Nats’ $11b budget hole

Written By: - Date published: 10:52 am, November 6th, 2011 - 160 comments
Categories: debt / deficit, national, privatisation - Tags:

Last year and the year before, the portions of the assets National wants to sell paid over $400 million in dividends. Labour estimates lost dividends from those assets would total $11 billion by 2026. That’s an $11 billion hole in National’s budgets they haven’t accounted for. When will National front up and show us the money?

160 comments on “Nats’ $11b budget hole ”

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  1. phil 1
    6 November 2011 at 11:05 am

    As has been pointed out elsewhere, Labour’s dividend figures have been overstated somewhat. Thus if you are interested in arguing over actual facts (I hope you are), the $11 billion quoted above should be revised down. 

    • Eddie 1.1
      6 November 2011 at 11:24 am

      $11 billion is Labour’s estimate.

      The Nats claim that Labour’s estimate is too high but, thus far, National has failed to provide their own estimate.

      Until National fronts up, Labour’s is the best estimate out there.

      You can see how Labour has come to their number in their fiscal strategy report (page 8 )

      They’ve taken the Treasury’s projections of dividend income, worked out how much comes from the 5 SOEs that National wants to privatise and what portion of those dividends would be lost, and then take into account that the sale process would be spread over 6 years and the interest cost of borrowing to replace the lose dividend revenue.

      Let’s see National provide their own calculations. Rather than some random number plucked out fo the air by Key or English.

      • phil 1.1.1
        6 November 2011 at 1:53 pm

        Eddie

        Labour hasn’t taken “Treasury’s projections of dividend income”. They have taken what the PREFU identifies (see note 2 to the financial statements, p90) as ‘interest and dividends’ sourced from SOE’s. They have then used this figure to represent the dividends received by the Crown from SOE’s (thus calculating the amount forgone on sale).

        Quite why they did this without further investigation I don’t know. Surely a possibility that ‘interest’ receipts would need to be split out from ‘dividends’ would be clear, as only dividends are lost on the sale of shares. (Perhaps this wouldn’t be true if the shares were some kind of hybrid debt/equity instrument but it would be very odd to simply assume this).

        Furthermore Treasury has previously indicated the dividends forgone are likely to equal 200 million PA (please see http://www.treasury.govt.nz/budget/2011/supp2010is). If for argument’s sake we assumed this dividend grew at 5% PA (a more aggressive assumption than Labour’s) by 2026 the amount forgone yearly would be roughly $430 million and the nominal sum of dividends forgone roughly $5 Billion – the present value of this amount will obviously be less. (I stress these are rough calc’s – I’m not the one creating a long term fiscal strategy here). Plainly my model ignores returns on reinvested dividends, the effect of financing costs etc, however it should be obvious these will not make up the 6 billion needed to reach 11 billion.

        bbfloyd – the above was noted in the Herald yesterday (I happened to point it out on the Standard but I dont expect Eddie to read my comments lol). I would have expected Eddie to have some background regarding the material he was talking about. However now I have expanded on my point somewhat, please articulate which parts of it you find irrelevant and petty…

        [the five SOEs National wants to sell paid over $800 million in dividends in total in each of the past two years and nearly $5 billion in the past 10 with a strong rate of increase. Labour has them paying $850m in 2013 and rising from there. Of course, they only ping National for the portion of those dividends that would be lost through the asset sales but that still comes to $11 billion after 15 years. And $11 billion of dividends on $7 billion of assets over 15 years seems very reasonable. If National has other numbers. Let’s see them. Eddie]

        • phil 1.1.1.1
          6 November 2011 at 3:12 pm

          Is there a source for your figures (other than Labour?).

          As noted Labour’s $850 million in 2012/13 is the figure appearing in the PREFU at note 2, as are all the other medium term predictions Labour is using. Using these figures are incorrect as they don’t represent the dividends forgone which would otherwise be available to the Crown for discretionary spending. Please be careful the figures you quote are not this weird interest + dividends number.

          Per the treasury report which I linked to (which is probably more apolitical than Labour) the dividends lost will be 200 million PA (+ growth). I’m happy with treasuries advice on this.

          Btw I’m sure there is a hole in Nationals budget, it would just be better if Labour used accurate figures.

          • Colonial Viper 1.1.1.1.1
            6 November 2011 at 3:22 pm

            Sorry mate, Labour don’t have the luxury of access to Treaury officials to crunch and recrunch numbers on their behalf.

            If National is using the PREFU numbers, then Labour using them as a guide as well is more than OK

            • phil 1.1.1.1.1.1
              6 November 2011 at 3:37 pm

              So you accept my point (which implies a 6 billion hole in Labour’s budget and a 5 billion in Nationals – but that’s a rough calc so National could be the higher one)… Also treasury had crunched the numbers and told everyone – the 200 million figure is publicly available (see the report above).

              Much madness everywhere in this asset sales business lol.

              • Colonial Viper …
                6 November 2011 at 3:42 pm

                The only certainty from the asset sales is that Key’s former investment banking colleagues stand to make hundreds of millions out of the tax payer in commissions.

                • phil …
                  6 November 2011 at 4:03 pm

                  Maybe not hundreds of millions but your definitely right there (also include lawyers and accounting firms).

                  Of you haven’t said I’m wrong. By the way, I’m no National fanboy and am thus happy to be wrong 🙂 So if someone is clued up on this stuff (Treasury employee’s etc) please feel free to chip in.

                  • mickysavage …
                    6 November 2011 at 6:18 pm

                    Phil what is the figure?  National has no figure, Labour has had a stab in the dark, Treasury says the Labour figure is wrong but what is the figure?

                    • Jim Nald …
                      6 November 2011 at 6:20 pm

                      I am trying to like monkey uncle’s casino figures.

                    • phil …
                      6 November 2011 at 6:28 pm

                      Treasury has said 200 million in dividends will be lost… read the report linked above…. Who cares what National says.

                      [the 200m estimate is not in the Budget, it’s a supplementary paper that doesn’t feed into the Budget. And just saying ‘200m’ a year is silly. Is it just 200m a year forever? would investors pay $7b for $200m return a year? Get real phil. Eddie]

                    • phil …
                      6 November 2011 at 7:49 pm

                      Eddie, re you comments on my post, I have very clearly said I expect the 200 million to increase over time (in fact allowing for a greater increase than Labour).

                      You are correct, nowhere in the budget is there a line that says “Dividends received from SOE’s”. However there is a line that says “Dividends” [received] and this figure is 428 million.

                      There is a line in the PREFU that gives interest+dividends received from SOE’s before inter segment eliminations, but this number is not “dividends received from SOE’s” (logically how could “Dividends received from SOE’s” be greater than “Dividends received” by the govt?). I think Labour has made an error… you are yet to convince me otherwise (you dont really seem to engage with my point)

          • Eddie 1.1.1.1.2
            6 November 2011 at 5:26 pm

            check the end year financial statements. The distributions to the crown from the SOEs that National wants to sell – $875m last year, $802m the year before.

            Again, if you think that an estimate of the total dividends that starts in this range and goes up over time is wrong, ask National for the real figures.

            • phil 1.1.1.1.2.1
              6 November 2011 at 6:40 pm

              No Eddie, you should check the year end financial statements – ie FY2011 year end (not the PREFU) see http://www.treasury.govt.nz/government/financialstatements/yearend/jun11 . Specifically Note 4, page 55 – in the middle of a page there is a line which reads “Dividends”. In the “Actual” column the amounts are 389 million (FY10) and 428 million (FY11).

              Below you will see a figure given for SOE’s they are much closer to your numbers. However these are the figures for “interest and dividends” and exclude inter segment eliminations. I would suggest that eliminations and interest equate to roughly 400 million in each year so as to reach the dividend figure above (which I assume include all dividends derived from SOE’s – any reason they wouldnt??).

              If you are quoting from the PREFU then again please look harder.

              If you are getting this from somewhere else please let me know the document and page number.

              I would never ask National for the figures (are you suggesting they would give an unbiased view?). I am telling you that Treasury’s own figures indicate an error in Labour’s.

              [ look at the financial statements again. you want the list of SOEs and the line “distributions to the Crown” You’ll see the numbers are the same as the dividends reported by the companies in their individual annual reports – adding up to $875 million last year. Seriously. Get it together. Eddie]

              • phil …
                6 November 2011 at 7:43 pm

                Sorry Eddie, what was the page number and the report? I ran a search on both the PREFU and FY11 financials but no text reading “distributions to the Crown” came up in the pdf’s. But it might be an image or I could have screwed something up – its a bit long to just read through the whole lot. Cheers.

                Of course I can find numbers that mirror Labours exactly on p 90 of the PREFU. But these figures are not the all important net dividends paid to the Crown (the figures Labour should be using)… they are interest+dividends before inter segment eliminations.

