National has backed down from privatising ACC’s work account. To make it work, they were going to have to pump up ACC levies and make it pay a dividend to the Crown to make prices high enough for the private sector to compete. It’s a sign of how weak the government is that they couldn’t push this through. Problem is, the same logic applies to asset sales.
ACC works because – thanks to the fact it doesn’t operate for a profit and that it is ultimately backed by the Crown whose cost of capital is only 4% – it can undercut any private provider and still provide comprehensive coverage. National was going to have to artifically inflate ACC levies to let the private sector compete, costing all of us. And the Nats realised we wouldn’t like that:
“The political bottom line is it wasn’t going to be possible to introduce competition on a basis that was level playing field between private sector and public without substantial increases in premiums or levies, particularly for small and medium employers,” a well-placed source told the Herald.
Likewise, the Crown can make a profit on owning energy companies at lower prices than private investors can. Contact Energy’s CEO says private investors shouldn’t put money in energy companies – they’re returning 6% while the cost of private borrowing is 8%. He says prices need to go up to make it worthwhile for private players. But the Crown’s cost of capital is 4%. It’s making a profit now. Even Key used to admit that. And those profits stay in NZ and pay for our schools and hospitals.
So, asset sales, like privatising ACC, will mean prices have to go up so private investors can make a profit.
If it’s politically untenable for ACC, it’s untenable for power companies.
Word is, a lot of National MPs are saying that too. MPs who know that if National keeps hemorrhaging votes over asset sales, they’ll be looking for new job in less than 3 years.
Their problem and, more importantly, the problem for the country is that National’s leadership has wed itself completely to asset sales. They know it will cost them the election but they can’t let go. It’s not even about needing the sales money to keep up 30% of GDP net debt or that initial sugar rush to, barely, make it back into surplus in 2014/15.
The stupidity of ACC privatisation is the same as the stupidity of asset sales. But ACC privatisation, they can drop that in a pinch – it’s only really Aussie insurers who would get to feast off that. But there’s big money in snapping up our power companies for the domestic elites who back National. They can’t give that up, no matter the political cost. This is what winning power was all about – getting their hands on the assets so they could sell them to their elite class.