Oral submission to the Water Services Entities Bill on Friday the 19 August 2022
Good afternoon and thank you for the opportunity to provide this oral submission. My name is Don Richards and I am the National Spokesperson for Positive Money New Zealand, a not-for-profit organisation dedicated to having a fair monetary system that works for society.
I also have with me today our Patron Bryan Gould, former diplomat, former member of the British parliament and former Vice-Chancellor of the University of Waikato.
Positive Money New Zealand is neither pro, or anti the Water Services Entities Bill. Rather we raise the question of affordability and propose a solution that would benefit either scenario, the structure under the Bill or Councils undertaking the work themselves.
We consider that one of the reasons for the Water Services Entities Bill is that it is unaffordable for ratepayers to pay for the upgrading of our ageing water, waste water and sewerage infrastructure.
If the estimates of up to $185 billion being required in the next 30 years are true, then clearly this is out of reach for ratepayers. The question then has to be asked, how can the Government afford such a large sum? New Zealand has other priorities including a failing mental health and general health system, rising inequality and an urgent need to fund climate change.
To finance these commitments will require a huge mountain of debt that will be a burden for us and future generations to carry.
Positive Money New Zealand suggest that rather than go into debt to private bondholders, our Reserve Bank creates the money and provides it to councils, or the proposed four publicly owned water services entities at a nominal rate of interest.
This funding mechanism would be cost-neutral for the Government and any interest paid would stay in New Zealand, rather than going into the pockets of overseas owned banks. Furthermore, control of the debt would also stay within New Zealand, removing the risk of foreign bondholders gaining control of water assets in the event of any region’s default.
This type of funding goes by several names: Direct Funding, Overt Monetary Financing, Modern Monetary Theory or Quantitative Easing for the People. For this submission, we will refer to it as Direct Funding.
Our Reserve Bank created $55 billion from 2020 to 2021 and used that money to buy bonds from the secondary market under the Large-Scale Asset Purchase Programme with the intention to bring down interest rates and provide liquidity to the banks.
The Reserve Bank can create money in the same way to fund our three waters infrastructure. But it would not be at the rapid rate of this scheme. Instead, the money would be matched to a planned, long-term programme of work, ensuring that it doesn’t get ahead of the real resources available to do the work
Some pundits say that direct funding will be inflationary but the Central Bank of Canada provided money to the provinces and territories for forty years with no impact on inflation. The money was used for the construction of highways, airports, bridges, schools, hospitals, and other infrastructure.
A Levy Institute paper titled Is Monetary Financing Inflationary? A Case Study of the Canadian Economy, 1935–75 found no support for a relationship between direct monetary financing and inflation.
Our own Reserve Bank provided funding for constructing thousands of state houses in the 1930s. There is no legal or technical impediment for the Reserve Bank not to do it again.
We say do not burden future generations with a mountain of debt to private and foreign bondholders. Rather, have the Reserve Bank fund the three waters programme. It can provide funding to councils via the Local Government Funding Authority; or via the proposed four publicly owned water services entities, at a nominal rate of interest.
There is already a precedent here: Under its Large-Scale Asset Purchase Programme mentioned earlier, the Reserve Bank now holds about $3 billion of Local Government Funding Authority bonds which it plans to hold to maturity. Once councils are aware of the option of Reserve Bank funding for the programme then Councils and ratepayers may alter their support for the Bill.