SMSFs should get a piece of the infrastructure pie

By making it easier for self-managed super funds to invest in infrastructure projects, the government could both bolster its push for infrastructure-led growth and build community consensus for major projects.

The Abbott government hoped that infrastructure investment would drive the economy in an environment where the slump in mining investment and the closure of the automotive manufacturing industry would depress employment. But it’s taken longer than expected and the government has been fortunate that Chinese and other Asian apartment projects have filled the gap.

One of the reasons that the infrastructure impetus has stalled is that the government did not listen to the ADC infrastructure summit conclusions. Specifically, that new infrastructure requires localised capital to gain community support. Hopefully in 2015 governments will gradually learn from the infrastructure mistakes of 2014. 

The Murray report suggested changing the rules to make it easier for self-managed funds to participate directly in infrastructure projects. The SMSF Professionals’ Association of Australia has set out a detailed set of recommendations to help the government. 

They point out that self-managed funds are predicted to have asset holdings of more than $2 trillion by 2033, with a large portion available for infrastructure. 

But once large funds mobilise and add on their high-priced commissions, the investment becomes a lot less attractive. Currently a self-managed fund needs $10 million in assets to get a ticket into the infrastructure investment game.

The SMSF Professionals’ Association believes that $10m hurdle should be reduced to $1m. The association suggests that infrastructure projects be unitised so subscriptions can be as low as $25,000 and that there should be a secondary market. 

In Victoria, the Napthine government blatantly ignored the infrastructure summit conclusions and went ahead and funded the massive East West project behind closed doors instead of taking it to the public. It would have made it impossible to reverse the project had the government sought public finance support for it.

New South Wales has had great difficulty in privatising its power assets. The process would be greatly simplified if the community had been invited to participate. NSW is going down the old path and selling assets to big institutions. In fairness to both the NSW government and former Victorian government, the Commonwealth has not yet changed the investment rules.

Meanwhile, in today’s low interest rate environment, potential self-funded retirees and those in self-funded retirement are having great difficulty in gaining reasonable returns unless they take equity risks.

Infrastructure is therefore a magnificent component for most self-managed funds particularly those with older members. The great problem in developing road and rail infrastructure is that people do not happily pay tolls or increased fares.

The infrastructure summit concluded that it was possible to get people to pay tolls or higher fares if they knew that their money was being used to improve the facility or create a new one. 

Given the need of self-managed funds for infrastructure investment opportunities, it becomes possible to broaden community support for infrastructure projects that is simply not there in the current environment, particularly with the Greens opposing anything to do with roads.

The deals to be offered to self-managed funds will require further detailed work. In some cases it will be an infrastructure bond in others it will be equity but in all cases there will be a degree of government guarantee covering construction risk and the early stages of the development so that the owners are not saddled with losses such as those associated with the BrisConnect or Lane Cove Tunnel disasters.

But once the infrastructure is producing its estimated revenue, the government backing can slide away. Unfortunately, the big institutions that have the ear of government will oppose this style of financing so it will not be easy.