Superannuation funds should be given short-term tax incentives to invest in social infrastructure, such as retirement homes to help meet a shortfall in the care needs of the baby boomers, a chief investment officer will propose to the Murray Review.

David Bryant of Australian Unity believes the investment is ideally suited to superannuation funds due to a steady 10 year track record and due to a looming demand for more care homes and hospitals.

The idea will be presented to the government’s financial system inquiry, which is being led by ex-Future Fund chair, David Murray. The inquiry’s terms of reference states an intent to “examine the taxation of financial arrangements, products or institutions to the extent these impinge on the efficient and effective allocation of capital”.

The measure may financially benefit Australian Unity, which runs a $520 million property trust investing in 25 hospitals and care homes with an initial yield of 9.8 per cent, but Bryant says that the government faces a stark choice of either paying for the facilities themselves or incentivising investors to work with the private sector to deal with the problem.

The measure of the problem is illustrated by Australian Unity figures which show 360 Australians turned age 75 each day 10 years ago, 400 will do so today, rising to 595 a day in 10 years’ time.

Under the model Bryant proposes a property care trust that was structured with two-thirds debt and one third equity would have up to 5 per cent of its returns delivered tax free. This would incentivise investors to take on the construction risk of new facilities and homes, whilst enjoying the revenue from existing centres. Bryant said: “The tax break would serve to help initiate the capital market necessary to fund this type of major infrastructure, while the market develops sufficient liquidity, but the tax break should not to be in place indefinitely.”

Bryant’s call was echoed by a statement from Industry Super Australia (ISA) which has called for the upcoming financial services inquiry to maximize the potential of the super system to assist in transforming the economy.

ISA chief executive David Whiteley said: “The inquiry is an historic opportunity to reposition finance so that it focuses on its most important function, the transformation of Australia’s strong savings pool into long term capital investment, especially in areas that are known to drive productivity growth.  Recent analysis of the finance sector has found that it has become less efficient at capital formation.”

ISA research released just last week found that in 1990, for every $1 of resources allocated to the finance sector, there was $3.50 of capital formation, but by 2012 that figure had dropped to $1.50 of capital formation for every $1 of resources used.

 

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