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Issue #1473      22 September 2010

Super investment

Public – not private – for the public good

Decades of neo-liberal cost-cutting, privatisation and lack of planning on the part of governments are affecting the efficiency and future profitability of the corporate sector. Lack of infrastructure, poor maintenance and outdated technology are amongst their concerns. The Australian Constructors’ Association, which represents major contractors to state and federal governments, claims there is an $800 billion infrastructure deficit – a sum that will not be forthcoming from the Gillard or state neo-liberal governments. Discussions are taking place between economists, government officials and big business on whether a certain percentage of superannuation funds should be diverted to infrastructure development.

The investment of superannuation funds in much needed infrastructure could offer far more security for funds than on highly speculative investments as well as be of social and economic benefit. It depends on how it is done – by the public sector or private sector: whether it is used for the benefit of the people or for private profit-gouging.

There is no doubt that billions of dollars are required for schools, hospitals, public housing, public transport, development of renewable energy, water programs, rail freight, ports, airports, bridges, roads, national broadband network, etc. Investment in such urgently needed projects would also create hundreds of thousands of new jobs.

Public infrastructure has declined to a point where the ability of many services to meet needs is approaching or has reached crisis point due to profit-gouging, lack of maintenance and failure to plan for the needs of a larger population and economic growth. Successive Labor and Coalition governments at state and federal levels have cut costs, cut corners, privatised and become obsessed with budget surpluses and tax cuts.

Privatisation has taken various forms such as the contracting out of services to the private, for-profit sector; outright sale of public enterprises; and public private partnerships (PPPs) where governments take the risks and the private sector takes the profits and walk away when it is time to invest in maintenance. One thing is clear, lack of government planning and privatisation have failed to meet the needs of big business as well as the people of Australia.

The financial sector that controls the investments of superannuation funds (including many of the investments of industry funds) has failed dismally in the management of workers’ retirement savings. They have invested where they can reap the largest fees, used the money for their own benefit with little interest in investing it where it would best serve the needs of society or be more secure.

Even the industry funds with trade union representation on their boards invest heavily in speculative products. They were hit hard during the global financial crisis. Workers kept on contributing throughout the crisis and their savings continued to shrink. Losses of 20-30 percent were quite common.

Take AustralianSuper, for example, an industry fund managing $33 billion of workers’ retirement savings. It typically, depending on which option a fund member chooses, invests a paltry 9-13 percent in infrastructure compared with 40-70 percent in shares. Around half of these shares are international, i.e. the investment goes offshore. Losses in many of these products during the crisis were up to 25 percent, depending on the composition of the product (shares, cash, fixed interest, property, infrastructure, etc).

Members of the private (retail), high fee funds which tend to have a higher concentration of higher risk products (big buck outcomes when all goes well) took a massive hammering. Some lost 60 percent or more of their savings.

As already stated, the concept of investing a certain percentage of superannuation funds in infrastructure could be of great benefit. The problem with the current discussion is that the big business interests behind it want the funds to be invested in private sector developments. They are not calling for super funds to be invested in not-for-profit public sector infrastructure.

They want more government contracts and private sector development of tollways, tunnels, bridges, ports, airports and national broadband network. They would invest workers’ retirement savings in infrastructure with the expectation of accumulating profits - a portion of which would be returned to workers as long as the profits flowed. The risks associated with losses, mismanagement, long-term neglect of projects and collapse when the company walks away would be carried by workers and taxpayers.

The Communist Party of Australia has been calling for a certain percentage of superannuation funds to be invested in public infrastructure by state and federal governments for the benefit of the community.

Security of funds paramount

As fund balances continue to fluctuate and fears of a double dip recession remain in the US and Europe, workers face further losses, if not now, then when the next crisis phase of the business cycle occurs.

Compulsory superannuation was introduced with the aim of winding back the aged pension (self-provision in retirement), privatising the provision of retirement income for workers and to provide the finance sector and big business with a large source of capital for speculative and investment purposes. The icing on the cake for the private sector is that it is workers’ savings that are at risk. The financial institutions increase their power over governments and industry as they determine where funds are invested and rake in huge (often hidden) fees and commissions.

They now have at their disposal more than $1.3 trillion, enjoy a steady flow of regular income from the nine percent compulsory levy and welcome the prospect of that rising to 12 percent over next 10 years. The question for workers and trade unions is how to protect those savings, ensure that the age pension is maintained and the funds are put to good use.

Reform is required. The question is what sort of reforms and in whose interests. The following three principles are proposed as the basis of reform:

Workers are guaranteed an adequate income to live in dignity and enjoy their retirement for the rest of their lives.

Workers’ savings should not be gambled with or placed at risk.

Investment of superannuation funds should be in socially beneficial and ethically (eg regard to peace, environment, etc) desirable areas such as public services, infrastructure, job creation, etc.

Towards these ends the CPA is proposing that a national superannuation fund be established which workers can join on a voluntary basis. This fund would be government guaranteed, invest in public projects and programs such as hospitals, schools, national broadband network, public transport, renewable energy, rural, regional and Indigenous programs and job creation.

Retirement income from the national superannuation fund would be in the form of a defined benefit – that is, a set amount per fortnight. It would not be dependent on the ups and downs of Australian or international stock markets, gambling in derivatives, currency gyrations or hedge fund manipulations. The benefit would be indexed regularly in line with movements in the average wage.

In addition, industry and retail funds should be required to allocate a certain percentage of their funds to public infrastructure development.  

Next article – Editorial – Broadband storm set to break

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