          • mik e 1.1.1.1.3
            6 November 2011 at 6:44 pm

            But they do have the returns figures available for recent years and there is consistently increasing dividend energy is getting dearer
            Dividends for the year have been nearly $900million for these assets so 49%
            Is what

            • phil 1.1.1.1.3.1
              6 November 2011 at 7:07 pm

              Per the financial reports quoted above the govt received dividends of 428 in 2011.

              I recall two of the companies actually sold some assets in between themselves so one might have paid out a special dividend or paid down debt (the lawyers won off this – not sure about the taxpayer). But because this is within one big Crown group there was no economic gain this could perhaps be where you 900 million ‘dividend’ came from??

              However the end of year reports show a figure of $428 million for dividends – see the link above, note 4 page 55 (SOE’s plus others?). The PREFU repeats this figure at note 2 page 90. Neither splits out dividends from SOE’s (although does the Crown get material dividends from anything else??) so we can assume the figure is 428 million (or less). This coupled with treasuries assessment of 200 million PA lost (see http://www.treasury.govt.nz/budget/2011/supp2010is), seems to match Labour’s assessment that 47% of our current dividend stream will be lost (47% of 428 is 201).

              Seemingly what Labour has done is used the “dividends and interest received from SOE’s” figures (see the same pages I quote) and ignored the inter segment eliminations. Hence why their amounts are overstated…

              Can you articulate, referring to the pages of the Treasury reports you are quoting from, why I am incorrect? Avoid repeating verbatim Labour’s campaign assertions. (I couldn’t care less about whether National’s figures a wrong or right, they are probably wrong too. I’m just interested in these Labour ones at the moment).

              • Puddleglum …
                6 November 2011 at 10:29 pm

                What’s an “inter-segment elimination” phil?

                I thought it was something like one SOE selling something to another, but maybe I’m wrong. 

                • phil …
                  7 November 2011 at 12:01 am

                  I would think something like that, they subtract them from the other figures to find their total – seems like an attempt to prevent double counting revenue. Have a look at the treasury statements and see what your reckon.

                  • Puddleglum …
                    7 November 2011 at 10:29 am

                    Sadly there’s no explanation there – it’s just that most irritating of habits of ‘technical’ documents: assumed knowledge.

                    Similarly, I couldn’t find an explanation of PPE (though I think I worked it out with their explanation of non-PPE).

                    If I (we?) are right that ‘inter-segment elimination’ means something like when one bit of government (e.g., one SOE) sells something to another bit of government (e.g., another SOE) I’m not sure why a ‘correction factor’ is required.

                    For example, if Meridian sells something to Mighty River Power (what a silly name) then, sure, Meridian can give a bigger return to government (dividend). But, surely that’s automatically offset by Mighty River Power having to reduce its dividend to the government?

                    I wish somebody who knew was reading this and could let us in on the secret.

                    On another point, I would have thought that, given the large reinvestments going into the power SOEs, their asset value improves into the future.

                    Given that, if the government sells off 49% (or 47%) of one of these then it foregoes that proportion of the improved asset into the future too? That harms the books, particularly if its being substituted with passive buildings (e.g., schools) that depreciate rapidly. 

                    • phil …
                      7 November 2011 at 11:34 am

                      “If I (we?) are right that ‘inter-segment elimination’ means something like when one bit of government (e.g., one SOE) sells something to another bit of government (e.g., another SOE) I’m not sure why a ‘correction factor’ is required.”

                      No, you are right the double entry would cancel. But I think there is some kind of consolidation of accounts going on and this makes funky things happen… I would love to be more specific I really dont know. I might try and figure it out next when I have some time (bit busy now) assuming no one does it first.

                      I’m pretty sure the figures Labour has used are incorrect though. National has seemed to have picked up on it (see http://www.national.org.nz/Article.aspx?articleId=37490) also see DPF (http://www.kiwiblog.co.nz/2011/11/labours_extra_borrowing.html) and the Herald mentions it again today (http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10764315). All three quote a 868 million overstatement accruing over 4 years which matches what I came up with (of course Labour extrapolates out to 2026 which compounds the error) – ie a 200 million overstatement PA (they say dividends lost will be circa 400 million, being 47% of 800 ish million, whereas they should be using 200 million lost out of 400ish million).

                      If you read through Nationals press release I think you see that who ever wrote it probably doesnt really understand what has happened either. So I cant say National is any better than Labour on the whole thing. Actually the Herald article is pretty confused too and Dpf doesnt bother trying to explain it. I’m a bit reluctant to quote National on it of course (hardly neutral), but it seems like someone from treasury spoke to the Herald (see their earlier article, which is probably even more confusing http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10763989). Actually now I read that earlier article again it looks like most of it comes from English’s office rather than treasury directly – wish there were some more neutral sources.

                      I think Cunliffe saying Labour used “the best publicly available information” is a bit unfortunate as clearly there was stuff to indicate their figures were wrong (ie everything I have pointed too).

                      Re the retained earnings (that treasury puts at 200 million PA or 100 million notional share lost PA on the asset sale), if this is what you are talking about, then fair point. To be honest I didnt bring them up just to see if people were actually reading the stuff. Of course retained earnings arent actually available to fund anything directly so are only useful in-terms of bolstering the balance sheet (possibly boosting dividends in the long run). My original point of course was that Labour was overstating the dividends available, so retained earnings are a bit irrelevant to that point (which was the only issue I had with Labour’s documents – I actually disagree with the decision to sell for the very reason you give, the money will be wasted on these passive investments, if we can even call them investments).

                      Interestingly someone is quoted in the Herald article as implying the asset values will grow at a rate exceeding 20%. If this is true then selling is madness… but I think it likely an exaggeration. If the assets are in total worth (on market) say 12 Billion now then that kind of growth would see them worth a 184 billion by 2026 or 2.3 trillion by 2040 (or 1 trillion adjusted for inflation). While that would nice, I wouldnt bank on it….

        • phil 1.1.1.2
          6 November 2011 at 3:33 pm

          Incidentally (kinda an aside) a 11 billion return over 15 years on 7 billion worth of power companies would be more than reasonable, it would be awesome. Dividend yields on power utilities are fairly low due to the safe nature of the investment (low risk = low return) eg on CEN they have hovered around 3.5-4% over the last 8 years, TPW perhaps a bit higher at 4.5-5%… this isn’t going to make you 11 billion in 15 years.

          Personally I think they should sell them and put the money in the super fund (perhaps keep one and use it like Kiwibank to hold prices down?).. but no one seems to be proposing that. At least Labour has recognised the decent returns the Super fund has been making.

          • Colonial Viper 1.1.1.2.1
            6 November 2011 at 3:44 pm

            Private sector salivating at the prospect of taking over NZ’s choice power assets.

            • phil 1.1.1.2.1.1
              6 November 2011 at 4:06 pm

              If the private sector wants a bunch of low yielding assets, and per my suggestion we (the taxpayers) get a diversified, high yield portfolio of assets who really cares?

              • Draco T Bastard …
                6 November 2011 at 5:07 pm

                The private sector will be looking for better than 3% returns. They’ll be after at least 7% and probably closer to 10%.

                If these assets are sold they will get those returns.

                • phil …
                  6 November 2011 at 5:26 pm

                  I’m not sure the private sector is expecting better than a safe 4% return – hence why people are already happy to buy shares in our listed power companies. As such bidders will individually assess what return they can generate from the SOE’s assets (this might be more than we currently get due to inefficiency), and place their bids, with the prices bid settling at a price which provides them a 4% or so return (taking into account the expected increase in efficiency).

                  Of course if we sold all shares in all power companies (and assumed complete regulatory failure) then it would be possible to monopolise the market in the medium term and make super-normal returns (10%).* But you will notice I preferred nationalising one company and using it to sell power at cost to stop this happening. This is all a bit irrelevant of course (as I said) because no party has suggested this.

                • mik e …
                  6 November 2011 at 6:47 pm

                  Last year the returns were 17.5% this year they are above 20% return
                  Why would you sell shares that are returning 3 times the cost of interest on the debt you would use this money to pay debt of faster!~

                  • phil …
                    6 November 2011 at 7:09 pm

                    Your figures are completely wrong Mike E. A return of 428 million was made on assets with a market value of 10-14 billion. Please see above, cheers.

                    (if you have no familiarity with reading financial reports it might be best to hold fire).

                    • Bazar …
                      6 November 2011 at 7:46 pm

                      Thanks for your interesting posting phil, its interesting to see someone vet the claims of both labour and national.

                      Although granted mostly this time its labour.

                    • phil …
                      6 November 2011 at 8:07 pm

                      Unfortunately Bazar I haven’t really had time to vet Nationals claims, I was just reading through Labour’s stuff yesterday and noticed it looked really odd. I don’t actually have any government accounting experience so I’m not a 100% on this stuff, but I’m fairly sure I’m onto something.

