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Killing the golden geese

Written By: - Date published: 9:26 am, October 16th, 2010 - 45 comments
Categories: ACC, kiwisaver, privatisation, superannuation - Tags: ,

Amidst growing realisation that the right wing “neo-liberal” economic agenda as a whole is fatally flawed, some of the previously ardent supporters of privatisation in NZ are admitting that the last round of sell-offs was a mistake. But the current National leadership haven’t got the memo. They’re ideologically opposed to state owned assets. They’re still developing an agenda of privatisation, including assets like ACC. They tried to push through the idea of flogging off KiwiBank. They cut back on contributions to the Cullen Fund, costing us an estimated $30 Million or more.

Unfortunately for the zealots, the Nats’ position makes no sense. This has become particularly obvious because of their dismal performance in lifting NZ out of recession. The occasional feeble flickers of life that we do see in our otherwise moribund economy are down to two factors, occasionally favourable commodity prices, and returns from state owned assets. For example, according to Treasury back in May:

Deficit Falls Further The Government’s deficit has decreased further, with the Crown’s operating balance for the nine months to March 31 coming in $2,006 million smaller than forecast at $1,327 million mainly due to gains on the Crown’s investment portfolios held by the NZS Fund, ACC and EQC.

Good news thanks to state owned Super Fund, ACC and EQC (so thank you Labour governments 2001, 1974, 1947). And now the same thing this month:

Oct. 14 (BusinessDesk) – The government’s deficit shrank as bigger returns from the ACC and New Zealand Superannuation Funds bolstered sagging revenue streams.

The government’s deficit narrowed to $4.5 billion in the year ended June 30, from a $6 billion deficit a year earlier, according to financial statements released today. That was underpinned by a $2.5 billion gain in the value of the so-called Cullen Fund and ACC investment portfolios

These state owned assets are generating some rare bright spots in an otherwise dismal sea of poor economic news. So why would any rational government sell ACC (or other state owned assets)? Why would any rational government be cutting back on the Cullen Fund? In short, why are the Nats determined to kill the golden geese?

45 comments on “Killing the golden geese ”

  1. ianmac 1

    The lack of revenue from the tax take will lead to further justification for further cuts in State spending. So why reduce taxation? Aha! An excuse for cuts in State spending, and a platform for privatisation. Of course. Silly old me!

  2. jagilby 2

    The government is the only entity that has the ability to sell an asset (at the value of it’s discounted FUTURE cash flows) but maintain the ability to derive revenue from that asset into perpetuity (taxes) and assert its control over that asset (regulations). What’s not to like?

    Does your definition of “privatisation” also include public capital raisings for the likes of Kiwibank? In that case it’s a little disingenuous to call that privatisation because Kiwibank is currently capital constrained and will require an injection from somewhere other than the socialist money gnome at the bottom of the garden.

    • Armchair Critic 2.1

      …will require an injection from somewhere other than the socialist money gnome at the bottom of the garden.
      Primarily because that gnome is exhausted from helping National by bailing out SCF.
      Hopefully John or Bill will ask the fairies at the bottom of the garden to step up.

      • jagilby 2.1.1

        Nice to know you were opposed to Labour’s rushed implementation of the Deposit Guarantee Scheme.

        A scheme that I am not entirely opposed to (aside from guaranteeing interest payments) on the basis that it prevented our credit markets from absolute destruction.

        If your appreciated the facts you’d know that National effectively bailed out SCFs lenders – real people – SI lemmings who dived into SCF debentures with full knowledge they were now effectively “risk free”. If that bail out had not happened then there would be far more farms sold offshore at bargain basement prices as the market would have been flooded with supply from fire sales. What would you have thought about that?

        • millsy 2.1.1.1

          The best thing would have been for the government to secure some form of equity in SCF.

          • jagilby 2.1.1.1.1

            Equity?
            Do you mean that non-existent thing that Allan Hubbard has his name on?

