Superannuation funds could become the key source of the capital raising needed to drive productivity and economic growth if the sector’s assets outstrip those of the banking sector in the next decade or so.
In its submission to the federal government’s financial system inquiry, Industry Super Australia expects total assets in the superannuation to grow from about $1.7 trillion now to more than $6 trillion by 2030, likely exceeding those of banks.
Industry Super Australia chief executive David Whiteley believes the financial system has become less efficient in raising money, or capital formation, in what is becoming a crucial time for the broader economy.
“Just the realities of an ageing population, less people working, the need for a more capital intensive economy … the need to generate that capital as efficiently as possible is going to become a critical economic issue,” he told a media briefing.
In its detailed analysis of the financial sector, the umbrella organisation for industry super funds says sitting beside the deep pool of superannuation savings with a “voracious appetite” for infrastructure investment is a persistent infrastructure deficit worth more than $300 billion.
It says super funds are “ideal partners” for infrastructure projects with a long-term investment horizon, yet the bidding process is biased towards short-term financiers and contractors.
“Industry Super Funds have already made it clear that they would make infrastructure investment of up to $15 billion over the next five years if appropriate projects were made available,” the report says, adding this amount could well increase.
The report also questions the implicit guarantee enjoyed by the big four banks and the need to create a more level playing field.
The organisation’s principal adviser Greg Combet, who was a junior Labor minister during the 2008-2009 global financial crisis when the government provided protections for the bank industry, believes the issue will get “pretty strong hearing” at the inquiry.
He expects the inquiry’s chairman David Murray, himself a former boss of the Commonwealth Bank of Australia, will want to review the implications of the guarantee and how efficient that is in the current system.
However, the group is not putting forward any formal recommendations at this stage.
“We will be developing recommendations after having a look at the first cut of the financial system inquiry … we will be fine tuning and targeting,” Mr Combet said.
The inquiry will provide an interim report by mid-year and a final report in November.