year tax incentives, drawing up a list of priority projects, and applying much stronger financial rigour to project modelling.
The article uses Sydney Airport as a case study. It argues the 2002 sale to Macquarie Bank has contributed to monopoly-like rents and declining passenger services, creating a major bottleneck. The author reports personal travel experience (21 interstate visits, 42 trips) with about 70% of flights delayed 20 minutes or more, highlighting direct productivity costs for business travellers.
The article points to the Future Fund’s heavy exposure to Telstra and selling at an inopportune time as an example of poor timing and execution in public investing. Such mistakes underline why super fund managers demand better project design, governance and realistic return expectations before committing more capital to infrastructure.
The article argues governments should adopt a long-term vision that links superannuation to national infrastructure needs — creating policy settings, incentives and project discipline that deliver respectable returns for funds while fixing productivity-holding infrastructure. Small, short-term tax changes for the ‘perceived wealthy’ are criticised as politically focused and ineffective compared with a strategic infrastructure approach.
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