Superannuation infrastructure financing looks good to go

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Treasurer Joe Hockey’s announcement that he has secured the in-principle support of his state and territory colleagues for new infrastructure finance has received mixed views.

Hockey has proposed an asset recycling initiative, which could see the Commonwealth offer financial incentives to states and territories that sell assets and recycle the proceeds of these sales into new productive infrastructure.

This partnership would only be available for agreed, bilateral transactions with the Commonwealth through until 30 June 2016. Incentive payments will only be available for five years through to 30 June 2019.

The Commonwealth’s incentive will be 15% of the assessed value of the proposed asset being sold for capital recycling.

Hockey said that Infrastructure Australia estimates that at least $100 billion in commercial infrastructure assets are currently tied up on government balance sheets and could be sold.

“This partnership could help overcome the fiscal constraints governments face to increase the pipeline of projects that would improve Australians’ quality of life,” he said. “It would also provide an opportunity for Australian superannuation funds to buy Australian assets.”

The announcement comes after a draft report on public infrastructure by the Productivity Commission stressed an urgent need for a comprehensive overhaul of processes in the assessment and development of Australian public infrastructure projects.

Among other ideas, an overriding theme of the report was the opportunity to use superannuation as one of the vehicles to fund future infrastructure projects.

The Association of Superannuation Funds of Australia (ASFA) has thrown its support behind Hockey’s announcement.

CEO Pauline Vamos told Wealth Professional that super funds are the ideal holder for mature infrastructure because it means they are still owned by the community.

“The last thing the general community wants to see is their roads, ports and airports have all the profit sucked out of them,” she said. “[Hockey’s proposal] will drive productivity and the economy, and the more efficient and mature the infrastructure the more it allows business to grow.”

However Vamos said patronage is still an issue that needs to be addressed as Australia has such a low population base.  

ASFA is also urging for the government to use the Federal Budget as a way to deal with tax concerns that could thwart a good infrastructure plan.

“The biggest issue is that the tax concessions introduced by the previous government are all about the intermediaries and don’t promote holding the asset,” she said. “Any tax incentives need to look at driving the building and holding of infrastructure in a way that is not geared towards intermediaries.”

The Financial Services Council (FSC) is another that welcomes Hockey’s announcement.

“Australia’s superannuation funds have a strong appetite for infrastructure. We are willing buyers of proven assets. We urge the states to take up Joe Hockey’s funding offer,” CEO John Brogden said. “The initiative is the opportunity to give the superannuation sector the pipeline of assets we’ve been looking for.”

However South Australian Treasurer Tom Koutsantonis has stated he would not be supporting the idea, ABC News reported.

"Let's face it, the Prime Minister wants to be the infrastructure prime minister, he wants to build the roads of the 21st century, but he wants to do it with state-based assets," said Koutsantonis. "We're not going to be selling our state-owned assets to pay for infrastructure the Commonwealth should partner with us to pay for anyway.”

SEE MORE:

Overhaul of infrastructure: Super ‘cash cow’ solution?

Treasurer rebuffs super rule change call

Make financial advice tax deductible: Commonwealth Bank                      

  • Mervin C Reed FAICD FChFP on 3/04/2014 10:08:40 AM

    This initiative is commendable but it will not be taken up by the States given the loss of tax equivalent payments from the asset at 30% only to be given a 15% bonus from the Commonwealth. Even the State Treasurers can work that one out.

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