Monday, August 04, 2008

Nothing bold about "infrastructure bonds"

It's said that National's proposed "infrastructure bonds" are a bold and innovative solution to funding infrastructure that will kickstart New Zealand's "growth engine."  That's just bullshit. 

To the extent that Key's proposed infrastructure bonds do attract real capital, they take that real capital away from genuine productive investment, ie., investments that show a real profit.

The extent to which investment in these bonds bids away investment in genuine productive investment is the extent to which NZ's growth engine is held back even further.

The reason that investment in these bonds will tend to bid away investment in genuine productive investment is that investment in the government-backed "infrastructure bonds" will be more secure.

They are not secure because the projects they back are less risky than private projects for wealth creation -- there is barely any government project anywhere in the world that ever came in under budget.  Their greater security arises from the fact that unlike private businesses, government has a gun in their hand.  To pay interest on privately-backed bonds, businesses have to make a profit.  To pay back or pay interest on government bonds, the government holds the gun at taxpayers' heads.

That's neither innovative nor bold.  That's just thuggery.

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4 Comments:

Anonymous Anonymous said...

Isn't it bizarre that they think the best way to help growth is to take the money and choice away from individuals and businesses and spend it themselves...

8/04/2008 03:52:00 pm  
Blogger Berend de Boer said...

Spot on.

8/04/2008 08:51:00 pm  
Blogger Gman said...

jez cresswell!!! stop stealing my thunder! everytime i sit down to write anything you beat me to it. i might as well just say "ditto what pc said"

8/05/2008 12:00:00 am  
Anonymous Anonymous said...

"To pay back or pay interest on government bonds, the government holds the gun at taxpayers' heads."

Well, yes. Govt borrowing is just deferred tax.

Here's one of those breathtakingly obvious points that people don't think about: a govt's level of taxation just is its level of spending.

Because in the long run the govt books must balance. Tunning a defict is just deferring the tax until later, and blowing a previously-created surplus is just tax-in-advance.

This is (yet another) reason why Bush is such a disaster in the US: he cut taxes but increased govt spending. Cutting taxes is easy politically (in the short term). Cutting spending is hard politically.

The reason this matters it that it's very easy to promise tax cuts (everyone loves that promise!). But it's very hard politically to achieve cuts in govt spending (eg Bush in the US).

Key says he plans to cut govt services to the tune of $800 million/year, but he won't say how. That's a lot in NZ. So that's the real thing to watch: if anything credible appears there. It seems unlikely.

8/06/2008 10:45:00 pm  

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