Australia has greatly relied on its superannuation funds to keep its economy afloat. However, just recently the funds have gotten significantly low. It has had its worst monthly returns since the last two years.
Australia’s former prime minister, Paul Keating has offered a solution. He suggested that Australia uses around $1.4 trillion of the super fund to allocate for the housing market. He recommended that it be used for financing home loans to benefit the country’s banks as well as the Australian home seekers.
He made this statement at an investment conference and explained further that by doing this, banks in Australia would no longer have to rely on international funding. Given how the international market is behaving recently, using the superannuation fund would be a more stable resource and would diminish the Reserve Bank’s rate cut that is an additional cost shouldered by borrowers. The super fund would be a better option to pay for the home loans offered by Australian banks. How other countries handle the distribution of their finances will no longer be relevant if the country will be able to support its own funding.
Mr. Keating suggested that rather than seeking for financial support on the international market, funding should be available in their home country. This fund should include the superannuation asset whish he said should be available to the four major banks of Australia for use.
Although, Australian banks now have a 55-58 percent funding solely from deposits, he shed light on the possibility of it plummeting down a hefty 50 percent once the current boom in savings come to an end. His proposed solution intends to protect Australian banks from another worldwide financial crisis. Using the super fund will make the banks less vulnerable to crisis once credit markets begin to seize up.
Steve Munchenberg, chief of the Australian Bankers Association, commented that super funds are better used for products with fixed interest. He made this point while also stating that more Australians will be soon looking into retirement.
All of these comments have been the result of the recent European debt crisis and how it affected the sharemarkets including the returns of the super funds. It caused the ASX 200 benchmark index to fall 7.3 percent.
Chant West, a super fund tracking group has also released a report showing that there was a 2.3 percent decrease in the median balance growth fund in May but also showed a 0.4 increase the next month. In their report, it was also disclosed that most of the growth fund’s allocation in Australia was composed of 61 to 80 percent were allotted to investments with growth assets.
This bold suggestion by the former prime minister is still subject to review and scrutiny by all officials in the Australian government. But if approved, using superannuation funds to finance home mortgages will provide for better options to be able to get a home easier. It can be good solution that will benefit banks and borrowers alike. Banks will have a more stable fund at their disposal while borrowers won’t have to shell out more money than needed just to pay for the great influx in interest rates.