FORMER prime minister Paul Keating has called on Australia's $1.4 trillion of superannuation savings to be used for home loans as superannuation funds had their worst month in more than two years.
Speaking at an investment conference in Melbourne, Mr Keating said one way to reduce banks' reliance on skittish international funding markets which they have blamed for not passing on all the Reserve Bank's interest rate cuts was for super funds to fund the housing mortgages of Australian banks.
"Our banks should be doing less touting on the international markets and fulfilling their funding at home by having the superannuation assets, some of them, directed towards the books of the Australian major four banks," Mr Keating said. "I would prefer that than having the banks out there funding half their books in these soggy international markets."
He said that although between 55 to 58 per cent of the big four banks' funding now came from deposits, this would likely fall to about 50 per cent once Australia's current savings boom comes to an end. If that happened it would leave the big four more exposed if credit markets seized up again during another crisis.
In the depths of the financial crisis in 2008, Australian banks were able to use the Commonwealth's AAA rating for a fee.
The Australian Bankers' Association chief Steve Munchenberg said "super funds should look more carefully at fixed interest products, particularly as we've got more people approaching retirement", but should not be directed to do so.
The comments come as super funds posted their worst monthly return in two years last month after the European debt crisis pummelled sharemarkets, including a 7.3 per cent fall on the ASX200 benchmark index.
The median balanced growth fund sank 2.3 per cent in May, following a 0.4 per cent increase in April, according to super fund tracking group Chant West, which defines growth funds, the most common allocation in Australia, as those with 61 to 80 per cent of their investments held in growth assets.
In other comments, Mr Keating described Opposition Leader Tony Abbott as a "pre-Copernican obscurantist" for his relentless opposition to the carbon tax, but said Labor had failed to create a compelling narrative for its time in office.
Now working with advisory and private equity firm Lazard, Mr Keating also labelled German Chancellor Angela Merkel as "intellectually limited" and the US Republican Party as "completely mad".
In a typically spirited question and answer session, he said the US had lost its mojo due to an "unconscionable distribution" of wealth over the past decade, in which corporate profits had soared at the expense of wages.
He said China was "very frightened by their circumstances" and were now focused on infrastructure and green energy rather than domestic consumption or exports to developed countries.
He added that the European "elites" had failed to recognise that Europeans preferred nationalism to a fiscal union, and would be better off waving the Mediterranean nations goodbye.
Frequently Asked Questions about this Article…
What did Paul Keating propose about using superannuation to fund home loans?
Paul Keating urged that Australia’s roughly $1.4 trillion in superannuation savings be used to fund home loans, suggesting super funds could be directed to the loan books of the major four Australian banks to reduce their reliance on skittish international funding markets.
Why does Keating think super funds should bankroll bank mortgages?
Keating argued that directing some superannuation assets to domestic bank lending would let banks ‘fulfil their funding at home’ rather than relying on international markets — which banks have blamed for not passing on all Reserve Bank interest rate cuts — and could reduce exposure if global credit markets seize up.
How much of big four banks' funding currently comes from deposits and why does that matter?
The article says about 55–58% of the big four banks' funding currently comes from deposits, but Keating warned that could fall to around 50% when Australia’s savings boom ends — a drop that could leave the banks more exposed to problems in international credit markets.
How did super funds perform recently and what caused the drop?
Super funds posted their worst monthly return in more than two years in May: the median balanced growth fund fell 2.3% in May (after a 0.4% rise in April), a decline Chant West attributed to the European debt crisis hitting sharemarkets — the ASX200 also fell about 7.3%.
What is a 'median balanced growth fund' and why is that relevant to everyday investors?
According to Chant West (quoted in the article), a median balanced growth fund is defined as a growth-style fund with 61–80% of its assets in growth investments; its recent 2.3% fall signals how equity market shocks, like the European debt crisis, can affect commonly used retirement investment options.
How did industry groups react to the idea of super funds funding mortgages?
The Australian Bankers' Association chief Steve Munchenberg said super funds should 'look more carefully at fixed interest products,' especially with more members nearing retirement, but he added super funds should not be directed to fund bank lending — indicating industry caution about any mandated role.
What immediate implications should everyday investors take from these developments?
The article suggests investors should be aware that market volatility (European debt crisis and a sharp ASX200 fall) can dent super fund returns, and that policy discussions — like Keating’s proposal to channel super into mortgages — could influence where funds invest and how banks fund lending in future.
Did Paul Keating make other notable economic or political comments at the conference?
Yes. Keating also criticised Opposition Leader Tony Abbott as a 'pre-Copernican obscurantist,' described Angela Merkel as 'intellectually limited,' called the US Republican Party 'completely mad,' and commented on broader themes including US income distribution, China’s focus on infrastructure and green energy, and European political trends.
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