                      Of course vetting ‘Nationals claims’ is a bit hard seeing as they are using Treasury and I’m also using Treasury figures (I feel this is the best I can really do). I might have a go later when I have some free time.

                      As you are doubtlessly aware Treasury’s figures for National are said not to exclude dividends which will be lost. I have not reason to doubt this. I dont particularly care either because I dont blindly support National (I might support them if they had policies I agreed with – never say never). I would also add that I doubt Nationals little fund will gives us the returns we currently enjoy from our SOE’s (the “hey trust us line” doesnt really strike me as believable coming from any party), and as such disagree with the asset sales overall.

                      Also the point’s I’m raising seem to have been addressed by Treasury in a statement they made to the Herald yesterday, confirming my view. The article in the Herald it self is not particularly clear unfortunately. I’m not sure if National will bother making anything of it because the points is a bit technical and not great for the sound bite type stuff Key goes for..

                    • Bazar …
                      7 November 2011 at 1:39 pm

                      could you link that article please?
                      I’d be interested in reading it.

                • insider …
                  6 November 2011 at 6:56 pm

                  But as just pointed out The private sector already own a chunk of the market at lower return rates so your logic doesn’t follow. Investors weigh risk and return and are not all similarly motivated

              • Colonial Viper …
                6 November 2011 at 5:27 pm

                If the private sector wants a bunch of low yielding assets, and per my suggestion we (the taxpayers) get a diversified, high yield portfolio of assets who really cares?

                I thought the private sector was supposed to be smart?

                Why would they be wasting their money on low yielding assets?

                Of course the answer is that our power generation assets are amongst the best, safest, highest yielding assets in the country, which is why Key is keen to sell them off to his mates asap.

                • phil …
                  6 November 2011 at 6:17 pm

                  Different sectors of a market have different investment objectives. Some are perfectly happy with a low but very safe yield. Thus they are smart – investing ‘smart’ very much involves correctly matching the risk of the assets you are investing in to your risk profile.

                  Government super funds however are smart to invest in more volatile assets as at no point will they need to liquidate all their assets (at once) to payout beneficiaries. As such the greater risk they incur is very well spread, meaning we should take advantage of the greater long run return these assets offer. I’m not sure if this is completely clear.

                  Here’s an example: assume you have a superfund worth 10 billion in year 1. The fund has invested in riskier (realistically they wont be that risky) assets returning on average 12% PA. In year 2 there is a global stock market crash and 5 billion is wiped off your funds value (pretty extreme example). Assume only 1 billion would have been lost on safer assets. Now if you were an individual who needed to cash out in year 2 you would be screwed (50% of your investment gone). But our super fund doesnt need to do this. It pays out only a tiny percentage of its asset base in year 2 (a state owned fund could simply not payout at all, using taxes instead), meaning it realises this 50% loss on only a tiny fraction of its asset base. In years 3 and 4 markets bounce back regaining the lost 50% so the fund is sweet. Now the question is, for the previous 20 years was the fund better with a safe 4% return or the risky 12% return? I would say overall it was better with the assets yielding 12% rather than assets yielding 4%, you say the opposite. Note “superfund” can simply be replaced with “the Crown” – the analysis is the same

                  There is simply no factual basis behind your “highest yielding” comment. There are plenty of companies in NZ with far higher yields. As indicated the SOE’s are of course great assets if you are wanting to minimise volatility (so you are right re your ‘safest’ point), however as shown, we dont need this extreme safety. Unless you are planning to sell them within the next few years to meet an expense I’m unaware of. The assets are therefore only ‘best’ if they suit our risk profile. Here they do not, and therefore are not ‘best’.

                  Just to clarify – National’s undefined future investment fund sounds like a complete waste of time (if they cant tell us what they are going to invest in, just assume the returns will be rubbish).

                  • Puddleglum …
                    6 November 2011 at 8:55 pm

                    There are, of course, other reasons than financial ones for maintaining state ownership and control of assets.

                    • phil …
                      6 November 2011 at 9:22 pm

                      National interest? I’m not sure if it matters too much (definitely something to keep in mind though). Like I said keep one to drive prices down (could be capacity issues though) and if that doesn’t work just regulate them…

                      Unlike most of the western world Parliament is absolutely sovereign, ergo they can regulate whatever they like however they like. No need to compensate for takings (probably gives Act nightmares). Of course doing this is meant to scare away international investors but they did it to Telecom (and to AIA I guess) and the sky didn’t fall in (probably other examples of it happening too).

                      So we have that backstop unless we end up with a supreme and entrenched constitution which protects property – but the asset stripping would probably happen before that came about.

                    • Puddleglum …
                      7 November 2011 at 2:16 pm

                      “National interest?”

                      Sort of – I was thinking more simply in terms of democratic control of vital infrastructure (‘National interest’ can become a bit of a weasely-word phrase – it’s an incentive to claim the ‘national interest’ for one’s ‘partisan interest’).

                      One of the problems of ‘regulation’ of vital infrastructure is that it is hard to get it ‘right’, in the sense that a clever accountant/CEO could fit the letter of any regulation and give its spirit a wide pass (people, I’ve learnt with a slowly dawning realisation, are employed full time to do just this). 

                  • RedLogix …
                    6 November 2011 at 9:58 pm

                    You analysis assumes that the ‘risky’ investment class that suffers a 50% loss… actually recovers. In risky cases whole investments can simply collapse and dissapear…never to reappear. It only takes a few big losses like that to badly hurt the overall profit from a portfolio.

                    Hence the banker’s ancient Rule #1…”Never lose your capital”.

                    And why low risk cash flow assets like power companies are so desirable… especially given the huge uncertainty and volatility of the present world situation.

                    The basic problem with your analysis is as lprent says, it’s too narrow. Yes you are clearly an informed and thoughtful commentator, but equally the situation the world faces does not favour the status quo. It’s broken and what was sound conventional wisdom in the past is likely to proven folly in the future.

                    • phil …
                      6 November 2011 at 11:27 pm

                      I think your own assumptions are very conservative. By ‘risky’ I wasnt thinking of applying a massive leverage to the fund and using the cash to speculate on exotic derivatives, rather I was just looking to beat the standard index’s by a bit. Pretty much what fund does right now.

                      Consider for example someone investing in the heady days of 1928 – in the middle of a bubble. Say they had decided to track the S&P 500 over the next 40 years. Our investor would endure the largest stock market crash and greatest recession of modern history. He would then endure the most destructive war mankind has experienced, only to emerge faced by the ongoing threat of a thermo-nuclear holocaust. However when our hardy investor liquidated his portfolio in 1968 he would have achieved a annualised compound growth rate of about 10%, or 7.7% adjusted for inflation. More I would suggest than that offered on our power stations. Had he been slightly more aggressive (as I would) and invested in smaller mid-cap firms then I’m confident his returns would have been better (however I cant find a handy mid-cap calculator online).

                      Thing is he has still endured an economic meltdown and a world war but come out ok.

                      Now we might end up worse off than the man from 1928. Who knows. Maybe 2012 is real. Perhaps global warming will get us all. But I think realistically if things are going to be worse than the 20th century, you might be better off building a fallout shelter an flagging investment altogether.

                      Your scenario is not without historic precedent of course. I’m sure the world economy failed to recover for 100’s of years after the collapse of the Roman empire. Inflation blighted Europe from about 100 years starting in the 1500’s (thanks to the Spanish finding lots of gold across the sea), depressing things somewhat (on going wars didnt help). Other examples probably exist.

                      However I think taking a slightly more aggressive approach than that which occurs as a result of our existing SOE investments would hardly be reckless. I guess it might pay to see what happens with the sovereign debt shenanigans, and if they turn to custard sell our safe assets and buy distressed ones (might be too much to stomach for most – but that’s how you make serious money).

                      Of course if your say nope, too risky, but I go out and buy my risky(er) portfolio, and personally take this great ‘risk’ I hope that in 40 years time people dont get mad at me for having made more money than them.

                      By the way, the above is not professional investment advice, do not rely on it lol

                      Thanks for the reasonable response btw.

              • lprent …
                6 November 2011 at 8:39 pm

                Looks to me like your focus is too narrow. The problem in selling structural assets to profit strippers is that when they run the assets into the ground while gorging on monopoly profits. They kill dependent businesses into process. It isn’t good for our economy it is only good for the profit strippers.

                Of course someone who thinks like an accountant probably lacks the imagination to figure out the downstream risks and costs to the economy. Certainly that is the problem with treasury.

                So far the state has tried a number of regulatory restrictions to prevent that from happening (the current telecom breakup being the latest). To date they have all failed.

                • phil …
                  6 November 2011 at 9:14 pm

                  I think your concerns re asset stripping are valid when we are dealing with SOE’s however I’m not convinced that in the case of power companies asset stripping is a forgone conclusion (or that likely really). They are great assets if you are looking for a long term safe return – and there are investors that really go for this. It is not in the interests of these long term investors to strip their own assets. Think of Exxon-Mobile (they might not have a super rep at The Standard – its just a random example though) – they have been operating for over a hundred years (if we include Standard Oil) and so far to my knowledge no board has attempted to ‘asset strip’ in order to generate an excess return for the current group of shareholders.

