Super could be the solution to our crisis

Our population is growing and our population is ageing meaning Australia faces an infrastructure crisis and government does not have the money to fix it.

The problem is well established according to an article  written by Brett Himbury,  chief executive of Industry Funds Management  in The Australian.

According to Himbury, the solution, however, is already here. All we need to do is adapt and evolve.  He says…

Australia’s $1.4 trillion in superannuation savings is projected to grow to $4.5 trillion by 2020. By harnessing super for our infrastructure needs, we are talking about much more than simply gaining access to a significant amount of money.

We are talking about a fundamentally new and positive model of infrastructure ownership at a time when traditional privatisation is on the nose.

After nearly three decades of sell-offs, there is a pervading sense in the community that privatisation has not been for us.

The government may get some budget relief, the private buyer may snap up a deal, but the average person feels as if they haven’t been factored into the bargain.

This feeling is essentially valid. Private investment in government-owned core infrastructure has, to a large extent, been driven by financiers with a motivation to increase wealth as quickly as possible. The incentive has been to slash costs, cut jobs, gear up and bail out without focusing on the long-term needs of the business or community. The point is that the interests of private buyers and public users have often been out of alignment.

Super is a fundamentally different beast. Responsible managers of retirement savings typically avoid this unhelpful highwire act.

Sensible fund managers seek stable, income-generating investments that deliver sound returns with a time horizon measured in decades. Core infrastructure is perfect for this purpose, provided – and here’s the beauty of it – it is managed responsibly with a long-term focus.

It makes sense for superannuation funds to manage core infrastructure in exactly the manner the public desires with a responsible approach to employment, service provision and government relations.

An appropriately motivated super fund manager is often better able to manage infrastructure than a financially stretched state government.

It is a tough task for most state governments to find a couple of hundred million for a port upgrade. But if it makes good financial sense, a responsible super fund manager won’t hesitate.

The obvious kicker is that the millions of Australians who stand to benefit from the sound infrastructure stewardship provided by this ownership structure also own the long-term returns. The toll you pay on a road to work today will be paid back with interest when you retire.

This is privatisation, socially aligned. It is social privatisation.

So why on earth aren’t we seeing more of it? The key problem at the moment lies with a misunderstanding of how the new model should work.

The infrastructure crisis means governments are desperate to start on new greenfield projects and they naturally look to super savings to provide direct capital.

The problem is that because responsible super investment focuses on lower-risk, established infrastructure assets, unproven infrastructure rarely fits the bill.

State governments, however, can still use superannuation savings to secure the funds to build greenfield projects by selling existing, capital-intensive brownfield infrastructure.

Such infrastructure is generally attractive to superannuation investment and governments can make the sale secure in the knowledge that the interests of both buyer and user are aligned.

The funds from the sale can be used to get a new greenfield project up and running which, in turn, becomes a brownfield asset ready to be socially privatised when the time comes.

Source: The Australian




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