Speaking at the conference of the Association of Superannuation Funds of Australia (ASFA) on Wednesday (10 February), the former Labor prime minister and architect of the superannuation system, Paul Keating, suggested that super funds could help stimulate the economy and fill a “need” by investing in public rental housing and build-to-rent initiatives.
He said: “We have a problem; younger people can’t afford housing. Giving them money for a deposit is only going to push up the price of the existing stock of houses. What we have is as a supply-side problem, not a demand-side problem.
“So, the answer is to use a superannuation fund money to add to supply. In other words, if money’s invested in superannuation, the super fund can create a whole new asset class in build-to-rent. And, also, they can fund public rental housing.
“So, if you’re an earnest minister, and you truly want to put a roof over some young person’s head, the best thing to do is let the super funds fund build-to-rent and public housing.”
He added that these two projects would provide a 3 per cent real return on investment.
“And the good thing about these long investments, like build-to-rent and rental housing, is it’s like a government bond – you got 3 per cent real [ROI] coming in every week. So, in terms of asset allocation, super funds will be into private equity, there’ll be into stocks, there’ll be into bonds, there’ll be into fixed interest… and one of the fixed interest will be build-to-rent and public housing.”
Mr Keating also called out the Coalition government’s signals that it would defer the already-legislated increase to mandated super contributions (from its current level of 9.5 per cent to 12 per cent by 2025).
The former PM suggested that since 2012, there has been “no real wages growth”, with balance sheets collecting the gains.
“If the employees don’t pick up the 2.5 per cent super, which the Parliament has legislated (this is not just a policy, this is legislated), then ordinary working people, they get nothing,” Mr Keating said.
But Australia is unlikely to see any real wage growth for the foreseeable future, the former PM warned.
“It’s not going to change while ever the legalism of the current enterprise bargaining legislation is as it is – this is the response of the Gillard government to the Howard government’s Work Choices,” he commented.
“If it went back to the principles I’d articulated originally in 1992, enterprise bargaining could work again. But against that, you have a big deflationary force in the world coming from technology, basically technological changes changing the nature of work and jobs.”
Mr Keating also criticised the government’s early super release measure.
According to APRA data, the early super scheme allowed 3.5 million Australians to withdraw a total $37.3 billion, far above forecasted uptake.
Mr Keating suggested that its rollout should have been scheduled after workers and individuals were able to access the higher JobSeeker payments and JobKeeper wage subsidies, in order to prevent an upswing in “discretionary purchases” such as a ‘new Kia car or skis’ and protect the benefits of compounded interest.
“The truth is, JobSeeker and JobKeeper should have been there first, before the government decided to let people get in and breach the preservation rule in respect of super, and reach in for $20,000 or $30,000,” Mr Keating said.
“Whereas if ordinary people had known, ‘don’t you worry, JobSeeker will be there for you, at a higher rate, and by the way, your employer will pick up JobKeeper’, then the great rush to take the money out might not have occurred and need not have occurred.”
The former PM also lamented calls by several quarters – including the Grattan Institute and the Retirement Income Review – for retirees to use more capital and reverse mortgage their properties in retirement.
He said: “That’s an option for you, but you shouldn’t be driven to it,” he said.
“Australians always think in family terms, not individual terms... When people get into their 80s, they’re thinking about their spouse, they’re thinking about their children, and they don’t want to be left broke at 87 and then going back to Centrelink and Centrelink says: ‘Oh, by the way, you can reverse mortgage the house’, so they start eating up the family’s asset.”
He continued: “I think it’s perfectly reasonable for a minister to say: ‘Don’t be too abstemious with your capital’... But it’s not reasonable to put a penalty on them [retirees] to make them do it…
“What they’re going to do is exact a penalty on people saying: ‘If you don’t do this, we will take the two and a half per cent increase off you.’”
He concluded: “We have a housing financing system now where your costs are deductible, but your taxable profits are taxed at 50 per cent of the normal tax rate. So, over 20 or 30 years, we’ve seen a rocketing price in housing pushing young people out of housing.
“The remedy is not in the super system, the remedy is proper changes to the tax system in respect of property,” he said.
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Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.