            The government effectively has rights to all proceeds from the unwinding of the loan book and asset sales. I’d say that’s about as good as it gets.

        • Armchair Critic 2.1.1.2

          Nice to know you were opposed to Labour’s rushed implementation of the Deposit Guarantee Scheme.
          I said nothing of the sort.
          Since you apparently missed the point, I’ll restate it for you.
          I was contrasting:
          “the apparent willingness (actually it seemed more like eagerness, but let’s not overstate the case) of the government to bail out SCF.”
          versus
          “the obvious reluctance of the government to help Kiwibank raise capital”
          Got any comment on this contradiction, or would you prefer to avoid discussing this aspect of National’s double standards?

    • Draco T Bastard 2.2

      The only people who believe in pixies with free money at the bottom of the garden are NACT. This is seen as they give lots of our money to themselves and their rich mates and boost wasteful government spending. Such wasteful spending is clearly seen in Paula Bennetts requirement for people on the UB to reapply every year. It’s just more unnecessary work especially when there isn’t any jobs available.

      • jagilby 2.2.1

        Wasteful government spending? Ha, you mean that nine year project from circa 1999-2008 that is currently being wound down?

        Lots of “your” money… how much tax do you actually pay. Personally. In absolute terms.
        Now quantify how much benefit you get from Government – come again with what side of the ledger are you on again?
        Also, can you make out the difference between
        1) “giving lots of our money” and
        2) “taking less of something that wasn’t yours in the first place”.

        Why are there no jobs available?
        Our capital markets are an absolute joke that’s why. Anyone with a half decent idea can’t raise capital necessary to progress it to the next level and scale up their operations.

        Where exactly do you think your beloved ACC investment portfolio and NZ super fund have been making the lion’s share of their returns? In the offshore capital markets, that’s where – you know, those massive evil capitalist institutions of greed – That reality must be very difficult to come to terms with.

        • Draco T Bastard 2.2.1.1

          What absolute delusion.

          Ha, you mean that nine year project from circa 1999-2008 that is currently being wound down?

          The waste that NACT can’t actually find? They’re cutting anyway and making sure that the government doesn’t have enough money to do anything so that people become even more dependent upon them and their rich mates so that wages can be forced down.

          Why are their no jobs available? Because the delusional ponzi scheme known as banking and finance destroyed the economy by creating lots of money through debt that can’t be repaid.

          That reality must be very difficult to come to terms with.

          No, once I realised that capitalism is pure delusional ponzi scheme it was quite easy to come to terms with. BTW, ACC gets it’s money from the workers and “invests” it’s surplus, ie, it wasn’t having a financial crisis as claimed by NACT which proves that they lied.

          Also, can you make out the difference between
          1) “giving lots of our money” and
          2) “taking less of something that wasn’t yours in the first place”.

          Yes, I can detect delusional RWNJ thinking when I see it. Society is expensive and yet you think that it costs nothing rather than that you have to pay to keep it going.

          • jagilby 2.2.1.1.1

            Haha, Ponzi scheme. The word of the day on Sesame Street. We’ll be here all day on that.

            Well actually, they might not have mentioned this in all the books you selectively choose to read and tout as qualifications, but financial position is defined by the rules of accrual accounting – that means stating all of your current obligations. For ACC their current obligations include the future funds required to rehabilitate injuries etc that have already occurred (i.e. the “outstanding claims liability”).

            So come by me again with that “surplus” idea – presumably you’re talking about the $12.8b of investments they have against the $24.4b of outstanding claims liabilities?

            Read some more books, this time on financial statement analysis and then have a look at ACC’s last two annual reports and tell me what you think about their debt-equity ratio – You might have some questions about what it means when that number is in the negative. That’s not usually covered in the books. In short it means you’ve got a pretty big issue to contend with.