                  It would be really interesting to see whether there have been cases overseas where power co’s have been sold and had this has happened, do you know of any? I cant say I really thought about my suggestion that hard – just wanted see what others thought.

                  Re Air NZ (which is also on the block) I think asset stripping is probably very likely.. Airlines tend to loose money (as a consequence of every country insisting they have a national carrier) and are just generally dogs in terms of investment. Knowing this I guess you probably would just flog it for all its worth then dump it. btw I know Air NZ as been doing some great stuff of late (brand is good etc) but if you look over 60 years, on average Air Lines loose out. So i guess we are best to keep it and take the hits if they come (unless there are better suggestions out there).

                  The Telecom breakup is more the result of the State intervening in the market rather than asset stripping.. Of course the state intervened due to (alleged) monopolistic practices which were the natural result of the State selling a monopoly. Would have been helpful perhaps if the Crown split the monopoly and then sold it in the 80’s.. but hey lots of things would have been great in hindsight.

                  • locus …
                    6 November 2011 at 10:11 pm

                    ExxonMobil and big oil companies don’t asset strip??? They resource strip poor nations and help prop up dictatorships which is way worse.

                    • phil …
                      6 November 2011 at 10:58 pm

                      So you agree. They don’t asset strip – rather they have looked after their own assets for a hundred years and continue to make a tidy return from them.

                      As you might inferred from might comments I wasn’t suggesting Exxon’s operations were angelic (they just came to mind as a company that plainly handn’t stripped its own assets). You clearly agree with me on this too.

                      So we agree on all points.

                  • Draco T Bastard …
                    6 November 2011 at 10:12 pm

                    Think of Exxon-Mobile (they might not have a super rep at The Standard – its just a random example though) – they have been operating for over a hundred years (if we include Standard Oil) and so far to my knowledge no board has attempted to ‘asset strip’ in order to generate an excess return for the current group of shareholders.

                    There’s a slight difference – the state won’t step in to prop up Exxon Mobile if it’s asset stripped whereas the state will step in to repair the electricity generation and distribution.

                    The Telecom breakup is more the result of the State intervening in the market rather than asset stripping..

                    Telecom hasn’t been asset stripped per se, what happened is that the investment that should have happened didn’t because of their monopoly position. The state has had to step in now because of this lack of investment. So we paid in ~$20b that was shipped out to the owners as profit rather than being used to upgrade the network proving the dead weight loss of profit and the general theft that is inherent within capitalism.

                    • phil …
                      6 November 2011 at 10:54 pm

                      “because of their monopoly position” – I think you will find Friedman et al hate monopolies passionately.. They are very much the antithesis of the free market. They absolutely abuse their monopoly positions and do create dead-weight losses. But of course the State created the monopoly Telecom enjoyed… not the free market… The State then very stupidly sold this monopoly to private enterprise. I absolutely do not advocate creating monopolies and selling them to private citizens (so I guess we both agree on this really).

                      The state probably would act as a vulture fund (if they were smart) and snap up run down assets.. But I’m not convinced private owners would want to run them down – why ruin your safe long term returns if that what you want?

                      You refer to distribution networks, my understanding is many of these are already in private ownership (in Wellington they are owned by a Chinese company I think). Not sure if they have been ‘stripped’ though (I cant recall hearing any complaints about them).

                    • RedLogix …
                      6 November 2011 at 11:02 pm

                      They are very much the antithesis of the free market. They absolutely abuse their monopoly positions and do create dead-weight losses.

                      Yet a public owned monopoly remains accountable to the political process; once privatised it is accountable only to a tiny elite of shareholders.

                      There is no inherent reason why a monopoly provider must abuse it’s privileged position; it simply comes down to a matter of good governance and the integrity of it’s leadership.

                      And I’m not thinking hypothetically here. The organisation I work for is a very, very effective public provider of a monopoly service and I could (but won’t solely for privacy reasons) produce the numbers that prove the case.

                    • rosy …
                      6 November 2011 at 11:28 pm

                      “I think you will find Friedman et al hate monopolies passionately.”
                      Weirdest thing about that is the theory he promoted ensured monopolies would develop.

                    • phil …
                      6 November 2011 at 11:36 pm

                      RedLogix

                      “Yet a public owned monopoly remains accountable to the political process; once privatised it is accountable only to a tiny elite of shareholders.”

                      Exactly, hence why we shouldn’t sell them.

                      “The organisation I work for is a very, very effective public provider of a monopoly service”
                      A die hard neolib would probably disagree and cite something from Posner, but I’m no die hard neolib. As such I accept this as true.

                      “There is no inherent reason why a monopoly provider must abuse it’s privileged position”
                      Agreed. However there is no inherent reason individuals would consume surplus material goods (eg ipod’s) while children starve to death in Africa. Except greed (ok or stupidity/lack of information). I would love to see a world free from greed and self interest (the reason monopolies behave as they do). But no matter what laws you make I have little confidence you will in the main affect this unfortunate fact of the human condition.

                      The power generators aren’t monopolies though, they are an oligopolies – hence why I suggest keeping one and using it to keep prices low.

                    • phil …
                      6 November 2011 at 11:46 pm

                      Rosy
                      “Weirdest thing about that is the theory he [Friedman] promoted ensured monopolies would develop.”

                      You might like to read through Capitalism and Freedom to understand his ideas better (its pretty short, apologies if you have already read it). Some of his assumptions are a bit outdated as we now have better models of human behavior, but I think you will see he presents a very good argument that in the long run monopolies cannot survive in a free market (never limit yourself to reading Friedmann of course! I cant say I agree with everything he says). In short, firms will see the super normal returns earned by a monopoly and enter the market (in the long run no barrier is too high.. or so he argues). Alternatively substitutes tend to be invented. Make sure you dont confuse his ideas with anarcho-capitalism either!

                      Perhaps to demonstrate the point, try to name some monopolies operating in NZ which which are not the result of State intervention in the market (eg selling monopolies they created). I think you will find this reasonably difficult. This assumes you think NZ has a free market of course.

                    • rosy …
                      7 November 2011 at 7:29 am

                      Phil, I’ve read more Friedman than I ever wanted to.

          • Eddie 1.1.1.2.2
            6 November 2011 at 5:30 pm

            phil. you’re forgeting that there will be nominal as well as real increase in dividends in the next 15 years, plus the interest costs of the borrowing that National will have to take on to replace the foregone dividends

            • phil 1.1.1.2.2.1
              6 November 2011 at 6:27 pm

              The 5% rate I used was just an illustration although could feasibly factors in both changes due to inflation and changes in the real value of dividends. (you would be bold to argue for a dramatic increase in real dividends – this would require an marked increase in electricity consumption despite the increased emphasis on conservation or alternatively a material reduction in generation cost).

              My real point though is these figures Labour has used (concentrating on the short term, as they are likely to be more accurate) are highly likely to be wrong. Treasury says 200 million will be lost and I’m inclined to agree.

      • Tom Gould 1.1.2
        6 November 2011 at 8:44 pm

        One News tonight Key says the Labour ‘hole’ is $16b. They have also said $11b and $14b. Will any chook ask the obvious? Nah, their instruction is to get him re-elected.

    • bbfloyd 1.2
      6 November 2011 at 12:00 pm

      elsewhere? the debating circle in your garage elsewhere? try using some factual base for argument… saves being dismissed as irrelevant and petty…..

  2. TighyRighty 2
    6 November 2011 at 11:12 am

    Where is the evidence that national is counting on this $11 billion in revenue in its budgets?

    [the Budget and PREFU book asset sale revenue but don’t remove the dividends that would be lost by asset sales. That has been acknowledged by English and Treasury repeatedly. Try to keep up. Eddie]

    • Colonial Viper 2.1
      6 November 2011 at 11:14 am

      In front of your face

    • RedLogix 2.2
      6 November 2011 at 11:43 am

      If any other commercial entity tried to put both the proceeds of the sale AND the cash flow from continued ownership on it’s books it would be done for fraud.

      The fact that the media has given National a complete free pass on this is full and final explanation of who they are really working for.

      • Colonial Viper 2.2.1
        6 November 2011 at 11:49 am

        The fact that the media has given National a complete free pass on this is full and final explanation of who they are really working for.

        +1

      • Hami Shearlie 2.2.2
        6 November 2011 at 2:45 pm

        Who pays the msm’s salaries? Our media are owned by global business tycoons! – . Self-interest is the name of the game with the msm. NZ doesn’t have a BBC style news channel, TVNZ is a joke!

