Tuesday, August 17, 2010

Coalition to issue infrastructure bonds "as an alternative to borrowing"

No joke. That's what Robb said.

The document, just in...

An Infrastructure Partnerships Bonds Scheme

Australia is facing a potentially $700 billion infrastructure deficit at the same time that Labor has wasted billions and run up massive new public debt.

Clearly, we need to leverage the scarce funds available to facilitate larger investments in
infrastructure from the private sector:

To begin to address this infrastructure deficit, the Coalition will task the Office of Financial
Management with examining an Infrastructure Partnership Bonds Scheme in conjunction with
advice from the market.

Under this plan, the Coalition will seek advice about the creation of a new form of infrastructure financing product that will attract household savings through generous tax arrangements to lower the costs of financing infrastructure and ultimately boost Australia's domestic savings and its productive capacity.

A final decision on introduction of an Infrastructure Partnership Bonds Scheme will be a matter
for government upon receipt of expert advice but it is proposed that infrastructure projects will qualify for the concessional tax treatment through meeting set criteria, including:

. the project qualifies as a national priority under lnfrastructu re Austra|ia’s pipeline of
infrastructure projects;

. a public cost-benefit analysis of the project has been conducted; and

. the project generates sufficient returns such that the debt can be serviced by the revenues
generated by levies or charges that relate directly to the project.

In this way, the Coalition proposes that the Infrastructure Partnerships Scheme will provide
an impetus to spur on those projects that already make commercial sense, but not handouts
to projects that do not boost Australia's productive capacity to sufficiently generate economic

Private infrastructure operators and State and Local Governments will be eligible to apply for
the concessional treatment.

Under this proposal, the Infrastructure Partnerships Scheme will allow the operators of
qualified projects to issue Infrastructure Partnership bonds. These 10 year bonds will receive
concessional tax treatment in the form of a tax rebate.

Specifically the assessable interest income generated from the bonds will attract a 10 per cent
tax rebate irrespective of the tax status or rate of the taxpayen- Accordingly, a superannuation
fund would generate a saving of two-thirds of its tax payable on the interest from these bonds.

The 10 per cent tax rebate will provide a benefit to all taxpayers regardless of their income.

Australia’s tax system in general discourages savings relative to consumption. Infrastructure
Partnership bonds would increase domestic savings and somewhat address this imbalance.

Moreover; it would do so in a way that helps build the nation in stark contrast to Labor‘s wasted spending of the last two years.

Infrastructure Partnership bonds would lower the yield that is required on the debt that funds
infrastructure, and hence help meet Australia's infrastructure needs.

The Coalition believes that a successful issue of Infrastructure Partnership bonds will require
infrastructure operators to convince investors of the merit of their proposed investment. This
prevailing “market discipline" will help ensure that only projects that generate a sufficient
return will be chosen for investment.

Finally, lowering the costs of infrastructure investment will leverage the iimited public funds
available to generate a significant expansion in the private sector funds forthcoming.

It is proposed that funding for this initiative will be provided from remaining funds available
in the Building Australia Fund over the forward estimates. The total annual cost of the scheme
will be capped at $150 million per annum, which is estimated to provide sufficient funding to
generate financing for up to $20 billion of bonds in two rounds of applications, commencing
from 1 July 2011.

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