            Just wondering what your take is on my initial thoughts on privatisation though (you know the part of my initial post that you ignored) – Sale price recognising all future free cash flow streams (cause that IS how any going concern is valued – thus if you had a golden goose it would recognise that) and continued revenue and control. Seems pretty attractive to me.

            • Draco T Bastard 2.2.1.1.1.1

              As I said, it’s delusional.

              Sale price recognising all future free cash flow streams (cause that IS how any going concern is valued – thus if you had a golden goose it would recognise that) and continued revenue and control.

              If someone is willing to pay X amount for something then it must be worth more than that and so it’s worth keeping it. Ergo, no such thing as a sale price.

              In reality such things as Kiwibank and ACC are more valued by the services they provide to the community than by their cash flow. ACC worked fine before it was shifted into a pre-funded system. Kiwibank could be easily expanded to meet the needs of NZ by the simple expedient of the government investing in it with money printed directly for the purpose (any inflationary aspects of printing money can be offset by increasing taxes).

              • jagilby

                Haha. You’ve just stepped way out of your depth here. You have no idea how much pleasure I’m taking in retorting to this.

                M&A and Corporate valuations have been my bread and butter for the last 5 years. While you’re on here all day vomiting bile onto your keyboard, talking about the evil forces of imperialism and finding fun new ways of calling Key the anti-christ I’m doing this shit in the real world. So I find it hilarious when you talk about what happens “in reality”.

                You’ve completely missed the issue of fair value – i.e. “amount of money for which it is assumed an asset or liability could be exchanged in an arm’s length transaction between informed and willing parties”. Key points being “informed” and “willing” parties.

                Let me break down exactly how the Government would benefit from selling assets.

                In any transaction the vendor (i.e. the Government in this case) will forecast what it expects to achieve from the asset in question. The modelling period could be as far out as 50yrs and take into account expectations for strategic expansions, increases in operational efficiencies etc etc. From these forecasts a fair value is established that the vendor will likely add fat to. This is all kept confidential but establishes a lower bound that the vendor is “willing” to sell at – the vendor will only sell for a minimum value that it thinks it could realise with its resources. That is key.

                The bidders/purchasers then have the opportunity to open the books (conduct due diligence) and model their own forecasts. Now this is where the difference in what something is “worth” will start to play out. The purchaser may have different expansion plans or be able to achieve additional efficiency through synergies with their current business.

                Then the negotiations begin with the vendor not willing to sell for less than the value it could realise and the bidder not revealing the upper bound that it could achieve. If the bidders modelling does not result in a price that the vendor is willing to accept then the vendor doesn’t have to sell. The vendor (Government) would only sell above their modelled fair value but, importantly, would not have access to those synergies or be party to bidders confidential expansion plans so would not be able to realise the additional “worth” of the asset to the purchaser in any case.

                Ergo, the sale price benefits both parties.
                The vendor gets more from the sale price than value they could derive; and
                The purchaser get the asset for less than the value they could derive.

                In the event of a sale involving the Government, the Government has the advantage for 3 reasons:
                1) it can sell assets for at least what it derives as fair value and still tax benefits derived from synergies or different expansion plans that it would never have been able to achieve had it held the asset;
                2) it can regulate the purchaser if the purchasers objectives post-acquisition are not aligned with what the Government wishes to achieve; and
                3) As with any purchase the vendor has a more complete set of information on which to base its assessment of fair value.

                I’m not going to even get started on how bad an idea printing money would be let alone offsetting inflation by increasing taxes. I’ve wasted enough time without arguing against pure insanity.

                • KJT

                  It is a good idea to let the private financial gambling sector to go on printing money at will?

                • Draco T Bastard

                  Key points being “informed” and “willing” parties.

                  The government selling off state assets didn’t have anything to do with informed or willing parties. Nearly everyone opposed it. Considering that they were sold off for less than what they were worth to the community also proves that the government wasn’t informed.