      • TightyRighty 2.2.3
        6 November 2011 at 3:42 pm

        If any person talked as much about a conspiracy between C/T, MSM and the national party as much as you lot do in the real world, I’d hope somebody would stop to ask them if they are still taking their pills. it’s almost time to crack out the tinfoil hats Hami, RL, CV …….. shit, just about every commentator from the left on this site except for Lprent.

    • TightyRighty 2.3
      6 November 2011 at 3:40 pm

      ah no, nationals figures are based on the dividends returned from the crown still maintaining a majority shareholding. What you’ve done is overlooked the fact that government will still own 51%, so they can still book dividends on those assets, and then assumed labours rate of return on the assets, which is questionable to come up with a rather large number over a rather long time frame. your assertion of there being an $11b hole in the budgets is hyperbole. Do you really think that out of all the people who take an interest in these things, only labour and some of their supporters noticed?

      Oh that’s right, the media are under the all powerful hypnotic smile of john key and wouldn’t report anything bad about him. delusional you lot are.

      • Eddie 2.3.1
        6 November 2011 at 5:43 pm

        no, tighty. The Budget and the PREFU do not deduct 49% from the future dividend flows of the assets but do book revenue from selling 49% of them.

    • Tangled up in blue 2.4
      6 November 2011 at 5:13 pm

      Where is the evidence that national is counting on this $11 billion in revenue in its budgets?

      +1

  3. One Anonymous Bloke 3
    6 November 2011 at 11:53 am

    The excuses have begun. When you’re planning to break all your election promises, it helps to have a crisis to justify it.

    • Draco T Bastard 3.1
      6 November 2011 at 12:10 pm

      Here in NZ we don’t need the global economy. We really do have the resources to provide everything that we need. The fact that the global economy is collapsing is a good time to disconnect from it enough so that our economy isn’t damaged as it collapses.

    • Colonial Viper 3.2
      6 November 2011 at 12:33 pm

      Crisis? Wait until they start a war with Iran.

  4. Richard 4
    6 November 2011 at 12:38 pm

    The 11 billion, adjusted for the time value of money (a billion now is worth a lot more than a billion in 15 years, if you don’t believe me I will happily buy 100 dollars now in exchange for an IOU for 150 dollars in 2026) will be included in the sale price of the assets.

    Also, Labour’s figures for dividend growth over time are unexplained, and contrary to their previous political positions against high profitability (read: power prices) of the SOEs.  

    [National has banked the asset sale revenue but not the dividends lost because of them. That’s just faulty accounting and means they have $11 billion more banked in their revenue than they would actually get. Labour’s dividend growth projections are explain on page 8 of their fiscal strategy document. Can’t you read? Eddie]

    • Richard 4.1
      6 November 2011 at 4:27 pm

      Eddie, if you were actually using your brain you would know that I am saying that the 11 billion dollar hole is irrelevant, because any lost dividends are compensated for at the time of sale.

      I don’t care if National’s accounting is messed up, because Labour’s is just as bad, and neither of them appear to have a basic idea how asset sales even work. I am talking solely about the merits of an asset sale policy on its own.

      Frankly power companies are a very low yield investment, I don’t see why people care so much about the dividends they pay out: we’d get more investing the money in the Cullen fund.  

      • Colonial Viper 4.1.1
        6 November 2011 at 4:35 pm

        Frankly power companies are a very low yield investment, I don’t see why people care so much about the dividends they pay out

        This is a lie since foreign private investors and investment banks are queueing up for these assets, and are willing to spend many billions on them.

        These investors are not prone to waste their money on “low yield investments”, don’;t you know.

        In fact the high yield low risk nature of these power assets is what makes them so powerful and valuable.

        It also explains why Key and English want to sell them off to their wealthy mates ASAP.

        • phil 4.1.1.1
          6 November 2011 at 9:28 pm

          Actually investors will happily buy a low yield asset if the returns are likely to be stable, and they have a low appetite for risk.

      • McFlock 4.1.2
        6 November 2011 at 4:48 pm

        Richard, you’re almost there. The lost dividends are compensated in the sale price. Which means you don’t include both in your projected income.
          
        And the argument that they’re just as bad as each other is the last refuge of the person who won’t change their mind, no matter what the facts may be.
         

    • Hami Shearlie 5.1
      6 November 2011 at 2:47 pm

      Paula didn’t even leave a note when she cancelled a public debate in Waitakere! National MP’s are sure showing contempt for their electorates!

  7. Ste3e 7
    6 November 2011 at 3:42 pm

    What with National’s glamour boy seeing the mass fluttering of petticoats, and the Australian employed spin machine operating at dizzying speed it is easy to miss the simple facts. Selling state assets as proposed is not going to quit the largest government debt this country has ever seen, so where is the extra money coming from? It is not coming from the existing tax revenue take; existing levels would see the government borrowing to service the debt. It is supposed to be coming from a rejuvenated export sector earning a greater share of the world market. It is for this reason National keep harping on about restructuring the economy and returning workers to serf like status.

    The problems, however, are obvious. No matter how efficient our export sector might be, it is only part of the equation, the most important part of the equation is the world market itself. What with Greece lurching from crisis to crisis, Ireland, Italy and Spain crossing their fingers, America trashing its own trillion dollar recovery package over partisan politics, we can at best expect the world market to be more competitive than it has ever been as everybody scrambles for export revenue to cover their own debts. And given America’s stance on our Pharmac the notion that there is “free trade” is laughable, we will take it where we are told or our trade prospects diminish.

    So what is National’s contingency plan given Treasury’s forecasts about export revenue are bound to be off? The contingency plan is the ten millionth pouring over expenditure to remove the fat, which for a while now, has been looking increasingly like muscle and flesh. Meaning, the reduction of government expenditure by reducing state employment; this is only the removal of excess if it is the case that these people can be otherwise occupied in the private sector (to say nothing of the loss of diversity and quality of skills). Else it is simply a reallocation of government expenditure to bottom of the cliff government services required to wrap around (including imprison and hospitalize) otherwise contributing members of the local economy, and more importantly, society.

    As National have admitted, if the export sector does not kick in as they dream employment will not come about. But even if the export sector does kick in the New Zealand government has always been a large provider of employment; public service, education related staff, medical related staff, legal related staff, down to the late Ministry of Works, and the cheapest option of all, those employed to do nothing on a fraction of the minimum wage, the unemployed. To believe National will change this, not only bunks historic fact, but also international experience; employment uptake is one of the only OECD indicators where New Zealand sits at right end. If oligarchic democracies such as mostly describe OECD nations have state employment similar or worse than our own then National are pushing an ideological agenda against what would seem to be a property of either human nature or oligarchic democracies. Simply shoveling ain’t going fix that.

    The punt National would take with this country is the same as you borrowing upon your credit card against a possible pay rise. You can’t, and nor can National expect debt to be forgiven based upon a cry that a possible pay rise did not eventuate. Credit rating agencies agree, they gave National a downgrade even when presented with such a cry from Bill English. You either vote for this punt, or you vote for a cover defense that sees the tax take broadened to ensure this country will be able to pay its debt.

    • One Anonymous Bloke 7.1
      6 November 2011 at 3:51 pm

      Well put St3ve. The choice isn’t ideological, it’s simply a matter of Labour fact versus National fiction.

    • locus 7.2
      6 November 2011 at 9:40 pm

      Spot on!

      Also, why can’t jonky’s adoring public see the blindingly obvious? Privatised infrastructure companies in NZ will push prices up due to the inelastic demand for power. People will suffer.

      As with Telecom, we’ll see the goal of profit maximisation result in power companies laying off staff, failing to invest in service improvements, avoiding tax and repatriating profits.

      Chances are a privatise AirNZ will try to emulate Qantas’s management.

      Does a whole new generation have to go through this shit all over again to learn that its totally utterly f***** stupid to go down this track again?

  8. randal 8
    6 November 2011 at 5:53 pm

    2026 is a long way away and people will have forgotten everything by then.
    However it is wise to remember that some power station s built in south america in the 19th century are still going and the dividends still being collected.
    more to the point is that only the rich can access them and the poverty line and the class war is divided right there.

  9. mickysavage 9
    6 November 2011 at 6:53 pm

    I have been doing a bit of research on the companies.  Firstly the bad news, the power companies and Solid Energy are only worth $8.36b according to their balance sheets which include an allowance for revaluations.

    Air New Zealand is worth $1.5 billion according to its accounts.  The share price puts it at about $2.3 billion.

    So best figure puts the value of the crown interest at $10.43 billion.

    Take off  costs for the sale and even $5 billion looks optimistic.

    Interestingly Blinglish said today that their expectations may be unrealistic. 

    I wonder if they have a plan B? 

    • insider 9.1
      6 November 2011 at 7:06 pm

      If anz shareholders value it higher than its balance sheet, why wouldn’t potential powerco owners do similar for the SOEs? That would add another 4billion value if the ratio were similar to that of air nz.

