KiwiSavers like you and me are the benefactors New Zealand’s infrastructural development is looking for, says Simplicity’s Sam Stubbs.
The government is signalling that New Zealand’s infrastructure build, apart from anything rail related, will go slower than expected. Increases in core funding, let alone mouldy surprises at Middlemore, are draining the national coffers of monies that any politician would like to spend on shiny new infrastructure.
Promises about large scale infrastructure spending are a challenge for any government. The payback is longterm, the spend eye-wateringly huge, and the funding always controversial, especially when it’s from overseas.
If only there was a white knight of an investor, with large amounts of money and a very long term view. Ideally they would prefer reliable returns over short term wins, and represent ordinary Kiwi investors, who also voted.
In a perfect world this white knight would have more money than the NZ Super Fund or ACC combined, to help fund the really big, and sometimes really boring, stuff we all need, like electricity networks, sewers and roads.
Sound the trumpets, the white knight of an investor has just arrived. Who is it? Look in the mirror. It’s you.
If you’re a KiwiSaver member, you’re part of the $50b already saved. By 2030 the Treasury predicts it will be $200b. That’s one-third of today’s GDP, a phenomenal sum of money.
But it’s not just the size of the KiwiSaver pie that matters, it’s how tasty it is. KiwiSaver is by definition long term, locked up money, and most of it looking for steady, not spectacular, returns. That’s exactly what infrastructure spending requires.
And the special sauce is that’s it’s ordinary KiwiSavers who win, and nearly all of them have the vote. If you repeat the line “KiwiSavers built this, get to use it, and make money from it too”, you’ll see how politically wonderful this could be for any government.
And it makes perfect sense, it’s a match made in heaven. Long term local investors, meet long term local investment. We can keep most of this onshore, so no Johnny Foreigner gets to own our national infrastructure.
And for those financially inclined, there is a particular beauty in the natural inflation hedging inherent in these types of investments, the lack of currency risk, and the political suicide any government would commit if defaulting, or being cute with, any investment ultimately sourced from KiwiSaver voters.
It’s pretty close to a long term, no-brainer investment for KiwiSaver funds, and a dream investor from the government’s perspective.
The world is full of examples of this working well. Singapore is a prime example, as are the UK, Australia, Japan and Scandinavia. The developed world is awash with examples of long term funding of infrastructure by local pension and superannuation funds.
However, there does need to be a meeting of the minds if it’s going to happen here in scale.
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Firstly, KiwiSavers managers need to understand that the government should not incur any undue expense in attracting the investment. The proposition has to be attractive to any long term investor, with KiwiSaver funds given preferential access if they want it. The taxpayer shouldn’t be unnecessarily subsidising KiwiSavers.
And from the government’s perspective, they need to understand that domestic, long term investment by KiwiSaver managers in their projects is about as good as it gets. The investments need to stack up in terms of long term, reliable returns. In this sense the government has the ability to guarantee returns and capital. It should use these powers sparingly, but there are right times to use it in order to make it happen. There are smart minds in business and government who can finesse this.
There is a beautiful story here, but government and KiwiSaver managers have to write it. If we do, KiwiSavers will be truly be buying back New Zealand.
This content is made possible by Simplicity, New Zealand’s fastest growing KiwiSaver scheme. As a nonprofit, Simplicity only charges members what it costs to invest their money. It already has more than 12,500 plus members who, together, are saving more than $3.8 million annually in fees. This year, New Zealanders will pay more than $525 million in KiwiSaver fees. Why pay more than you need to? It takes two minutes to switch. Grab your IRD # and driver’s licence. It really is that simple.