Social bonds expanding in NSW, says visiting state premier

Tuesday 18th August 2015

As the Ministry of Health finalises negotiations on New Zealand’s first social bond, New South Wales Premier Mike Baird said the state was considering new social bonds targeting obesity and reducing prison re-offending.

On his first official visit to New Zealand, Baird told a Trans Tasman Business Circle lunch in Auckland that Australia’s first two social benefit bonds, pioneered by the NSW government in 2013, had proved successful though it was “still early days”.

A social bond introduces new, private money into social programmes without increasing public debt and without the need to decrease existing spending. Investors are paid based on the level of social value achieved.

The two A$10 million Australian social impact bonds both involved working with at-risk families to prevent child abuse and neglect. The first, with UnitingCare Burnside, funded the expansion of the NewPin programme which returned 7.5 percent to investors in the first year against a targeted 10 to 12 percent financial return over the bond’s seven-year term. The other bond was with social service provider, The Benevolent Society.

In New Zealand the Ministry of Health said it was in negotiations with non-government organisation Wise Group, which is a family of charitable organisations, and the ANZ Bank, as potential partners in a pilot social bond project for mental health services. The bond and its details are still to be considered and agreed to by the Cabinet, in a process expected to take a number of months.

The New South Wales government has committed to developing two new social impact investments to go to market each year. “We’re making good progress on that,” said Baird. The first of those this year will target obesity, which has enormous long-term costs to the state government, let alone to the people involved, he said.

The second one would target re-offending rates of around 50 percent in NSW, where it costs around A$100,000 a year to house one inmate in prison, he said.

Baird discussed social investment, along with infrastructure planning and investment, and effective delivery of government services, with Prime Minister John Key and Deputy Prime Minister Bill English during his New Zealand visit.

Most of Baird’s speech focused on how the state had got its budget under control in the past five years in order to tackle the huge infrastructure challenges that needed addressing. New South Wales accounts for around 35 percent of Australia’s GDP.

Baird’s victory in the March state election gave him a mandate to proceed with privatisation and his plan for leasing the state’s poles and wires to raise A$20 billion for new rail, roads, schools, hospitals, and sports and cultural facilities. The first cab off the rank is the leasing of 100 per cent of its high voltage electricity transmission business TransGrid, for which expressions of interest have been sought from private investors.

When asked how he had sold the plan to voters, Baird said the state’s programme of asset recycling – the strategy of selling out of old assets to invest in new ones – was now better understood by the public.

Privatisation had not been a popular concept, with polls consistently showing voters against it, but Baird said what turned opinion around was the concept of reinvesting that money into other things like schools and hospitals.

In the case of Aucklanders’ frustration with road congestion, politicians should be arguing the need to sell these assets in order to fix your transport problems, he said. “It’s making that personal leap.”

NSW is budgeting to spend A$10 billion a year on new infrastructure. That spending had been crucial to get the economy moving again and had created some 85,000 jobs in the last six months alone.

BusinessDesk.co.nz

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