      • Colonial Viper 9.1.1
        6 November 2011 at 7:11 pm

        insider – the SOEs are worth as much as the Govt can get for them on the day. It will be a travesty if Key accepts a cut price deal (which is what his mates will want)

      • mickysavage 9.1.2
        6 November 2011 at 8:48 pm

        Insider tell this to your mate Blinglish.

        His announcement today effectively capped the value of the shares to be sold at no more than $5 billion.

        The idiot. 

        • TighyRighty 9.1.2.1
          6 November 2011 at 9:38 pm

          Really? So even though the assets aren’t even on the table, one comment by bill English means no more than $5b will be made from partial privatisation? What if the market offers more than that? The crown won’t accept any more? You calling bill English an idiot is like Stalin calling Margaret thatcher a dictator.

    • phil 9.2
      7 November 2011 at 12:34 am

      Oddly Labour seems to think the dividends lost will be circa 400 million PA.. Given the market only appears to require a 4% return from energy companies because they are relatively safe investments (check out the historic returns CEN and TPW), I would think Labour’s figures imply a 49% stake in these companies is worth at least 10 billion. (10 Billion *0.04 = 400 million). If this is correct Bill English certainly is a monumental fool.

      Of course Labour’s figure of 400 million could be wrong and Treasury’s 200 million correct (see http://www.treasury.govt.nz/budget/2011/supp2010is)… which would seem to align better with the 5 billion figure.

  10. ianmac 10
    6 November 2011 at 7:05 pm

    Remember when John Key said early this year that the Asset Sale would only go ahead if the population supported it. How much support is enough? 10%? 15%? 20%?

  11. seeker 11
    6 November 2011 at 7:50 pm

    Remind me again why national are selling our state owned assets? I am confused as to why they feel they need to sell them.

    Apart from the fact that they don’t belong to them so it is arrogant,treacherous and wrong, it will also be divisive. Not only may I be paying foreign investors for my power, I may also,for a short time anyway until they sell, be paying my next door neighbour.

    I think I may really dislike paying Mr.and Mrs.Smith next door for my power, especially if they want more profit from their shares and put my elecricity bill up accordingly. (Contact did this frequently, and I was told it made their shareholders happy- I froze so they could make more profit!!!)

    • shreddakj 11.1
      6 November 2011 at 9:39 pm

      I think they’re doing it for a few reasons.

      First and foremost, neoliberal economic ideology.
      Secondly, because they’re only thinking short-term.
      Thirdly, because they’re incompetent and out of ideas.

  12. tsmithfield 12
    6 November 2011 at 10:15 pm

    If the Nats do have an $11 billion deficit (which they don’t), then they can easily eliminate this by dreaming up a figure for income from closing unspecified tax loopholes, just like Labour has.

    • Lanthanide 12.1
      6 November 2011 at 10:20 pm

      Or they could go with “broader macroeconomic effects” like National did in their “revenue neutral tax switch”.

    • RedLogix 12.2
      6 November 2011 at 10:22 pm

      In what world does booking the cash from selling an asset AND the dividend flow not amount to fraud ts?

      If any company did this their auditor would, or should, tear them to shreds.

      • tsmithfield 12.2.1
        7 November 2011 at 5:40 am

        Its not fraud at all. Its just that you don’t understand the process. DPF gives quite a good explanation for how this all works.

        It seems to me that the government is saying that the dividends lost vs the interest saved will cancel each other out at the price they expect to get for the assets. Until the actual price is known, it is impossible to determine the actual net effect of dividends vs saved interest.

        I have heard Key say a number of times that the dividends from these entities is approx 300m, which much more aligns with the proposed sale price for the assets much better than the wild figures Labour is throwing around. Therefore, the government will lose approx 150m in dividends pa (approx 3%). This looks pretty similar to an interest rate the government might have to pay on an equivalent amount of debt. So, there is no problems that I can see. The government position is much more accurate than the nonsense that Labour is putting out.

        You could say that the government is planning to spend the money (modernising schools etc) rather than paying off debt, so the interest savings don’t apply. However, the government could have borrowed money for the same purpose. In that case, the interest costs would still need to be accounted for.

          • mickysavage 12.2.1.1.1
            7 November 2011 at 9:20 am

            Mr Joyce says those companies, of which his Government will sell as much as 49 per cent, paid combined dividends to the Crown of about $350 million to $360 million a year.
             
            Not true.  The figures last financial year were:
             
            Mighty River Power    $286,000,000
            Genesis                   $0
            Meridian                  $683,644,000
            Solid Energy            $54,000,000
            Air New Zealand       $57,000,000
             
            Total:                     $1.08 billion

            • tsmithfield 12.2.1.1.1.1
              7 November 2011 at 9:43 am

              Yeah, but there was a special one off dividend in there from the sale of a damn or something. Look at the Meridian figure as it compares with the others you’ve quoted. That sort of thing tends to be quite a rare event and not part of operational dividends. So it is not at all reflective of what happens normally.

              Come on Mickey, you’re better than that.

              • mickysavage …
                7 November 2011 at 9:59 am

                I have mentioned the sale of the Tekapo dam in open mike.  Genesis paid no dividend because of the same transaction.  Meridian still made $384m before tax so still could have paid a hefty dividend.
                 
                The point is that Joyce’s figures are clearly wrong.  If you took off half a billion the dividend income still would have been half a billion AND there should have been a Meridian dividend on top.
                 
                Come on TS.  You should know better than to rely on anything that Joyce says.

                • tsmithfield …
                  7 November 2011 at 10:05 am

                  You are only giving the figures for one year Mickey, which is still misleading. As you well know, there are years where companies may decide not to pay a dividend at all.

                  • mickysavage …
                    7 November 2011 at 10:33 am

                    Oops TS I have put MRP’s 2009 figure into the 2010 table.

                    /deepembarassment

                    BUT

                    The figures are:

                    2009
                     
                    Mighty River Power        $286,000,000
                    Genesis                         $36,400,000
                    Meridian                        $286,000,000
                    Solid Energy                  $20,000,000
                    Air New Zealand            $57,000,000
                    TOTAL                          $685,400,000
                    2010
                    Mighty River Power            $95,000,000
                    Genesis                            $0
                    Meridian                           $683,644,000
                    Solid Energy                     $54,000,000
                    Air New Zealand                $57,000,000
                    TOTAL                              $889,000,000

                    Still way more than what Joyce mentioned. 

                    • tsmithfield …
                      7 November 2011 at 11:20 am

                      OK. For the 2009 year, with the woopsie with Meridian taken out, you are looking at $399 mil for that year. So, that is not far away from the figures Joyce, Key et al have been saying. Then there is a large one off for Meridian in 2010 that I understand was in excess of 500 mil.

                      Taking these into account for the last two years, then it is starting to get very close to the Nats figures.

                      I think you would need to look at approx 10 years to get reliable figures that factor out the lumps and bumps, and make an adjustment for inflation to get a more accurate figure.

                    • mickysavage …
                      7 November 2011 at 11:33 am

                      Feck.
                      Not enough coffee … Meridian 2009 figure wrong … Will try again …
                      2009-10
                      Mighty River Power        $286,000,000
                      Genesis                         $36,400,000
                      Meridian                        $353,492,000
                      Solid Energy                  $20,000,000
                      Air New Zealand            $57,000,000
                      TOTAL                          $752,892,000
                      2010-11
                      Mighty River Power            $95,000,000
                      Genesis                            $0
                      Meridian                           $683,644,000
                      Solid Energy                     $54,000,000
                      Air New Zealand                $57,000,000
                      TOTAL                              $889,000,000
                      Still twice the figure Joyce mentioned.  If you go back to 1920 or so I am sure the returns were lower …

                    • tsmithfield …
                      7 November 2011 at 12:24 pm

                      You might need to check your figures. For example, Mighty River Power appears to have been substantially less than what you say.

                      From the media release in August linked to above:

                      Mighty River Power has declared a final dividend of $45.7 million to be paid on 30 September, following the $64.7 million interim dividend paid in March, taking total dividends for the year to $110.4 million, up $24 million from a year earlier.

                      And:

                      NPAT (net profit after tax) up from $84.6 million in the prior year to $127.1 million.

                      There is no way they would pay $286 million in dividend on $127 million in profit, Mickey. I only assume that the dividends you have quoted are similar to the Meridian figure and include paying back some asset sale or another. Because it sure doesn’t relate to core profitability.

                      I suspect the same for some of the other figures that are way out of kilter.

                      Your turn.

                    • mickysavage …
                      7 November 2011 at 1:38 pm

                      TS

                      MRP’s 2011 annual report is here and the dividend figure is on pages 47 and 64.

                      I accept the press release.  It looks like there may have been a timing issue as the report says something about a dividend being approved after the end of the financial year.

                      Are you getting some sympathy for the Labour analysts that had to crunch these figures within 10 days?
                       

