For 30 years, a little-known number in government circles has quietly stymied investment for future generations. Set by Treasury, the ‘discount rate’ was once set at 10%, and it meant future benefits and costs were heavily devalued, becoming worth almost nothing after six or seven years. In a nutshell, higher discount rates discourage long-term investment and incentivise short-term projects. Treasury has recently reduced the discount rate to 5%, but is that enough?
Bernard Hickey talks with Arthur Grimes, senior fellow at Motu Research and professor at Victoria University, about a big shift to new discount rates that could make big future projects much more viable.
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