Support for Govt infrastructure bonds

Media release
June 10, 2009

Survey reveals support for Gov’t infrastructure bonds

New Zealand investors are keen for the government to issue American-style infrastructure bonds to finance major projects.

Some of the country’s most influential private investors revealed their liking for the bonds in a survey by Auckland merchant banker John Paine.

Municipal bonds are very popular in the US where they are issued by government authorities to fund infrastructure projects there and the interest is tax free. (See Wikipedia definition here http://www.investopedia.com/articles/bonds/05/022805.asp )

Mr Paine surveyed his newsletter mailing list which includes older investors many of whom have an income of more than $200,000.

He says infrastructure bonds appeal to older people who are either retired or saving for retirement and are looking for fixed interest investments that provide regular income.

“These investors tend to be on higher tax brackets so the tax free aspect of the income has an extra appeal – even if the rate is lower than what they might get elsewhere,” Mr Paine says. “Infrastructure bonds are also a very simple and secure vehicle and of course have government backing making them attractive to the older set.”

“It seems to me everyone is a winner. The government doesn’t have to fund the project out of general taxation, the investor receives a higher tax paid return, and the older people have the satisfaction of putting something back in to society.”

The survey was designed by Pauline Colmar to find out what readers thought of Mr Paine’s Global View newsletter. Supplementary questions were designed to also find out their views on the New Zealand economy.

The survey shows readers are in the older high demographic grouping with 87 per cent over 40. The 50 to 59 age group is the highest at 39 per cent. Seventy-two per cent of them have personally travelled overseas in the last 12 months and 79 per cent intend to in the next 12 months. Four out of 10 respondents have household incomes of more than $200,000.

A couple of the questions were about infrastructure projects. Four out of 10 respondents felt they would be better off if the government spent money on large infrastructure projects, while six out of 10 felt it would make no difference. Only four per cent felt they would be worse off, Mr Paine says.

Yet an incredible eight out of 10 of the respondents said the government should fund major projects with infrastructure bonds.

ENDS

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