                  • tsmithfield …
                    7 November 2011 at 3:23 pm

                    I think what you are finding is some of the extra-ordinary adjustments due to some of the changes the government made in allocating assets around that time.

                    These have nothing to do with core profitability, and so shouldn’t be applied to dividend projections going forward. That is why I suggested 10 years of dividends with adjustment for inflation as a valid means of projecting ahead, because those types of extra-ordinary movements are averaged out over the period.

            • tekapodreaming 12.2.1.1.1.2
              7 November 2011 at 10:13 am

              Re meridian

              “Group net profit after tax was $303.1 million, an increase of $119.1 million on last year, which included the one-off net gain of $157.4 million from the sale of the Tekapo A and B hydro stations. The underlying profit after tax was $219.0 million – a reduction of $32.9 million (13%) on last year.”

              http://www.meridianenergy.co.nz/company/investors/reports-and-presentations/annual-reports/

              Re genesis

              2010 profit before income tax was in the order of 100 million.

              http://www.genesisenergy.co.nz/shadomx/apps/fms/fmsdownload.cfm?file_uuid=DB1B4B80-5056-AC66-4C5F-7FDBAD9B4537&siteName=genesis

        • RedLogix 12.2.1.2
          7 November 2011 at 9:12 am

          That doesn’t resolve the fact that by booking BOTH the asset sale price (and thus avoiding interest) AND retaining the asset dividend flow National are fraudulently double counting.

          Alternatively if we go with your explanation the nett result of selling the assets, is that the cash flow position is similar if not identical… but the govt is now $6b down on it’s asset base.

          The first rule of wealth generation is never sell safe cash flow generating assets. Especially not ones that are core business… and power generation is core business to the entire nation.

        • Puddleglum 12.2.1.3
          7 November 2011 at 10:50 am

          The lost dividends vs. lower interest costs argument isn’t that simple. Treasury (in one of those documents phil links to) claims that lost dividends is $200m on an annual basis; something else (forget what) loses $100m but that these are offset by lower interest costs – on an annual basis – of $400m.

          But, that ignores the higher interest costs from not having the dividends – which partly offset the extra debt interests. It also ignores the fact that the $400m is calculated on $7bn return for the sell-off (optimistic).

          So, even if we accept Treasury’s figures (and I’m not sure why we should – but what else do we have?) the offset is unlikely to be complete.

          Further, school buildings, roads, etc. will deteriorate and hence depreciate rapidly, while – in the meantime – we’ll miss out on half of the improved asset value of the power companies over the coming years (given the significant reinvestment happening with them). That will worsen the asset situation, comparatively.

          And another thing … If Key is correct in saying that our economic prospects are entirely dependent upon what’s happening elsewhere, why not increase taxes to get new schools, etc.?

          After all, any supposed effect in dampening economic activity and ‘innovation’ we’ll be dwarfed by overseas events anyway – so we may as well look after our ‘human capital’ (a word I intensely dislike, but I’m trying to use the approved rhetoric!).

  13. Ste3e 13
    6 November 2011 at 11:17 pm

    National’s “revenue neutral” tax switch, and this includes the tax working groups summary from memory, totally omitted mention of the fact that increasing gst makes offshore online goods and services cheaper. We already know that Google adds are accounted for in Ireland and slipped under the cover of a tax free haven, how much revenue has been lost as business’ spend tax cuts on Google adds, for example?

  14. tsmithfield 14
    7 November 2011 at 9:55 am

    I concede it would be clearer to show the two entries seperately assuming the reduction in dividends and interest saved offset each other one to one. eg: minus 150 k for lost dividends, plus 150 k for interest saved. The net effect, however, is no difference on the government books.

    It would be misleading if they accounted for reduced interest while still claiming the dividends.

  15. In Vino Veritas 15
    7 November 2011 at 10:11 am

    Eddie, for you and all asset sale naysayers, have a read of Roger Kerr’s easy to understand series on privatisation, which pretty much debunks Labour’s scaremongering.

    http://rogerkerr.wordpress.com/category/series-the-truth-about-privatisation/

    Its a pity Cunliffe hasn’t had a look, he might learn something (unless he has had a look and just didn’t understand it).

    • Campbell Larsen 15.1
      7 November 2011 at 10:24 am

      Roger Kerr ex head of the business round table, an organization set up to represent the 1% and promote their interests over ours.
      There is plenty of independent comment and analysis that is against asset sales, why on earth would anyone bother with the PR piece from Roger?

      • Gosman 15.1.1
        7 November 2011 at 10:36 am

        Translation from Leftistese into plain English –

        “I don’t like the guy’s political views so I’m not going to bother looking into his arguments even for the sake of understanding the other side of the debate”

        By the way what is the Greek Government being asked to engage in to help rebalance their economy? That’s right, a policy of privatisation of State assets. Those perfidious hard right members of the EU eh?

        • Campbell Larsen 15.1.1.1
          7 November 2011 at 10:52 am

          Roger had plenty of column inches in the Herald to push his agenda – digging up a link to more of the same is not enlightening readers. And btw anyone who begins a analysis with ‘the truth about….’ should be viewed with a great deal of skepticism.

          Asset sales, be they here or in Greece are more accurately asset stripping, and are part of a global push by the 1% to impoverish nations, undermine their sovereignty and enslave free peoples.

        • Campbell Larsen 15.1.2.1
          7 November 2011 at 10:57 am

          If you are asking a question be more specific, otherwise I will just file you under troll

          • tekapodreaming 15.1.2.1.1
            7 November 2011 at 11:04 am

            Robyn’s opening of the Greens’ campaign and her comments in light of your previous opinions on ‘celebrity’ endorsement of political parties/politicians.

            • Campbell Larsen 15.1.2.1.1.1
              7 November 2011 at 11:11 am

              Ah you are a troll, thanks for clearing that up. Since you appear to be a fan of mine then I suggest you go back and re read the previous discussion as you appear to have missed important points raised and argued. Come back to me when you have an intelligent question (I won’t hold my breath)

              • tekapodreaming …
                7 November 2011 at 11:25 am

                I thought it was a simple question.

                In light of your previous opinion on on ‘celebrity’ endorsement of political parties/politicians, what is your view on Robyn fronting for the Greens ?

                I’m all for her right to free speech and voicing her opinion on which political parties she supports or doesn’t support, I’m just interested to see whether your maintain your previous opinion against ‘celebrities’ espousing political opinions/endorsements.

                • Campbell Larsen …
                  7 November 2011 at 11:36 am

                  My answer has already been well expressed and I’m not going to waste my time engaged in pointless debate with you. You are off topic and distraction trolling. If you want to try and whip up a frenzy of nothing take your jihad over to open mike.

                  • tekapodreaming …
                    7 November 2011 at 11:44 am

                    I’d hardly call the following comment well expressed.

                    “I wish the mad butcher would hurry up and die.
                    Fuck Close Up for giving this National party cheerleader a free slot in primetime.”

                    http://thestandard.org.nz/open-mike-19092011/#comment-376448

                    This was much better.

                    ….“our political process is not helped by celebrity endorsement and a complacent media which allows it to happen” I stand by this statement and would object to anyone cashing in their mana,…..”

                    http://thestandard.org.nz/open-mike-19092011/#comment-376497

                    I was just interested to see if you still maintain your opinion in this regard.

                    • Campbell Larsen …
                      7 November 2011 at 11:52 am

                      If you found those comments you can find the rest which answer your question. Your OCD behavior is reminding me of another git who is presently banned here – do you really think that you are earning your tainted silver by trying to goad me? Desperate much? Take it to open mike, but don’t expect me to indulge you.

      • In Vino Veritas 15.1.3
        7 November 2011 at 11:01 am

        Campbell, you should read it because this guy is intellectually light years ahead of anything Labour has got, and I’d suggest ahead of most of the people making “independant comment and analysis” that you refer to. His analysis has logic and makes sense. Read it, it might enlighten and change your views to some degree.
        I would strongly disagree with your comments about Roger Kerr as well. His views were formed after reading extensively, among other things, views that were similar to yours.

        • Campbell Larsen 15.1.3.1
          7 November 2011 at 11:17 am

          IVV – I’m sure that you love mills and boon too, that doesn’t mean that I am going to put it any higher on my reading list.
          And while you claim to know much about Rogers reading habits (and mine) Im sure that it’s not the case – the guy has just died – isn’t it a bit soon to be using him to further your selfish ends?

          • In Vino Veritas 15.1.3.1.1
            7 November 2011 at 11:54 am

            Campbell, at no point did I make any mention of your reading habits. I did suggest that Roger Kerr read amongst views similar to yours (given your postings, they are relatively transparent). “Using him” is a little bit harsh Campbell, his writings are widely available and I have directed readers to a series by him on privatisation, which I believe, if read, will fill in a few holes in peoples knowledge of the subject, and debunk some of the comment and analysis made by the Labour Party. You need reminding also, that you have no idea what my “ends” maybe, and whether they are selfish or not. Comments like that are just sidetracking when one has run out of ideas.