                  You’re arguing from the PoV of a neo-liberal and I’ve already answered that. In other words, you’re arguing from the PoV of the delusional.

                  • jagilby

                    It’s the PoV of a practitioner.
                    Your PoV is clearly blinded ideology – you can’t claim to actually understand the process at all.

                    “Willing” as in the Govt not acting under duress – I wasn’t meaning the electorate.
                    But you knew that, you had to blur it because you don’t have a leg to stand on.

                    • Draco T Bastard

                      Ergo, the sale price benefits both parties.

                      Nice theory – it doesn’t work as reality has proven. Nearly everything that the neo-liberal theory says is wrong. Considering that it’s also based upon some assumptions that just don’t apply in reality it basically means that the entire theory is delusional.

                      “Willing” as in the Govt not acting under duress – I wasn’t meaning the electorate.

                      Do we live in a democracy or a dictatorship?

                      We are worse off after selling state assets. Obviously, we didn’t get any advantage from selling them. Why didn’t we if all due diligence was done as you say? The only answer is that not everything was taken into account when setting the sale price. And, again, if someone is willing to buy at that price it must mean that it’s worth more, ergo, selling it at that price is irrational.

                      One question I believe wasn’t asked when they sold off Telecom was How much will it cost to run two or more telecommunications networks? This is an important question because they were talking about competition and the only way you can get competition in telecommunications is to have two or more networks and paying for the extra networks would have to come out of the economy. That means that everything else that needed doing would have to be put on hold as more resources were diverted to telecommunications. Result – massive friggen waste. We don’t need two or more such networks – one’s fine.

                      The same applies to ISPs, phone and electricity suppliers. If you only have one network, because it’s the most efficient method, then having more than one ISP just creates unnecessary bureaucracy.

                • Rijab

                  “Haha. You’ve just stepped way out of your depth here. You have no idea how much pleasure I’m taking in retorting to this.”

                  … A dangerous thing to post on the internet; your arrogance mixed with lively ignorance must amuse many observers. If this is your “bread and butter”, then I strongly suggest you head back to University. But hey, I’m sure everything in ‘your’ life is running exactly to plan, everything seems so simple, so who needs to comprehend more than that right?!

                  Keep on keeping on.

        • millsy 2.2.1.2

          \”jagilby\”,

          How many hospitals did National close between 1990 and 1999?
          How many hospitals did Labour close between 1999 and 2008?

          Does it occur to you that this \”wasteful government spending\” you go on about was actually ensuring that people actually got a healthcare system, and not just a bunch of crumbling boarded up buildings?

          anti spam word: memorys

          • comedy 2.2.1.2.1

            Aren’t the more reasonable questions to ask

            1. How many hospital do we need ?
            2. What services should they provide ?
            3. Where should they be situated ?
            4. How much funding will they require ?

            • Draco T Bastard 2.2.1.2.1.1

              Great questions. National didn’t ask them either before closing a few dozen.

    • bbfloyd 2.3

      J… in an ideal world you might have a point….. unfortunately we have had such luminaries as bill birch and bill english driving these policies through. this is the first fatal flaw in any of these strategies. the second, of course is the fact that overseas interests have bought up these assets at ridiculously low prices and promptly started the bleeding process. for privatisation to work requires responsible owners running these assets in a fashion that actually grows the investment for the long term good of the companies AND the society that they are supposed to be serving… as you well know, that hasn’t happened.

      i would contend that playing relatively meaningless, and contradictory word games does no more than inflate your own sense of intellect rather than contribute useful information..

      • jagilby 2.3.1

        Well that’s correct and that’s the point I was trying to get at.

        Privatisation is not, in of itself, a bad thing as some people will have you believe.
        There has just been a history, as Jim Bolger also pointed out this week, of particularly bad and rushed execution in New Zealand (I’ll just ignore the snails pace that the electricity sector was/is privatised at).
        That goes for buying assets too – Jim, as chairman of KiwiRail, was too kind to admit to that.

