There is no “debt crisis” and governments should take advantage of low interest rates to invest in infrastructure, according to Statewide Super’s head of investments, Con Michalakis.

Michalakis challenged the view that there is a so-called ‘budget emergency’ and said with bond rates very low and negative yields in some parts of the world, “the government can borrow and build”.

In an interview with Business Insight, Michalakis also gave a sombre outlook for the world and domestic economies suggesting that Australia would have “sub trend economic growth for a couple of more years at least”.

Looking ahead ten years, Michalakis said “all the tail winds that we have had are now somewhat becoming head winds”.

On the fiscal debate, Michalakis said financial markets told the real story regardless of what politicians and some commentators claimed.

“Governments can borrow – the ten year bond rate today is 2.4 per cent – it’s not an excuse,” he said.

“If there is infrastructure that needs to be built, do not tell me a government cannot borrow today at 3 per cent in excess of ten years and build something that needs to be done.

“To do that you need a government that is organised, that has the narrative right and can go out there and do it.

“The other thing about infrastructure is that everyone gets excited about roads and buildings and airports but there’s the other thing called social infrastructure.

“Social infrastructure when we grew up was education – having an educated workforce, making sure they were well trained and having the ability, and this is the key for South Australia, to start up small businesses.”

Michalakis said there were some “very unusual and scary” aspects emerging in the world economy, including negative bond yields in countries like Germany, Sweden and Switzerland.

“If you want to park your money in a short term deposit (in those countries) or in a short term bond, you have to pay for that privilege,” Michalakis said.

“Now what is that all about? Obviously there are not enough safe, quality investments out there and therefore, because the rest of Europe and other parts of the economies are not doing well, investors would rather take a short term negative loss parking it in safe countries than go anywhere else.

“It also says that the market is implying is that there is deflation and that’s scary because if we think there’s deflation we won’t consume today because we know if we save we can buy it cheaper later.

“If we do that with savings, consumption and investments then the economy tailspins, and that’s a bad thing.”

“In parts of Europe, some of the central banks have actually pushed negative yields to force people who have their money parked, to make it expensive for them to save, to go to other paths – what we call financial repression.

“This is an unusual story. The Bank of England has looked back and we have bond yields at 5,000 year lows. So we go back to the Babylonians and today’s interest rate structure is at 5,000 year lows in some parts of the world. Now that is just messed up and a bit scary.

“In that world, where do we sit in Australia? My sense is that in the short term, and maybe the medium term, we will have growth rates that are not as good as the ones that we have experienced in the past 30 years.

“If the neutral growth rate was roughly 3 per cent, we could be looking at GDP growth definitely sub-trend, maybe for a long time. We’ve had it for a while and I think we’ve probably got it for a couple of more years at least.

“One thing about not growing enough is that unemployment goes up and that is terrible for society.

“All the tail winds that we have had are now somewhat becoming head winds. China is slowing but still growing, the amazing credit growth that we have had in property is over, the terms of trade are now reversing rapidly and surprising everyone, and we do have a demographic issue with the baby boomers aging and retiring.”

“The short term looks tough and how we negotiate that is going to be difficult.”

Michalakis said he was confident that a lower Australian dollar “will help South Australia in some areas of its natural competitive advantage like education, services, tourism, agribusiness, advanced manufacturing and energy”.

But he also said it was important to encourage entrepreneurs and private capital to establish businesses and there were currently too many rules and regulations stifling the sector.

“Allowing venture capital and private equity to start up new businesses and letting those businesses develop is the future for this state, and maybe the future for the country,” he said.