Super Fund Calls for Tax Reform to Boost Investment

Australia's largest superannuation fund is calling for an overhaul of the tax system to encourage economic growth and increase local investment. However, this push could complicate the government's current approach to small business and capital gains taxation.

AustralianSuper is urging reforms that would make Australia more welcoming to large-scale investment. The fund, which manages $365 billion, currently allocates most of that money offshore. About 70 cents of every dollar goes to overseas assets, often in high-growth industries such as US technology. According to the fund, Australia’s domestic market is not expanding quickly enough to absorb the scale of capital it holds, particularly in areas like technology and private equity.

As the superannuation sector grows and now sits at $4.2 trillion, there is increased pressure to ensure more of this capital supports Australia's economy. AustralianSuper already invests $90 billion locally and has recently contributed around $6 billion to local IPOs and capital raisings. Still, domestic capacity is nearing its upper limit and overseas markets continue to offer more attractive returns. The fund contends that Australia’s current tax settings place unnecessary constraints on businesses that are trying to grow.

The fund argues that simplifying the tax system, which consists of close to 100 separate taxes, would help Australian small and medium-sized businesses compete internationally. It sees the adoption of more efficient technology and clearer tax rules as key to unlocking higher productivity from local investments, especially in industries where the country has fallen behind.

Although the federal government has recently introduced a higher tax rate for super balances exceeding $3 million, AustralianSuper says these policy changes do not influence its investment strategy. It says the fund's decisions are guided by the goal of supporting competitive businesses rather than any specific sectors. At present, the most promising opportunities remain overseas.

Super funds in Australia face the challenge of generating strong returns while also contributing to the national economy. AustralianSuper recently reported an annual return of 9.5%, which was slightly below the industry average. This reflects the complexity of balancing investments across public and private markets, and highlights the growing role of private equity in boosting long-term returns.

Source: The Australian, Macquarie, JPMorgan Insights