Gunsmoke Article – Investing in Canberra

Article published in the Gungahlin Community Newsletter Gunsmoke 139.

Residents of Canberra cannot invest directly in Canberra infrastructure. This privilege is given to merchant bankers and overseas investors. It doesn’t have to be this way. The ACT government could provide ways for residents to invest in infrastructure. For example in many countries locally issued bonds are used to finance capital works.

Bonds and other forms of money debt are a method of providing credit through the creation of money and then selling the newly created money.  People who purchase bonds are purchasing new money that has been created as debt rather than investing directly. This is a relatively expensive method of providing credit because creating new money is risky and its value varies with changing interest rates.

There are other ways that we can issue credit without creating new money. The most common one is where we pre-purchase goods or services for later delivery.  This is used widely in everyday business.  People typically get a return on their money through discounts.  Discounts do not require the creation of any new money and hence are less expensive.  

An increasingly popular method of pre-purchasing goods or services is called CrowdFunding. Here investors give a business or person money and in return they get goods and services at some later time.

The ACT government could CrowdFund infrastructure and could start with Light Rail.  Residents of Canberra  could be invited to prepay their future rates and taxes by purchasing vouchers. These vouchers are to buy land from the ACT government, or pay their rates and taxes, or pay for rides on the Light Rail.  As with other prepayments the ACT government could give a discount depending on how long the voucher has been held.  The ACT government could also adjust the value of the voucher to account for inflation.

The vouchers could be made transferrable so that if a person purchased more vouchers than they needed they could sell them to someone else.  Vouchers issued at 8% discount per annum with the voucher face value being adjusted each year for inflation would be a very attractive investment for Canberra residents – particularly self managed super funds.  8% was chosen because it costs the same in interest forgone as 4% interest compounded over 33 years. Interest payments are taxable.  Discounts are not taxable. The value of vouchers will remain stable and fixed. They will not be subject to the whims of the financial markets.

Because they are an attractive investment the ACT government could issue every man woman and child in the ACT with a transferrable right to purchase vouchers.  The value of vouchers issued would be enough to pay for the Capital Cost of Light Rail.  This means that everyone in Canberra will benefit from the construction of Light Rail. If a resident did not want to purchase the vouchers they could sell their rights.  If they sold their rights they would pay tax on the increase in value from the time of purchase.

Vouchers are a low risk strategy for the ACT government because it would not have to find money each year to pay off loans and pay interest.  Instead the vouchers will be used to pay for goods and services. If the ACT government does not supply enough goods and services then it will need to find more goods and services to sell, or increase taxes. The ACT government will know precisely how much of the credit issued for Light Rail has been repaid and this will make for responsible fiscal management.


Funding Renewable Energy without a carbon price

In 1911 the Commonwealth Bank of Australia was formed. The first governor was Denison Miller. At first the CBA was a “regular” bank meaning it was not permitted to issue coins or notes but it was able to issue new credit – like all banks – in the name of the Commonwealth.

The CBA started with 10,000 pounds in capital. It borrowed no other money from overseas but simply created credit and matching deposits, lent it and facilitated trade. It financed the first world war with loans of 1% to the government but, as it was owned by the government, the government did not go into debt because it owned the bank.

This is a remarkable story and you can read about the banking ideas behind the CBA at

There is another model to fund the development of renewable energy that does not involve putting a price on carbon. If loans of zero or one percent are given to construct renewable energy plants then almost all renewable energy projects will be profitable.

To see some numbers visit

To see the a description of the way to distribute funds through a market mechanism visit

This approach can be started without any new legislation or any new rules and it could be done by the Reserve Bank issuing interest free loans – via the existing banks – that must be invested in renewable energy projects.