            • Campbell Larsen 15.1.3.1.1.1
              7 November 2011 at 12:13 pm

              Either you knew him well enough to know what he read or you didnt. If you didn’t you are just using him to try and score points in an arguement.
              You need reminding also that so called analysis from the late Mr Kerr should be accompanied by a disclosure statement outlining the interests that he represented.

              • In Vino Veritas …
                7 November 2011 at 12:39 pm

                Campbell, let me direct you to what you said:

                “And while you claim to know much about Rogers reading habits (and mine)”

                I then made it clear I did not say anything about your reading habits. You have now commented “Either you knew him well enough to know what he read or you didnt”. The answer to that is that I did know him well enough to know he read widely, particularly when he was rebutting arguments that he felt were wrong, hence his series on privatisation.

                Are you such and intractable idealogue, that you refuse to countenance any counter arguments that may be correct?

                To date, you have added nothing to this string other than attempting some minor point scoring. I respectfully suggest, that you read the series and come back for some robust discussion.

                • Campbell Larsen …
                  7 November 2011 at 10:45 pm

                  I can’t run my appliances on your ghost economics Vino.
                  Fundamentalists can chant ‘globalization is good’ and ‘the free market is a gift from the heavens’ until they are blue in the face – we remember all of this shit from last time – it didn’t work then and it’s not going to now.

                • felix …
                  8 November 2011 at 7:54 am

                  What Campbell said. Our memories are longer than you’d like them to be, IVV.

                  Speaking of which, it’s a bit fucking soon to try to rebrand Kerr as an intellectual.

    • fmacskasy 15.2
      7 November 2011 at 10:48 am

      Vino Veritas – anything from the BRT on selling state assets would be as non-partisan as Marx’s “Das Kapital” on nationalising the means-of-production.

      On a related issue, I once had occassion to read a BRT report. I found it to be full of generalisations; unsupported assertions; and based more on ideology than hard-core facts. I put the document down wondering how on Earth any government could take BRT reports/submissions seriously.

      If I’d presented such a document for High School school cert. it would earned me a ‘Fail’.

      • In Vino Veritas 15.2.1
        7 November 2011 at 11:10 am

        Well I’ll be darned, not frank macskasy of Dominion letters to editor fame? Excellent! Frank, I strongly suggest you read it before making judgement. Partisan or not, the question is, does this make sense? Intellectually rigorous?

        I am in no position to comment on the BRT report you allude to since you haven’t specified it. If it were as you say, I seriously doubt whether Roger Kerr wrote it. If you were to put downhis privatisation analysis, then you would certainly not even pick up Labours costings given the reported inconsistencies in it, surely?

        • fmacskasy 15.2.1.1
          7 November 2011 at 2:22 pm

          Vino, I plead guilty; tis me of late-night letter writing, and irritant to the Dompost’s editor…

          I can’t recall the document, as it was something I read in the late 1980s, during Roger Douglas’s reign. I seem to recall it had something to do with welfare or state housing. And I sincerely hope it wasn’t written by the late Roger Kerr – it was more akin to someone barely out of University…

          Re your mention of his writings, I gather you’re referring to his Blog? I’ve saved the link, and will have a squizz at it. Anything of an intelligent nature from the right wing is rare (to me) and worthy of reading (even if I may not agree with it).

          • In Vino Veritas 15.2.1.1.1
            7 November 2011 at 4:14 pm

            Frank, whether or not you were an irritant is neither here nor there to me and many others. You always wrote with passion. Good on you.
            Yes, it is Roger Kerr’s blog. And likewise I shall save your link and have a squiz when time allows.

        • fmacskasy 15.2.1.2
          7 November 2011 at 2:28 pm

          Just had a cursory glance at Kerr’s website and this graph was the first thing I saw:

          http://rogerkerr.files.wordpress.com/2011/08/bill-megginson.jpg

          Interesting.

          Now compare with this:

          https://www.nytimes.com/imagepages/2011/09/04/opinion/04reich-graphic.html?ref=sunday

          Interesting….

    • Puddleglum 15.3
      7 November 2011 at 2:36 pm

      Hi In Vino Veritas,

      Read through Kerr’s posts. A couple of quick comments.

      1. Looks like he would oppose National’s ring-fencing of the proceeds of the sales for things like schools and roads (no obvious financial return from these assets).

      2. (and related to 1) All of this analysis is financial and economic.

      I think the right are missing a lot of the point of the resistance to privatisation by pursuing this tack.

      Humans like a sense of control over their destiny. Much of that sense comes from a sense of control over the material means of one’s existence.

      Irrespective of the fancy financial arguments, people have a clear preference (at the population level) for paying whatever notional financial cost there may be in retaining full control of public assets in order to preserve control. 

      Why is it that the population are somehow seen as ‘wrong’ simply because financial arguments might – notionally – exist for selling assets. You have to understand the psychology – it’s a lot more than ‘mere’ sentimentality/ emotionality. It goes deep down to the sense (perhaps rarely articulated by individuals) of the need to maintain clear and direct control of what you need to survive.

      Edit: and especially a sense of what you need to survive in an increasingly uncertain world.

      • In Vino Veritas 15.3.1
        7 November 2011 at 4:22 pm

        Puddle, your arguments indeed have some resonance, and I would agree in some circumstances, that financial argument should be outweighed by other arguments.

        However, this is not the argument that the Labour Party are running. I believe they are using financial arguments that are, as you have read, spurious, and therefore they are not being entirely honest with the public. Do you think that if there were no financial arguments to support Labours stance, and the public knew that, that there would be more support for asset sales?

  16. Gosman 16
    7 November 2011 at 10:29 am

    Just wondering if those lefties who think that the Capitalist economy is about to go into terminal decline think it is a good idea for the Government to borrowing to purchase assets whose value is likely to decline significantly in any economic meltdown?

    • Colonial Viper 16.1
      7 November 2011 at 12:01 pm

      Hey Gosman if what you are saying is true, forget about the fraking extra borrowing which is small fry – what should we do about the $100B plus currently sitting overseas in the Cullen Fund, ACC, and various other public and quasi public investments?

      • Gosman 16.1.1
        7 November 2011 at 12:56 pm

        I presume someone like you CV who believe the Capitalist economy is in a death spiral would think it is the height of foolishness to borrow money from overseas to invest in Capitalist stockmarkets?

  17. fmacskasy 17
    7 November 2011 at 10:44 am

    Hmmmm, at one stage, Key was suggesting that the sale of SOEs could be delayed because of the economic situation: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10743882

    • Gosman 17.1
      7 November 2011 at 11:37 am

      Given the potentially parlous state of the Capitalist world economy Frank, would you say it is prudent to borrow money and invest in risky investments such as the sharemarket?

      • Colonial Viper 17.1.1
        7 November 2011 at 11:52 am

        Hey Gosman you make a good point.

        Why would you not stop all KiwiSaver and ACC contributions now? Since the vast majority of those monies end up invested overseas.

        • Gosman 17.1.1.1
          7 November 2011 at 12:22 pm

          Excellent point CV. Good to see you agreeing the Government should stop directly subsidising essentially private commercial transactions.

          However you could argue that the Government is simply giving the money away in terms of Kiwisaver as opposed to investing it for spending later on so it shouldn’t matter in that case about returns.

      • fmacskasy 17.1.2
        7 November 2011 at 1:00 pm

        I’d say it would be equally risky whether we borrowed that money, Gosman, or, like our Aussie cuzzies, had saved it since 1973. The risk is the same. Only the source of the money is different.

        As for whether it is risky?

        Yep.

        But I’d venture to say that risk exists throughout the global economy right now. Probably only Nth Korea or Somalia (my favourite libertarian state) would be immune.

      • fmacskasy 17.1.3
        7 November 2011 at 2:36 pm

        I would also suggest, Gosman that while borrowing from overseas for our super fund is not ideal (it is definitely a Plan “B” option) – it is a necessity considering that my Baby Boomer generation voted down Labour’s super scheme in 1975, by electing Muldoon (who then scrapped it as he promised he would).

        In effect, my generation decided, en masse, not to save for our retirement despite the knowledge even back then, that super was unsustainable.

        In short, as a nation, we screwed up. We voted for the “soft” option. All we did was post-pone the
        inevitable.

        Now if you have a better solution – feel free to advocate it. Otherwise we’re stuck with either Plan “B”, or retirement slowly pushed out to 99+ years.

        • Gosman 17.1.3.1
          7 November 2011 at 4:35 pm

          Frank, given the imminent collapse of the Capitalist system, (well according to your friend on the left Colonial Viper), wouldn’t you agree that it would be incredibly foolish to invest in overseas sharemarkets at this point in time with borrowed money?