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'Let super funds boost infrastructure'

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Federal and state governments need to take a radical new approach to financing infrastructure and give superannuation funds the opportunity to invest in the projects that will boost economic growth and jobs, says Dr David Dombkins.

Dombkins, chief executive of research and consulting firm Complex Program Group, believes governments have to offer equity-funded infrastructure rather than relying on the debt financing they can no longer afford.

Interviewed by InDaily ahead of his address to the Civil Contractors Federation of Australia’s inaugural state conference in Adelaide today, Dombkins said while many people within government and industry accepted the merits of greater super-fund investment, there was a political bias against the superannuation industry.

“The Federal Government is clearly biased; they see the super industry as being a union-driven industry and they are clearly against it,” he said.

“What we are talking about is the retirement savings of all Australians and how do we protect and look after that – we have to get past the politics.

“We need to spend, over the next 15 years, $3 trillion on infrastructure. We are not even coming close.”

Dombkins said the current system of procurement for infrastructure investment was not working because it was centred on debt financing, with insufficient role for equity investment (ownership).

He said the traditional Public Private Partnership (PPP) model offered equity of only about 10-20 per cent of projects, and super funds generally need a return in the order of 8 per cent to be effective.

When the potential for super funds to take ownership positions was raised with Treasury officials, “they say it’s cheaper for us to go out and borrow – and that’s the end of the game”.

But Dombkins said “it’s very clear that, even though interest rates are very low, state governments have a decreasing cashflow over coming years, and their ability to borrow is actually very minimal”.

“If you look at the forward forecasts from Standard & Poor’s, they’re actually advising governments not to spend on infrastructure because they can’t afford to borrow.”

Against that outlook, someone had to have the political courage to take a different approach.

Dombkins said banks were interested in financing only the construction of infrastructure, not long-term operations, which also involved ongoing costs for governments and often found debt returning to government books.

“The super funds, on the other hand, are really interested in infrastructure and want to own the asset. They are happy to have delayed income stream for extended periods – these projects start to become economic in 10 years and then, 20 to 30 years out, they become highly profitable,” he said.

In the absence of opportunities in Australia, local super funds were investing overseas.

“We have this ridiculous situation where we have these huge super funds that want to invest here and the current models used by governments for procurement stop them doing it,” Dombkins said.

“You can use these super fund investments as vehicles to drive economic development and you are protecting super funds at the same time.

“It’s a real win-win benefit for the whole community.”

Dombkins said the Quebec Government in Canada had shown the model worked, with one of the country’s largest pension funds being given the first right of refusal on all major infrastructure projects.

At present in Australia, only around $100 billion of the total superannuation industry investment of $3 trillion is invested in infrastructure.

Dombkins call for a greater role for super funds comes against a gloomy picture for the state’s civil construction industry.

Phil Sutherland, chief executive of the Civil Contractors Federation, said: “It’s no secret the SA civil construction industry – which employs up to 20,000 South Australians – like many other sectors in the state and nationally, is virtually on its knees”.

 

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