Great column from Selwyn Pellett, a business leader who is involved in the high tech area.
Firstly, the justification for the plan is invalid or at least greatly exaggerated. New Zealand doesn’t have anything like the same Crown (government) debt as Portugal, Spain, Iceland or Greece. The combination of private sector debt — via our foreign banks — and Crown debt is unacceptably high at around 90% of GDP. However the difference in New Zealand’s case is that a greater proportion of our debt is private sector debt. A default on this debt impacts on the balance sheets of foreign banks not the New Zealand government.
Our Crown debt is, by global standards, still low. Lumping these two types of debts together, as the Prime Minster is doing to attempt to justify this policy, is at best mischievous and at worst dishonest.
and
The dividend stream that flowed out of Telecom – and indeed out of the country – would have been enough to see our broadband infrastructure in place a decade ago, with all the positive effects on GDP growth. Telecom’s ability to extract monopolistic pricing effectively became a foreign tax on all New Zealanders and a handbrake on our economic development.
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Selwyn’s points are spot on.
And that’s not even considering that our strategic energy assets – along with our fresh water ways – are going to be amongst the most important things we must keep firm control of as a country.
Oil and water. The life blood of our economy. The crunch is coming and NZ needs to position well and position sustainably for it.
An observation on balanced journalism.
When Key floated this policy in his S.O.N. speech, the television journalists sought comments. Understandably you would expect Key/Goff. But the rest of the headline interviews were with voices from effectively the same body. (Whelan, Kerr, Thompson, O’Reilly).
Latterly we have had Peters and Little but against that even more pro voices. (And manipulated in that furtive-nudge-nudge-I-have-the-inside-on-this-whispering style that is Espiner)
Has Deborah Hill Cone seen the light at last and does she include Key in the Wall Street wheeling and dealing set?
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10702313
Key ‘mischievous and at worst dishonest’? He’s not called Shonkey for nothing! ‘Dishonest’ is too mild a word!
Title should read:
‘Selwyn Pellet opposes asset sales.’
also interesting that th enew national candidate for botnay got his face on tv while the announcement of Labour’s candidate left us none the wiser to his face.
mark Wheldon is a birght man, no doubt but there is some mischieviousness in asking for his comment on the value of asset sales when his business will gain enormously, financially and otherwise from those sales. Why cant journalists preface of append pieces with, as CEO of NZX Mr Wheldon will personally benefit from the sales as outlined. Then let people judge the valkue of his comments.
Roger Kerr siad it doesnt go far enough, so he put his hand up to be the “radical” right wing voice to make the PM seem like middle NZ.
His face was shown on 3News at midday. His local board he is on is no where near Botany. Does he live in Botany or the local board region.
Loved this bit ” Our Crown debt is, by global standards, still low.” How did that not get edited out??
Dave.
Our Crown Debt was nearly nil at the end of 2008.
I think that our Crown Debt is now about $30billion.
Regardless of what caused that blow-out it has happened in the two years that Nact has been in charge.
The countries that Key likes to compare us with had Crown Debt far in excess of our 20008 zero.
So what’s your point Dave?
Matthew I think we can all agree the midday news is not available to as many as the 6 o’clock. It’s about balance. For example the National Radio has recently headlined something national is doing, then the voice piece is with someone from Labour or anothe rparty. I think that is also unbalanced.
Careful with the geographical jabs Mnatthew, the member for Hellensville lives in parnell.
… and the member for Clutha has lived in Wellington most of his formative, working and all of his marriages’ life.
@ianmac – I guess my point is that the lunatic left are getting hysterical about debt, when a cited supporter of the Labour view on partial asset sales, believes our debt isn’t such an issue to wet ones pants about. Also I think saying “regardless” of what caused the debt i.e. a world global economic meltdown is disingenuous at best and ignorant at worst. I doubt even the most misinformed lunatic leftie might accept that this…may…have …had some effect on …our economy. Then again some do occupy the space slightly to the left of lunatic don’t they? I guess you’re lucky that Labour were never called upon to make these decisions to maintain New Zealanders lifetimes to any extent, whilst all around the world was falling down.
