CLUSTER PROJECT 6: SUPERANNUATION AND THE ECONOMY: TRACKING SYSTEMIC IMPACTS
The project aims to support better policy making around superannuation by providing a better understanding of the impacts of policy changes on the Australian economy. The first part of this Cluster’s work will involve developing a platform, based on Victoria University’s multi-sectoral model of the national economy, to explore the economy- wide impacts of policy issues and recommendations emerging from the broad Cluster Research program. From this the team will examine how design features of the superannuation system and any proposed changes might affect macroeconomic stability. By varying the structural and policy settings, it will be possible to construct a number of plausible alternative forecasts for the development of the national economy.
Principal Researcher: Professor James Giesecke (Centre of Policy Studies/Impact Project, Victoria University)
Research Team: Professor Peter Dixon and Professor Maureen Rimmer (Centre of Policy Studies/Impact Project)
In this paper we describe a new type of computable general equilibrium (CGE) model that integrates detail of the economy’s financial sector with a traditional real-side CGE model. We use the model to explore the macroeconomic effects of the superannuation sector in Australia by simulating a one percentage point increase in the ratio of superannuation contributions to the national wage bill. This simulation has relevance to current policy debate on the merits of further increases in the compulsory contribution rate. Our results indicate that a rise in the superannuation contribution rate increases long-run real GDP, largely via an increase in the savings rate. At the same time, the structure of the superannuation sector’s activities, relative to other savings vehicles, boosts short-run employment and housing investment.
We explore the consequences for the allocative efficiency of capital supply of a one percentage point increase in the proportion of the national wage bill directed to the superannuation sector. We find that this generates a positive allocative efficiency effect, because it promotes the relative expansion of sectors with above-average rates of return on capital and dampens the relative expansion of sectors with below-average rates of return on capital.
In previous work, we identified structural shifts caused by an increase in the Superannuation Guarantee (SG) rate. Here we examine the implications of these structural shifts for Australia’s macroeconomic stability and future economic growth. We identify multiple channels via which a rise in the SG rate impacts macroeconomic stability. Principal among these are the observed rise in the level of private-debt-to-income, which does not generally aid macroeconomic stability, and a reduction in Australia’s net foreign financing requirement, which is regarded as stability enhancing. We also find an increase in demand for corporate debt liabilities by domestic financial asset agents, such as superannuation funds, which results in a deepening of Australia’s corporate bond market. Diversification benefits, both in terms of greater regional diversification for Australian households, and a more diverse capital structure for Australian commercial banks, are also apparent and regarded as stability enhancing.
- A Modelling Framework for Analysing the Role of Superannuation in Australia's Financial System, WP 2016–09
This paper investigates the implications of an expanded superannuation sector for the Australian financial sector. We undertake detailed modelling of capital adequacy requirements imposed upon the Australian commercial banking sector under Basel III regulations, and the behaviour of the Reserve Bank of Australia. We find that an increase in the Superannuation Guarantee rate drives important short-run structural shifts within the Australia economy: the commercial banking sector expands, while the ratio of debt-to- equity used to finance the residential housing stock rises and Australia’s foreign financing requirement falls.