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Funding the Australian economy

Funding the Australian economy

March 19, 2014 10:44 AM | Posted by Richard Batten, Tim Sutton | Print this page

The Financial System Inquiry will no doubt be forward looking. The Wallis and Campbell inquiries in the past went well beyond addressing the issues that existed at the time, in order to making recommendations which would underpin the policy settings in the decades ahead.

Keeping this in mind, one of the key themes which appears to be high on the agenda, is funding the Australian economy.

One of the terms of reference requires the Inquiry to consider specifically 'how Australia funds its growth.' In a recent speech, Inquiry chairman David Murray said 'what matters is the quality of the funding of the economy', indicating that the Inquiry would be interested in both the 'allocative ' and 'dynamic' efficiency of the financial system. Therefore, it appears the Inquiry will pursue both the imperative of funding businesses and continuously adapting to the needs of issuers and acquirers of financial products.

A critical consideration in this conversation is the size of the superannuation sector. On some predictions, superannuation assets may exceed bank financial assets by 2036. Accordingly, we will probably see some focus on the role of superannuation funds as a means of funding growth. This poses challenging questions, for example: 

  • How can superannuation funds can be incentivised to invest in longer-term projects?
  • How can funds be made available to small to medium enterprises?

It may be argued that Australia's combination of defined contributions and investment choice means that superannuation funds are more likely to invest in liquid assets, such as listed equities. On the other hand, as our aging population shifts the balance from a predominantly accumulation based system to one that is more geared to paying pensions we are likely to see a need for longer-term investments. On the other hand, recognition needs to be given to the significant role already played by superannuation in infrastructure investment whether directly or indirectly through pools invested by external managers.

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