Hugh Mackenzie Research Associate at the Canadian Centre for Policy Alternatives
Whenever there’s an economic downturn, governments’ fiscal balances inevitably deteriorate and “what to do about the deficit” starts to crowd its way onto the political agenda.
As hysteria about Ontario’s budgetary deficit continues to mount, the economic deficit is already being obscured by the political deficit.
On one side, we have headlines and commentary reminiscent of the coverage of earthquake, wildfire or flood in their depiction of impending calamity.
On the other side, we have the provincial government casting about for a politically viable response. After musing about and then rejecting Dalton Days, the premier has turned his attention to the other old chestnut of asset sales – selling off significant public assets to “pay down” the deficit.
There are two problems with this political fix. Asset sales do nothing to address whatever long-term fiscal issues Ontario may have to deal with once we have recovered from the great recession of 2008. And they impose significant long-term costs to the public interest in the province.
Let’s look at the fiscal issues first. Economically, the fiscal issue is not that we had a deficit in 2008, or that we’re going to have one in 2009 or even that we are likely still to have one in 2010 and 2011. When the economy shrinks, revenue drops, expenditures tend to increase and budget balances deteriorate. On top of that, in 2009 and 2010, budget deficits will be bigger because the federal government and the Ontario government – along with every other government in the world – decided to make them bigger in an effort to stimulate the economy.
The real fiscal issue is whether or not deficits will persist after the economy has recovered. And that will depend in large part on whether or not the economy grows enough to offset the fiscal holes dug by recent federal and provincial tax cuts.
Selling assets doesn’t address that issue in any respect. What it might do is make it look as if the fiscal situation is improving in one or two politically important years. So just as Mike Harris had his eye on the 1999 election when he dumped Highway 407 in a fire sale to make it look as if the deficit was continuing on a downward trend, perhaps McGuinty has an October 2011 election on his mind when he starts musing about dumping public assets as a deficit-fighting measure.
The comparison with the sale of the 407 in the late 1990s is apt in another respect. The Harris government was so anxious to get the revenue in the right fiscal year that it made a bad deal, one that gave Ontario less than the asset was worth and included terms that left the province with no ability to influence the highway’s operations.
With Highway 407 gone, we have a different set of possible fire sale candidates: perennial favourites, the LCBO and Hydro One; and a new potential candidate, the Ontario Lottery and Gaming Corporation.
In the first place, it is difficult to see how we could get a good deal selling these assets off. The financial collapse may be behind us but the lingering after-effects mean that potential bidders will not be in a position to pay anything like what they might have paid before 2008. More important, basic math tells you that a buyer will expect to earn a return on its money higher than the government’s cost of borrowing – otherwise they’d just buy the government’s bonds – and that extra return has to come from somewhere. And one way or another, either directly or through our government, that means it has to come from us.
But the risk in asset sales goes beyond the money. Each of the potential sale targets has significant public policy implications. Take Hydro One. It doesn’t just sell electricity, it also delivers public policy. It ensures that economically vital electrical service is reliably available everywhere in the province – including areas where it may not make narrow economic sense to do so. Think we could count on a private owner to carry that on? Just ask Canadians in communities abandoned by Air Canada about that. Or the potential cable TV customers in expensive-to-serve areas who don’t have access to the service.
With respect to the LCBO and OLG, we don’t just operate these businesses publicly because they make a lot of money. We operate them publicly because we believe that it is in the public interest to be able to manage access to the goods and services they sell. We don’t necessarily think, for example, that it would be a good thing if lottery tickets were even more aggressively marketed so as to expand sales. Perhaps better marketing and a proliferation of outlets would make it easier to purchase more alcoholic beverages. But we operate the business of the LCBO publicly so that the public gets to make the decision about whether or not that’s a good idea.
