Saturday, 12 March 2011

The Truth Behind National's Asset Sales

The government’s grand fire sale.

The Prime Minister is returning to the failed policies of the 1980’s and 90’s in terms of asset sales and privatisation with his recent announcement that the Government will sell down its stakes in the three state-owned electricity generators, Air New Zealand and Solid Energy.

There is an embarrassing lack of rigour behind the reasons advanced to justify the flogging off of our assets. The chief argument appears to be that we need to privatise a sizeable chunk of our assets to avoid a Standard and Poor’s credit downgrade because our debt is so high. However, what we haven’t been told is that it is not government debt that is high, it is in fact private debt. Currently government or public debt is around 16.6% of GDP, however corporate debt is almost $221 billion, or 116% of GDP, as at the end of September.

Mr. Key projects that New Zealand borrows a billion dollars a month and we could make a return of around 10 billion dollars on a partial sale. Using the valuations put on the five corporations in the December accounts, selling down to 50 per cent would raise $7.8 billion. That would cover exactly half of this year's cash deficit! This does not make sense – it is foolish to privatise these revenue-making assets to save 6 months worth of borrowing!

We are being fed a sop that “Mum n Dad” investors will have a chance at owning shares in these State Owned Enterprises (SOEs). In reality most mums and dads in our economy are trying to pay the power bill rather than buy the power company. Further, once “Mum n Dad” investors are sold shares on the SOEs they are free to on-sell, and as Treasury papers point out it will only be a matter of time before more of these wind up in the hands of overseas investors.

If we sold off parts of our SOEs, in the short term we would save some money but if we sold the SOEs to foreigners then we’d just end up paying dividends to foreign investors instead. Its the same as it is with a mortgage: you can sell your house to reduce your debt, but you wont have a house. This may actually be worse than paying interest on debt. Financial commentator Bernard Hickey looked at the SOEs being singled out and found they had an average dividend yield of 7.6% – considerably more than the 5.5% interest the government is paying on new debt.

John Key promised to not raise GST in the first term, so why should we trust him about leaving the 51% in government hands? If we need money now, what will happen in say six or ten-months time when we need more money?

Mr. Key’s claim that foreign investors won’t rush in to snap up shares in our power companies when he hocks them off is ludicrous given the example of Contact Energy in the past. Since the sale of Contact in 1999, shareholder numbers have fallen from 225,000 to about 81,000. 75% of those shares are held by just 20 companies. The majority shareholder is Australian-owned Origin Energy with 51%.
Asset sales are great for foreign investors but they’re a disaster for Kiwis. Power prices will go through the roof because of the pressure from corporate and foreign owners to push up profits.

These asset sales are about funding tax cuts and will not reduce our total debt in any significant way. Of the $300 million NZ borrows weekly, $120 million goes to fund the loss of revenue caused by the tax cuts.

SOEs are currently owned by all New Zealanders who over the generations paid for them through taxes. It is foolish to sell off businesses that actually generate money for the government to fund tax cuts for the few. This is short-term thinking at its worst and indicates that National has no idea about a long-term vision for our economy. Labour will fight this move.

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