Get your kit off, it's election year and the major parties are putting out already. We have a real choice about our economic future before the summer's over, so it's time to start asking the questions and doing the maths

Well, that came in a rush didn't it? We're still slipping, slopping and slapping, and the major parties have started throwing out major policy announcements as if the election was just days away.

For a couple of year National and Labour have been like Victorian women, hitching their dresses so that we can glimpse their ankles, but no more. It's been reviews and taskforces, caucus retreats and "we haven't made any final decisions, but isn't it interesting how... well the Air New Zealand ownership model works/ Australia has a high top tax rate/ taxes are out of alignment and so on.

Now they're coming on like waterfront working girls. Bottom-end tax cuts? Come and get it. Partial privatisation? Wham, bam, thank you ma'm. All before the end of January. Talk about quickies. (With so much policy getting released while the main political programmes on TV and radio are off-air and newsrooms are still running on summer staff numbers, well, it's almost as if the parties don't want extensive, critical analysis of their proposals.)

This early policy dump is great for voters. We will have months to ponder and probe the implications of these big ideas, which certainly are worth probing.

Journalists are already trying to work out where Labour will get it's $1.3 billion for its tax free zone, as, at first blush, the maths doesn't look good. Or in formula terms:

Tax avoidance clampdown + new top tax rate ≠ a $5000 tax free zone

But then the questions around National's partial privatisation are just as intriguing. The suggestion is that the government could make around $7 billion from selling up to 49 percent of Mercury Energy, Solid Energy, Mighty River Power, Genesis Power and Air New Zealand. Yet in just a couple of days I've heard talk of that money being spent on expanding those companies, paying off government debt and being spent on the $33 billion worth of capital works the government has planned in the next five years. Yet it can only be spent once. That's the thing about sell-offs.

In other words: 49% + 49% + 49% + 49% + 49% = not that much dosh - a bucketload of political capital.

As this remarkable week comes to an end, we all have a pretty good idea how this election year will play out. The fear of debt will go up against the fear of cuts. (Everyone seems to be playing the fear of foreign ownership card, so it'll be interesting to see who's best at it).

While the packaging is a little different, what's clear now is that we have some daylight between the two main parties this time round; a good old-fashioned left vs right battle.

Alright, it's hardly the 1930s. And ok, National is still unwilling to touch Working for Families ("communism by stealth", as Key called it again today, whilst endorsing it), KiwiRail, KiwiBank and interest-free student loans. And yep, it is happy to talk about the government as a player and regulator in the market. There's no doubt now that the Clark/Cullen legacy has pulled the political centre to the left. But there we still have core left-right values on display this year.

Phil Goff talked about "active" government several times in his speech this week and is offering a government that taxes and spends to stimulate the economy and redistribute wealth. Key in contrast stressed the need for fiscal responsibility, smaller government and the importance of growing private capital.

Voters now have the choice: Tax more or cut more? Borrow or sell-off? It's Labour vs National again, not just Labour vs Labour Lite.

At the heart of this debate will be what we do with just five state assets.

And when you look at it like that, it's typical of the Key administration and its cautious heart. Sir Roger Douglas, as the gag goes, must be rolling in his grave. If you're going to put those toxic words before the electorate and risk so much politically, surely you want more of a reward than $7 billion and shares sold in just five companies. Remember, the government will spend around $700 billion this year and under Douglas and Richardson we got shot of about 30 SOEs.

Such a risk, for so little return. So much for the ballsy currency trader as PM, huh? Still, at least his comment that he's unlikely to back down on this, as he did on mining Schedule Four conservation land, shows at last that he is willing to stand up for some things he believes in. Or, more cynically, his risk analysis is that this is as far as the country is willing to go.

Whatever his motivation, it's a political gamble. New Zealanders have learnt to value ownership and the wealth it generates. We've learnt that if wealthy businesspeople can see profits in a business, then we'd rather keep them for ourselves, thank you very much, Mr Fay. New Zealanders, in short and in the main, have become economic nationalists. Funny what becoming part of Asia has taught us.

So what of the economic benefits of a partial privatisation policy? You'll hardly be surprised if I say that I'm a big fan of governments owning strategic assets for the common good and to profit the public purse. If we're NZ Inc, as the PM likes to say, then we need to retain control of our core business. You can't set a strategy for the nation if the nation doesn't own the key assets; or more simply, no kid can build the biggest tower if another kid has all the blocks.

Having said that, this country needs capital. It's essential. We need to grow bigger companies in this country and a more active sharemarket offering alternative investments to property. And hey, the Air New Zealand model has worked rather well. So I'm not going to write-off partial privatisation per se. The question for me is whether it's worth it, whether it fits the strategy for growing our economy long-term and if it's the best way to achieve what it's meant to achieve.