And then there’s the nagging question of principle. Both the LCBO and OLG have become significant sources of public revenue. Even if we retain a share of the profits, selling either of these assets would amount to contracting out the raising of public revenue. Talk about taxation without representation!
Finally, there’s the little matter of the premier’s (paid) “advisers” on the issue: Goldman Sachs, a financial giant and major player in public asset sales around the world. Isn’t that a bit like a farmer asking Colonel Sanders what to with his flock of egg-laying chickens?
Asset sales as a deficit response don’t make sense. They don’t belong on the political front-burner that Dalton McGuinty has put them on. They don’t belong on the back-burner. They don’t belong on the stove.
Thanks to Cullen our debt is very low by international standards, our overseas debt is very very high but that is mainly because our banks are overseas owned and it suits their tax position to operate like that.
Having said all that I think the partial floats are a great idea and gives kiwisavers/ individuals good blue chip solid companies to invest in. The Cullen fund, ACC and Kiwisaver accounts are invested 80% overseas because of the few opportunities here.
Makes a huge difference to people getting an 8% yield on a share rather than 3% at the bank.
I think it may be more correct to say that the banks were happy to fuel our property asset bubble with cheap liquid funds from overseas, and pushed huge amounts of debt onto the private sector.
One of the reasons why Westpac is able to ship $6.2M in profits each week back to Australian shareholders.
Sure this works well if your 8% p.a. finance company ends up being bailed out by the tax payer.
Who exactly is winning there? Ahhhh private wealth, at the expense of all tax payers.
DON’T use public assets to help a few wealthier individuals make money off everyone else.
Forget the Cullen fund, ACC etc – ACC’s assets for instance are going to be given to private sector insurance companies. The Cullen fund is tiny compared to foreign invesment funds (esp. Chinese funds) which will be interested in our power generation hard assets.
My pick: foreign shareholders will quickly end up being the dominant owners of our strategic energy assets during the time of peaking oil production.
I want to know why private debt is somehow my problem. I was not one of the greedy selfish prick(s) who decided to chase the property boom. My family was content with one house, the same humble bungalow for the last 20 years. As far as I am concerned, those who are caught with extra rental property that they are in hoc to is their own making and should be making good. Not me and my family and not the majority of us “Mums and Dads” that Key and English keep referring so cutely to.
Mr viper i am a painter by trade and have worked hard and have a few bucks set aside now the kids have moved out and most of it is in the Aussie sharemarket but I bought some Contact shares when they floated and its been a really great investment. I dont thinks its unusual for us (mum&dad) to have a few bucks set aside for the golden years after 45 years of hard work and i would much rather have my money here at home. Much rather have it in a profitable Kiwi power company than an Aussie bank. If that power company with a bit of shareholder scrutiny has to be a bit more efficient then all the better.
I do work for Meridian and you have never seen such a pampered bunch of overpaid workers in all your life, guess thats why my power bill has been flying up over the last 10 years of government control.
I can understand why NZ buisness would want electricity to stay in government hands because electricity is a cost of production for most, if not all, buisnesses.
Oh and what is with all of these people coming on and talking about themselves over issues of national policy? You are not the entire nation so your stories have very little relevance. E.g @David did you not think for one moment that only a small number of NZers would acquire these shares and see the benefits as you have while everybody would suffer under increased electricity costs.
@David but I can totally relate to you on that last part though. There are alot of slackers in the public sector. The answer is to toughen up on them not to sell the companies.
The Righties talk about “themselves” all the time (they always have such neat little conservative lives, complete with the picket fence) because they can’t see that their success depends upon the quality of the society they live within.
To them its an ongoing ‘Masters of the Universe’ storyline where they are the central actor in making it big.
Uh no, your power bill has been skyrocketing because the Govt demands hundreds of millions in dividends from Meridian. Despite the fact that I think they have way too many staff on >$150K p.a. and you say their staff are just lazy (so judgemental all you Righties) they seem to be making enough money for their owners.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10600367
Of course you would.
