Where will that $1.5 billion go?

Bankers, gold-sellers, real estate agents and sharebrokers might do business, as recipients of the payout consider the options. But retail splurge is unlikely. The investors were savers before, and most will likely remain savers.

A proper analysis should start with profile of the investors, or good majority of them, and there are thousands of them. None of the economists consulted for this item has done such an analysis. But it’s fair to suppose the investors will have different risk appetites and needs.

Some will want to pay off debt, some will want to re-invest elsewhere. Because many of them have had income-related investments with SCF, they can be expected to look for further income-related investments. But after their SCF experience all but the slow learners will be avoiding deals offering attractive interest rates (unless they are government-guaranteed).

Retailers shouldn’t miss out, however. The October 1 tax cuts are coming through now, and over the next six months will provide net stimulus of just over $500 million. The income flowing from better commodity prices is starting to flow, too. Fonterra payouts were small through July, August and September. But they had big payment (almost $1.4 billion) this week.

Moreover, in Canterbury, the re-insurance money is starting to flow into the economy from overseas in the aftermath of the earthquake. “There is lot of new money starting to flow through the system,” says Westpac chief economist Brendan O’Donovan. But the SCF fillip for retailers will be comparatively minor.

BNZ chief economist Tony Alexander agrees. “I think initially it will be left in whatever short-term accounts the investors put it in, then they will probably whack it into term deposits or they might look for another finance company with government guarantee.”

Radio NZ reporters talked with some retailers in Timaru who are likely to be disappointed. Clothing retailer Grant Shaw, for example, expressed his hope the payout to investors will give the local economy boost.

But Ken Wills, who runs furniture business, agreed with the bank economists: “A lot of people have put that money away for retirement and investments, as we all do, so I don’t think they’re going to go on spending spree. I think they’ll look for other financial institutions to put their money into.”

South Canterbury Chamber of Commerce president Steve Lyttle reinforced this, saying investors in SC Finance had told him they will put their money into the bank, at least for the next six months.

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