        • Draco T Bastard 2.3.1.1

          Privatisation is not, in of itself, a bad thing as some people will have you believe.

          Yes it is as it’s done solely for the benefit of the individual rather than the benefit of the community. As such the community always loses as has been conclusively proven by our experience ever since our governments started selling stuff. Telecom is the glaring example – if we’d kept it we’d already have FttH and the ultra fast broadband that comes with it. We certainly wouldn’t now be having to bribe further private organisations to put in place the infrastructure that we need.

          • jagilby 2.3.1.1.1

            Really? FTTH already?
            What basis do you place that on?
            Because so many state-owned incumbent Telcos have mature FTTH networks… oh wait.

            There are actually no countries with FTTH penetration above 30% – Japan has the highest at ~25%-26% at last check. South Korea has ~50% FTTB. And guess what – as far as I know all of the major FTTH rollouts have been done by private companies.

            For it to be all up and running we’d have to have started 5-10 years ago. You really think that the NZ Government, had they owned Telecom, would have forked out $5b-$7b for FTTH (because that is what the final cost to lay fibre nationwide will be)? Before anywhere else. Wow… talk about going out on a limb with big calls.

            And you call me deluded.
            Just keep playing at The Standard all day and further removing yourself from reality.

            • Draco T Bastard 2.3.1.1.1.1

              You either forget, or just didn’t know, that Telecom was making a profit in the 1980s and it was that profit that profit that put in all those nice digital exchanges, the really big cables so that everyone could have a phone as well as started the original fibre network.

              1985 – $272m
              1987 – $300m
              1988 – $310m

              those figures are not adjusted for inflation but are the reported amounts.

              Telecom started rolling out FttC in the late 1980s. Telecom, in the late 1990s and early 2000s were taking it out and replacing it with copper so that they could get ADSL out. The better option, but more expensive, would have been to start the ADSL cabinetisation process then (late 1990s, probably best in early 2000s). The chances are, this is what would have happened if Telecom had still been state-owned and the profit, instead of going overseas, was still being put into the network as it was in the 1980s. Basically, what we’re talking about here is about another $10b to $20b, in today’s dollars, being fed into the network over the last 20 years. FttH? Not a problem and it wouldn’t have been the government funding it.

              Telecom went the cheap way that allowed them to maximise profit rather than the best way that would have maximised benefit to the community.

              South Korea has ~50% FTTB. And guess what – as far as I know all of the major FTTH rollouts have been done by private companies.

              http://www.itif.org/files/2008BBAppendixF.pdf

              Through these programs, South Korea not only invested a substantial amount of money from the government budget, enacted promotional regulations, and provided incentives to private companies to build networks, it also enacted a number of successful efforts to spur broadband demand and digital literacy.

              Private companies – with government funding.

        • KJT 2.3.1.2

          Privatisation of natural monopolies especially those involved with vital infrastructure have proved to be a bad idea anywhere they have been tried.

          That is from another practitioner.

          Accrual accounting is designed for no other purpose than deciding on tax to pay. A gerrymander for accountants in and out of parliament.
          Any relationship to company values/profit is entirely coincidental..

          The value of ACC to the economy is in the savings we make from not having the dysfunctional legal and medical answer to industrial accidents that they have in the USA.

        • Vicky32 2.3.1.3

          “Privatisation is not, in of itself, a bad thing as some people will have you believe.”
          Er, of course it is.. and I am not going to argue economics, I know from nothing about it, but I do know that Thatcher was totally wrong when she said there was no such thing as society..
          Deb

  3. Treetop 3

    Quite frankly it is a no win for anyone, history will repeat itself to those who do not learn from it:
    The Muldoon government of 1975 destroyed compulsory superannuation.
    ACC is working and far better than anticipated.
    Kiwibank is growing.
    NZrail will now pick up due to two mayors having vision for it.
    EQC has resources for its intended purpose.