And you don’t mind if every other NZ’er loses their current ownership of Meridian as long as *you* get *your* return on capital.
@CV/David maybe it’s because the government has an agenda to increase employment so they overstaff. TBH I don’t know how I feel about this.
And CV I know what you mean, in that other post I was trying to stike up a conversation about the wealthy populace in general and all I got was a very emotional and defensive rant about their personal situations. It’s a shame that’s all the right have to offer on these blogs. That and the comments like Ben said about Labour being as ideological as a marxist-leninist party that just make you laugh.
Hi Dylan, what I think you will find is that ‘overstaffed’ is a very relative term. Best practice cost wise is to locate your call centre in India, and not be too worried if existing customers have to wait six or seven minutes to have their call answered.
In other words, to have no staffing locally and to not worry if service levels borders on poor.
In that sense, having any local call centre staff can be considered by corporate head office and ‘overstaffing’ and ‘expensive’.
Given that though, I do think that the muscle in many public agencies needs to be much better led and directed. I always think of the frak ups made by Defence procurement in the purchase of the Charles Upham and the LAV’s. I mean what the hell. (Having said that, private companies do a crappy job of procuring the wrong things too – you just don’t hear about it except if you are in the industry hehehehe)
If it is clear that there really is excess fat to meet the needs of citizens at that point, then fine, do away with the fat. The problem we have with the righties is that to get their cost savings and their tax cuts, they are more than happy to do away with the muscle and bone as well.
@ David, a (self-employed) painter by trade one assumes.
Most self employed I come across socially at the golf club, have a very low regard for government employees, paying taxes and foreigners and after a beer or two they let their guard down a little. They brag about how well they have managed their finances so that they have paid a minimum of tax (you know being able to claim all and sundry against the company (fuel/clothing/electricity/car/computer/toilet paper… the list goes on and on), pay the “wife” as a secretary… you know what I’m talking about.
Oh and then of course their accountant, if he is worth his weight, depreciates the whole lot anyway over time.
Now I have no doubt that most self employed people work very hard but they seem to know all about the work habits of “Them” – those other people in other industries. I heard one conversation the other day and they were talking to a teacher.
“I don’t know how you guys do it. I could never do it. You’re a hero (and a bloody idiot).”
Half an hour later, and the teacher had departed, the conversation got onto teaching practice and they bitched and moaned about schools and teachers. (Now I know I shouldn’t have been eves dropping, but you know how it is.)
There’s an old adage. “Mrs Jones spends all day looking out her window. I know because I watch her from behind the curtains in my front room.”
Cheers, I’ll just have another beer mate, thanks.
These assets offer a high rate of return, if we did not own them we could mot do better than to buy them.
So why sell, it’s simply not a commercial decision, that a business would make.
So in whose interest is the government acting?
The few locals who get to own them before clipping the ticket when on-selling to foreigners? Is this small group, those who get the top rate tax cuts and a few others the small few who this government work for?
@David
- your powerbill is “flying out of the window” my bill under Contact flew out and nearly took the house,never mind the window ,with it!!! My bills more than doubled fom 9.43cents per unit to 19.52 cents in less than 5 years. When I complained , they mentioned the shareholders– I take it that was you. You, that I used as little heat as possible last winter for -enjoy your retiremen t-it will be at my, and my goosebumps, expense. Have now changed companies after we reached 19.52 cents and still feel furious when I hear the word ‘contact’.
Indeed a “great column from Selwyn Pellett” – I can understand from it that by lumping two debts ( private sector via foreign banks(high)) and Crown debt(low) together and making them look like high Govt Debt, like PIIGS, is as misleading as ever from John Key.
