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Why isn’t KiwiSaver Funding Infrastructure?

Unless policymakers and politicians get together with KiwiSaver managers, ever more money will continue to be invested offshore, warns Sam Stubbs, of Simplicity.

14 January 2024

Cyclone Gabrielle has been another stark reminder of just how short New Zealand is of critical infrastructure, and at a time when the Infrastructure Commission estimates 8.9 per cent of GDP is required to be invested in infrastructure, every year, for the next 30 years.

According to their report, over the next 30 years $90 billion is needed to fix water networks. We need another 115,000 homes too. And electricity generation will need to rise 170 per cent because our population is forecasted to rise 1.2 million over the next three decades.

A further $5 billion is needed to prevent sea level rises, with a 75 per cent chance of an Alpine Fault earthquake by 2070.

And perhaps most sobering, for every $40 spent on new infrastructure, $60 will also need to be spent just renewing or repairing what we already have. To do all this will require another 118,000 workers in an industry where construction costs have already risen 60 per cent faster than elsewhere in the economy.

If you believe what the infrastructure findings say, funding, building and replacing the infrastructure that we’ll need is going to be an all-hands-to-the-pump affair. The Treasury agrees. Its 2022 Investment Statement puts our combined infrastructure gap at $210 billion. Interestingly, the Infrastructure Commission has been largely silent on where this funding for all these challenges will come from. Discussion on funding our future requirements occupied only 21 of 236 pages of its final report.

Surprising oversight

And while there were well-crafted words about contribution from central government, local government and iwi, I could not find a single reference to KiwiSaver in their 68 key recommendations. This is a surprising oversight. KiwiSaver providers already have almost $100 billion under management. Add in the non-KiwiSaver funds they manage, and it could be well over $500 billion in the next 20 years. That’s 2.5-times our current GDP.

Let’s remember, KiwiSaver investments are long-term in nature and 100 per cent Kiwi-owned (by KiwiSaver members). Apart from government and iwi, could there be a better investor? Who wouldn’t want KiwiSaver funds investing in the ‘hood ... surely a win-win?

But over 60 per cent of KiwiSaver money is already invested overseas, and this rises daily. Why? Because there are simply not enough investment opportunities within New Zealand.

This sad reality shows the inability of politicians and policymakers to understand the potential long-term impact of KiwiSaver. They totally get it as a savings scheme, but not as a huge, domestic, long-term investor.

Here’s the irony of it all. If you told the government that 10 billionaires were arriving on a plane tomorrow, and each had $20-$40 billion to potentially invest over the next 20 years in New Zealand, ministers and policymakers would be scrambling to roll out the red carpet. And yet the top 10 KiwiSaver managers should have at least that to invest over the next 30 years. I would challenge any politician, however, to name more than three of these KiwiSaver managers.

So why is KiwiSaver investment overlooked? I suspect the key issues are ideological and habitual. The Labour Government appears to fundamentally believe that taxpayers and ratepayers should fund the building of key infrastructure. This attitude is ironic, as it was a Labour government that founded the KiwiSaver scheme. Surely, Michael Cullen’s intention was that some of their investments would enable funding of future infrastructure here in New Zealand?

Once bitten, twice shy

The National Party has been only a little more enthusiastic. Their muted support is somewhat justified because most private sector co-investment in infrastructure has previously been too short-term focused, or overly complex. Once bitten, twice shy and all that. And in all cases, the only investors that could fund big-scale projects were offshore ones, which doesn’t help win votes. As soon as offshore investment is proposed, the “selling the family silver” line is invoked.

The dominance of Australian-owned banks in New Zealand doesn’t help. They would rather lend to companies building infrastructure projects (which in turn increases profits for their shareholders), than actually work with government to invest their huge KiwiSaver schemes in infrastructure.

It all seems doomed here – and yet Australia provides a great example of how pension funds (like KiwiSaver) can and have become a major source of investment force very quickly due to the large amounts of money, and the very long-term nature of the savings involved. Surely, we could take a leaf out of their book.

The sad reality is the options for KiwiSaver funds to invest in infrastructure currently are few and far between. They can buy more shares in the power companies or in Infratil, or invest in early-stage and small-scale “green” investments. But combined, these opportunities soak up just a small fraction of the money that could be invested. And none of this gets close to funding our massive bucket list of infrastructure requirements outlined by the Infrastructure Commission.

Unless policymakers and politicians get together with KiwiSaver managers, ever more money, saved by millions of Kiwis, will continue to be invested offshore. It could be better invested in our ‘hood, for the benefit of all New Zealanders.

But it starts with recognising the opportunity and starting the conversation. I’m sure KiwiSaver managers will pay for the coffee.

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