Interest on Public Debt is a direct cost to the ACT Community. The budget papers indicate that the ACT is paying the long term bond rate on loans of about 3.8% for a total cost of $165M.  Government Investment loans are not available to Canberra Residents but are only available through large institutions and in particular to overseas institutions.  However Self Managed Super Funds of Canberra Residents are always looking for safe and secure investment opportunities – particularly if they are government backed.  The ACT Government has the opportunity to provide such a vehicle at no net increase in finance costs to the government, at reduced risk, as a way to remove all Public Debt, and as a way to increase the wealth of the Canberra Community.

The Government can do this by Selling PrePurchase Electronic Vouchers (PPEV) that are Discounted depending on the length of time the Vouchers are held before being used.  That is, the ACT government issues its own Credit to Fund asset construction rather than obtaining Capital through Debt.  It is recommended that the PPEVs be sold with a Discount of 6% and with the value being adjusted for inflation.  A 6% Discount Rate costs the ACT government the same in foregone income as a 3.1% compound interest rate when total Debt is increasing. PPEVs are redeemed for any government service or goods and includes Rates, Hospital Charges, Water Charges, Vehicle Registration, Licences and Payroll Tax.

Credit is the ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future. Debt is a sum of money that is owed or due. Governments can always supply enough goods or services to repay its Credit by increasing the time over which to provide its goods and services with no penalty. The failure to repay Debt on time results in a lower credit rating which results in higher interest charges and increased Debt.  Credit is hence much much lower risk to the Government than Debt.  

Using PPEVs the Government removes the risk of interest changes that could cause extraordinary problems for the ACT economy; if there is any substantial Debt and if interest rates rise. Both increasing Debt and increasing interest rates are highly likely over the next 10 years.

PPEVs makes it much easier for the Government to monitor and control the economy as Credit should only be created for value adding investments.  It should rarely if ever be used for operating expenses.

Credit can be created whenever it is needed to stimulate the economy. Canberra residents will have access to a secure liquid investment they can purchase for their retirement. The government superannuation will have an investment vehicle that allows it to easily invest in the Canberra Community and obtain a good return on investments. 

Discounts are not taxed if claimed.  If the Discounts are sold they are subject to Capital Gains tax rather than as tax on income. Interest is taxed as income.

PPEVs can be any amount and are available to any Canberra Resident.  It is believed that they will be so popular that it will be necessary to restrict their sale to Canberra Residents or alternatively Canberra Residents can get a higher Discount Rate than non residents.

The operating cost of the system will be covered by low transaction fees of 0.5% on movements of PPEVs and will be paid by the buyers of PPEVs.  There will be no fixed charges on the amount invested. These are much lower charges than incurred by typical superannuation or other Capital investments.

The system can be operational within six months and can be introduced at a rate determined by the Government to replace government Debt.  It has the potential to become a significant generator of funds into the Canberra Community and to the Government.

The proposal as formulated is unique and there is no other government in the world currently proposing such a system. However, it is expected other jurisdictions, including the Federal Government, will adopt the approach as a way of removing Government Debt once they see it in operation.  It is fundamentally the same approach as used by “the miracle economies” of SouthEast Asia, East Asia and China and was the way Japan and Germany were rebuilt after WWII.  In Australia it was used by the Commonwealth Bank to fund the First World War and more productively for Australian infrastructure development during and after WW1. It is also an industrial strength form of Crowd Funding as Funding is provided in return for the output of investment.  This contrasts with Equity Funding which gets its return from the ownership of the means of production.



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