Ten years ago today Euromoney rated Australia’s response to the global financial crisis as the best among developed countries in the world.
As treasurer at the time, I knew we had relied on two lethal weapons to avoid being dragged into the Great Recession: aggressive government stimulus packages and our national pension sector.
Twenty years before the GFC strike, my Labor predecessor in that role, Paul Keating, luckily introduced the Pension Guarantee – a mandatory retirement savings scheme for all Australian employees.
At the time, the GDP per capita in Australia was lower than in Japan and the United States.
We are now comfortably ahead of both, and much of that wealth has been accumulated by our world-leading pensions industry.
Australia is the 13th largest economy in the OECD. But when it comes to our retirement savings, we’re number one, with over $ 3 trillion in assets.
Thanks to the magic of compound interest, we are heading towards $ 9 trillion in 2040, which would make ours the fourth largest savings pool in the world. It is a national triumph.
The retirement pension serves the main purpose for which it was designed: to create comfortable pensions for everyday Australians. But it also does much more for the national interest.
Not just about retirement
Thirty years after its inception, and ten years after the GFC, I think we still don’t pay enough attention to the importance of the system in helping us overcome and recover from economic crises.
I know the two lethal weapons we relied on in 2008 have both been controversial in the political arena. But last year we saw a bipartisan breakthrough when the Morrison government recognized that in order to avert economic disaster it had to adopt stimulus measures.
Now, if Australia is to avoid an unnecessarily slow and painful recovery, we’ll need a moment of similar consensus on the super.
I understand that there are still some who are concerned about the increasing capital accumulation of pension funds.
But much of this malaise fails to appreciate just how critical the retirement pension will be in triggering a new wave of wealth creation in the wake of this pandemic.
The playbook is already written. It is well known that super funds helped recapitalize banks during GFC.
But even more crucial, I believe, was their role in supporting non-financial corporations, mainly engaged in the production of market goods or non-financial services. Funds provided equity when banks were reluctant to take on debt.
At the height of the crisis, stocks held by super funds represented around 26% of the Australian equity market. Along with insurance groups, they contributed at least 48% of the capital raised during the GFC.
The GFC Playbook
The retirement pension provides a liquidity cushion to financial markets and the economy in general through countercyclical investments.
In times of turmoil, the strong cash position of super funds helps recapitalize Australian companies through decisive and rapid investments. Indeed, their long-term investment horizon demands and rewards counter-cyclical investment.
Today, they have the capacity to put Australia ahead of the pack of advanced countries still mired in the secular stagnation of low interest rates, low investment, low job creation and weak growth.
They can do this in conjunction with the national government and state governments. In particular, there is ample room for pension funds to partner with state governments in social housing, renewable energy, and advanced manufacturing.
Super funds are particularly capable not only of providing capital, but also of helping to bring together various sources of funding from the Commonwealth and outside sources to carry out projects.
They are a nation-building asset and we need them to prosper.
If we do this effectively, we will provide a vital source of capital to finance the jobs of the future in the industries of the future. And working Australians will be able to own a piece of that national growth along the way.
Wayne Swan was Treasurer of Australia from 2007 to 2013 and Deputy Prime Minister from 2010 to 2013. He is the new Chairman of the Cbus Construction Pension Fund.