Economic roundtable: Tweak to super performance test builds hope of more investment in housing and green energy
A powerful coalition of business, union and government leaders has endorsed controversial reforms that could redirect Australian super funds into national priority projects.
Business, unions and state governments are backing reforms to superannuation regulations to encourage more capital into housing and the net-zero transition, giving Jim Chalmers the green light to unlock the savings of Australians to invest in Labor’s priority sectors.
Business Council of Australia chief executive Bran Black and ACTU president Michele O’Neil endorsed an overhaul of the performance test for superannuation funds so they are encouraged to invest in more local projects.
Amid a growing push to entice superannuation funds to invest in national priorities, day two of the roundtable heard discussions on how red and green tape could be reformed to make it easier to roll out housing, renewable projects and infrastructure.
This included growing consensus for the need to pause the national construction code, reduce red tape, streamline environmental approvals and create a green cop that does not cause lengthy delays to projects.
There was also a session on artificial intelligence, with business groups strongly opposing union demands to heavily regulate the technology through a stand-alone AI act. Despite conducting two reviews into AI regulation, Dr Chalmers agreed on Tuesday to undertake a new “analysis” on gaps in existing laws to deal with the technology in a move that delays any action on the issue.
The Treasurer said day two of the roundtable was “dominated by how we can boost housing supply, how we can responsibly reduce and improve regulation and speed up approvals”.
“There is a real prospect of a useful consensus emerging on a number of key reform areas,” Dr Chalmers said.
Environment Minister Murray Watt said there was support from business, environment and community representatives “for serious reform to deliver stronger environmental protections, faster and simpler project approvals and greater transparency in environmental regulations”.
After roundtable members were told by superannuation representatives existing regulations were discouraging investment in housing and green energy projects, Mr Black supported “taking a look at the performance test”.
“We think anything that we can do to deliver more homes to Australia, to get more Australians into homes, is going to be a good thing so at least taking a look at the performance test is a good place to start,” he said.
Mr Black also said ASIC’s regulatory guide for superannuation fund – known as the RG97 mechanism – was limiting the capacity of funds to invest in residential developments. Ms O’Neil said the performance test was restricting superannuation funds “in ways that don’t make sense”.
“The way that it works is that there are requirements in terms of the tests that break it down in terms of specific areas, rather than an overall test. So we think having a universal approach to this is much better for investment decisions,” Ms O’Neil said. “We’re talking about an overall benchmark, so instead of the ones that are broken down at the moment by assets.”
Her proposal would allow the short-term costs of investing in renewable and housing projects to be offset by assets already performing strongly, such as equities.
Proponents of regulatory changes argue this would make it easier for superannuation funds to invest in sectors of national significance that create value for members in the longer term. But critics argue it could lower returns and channel members’ savings into politically aligned projects.
NSW Treasurer Daniel Mookhey, who is representing state governments, supported reform of the performance test to drive investment in housing and clean energy.
“We think the way in which the performance test has been interpreted and applied has had the unintended consequence of barring us from being able to use our national savings to help us deal with the national challenge that is housing,” he said. “We think the progress that’s already been announced by the commonwealth to review a rule like RG97 is a really, really sensible step forward.
“From a NSW perspective when I’m talking to superannuation funds, and they’re telling me that they are in a better position to help deal with the United Kingdom’s housing crisis than they are with NSW’s, I think something’s gone wrong and I think we can fix it. I think it’s a really sensible suggestion that’s come from the business community and the trade union movement to review those national performance tests.”
With the Albanese government already launching reviews into the performance test and RG97, a spokesman for Dr Chalmers said he was “open to considering responsible changes that maintain high standards and the super funds’ responsibilities to members”.
“We’ve been consulting with industry and the broader community on the performance test and are open minded to good ideas about what, if anything, we can do to make it more useful,” the spokesman said.
Opposition Treasury spokesman Ted O’Brien said the Coalition was open to discussing changes to the performance test “but serving the interests of super members must be the one and only priority”.
“Australians’ super savings are not a slush fund to pay for the government’s pet projects,” Mr O’Brien said.
The performance test was introduced by the Morrison government and has been applied to MySuper products since July 2021. The purpose of the test is to improve member returns by holding trustees to account for investment performance and encourage improvement or exit of poor performing products.
If a fund fails it must write to members notifying them of the sub-par returns, while repeated failure results would ban them from taking new members.
Association of Superannuation Funds of Australia chief executive Mary Delahunty said on Tuesday the current design of the performance test and ASIC’s regulatory guide made it difficult for superannuation funds to invest in some assets that will enhance productivity.
“We talked about some of the reporting obligations on superannuation that can act as a constraint or a disincentive,” she said.
“Transparency is good, but transparency that is unevenly distributed across different investment vehicles leads to different investment outcomes. And so it can constrain capital flow to the likes of housing.”
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