PMNZ December Newsletter: Some positive news to end the year on

Welcome to our December 2024 newsletter. Here is a link is a link to previous newsletters.

Providing liquidity for the Local Government Funding Agency

The Minister of Local Government Simeon Brown made the following announcement:

“I can confirm today the Crown’s intention to increase the liquidity facility to the Local Government Funding Agency (LGFA). A proposal has been discussed and agreed between the Treasury and the LGFA. The Finance Minister Nicola Willis and I will shortly receive advice from the Treasury that would allow us to implement that proposal.

“The Government’s increase of LGFA’s liquidity facility demonstrates to markets and credit ratings agencies that LGFA has the necessary financial strength for its central role in financing the investment in water infrastructure New Zealand requires over coming decades.”

This is good news and depending on the level of liquidity provided, it provides financing for councils at a lower rate of interest. This does not go as far as our proposed financing model, but it is a good start and, like our model, uses the LGFA to get Government financing support to council water entities. The next step would be Government to agree the Reserve Bank can directly purchase water bonds issued by the LGFA which leads nicely to the piece of good news.

Announcement from Treasury

Treasury has advised, through a response to OIA request, that there is nothing in New Zealand legislation that would prohibit or preclude the government from using monetary financing as a means of funding a fiscal deficit.

This is a significant announcement and means that funding for a shortfall in Government spending could be made up with money created by the Reserve Bank. To avoid a blowout in spending, we would be looking at restricting monetary financing to capital items such as spending on infrastructure.

Some not so good news

The McKinsey’s Global Banking Annual Review reported that the global banking industry generated $1.15 trillion in net income (after taxes) in 2023, the highest of any sector and almost a quarter (24%) of the global net income of publicly traded companies in the world. Said another way, it is roughly equal to the combined energy and industrials industries, the next two largest net income generators.

During November we

• ·Posted an open letter from a group of economists calling for an immediate suspension of spending cuts.

• Continued work on our submission to the select committee on banking competition, to be delivered in February.

• Started work on the Infrastructure Commission’s request for feedback on infrastructure expectations, financing and priorities.

This year has provided a number of challenges and we have turned some of them into opportunities, such as financing for water infrastructure which has opened up conversations with a number of decision makers.

We thank you for your ongoing support and wish you all a merry Christmas and a happy New Year.

Nga mihi

Don Richards