Part of lifting private savings involves creating a better environment for investors. This has been highlighted by both the Capital Markets Development Taskforce and the Savings Working Group.
Even though local capital markets have generally performed well over the past decade, investor confidence is not as high as it could be. Considerable wealth has been destroyed via finance company failures and other fallout from the global financial crisis. One consequence is that New Zealand households continue to hold poorly diversified portfolios, dominated by housing and bank deposits. A better functioning market would leave households less vulnerable to any downturn in house prices, and leave the economy less dependent on external capital.
A good investment environment, where New Zealanders can invest with confidence, will include both clear and effective rules and good-quality investment opportunities.
Over the past two years, the Government has overseen a substantial improvement in the regulatory environment. This has included the creation of the Financial Markets Authority, an overhaul of securities legislation, extension of Reserve Bank prudential supervision and capital adequacy requirements to non-bank deposit takers, introduction of a prudential supervision regime for the insurance sector, and licensing of financial advisors.
New initiatives will provide a broader range of investment opportunities
Budget 2011 continues progress towards better functioning capital markets with several initiatives which will present both equity and debt investment opportunities:
- The Mixed Ownership Model extension will create new investment opportunities for New Zealanders.
- The Government will consider facilitating creation of broadly diversified, listed passive debt and equity vehicles. These would offer easy, one-stop access to the local capital markets. This suggestion was raised by the Savings Working Group.
- The creation of a Canterbury Earthquake Kiwi Bond. Revenue from this Kiwi Bond will be used to partially finance the Canterbury Earthquake Recovery Fund.
- The New Zealand Debt Management Office will issue a new long-term inflation-indexed bond. This will cater to an expressed need for long-duration real assets, particularly from longer-term investors who at present have no direct means of eliminating inflation risk.
- The local government funding agency will begin operation in 2011. This will be a collective debt vehicle, issuing securities backed jointly by most large local authorities. This will provide cheaper funding for local projects, as well as more liquid, better diversified assets for investors.