Without such a deep pool of superannuation savings, it is highly probable that Australia would have suffered a recession comparable in its damage to that of 1990-91. Most credit goes to the powerful commercial relationship we have forged with China, which boosted public spending on infrastructure and thereby sustained demand for raw materials.
Australian authorities are also taking their own expansionary action, including dropping interest rates, initiating two “cash splashes” to pre-empt any sharp contraction in consumer activity, and guaranteeing bank deposits. A third reason has been the performance of our housing sector, which avoided a sub-prime mortgage crisis even though house prices have fallen 6.7 per cent across the board.
Then, there is our superannuation system. So far, we have avoided a recession of the severity of 1990-91 by recapitalising our banks, property trusts and a large swag of other listed companies that were carrying lifethreatening debt-to-equity ratios. This year alone we have seen $80 billion in equity placements.
This entire recapitalisation exercise would not have been possible but for the high cash holdings, along with compulsory inflows, of superannuation- dependent institutions. Rather than acknowledging its role and status, superannuation is usually treated as a political vehicle.
Treasury forever is thinking up ways to limit its growth, believing superannuation is a tax lurk for the middle class; that most of the money now in superannuation would be saved anyway. It’s difficult to reconcile this belief, however, with our poor national savings record. At the political level, superannuation is recognised as a sensitive area – for conflicting reasons.
For the Labor Party, the industry superannuation sector has become an important source of patronage. But Labor at least saw that it needed ministerial oversight. Unfortunately the first incumbent in that post, Senator Nick Sherry, apparently viewed his mission as creating barriers to entry for people who wanted to set up self-managed funds.
He has now been replaced with a new minister, Chris Bowen, who will actually sit in cabinet. Bowen’s attitude towards superannuation is unknown but he has a reputation for being both bright and highly ambitious. A further observation about superannuation’s powerful role in our economy is that its pool of assets is destined to compound at a rate double that of GDP. Within the overall sector, the fastest growing and now largest subsector is the self-managed superannuation fund (SMSF).
The average representation across all electorates of self-managed fund members is six per cent – one of the largest single-interest groups in the nation. But, the very nature of the self-managed universe is that there is no central coordinator or articulator. That’s why we are having a national inquiry into superannuation by a committee that has no representation from the self-managed area.
This lack of lobbying power means that many retail investors have been poorly treated – ripped off might be a better description – in the $80 billion equity placement spree of the past six months. One can only hope that the superannuation ministry will evolve into an informed and rational watchdog for the industry as a whole.
But, given the nexus between political Labor and the industry funds, I would not hold my breath. They regard the SMSF sector as unwanted competition. My view is that the SMSF sector needs to use its weakness as a strength. Instead of building a conventional lobbying organisation, which is impossible anyway, SMSF members should directly approach local members whenever an issue affecting them is raised.
Believe me; planting the thought in the head of local members that six per cent of the electorate could be thinking, and ultimately acting, in the same way, is the best weapon that SMSFs have to protect their position as the premier superannuation investment vehicle.
Max Walsh is deputy chairman of Dixon Advisory.