Written By Australia’s budget is under pressure and Treasurer Josh Frydenberg has suggested a radical proposal to help the nation cope with its economic woes. He has proposed that the nation’s pension fund should be tapped into for ‘nation-building infrastructure projects’. The $2.3 trillion fund could easily finance such long-term projects, he said in an interview with Sky News. The proposal is being seen as a potential solution to providing much needed stimulus to the economy while still protecting the retirement income of hundreds of thousands of Australians. In this blog post, we take a look at Frydenberg’s proposal and explore how tapping into Australia’s pension fund could create new opportunities for nation-building and job creation.
Australia’s pension fund
- Australia’s pension fund
Australia has a compulsory superannuation system, which means that all workers must contribute a percentage of their salary to a retirement savings account. The money in these accounts is then invested by professional fund managers, with the aim of providing a comfortable retirement income for employees when they reach retirement age.
The Federal Government is now considering using some of this money to fund infrastructure projects, as part of its plans to boost economic growth. Treasurer Scott Morrison has flagged the possibility of unlocking up to $100 billion from the nation’s retirement savings to invest in new roads, rail and other major projects.
This would be a controversial move, as many Australians are already concerned about the adequacy of their retirement savings. However, the government argues that using some of this money for productive investment would ultimately benefit all Australians by boosting economic growth and creating jobs.
The treasurer’s plan
As Australia’s population ages and the number of retirees grows, the nation’s pension fund could be used to help finance infrastructure projects and other investments that would boost economic growth.
Treasurer Scott Morrison said on Sunday that he was considering using the $1.6 trillion Future Fund – which is currently used to cover the government’s pension liabilities – for investment in “physical and human capital”.
“We have got to make sure that our economy is continuing to grow strongly as we move into this new phase of our nation’s history,” Mr Morrison told reporters in Sydney.
“That will require some different thinking about how we invest money.”
Mr Morrison said he would discuss the proposal with Prime Minister Malcolm Turnbull and other cabinet colleagues. The plan would need to be approved by parliament before it could be implemented.
The treasurer’s comments come as Australia’s economy transitions away from mining investment and commodity exports, towards more services-based industries such as tourism, education and health care.
How the pension fund could be used
The Treasurer has flagged the possibility of using Australia’s pension fund to finance nation-building infrastructure projects.
Speaking at a Committee for Economic Development of Australia event in Sydney, Scott Morrison said the $2 trillion fund could be used to support investments in areas such as transport and energy.
“We have an incredibly large pool of savings that is available to be deployed into productive investments in our economy,” he said.
“The role of superannuation is not just about providing for people’s retirement incomes, it is also about making investments in our economy that will grow the economy, create jobs and provide better services.”
Mr Morrison said the government was already working with the superannuation industry on how best to invest in “critical national infrastructure”.
“We are looking at how we can get more efficient and effective use of capital, whether it is from within the pension system or from other long-term investors,” he said.
Pros and cons of using the pension fund for nation-building
There are pros and cons to using the pension fund for nation-building. On the plus side, it could be used to finance much-needed infrastructure projects or to pay down government debt. On the downside, it could be used to prop up failing industries or to finance risky ventures that may not be in the best interests of pensioners.
Arguments in favour of using the pension fund for nation-building point to the fact that it would provide a steady source of funding for projects that would benefit all Australians. It could also be used to pay down government debt, which would free up more money for other priorities.
Arguments against using the pension fund for nation-building say that it is a retirement savings vehicle and should not be used for other purposes. There is also concern that the fund could be used to bail out failing industries or finance risky ventures. Pensioners could end up bearing the brunt of any losses incurred by these investments.
Other ways to use the pension fund
Other ways to use the pension fund include:
- allocating a portion of the fund to infrastructure projects such as transport and energy;
- using the fund to support small businesses and entrepreneurs;
- providing loans and guarantees to important industries; and
- establishing a sovereign wealth fund.
Conclusion
It is no secret that Australia’s pension fund holds a great potential for nation-building projects. Treasurer Josh Frydenberg has proposed the idea of unlocking $2.3 trillion from this Pension Fund to facilitate such projects and boost economic growth in the country. This proposal, if approved, could have far-reaching implications for future generations of Australians as more jobs are created, infrastructure improved and national productivity enhanced. We can only hope that this innovative plan will make its way through Parliament so we too may benefit from it in the years to come.