Of course it is another really well spun fabrication from him -this time to launch the ‘need’ to privatise in order to ‘save’the country and by so doing- open New Zealand up for sale to the likes of Mark Wheldon. This was what the business world had entrusted him to do from the very beginning. At least some people can trust him!?!- but for the rest of us ordinary New Zealanders the only thing one can trust John Key in is – dishonesty. What he has said so earnestly , with practised eyes wide open, is, from the experience of his words over the last 3 years, especially his utterances in the run up to the last election, rarely true. Worse – the false utterances are then respun until one is so confused it is hard to know which one to rebut first. By this time Key is grinning inanely and is pottering off to a celeb photo shoot or a holiday. What a way to run (down) a country! Help!
He should remember that he is the Prime Minister for the well being of ALL New Zealand – not just the few wealthies, and he should not disrespect us by misdirecting us for the benefit of the few. ( Nick Smith should heed this advice tooregarding his clever misdirection on ACC in order to eventually sell it off to his mates.)
*Tonight on TV1 news John Key says Labour is being false about its tax proposals. Well, from the experience of the consistent lack of honesty from John Key one can only conclude that this ‘falseness’ he describes from Labour, is in fact the truth.
I’m pretty sure Max Bradford began th eprivatisation of energy and the escalating costs…he may not have been around when it came to fruition but he was there…nat and lab have their fingerprints on thks so the mnoral high ground is gone.
crashes are cyclic, to stop this happening again we break the cycle, trying dsomething used before is not bresking the cycle.
Let’s look at the fiscal issues first. Economically, the fiscal issue is not that we had a deficit in 2008, or that we’re going to have one in 2009 or even that we are likely still to have one in 2010 and 2011. When the economy shrinks, revenue drops, expenditures tend to increase and budget balances deteriorate. On top of that, in 2009 and 2010, budget deficits will be bigger because the federal government and the Ontario government – along with every other government in the world – decided to make them bigger in an effort to stimulate the economy.
Except in our case the decisions taken by the government have not stimulated the economy. any growth is in spite of its rare actions not because of it. I cite the MOF in support of this who said the tax cuts were not intended to stimulate the economy. He said this when it wa srevealed they hadnmt, before he was saying they would. So given this govt didnt understand what the rest of the economic world knows, that tax cuts to stimulate an economy are made to the lower income end not the high income end, why do we believe they understan dthe ramifications of this idea??? Cos they’re right thhis time???
From an interesting article by Bernard Hickey:
http://www.interest.co.nz/opinion/opinion-john-key-has-finally-got-religion-debt-reduction-he-needs-worship-much-harder
The interesting bit is this one:
‘Solid Energy paid dividends of NZ$54 million in the 2010 financial year on shareholder equity of NZ$436.8 million, delivering a raw dividend yield of 12.4%. Solid Energy and reported profit as a percentage of shareholder funds at 15.4%. Here is its annual report.
In total, the four SOEs potentially up for sale generated total dividends last financial year of NZ$732.5 million and shareholder (government) equity stood at NZ$9.642 billion. This implies a combined (and very raw) dividend yield of 7.6% last year.
Does this compute?
Yet the government is currently having to pay around 5.5% for the new debt it is selling, mostly offshore.
So on the face of it the government is a net loser by selling half of these state assets and avoiding having to raise new debt.
The Treasury will no doubt do a much more sophisticated analysis, but this is a question the government and voters will have to ask in a very hard way before deciding to go ahead with asset sales.
Simply stating that asset sales are a good idea for making these companies more efficient and giving investors on the NZX more options will not be enough.
Lots of hurdles would have to be jumped. For it to make financial sense, the government would have to sell the assets to the public (in theory the New Zealand public) for book value or better and be expecting long term interest rates to be much higher than they are now.’
So, an economic commentator not known for being a strong Labour supporter – comments that on the face of it, National Party’s proposed asset sale makes no economic sense from a government income point of view. Note that New Zealand does not have a high level of government debt relative to overseas countries.
The headline to the article includes the word religion…..and that is what the asset sale is really all about – the theology of right wing economics.