Industry Super Australia (ISA) today released its innovative new “dashboard”, which measures the efficiency of the finance sector in funding Australia’s economic growth by transforming savings into investment.
The dashboard reveals that the finance system’s efficiency in transforming savings into investment has stalled – or even gone into reverse - over the past 30 years. It reveals that:
- Banks are lending less for commercial endeavours, and more for the purchase or refinancing of existing housing. The volume of commercial lending per dollar of housing-related lending has fallen from $3.84 to $1.62 over the last 25 years.
- The cost of real capital formation in Australia has risen over the last thirty years. The finance sector cost the economy $214 to create $1000 of capital in 1980, but it is now over $500 per $1000, with no improvement since the turn of the century.
As the population ages, greater investment in technology, skills and new capital will be a prerequisite to increasing productivity and improving standards of living.
However, this data shows that the finance industry is substantially less efficient at transforming savings into investment than it was twenty years ago.
In submissions to the Murray Inquiry, ISA has proposed that a government measure of the efficiency of the finance system in transforming savings into investment be adopted.
The measure would enable governments and industry to identify ways in which banks and super funds can lift their contribution to economic growth.
In its submissions to the inquiry ISA has identified that the APRA-regulated superannuation industry is the most efficient in transforming savings into investment, with the banks and self managed super lagging behind. The investment in infrastructure by industry super funds is a primary contributor to the success of this part of the super industry.
On the release of the dashboard, ISA Chief Executive, David Whiteley, said:
“To increase the efficiency of the finance sector, we first need to measure it and identify the causes of declining efficiency.
“It is clear that the super sector, led by Industry SuperFunds, is emerging as an important source of capital for Australia’s economic growth.
“Government and industry need to work together to look at ways to enhance the capacity of super funds to invest in infrastructure and other initiatives to drive productivity and growth.”
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