    I have come to the conclusion that Key’s style is a moving money around. The NZ economy cannot be run like a stock exchange.

    • millsy 3.1

      “The Muldoon government of 1975 destroyed compulsory superannuation.”

      Even if the New Zealand Superannuation Corporation, and the scheme that it had administered survived, I still belive that someone would have ended up flogging it off or breaking it up down the track.

      • Treetop 3.1.1

        Just look at the fragile super fund we have now and how sucked dry it is. I agree with you that the temptation would have been too great with the 1975 super fund.

        • KJT 3.1.1.1

          First it would have been sucked dry by fees to financial service providers, as most super schemes were in the seventies, then the 1984 Labour Government would have sold the remnants to their mates for half price.
          Followed by a knighthood for the buyer.

      • bbfloyd 3.1.2

        M .. even for an assumption, that is teetering on the edge of the cliff… how do you think people would have reacted if the muldoon government hadn’t dismembered the scheme, and it had been allowed to develop without interference?….. i would contend that a safer assumption would be that it would have become polically difficult to do as you assume.

        if you doubt this, then it would be instructive to ask students of political histories how the fear of electoral backlash have tended to dominate decision making.

        • millsy 3.1.2.1

          The Fourth labour government didnt really appear to be worried about political backlashes.

          Nor did the Fourth National.

  4. millsy 4

    The goverment needs to start buying things back, not selling them.

    A good start would be Telecom, and possibly the forests that we flogged off in the 1990’s though with the Kaiangaroa forest, some sort of joint ownership arrangement with the new iwi owners may have to be thrashed out.

  5. Draco T Bastard 5

    In short, why are the Nats determined to kill the golden geese?

    They don’t want to kill them, they just ownership of them so that they and their rich mates gets the massive benefits rather than the people (us) that they were set up to help. It’s juts another round of privatising the gains and socialising the losses.

  6. Rharn 6

    In recent years the National Party has never acted in the National interest. They are ideological driven because those that sit ‘behind’ the National Party i.e Buisness Round Table and the right wing think tanks, control the policy of the National Party by way of party funding.

    • clandestino 6.1

      I wouldn’t fret too much, the prevailing macroeconomic edifice is set to crumble before our very eyes when protectionism v.2 with a mercantilist twist kicks in.

  7. jagilby 7

    I actually thought, after reading the title, that this post was going to be about the NZ film industry.

    I guess that might have read “killed” rather than “killing”.

    • millsy 7.1

      So you are against film industry workers getting decent wages and conditions then?

      Given that the set designers in the LOTR series did an excellent job, it would be a bit saddening to learn that they earn less than minimum wage…

  8. Maggie 8

    The normal process of privatisation:

    1. Government sells asset to Rich Cat Capitalists
    2. RCCs hike the price of services to public in order to maximise profits to shareholders
    3. RCCs ignore any need for investment in, or maintenance of, infrastructure
    4. Asset falls into disrepair and service becomes nonexistent
    5. Asset faces bankruptcy as customers boycott it because service is too expensive and unreliable
    6. Government steps in to buy asset back in order to rescue it
    7. Government faced with huge bill to rebuild neglected infrastructure

    Examples: Air New Zealand, Kiwirail

  9. Brokenback 9

    I have a simple response to the much promoted sale of ACC ?

    Why is it necessary /adventageous ? because it is a planned outcome of the NACT govt.
    The private model swings on “outcomes” .

    Why this particular outcome?
    Because the transantional Insurance Companies, regional offices Australia, who gave willingly to Nact campaign chest want their reward .

    Compulsory Universal Insurance in a fascist society , without the legal right to sue for Punitive Damages , is a license to print money— even if it is the artificially propped South Sea peso.

    The campaign against the sale.

    NO SUE , NO SALE.
    Should get a few pesos out the back door of the Law Society for leaflets.

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