Superannuation and Macroeconomic Growth and Stability

The economic consequences of an expanded Australian superannuation sector were recently quantified by Giesecke et al. using a financial computable general equilibrium (FCGE) model of Australia. Using this model, Nassios et al. studied the short- and long-run structural implications of expansion in the size of Australia's superannuation sector. Several structural shifts were identified: (1) A rise in the use of debt relative to equity to finance the residential housing stock; (2) A rise in the ratio of gross private debt to household income; (3) A fall in Australia's net foreign financing requirement, measured via a reduction in the current account deficit relative to GDP; (4) An expansion in non-bank financial intermediaries and life insurer's; and (5) A change in the capital structure of commercial banks, particularly a greater reliance on bond financing. In this paper, we consider the implications of these structural shifts for macroeconomic stability and growth. To this end, we survey literature addressing how economic structure and policy can influence macroeconomic stability and growth. We also summarise how several counter-cyclical macroeconomic policies we identify are modelled in the VU-Nat FCGE model applied herein. As we shall discuss, the literature on financial and macroeconomic stability suggests that a rise in the level of private-debt-to-income does not generally aid macroeconomic stability. Nevertheless, stability and future growth prospects are in all likelihood improved by the noted reduction in Australia's net foreign financing requirement, via a reduction in Australia's exposure to foreign credit supply shocks such as those the Australian commercial banks experienced during the GFC. A key structural shift driving this result is the increase in demand for corporate debt liabilities by domestic financial asset agents, such as the superannuation funds, which drives a deepening of Australia's corporate bond market.