Australia needs to direct billions into superannuation investments into infrastructure to boost the economy and create jobs as other areas go into decline, according to industry fund investment group, IFM Investors.
“Resources investment has been in significant decline as the boom winds down and residential construction will begin to decline soon,” Dr Alex Joiner, chief economist with IFM Investors told The New Daily.
“State Governments, particularly NSW and Victoria, will peak out their infrastructure investment in 2016-17 at $50 billion. We need to replace that,” Dr Joiner said.
Action by the Commonwealth government to detail the top 20 infrastructure projects for would-be investors could go a long way to covering the $80 billion infrastructure investment shortfall identified by Infrastructure Australia, said Stephen Anthony, chief economist with Industry Super Australia.
“There’s no-one else to do it,” he said.
“We need a league table identifying which infrastructure projects are the highest priority and are likely to earn the highest rate of return: something that explains the business case,” Mr Anthony told The New Daily.
The industry fund movement currently has $18.6 billion invested in infrastructure and plans to boost that by $10 to $15 billion over the next five years.
The recent agreement from ISA-related funds to buy half of NSW power distributor Ausgrid for around $16 billion will add to that figure. That bid shows the industry fund movement has a strong appetite for infrastructure as it was made without an invitation from the seller, the NSW government, Mr Anthony said.
The $10 to $15 billion earmarked for infrastructure prior to Ausgrid will support 16,000 jobs through construction expenditure to upgrade the airports, ports, roads, rail and other infrastructure assets in which the funds are invested, a report from ISA has detailed.
In 2015 the sector invested $2.8 billion supporting those assets with maintenance and expansion, delivering 20,000 direct jobs and another 26,000 indirect jobs.
In total, this investment added around 0.17 per cent to Gross Domestic Product (GDP) across regional economies. It also delivers to the federal budget bottom line by an estimated $702 million annually through raising tax revenue, lowering debt interest payments and reducing age-related transfer payments, ISA’s report said.
Governments are standing back
“Public spending on infrastructure has gone from eight per cent of GDP 50 years ago to four per cent today,” Mr Anthony said. That has contributed to the $80 billion infrastructure gap accounting for seven per cent of the nation’s infrastructure capital stock.
To help fill that gap, government needs to develop new funding arrangements that are suitable for non-government players to take part, ISA believes. “We don’t want subsidies but we need government to find ways to share the risk with funds. There are a number of models that could be used,” Mr Anthony said.
The report from ISA, entitled Industry Super and the Economy, found that Australia’s $434 billion industry superannuation fund movement has delivered a $51 billion benefit to the Australian economy over the past 19 years through stronger returns to members.
That in turn has increased the national super savings pool, boosted retirement savings for over five million fund members and investment funds for the economy as a whole.
Over 19 years to 2016 not-for-profit industry funds outperformed private sector retail funds by 1.7 per cent a year on average. And in the past seven years industry funds have outperformed the burgeoning self-managed super fund sector by an average of 0.4 per cent a year.
Infrastructure investments have helped that outperformance due to their relatively high and stable returns over a long period of time. “IFM Investors (an umbrella investment vehicle for industry funds) looks to get an eight to 10 per cent return on infrastructure investments,” said Dr Alex Joiner, chief economist with IFM Investors.
Industry funds, with $434 billion under management, typically invest between eight and 14 per cent of their assets in infrastructure.
Retail funds, which have $590 billion under management, invest less than two per cent in infrastructure and most of that is in assets listed on the stock exchange.
- The New Daily is owned by a group of industry superannuation funds.