I can't answer those questions today. But this is what I'm wondering... It would be good if these well-run companies had the chance to expand, even offshore. Fletchers is pushing aggressively into Australia, and we all know that Chinese government-owned companies are investing all over the globe. So how do they do it? It would be good to see New Zealand taking a take in this region where we do most of our business.

But if there are opportunities for expansion out there and the business cases are sound, why can't that money be generated in the usual ways? What about joint ventures? Or bonds? Or other cash-raising options?

Bill English has repeatedly said he doesn't want to sell SOEs, just manage them better. Isn't this at odds with that ethos?

The idea that shares can somehow be kept in New Zealand is pure nonsense. Sure, the Cullen Fund wants long-term investments, but even they sell and buy, as do ACC, pension funds and so on. Let's not kids ourselves – whether it takes two years or fifty years, the minority shares will end up all over the world. It's called globalisation.

And what then will those minority stake-holders demand? And what rights will they have – or be given by trade agreements – to enforce those demands? I can see real tensions on boards, with government directors working in the national interest and the private sector nominees working for profit. It reeks of confused governance.

I'm not as worried about the 'thin end of the wedge' argument. There's a definite line between 49 and 50 percent and just because a government sells 40 percent one term doesn't make it any easier for another government to sell another ten percent down the track. They'll be crossing a line and will have the electorate to answer to for that. I don't think New Zealanders are so stupid as to think in five years, 'oh, that 49 percent model's worked well for us, that must mean selling off another few percent will work just as well'.

Interest rates remain quite low around the world, so why is borrowing now so much worse than a few months ago? Is the fear of short-term borrowing so great that we need to sell assets? Are the credit agencies so vexed by our debt levels? And if so, should be as a sovereign nation bow to their whims? And wasn't it English who has spent the past year pointing out how much better New Zealanders are at saving post-recession? With our household savings going up, and our government debt having been much less than most western nations for most of a decade, perhaps the savings fears are unwarranted.

I'm also curious what we need this money for. Key talked in his speech about broadband, roads, operating theatres and schools. Well, I thought broadband was already in government budgets, as are a bunch of new roads. And there are already 40 empty school sites littering the country. And if you're saving for more prisons, well don't get me started. My point: Please be more specific, Mr Key.

And you know what really makes me fret? Each share we sell opens the door to less profit for our public sector. If you own the entire power company, you get to keep all the profits. Sell some of it and some of the profits go south (or, in this case, north) as well. Do we want to sacrifice those profits tomorrow for $7-odd billion today?

Oh yes friends, this year we've got some choices to make. And it's not even Waitangi Day yet!

 

Comments (5)

by stuart munro on January 29, 2011
stuart munro

There were maybe three or four major drivers behind the state asset selloffs under Douglas et al:

  1. The desire to raise capital
  2. The desire to grow the private sector, and/or manage the public sector more efficiently.
  3. The desire to avoid public accountability
  4. The desire to earn fees, a privatisation being a form of government guaranteed IPO.

As a capital raising strategy the Douglas sell-offs were spectacularly ineffctive, realising sometimes only 20% of the value of the offerings. NZ is a textbook example now of how not to privatise. I still may have a copy somewhere.

The private sector did not grow so much as get sold down, like the Railways property portfolio. And service efficiency may have improved on paper, but from a consumer perspective it tanked.

Prebble substantially avoided public accountability, but the Labour party is still being punished for the theft. In a democracy, a dramatic policy change is supposed to be the subject of a vote. Douglas and Prebble should have resigned and stood again with their policies. But that of course would have ended their political careers. So they ended them by alienating their constituency instead - it got them a few more terms of parliamentary superannuation.

The fees were simple graft. But the credulous remainder of Labour were by this time sold on the false economic doctrine, thus NZs 30 years in the economic wilderness.

Should Key sell off the remainder of the assets? It would be the last act of a tragically improvident government. What will they sell next year, blood? Both major parties and treasury need to get their act together. The first step must be to admit that they have been worse than useless. The next step should be to study two or three functioning economies - because self-evidently ours is not.

And no more borrowing. With the dollar at 84 cents US we could print $7 billion to great advantage - given that we don't have a failed state next door to rattle sabers at to keep the currency down, as Korea has.

Neither a borrower nor a lender be,

for borrowing dulls the edge of husbandry

Husbandry is the skill that has not been evident in NZ governance for nearly forty years. Conventional wisdom on the left is that the Clark/Cullen govt was economically competent. This is pure fantasy. They may have thought they were Keynesian, but Keynes himself never ran a deficit.

ACT and National? They are simply looters of the public estate. Kleptocracies never prosper, and NZ is not an exception to this rule.

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