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Private investors are about be given the opportunity to invest in and make money from the provision of social services.
The Government has given the green light to piloting social impact bonds in New Zealand.
Social impact bonds are a way for non government entities to partner in delivering social outcomes – and be rewarded by Government.
Health Minister Jonathan Coleman says social impact bonds are a consistent fit with the Government’s wider social investment approach, which aims to better understand the drivers and risks of social dysfunction.
In a press release Labour’s Health spokeswoman, Annette King, says the Government is using some of the most vulnerable Kiwis as guinea pigs against official advice and in the absence of international evidence that its ‘experiment’ will achieve the desired results.
This is how social impact bonds work:
- The Government contracts out some social services work with set timelines and agreed performance targets attached to those services.
- A non-government organisation will then provide the services.
- It does so through using money put up by investors.
- If the agreed performance targets for the services are met, the Government will then pay back the investors their principal on the bond, and a percentage return.
Social bonds have been promoted by the right-wing think-tank The New Zealand Initiative
The New Zealand Initiative has released a report analysing overseas examples of the use of social impact bonds and looking at the application of social impact bonds in New Zealand.
The report warned that because no bonds had yet reached their full term overseas, their success had yet to be established.
It also warned that a number of challenges would have to be overcome to increase the chances of success in New Zealand.
It listed the challenges as:
- The relative immaturity of the social finance and investment market compared with countries like the United Kingdom
- The complexity of initiating the bonds, potentially deterring would-be participants
- Political risks such as change of government, a change of policy, and overly bureaucratic processes.
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