ECONOMIC AFFAIRS: by Patrick J. ByrneNews Weekly
Funding the expansion of Australia's infrastructure
, August 31, 2013
Mobilising superannuation funds for infrastructure development, in order to insulate Australia from the ongoing global financial crisis, should be a high priority for the next federal government.
Of the $1,300 billion Australians have now invested in superannuation, only $40-65 billion (3 to 5 per cent) is invested in infrastructure.
Further, most of this is invested in foreign, not Australian, infrastructure, according to Infrastructure Partnerships Australia.
Ken Aldred (see his article in this issue of News Weekly) has outlined the huge investment needed to upgrade our nation’s infrastructure to world standards, and for Australia to supply food, minerals, energy and other products to the Asian market, which will soon be the largest in the world.
There is another sound reason for the next federal government to massively expand infrastructure investment.
The global financial crisis (GFC) has turned into an ongoing global slump, and Australia risks being drawn into its vortex. According to ING, the totally indebtedness of the world economy is $US223.3 trillion, about 313 per cent of total global output, and significantly worse (at 376 per cent) in the developed world.
In the developed world, debt per head of population is $US170,401. This debt burden is depressing output and employment.
The European Union’s periphery states are afflicted with both economic depression and political crisis.
According to Mark Blyth, professor of international political economy at Brown University and author of Austerity: The History of a Dangerous Idea (OUP, 2013), the austerity measures imposed on EU economies are expected to cause the Spanish and Italian economies to contract this year by 2 per cent, Portugal’s by more than 2 per cent, and Greece’s by more than 4 per cent.
Unemployment is now 12.2 per cent across the EU, but is reaching 1930s Great Depression levels in the periphery states. Youth unemployment is around 25 per cent across the EU, but is over 40 per cent in Italy, 56 per cent in Spain and over 60 per cent in Greece. What is more, the rise in youth unemployment in the periphery states is not slowing.
It is anticipated that Spain’s unemployment rate will remain at over 25 per cent for the next five years.
Professor Blyth notes that over the last year austerity measures, instead of stabilising and reducing debt levels, have seen the ratio of public debt to the size of the economy (GDP) soar. It rose by 7 per cent in Italy, 11 per cent in Ireland, and 15 per cent in Portugal and Spain.
Consequently, the ability of governments to sustain social services and invest in the economy is diminishing.
The US economy, historically the main driver of the world economy, remains flat.
China’s growth rate has slowed dramatically. It faces significant risks from the huge debts being carried by its shadow banking sector. The level of risk is hard to assess because of the country’s lack of financial transparency.
Anything that could upset the fragile EU, US or Chinese economies could drag the global economy into deeper crisis and have a major impact on Australia.
However, Australia has the means to avoid a major economic downturn, if it puts into place a combination of infrastructure projects for economic expansion and conduits for superannuation funds to invest in these projects.
Superannuation is expected to reach around $3 trillion over the next decade, according to Infrastructure Partnerships Australia, and could reach $8 trillion within two decades, according to Alex Dunnin, research director at superannuation research group Rainmaker.
The Liberals have made a tentative step in the right direction. Their “Infrastructure Partnership Bonds Scheme” aims to raise $600 billion for national infrastructure.
Earlier this year, economics commentator Terry McCrann pointed out: “Before financial deregulation, superannuation and life insurance funds were required to hold 30 per cent of their assets in commonwealth and semi-government bonds, in return for the tax benefits they were given.” He suggested that “up to 20 per cent [$260 billion] could be in semi-govs: the bonds issued by utilities such as for electricity, gas and water.
However, the next Commonwealth government needs to consider two further proposals.
First, a dedicated Commonwealth infrastructure agency could handle the raising of funds for infrastructure through semi-government bonds.
This would take federal public funding of infrastructure out of the federal budget. It would reduce the need for federal budget deficits and allow the government to maintain its AAA rating.
Second, a Commonwealth government-owned AusBank — similar to the former Commonwealth Development Bank or the German government-owned development bank, the Kreditanstalt für Wiederaufbau (KfW) — should be established.
Funding could come from the Commonwealth Future Fund, with seed funds provided by government bond issues (particularly aimed at superannuation funds) or Reserve Bank lending.
These policies would safeguard and strengthen Australia’s economy during these deeply troubled economic times.
Patrick J. Byrne is national vice-president of the National Civic Council.
 "Number of the Week: total world debt load at 313 per cent of GDP", Wall Street Journal, May 11, 2013.
 Derek Thompson, “Europe’s record youth unemployment”, The Atlantic, May 31, 2013.
 Tobias Buck, “IMF forecasts alarming Spain unemployment outlook”, Financial Times (UK), August 2, 2013.
 The Role of Superannuation in Building Australia’s Future, Infrastructure Partnerships Australia, page 13.
 Julian Bullock, “Super has huge potential”,The Australian, May 29, 2012.
 Terry McCrann, “We should have a clear policy to fund infrastructure with super”, The Australian, February 23, 3013.