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Nats preparing to sell assets, despite promises

Written By: - Date published: 4:18 pm, May 21st, 2010 - 109 comments
Categories: assets, capitalism, economy, Economy, privatisation - Tags: ,

In 2008, Bill English was sprung secretly telling National members that he and Key would sell Kiwibank “‘eventually but not now“. After being caught out, English and Key categorically ruled out asset sales in the first term of a National government and said they would seek a mandate to make any sales in a second term.

That clear and unequivocal promises was vital to arresting the slide in National’s support following the secret tapes. National made a solemn promise not to sell assets in the first term.

Well, it’s another broken promise.

The keen eared would have noted some strange talk from English in his Budget speech yesterday where he, for no clear reason, made a point of distinguishing between ‘social assets’ the Crown owns like schools and roads, and ‘commerical assets’ like SOEs. Now, we know what he was on about. Stuff reports:

“Finance Minister Bill English has signalled the Government is again considering partial state asset sales – including Kiwibank.At a post-Budget lunch in Christchurch today, English told business leaders that National would “get to grips” with its position on state asset sales in the next eight months. “

Looks like ‘eventually’ has arrived.

There is no economic logic in selling off assets that make us money and perform important market roles like providing valuable transport networks  (Air NZ, Kiwirail) and injecting competition into the banking sector.

Don’t get taken in by any of this ‘kiwi mum and dad investors’ nonsense. We know what happens when states assets are sold, they are bought up by foreigners who take the profits overseas and under-invest, usually to the point where the government has to step in to do the needed investment (Air NZ, Telecom, Kiwibank, Kiwirail – in each case the government has had to invest in a sector after a failed privatisation).

Kiwi mums and dads already have their share in public assets as taxpayers. The dividends from those companies pay for our public services. We put the money in, we get the rewards. Now, English wants to sell them off for a few quick bucks and let the profits go offshore forever.

Yesterday, Bill English made us borrow a billion dollars to fund tax cuts for the wealthy. Today, he says we need to ‘free up capital’ by selling off assets to the rich. This isn’t coincidence, it’s an ideology of tearing up the public wealth and handing it out to the rich.

109 comments on “Nats preparing to sell assets, despite promises ”

  1. marsman 1

    The Hollow Men taking care of Roger Douglas’s ‘Unfinished Bullshit’

  2. Rob A 2

    “English and Key categorically ruled out asset sales in the first term of a National government and said they would seek a mandate to make any sales in a second term.” and

    “English told business leaders that National would “get to grips’ with its position on state asset sales in the next eight months.”

    Sorry Marty but I fail to see the broken promise here. 8 months gets us close enough to the next election to think its going to be an issue for that, hence “they would seek a mandate to make any sales in a second term.”

    • Fisiani 2.1

      Typical Standard distortion of reality to call this a broken promise. Just sour grapes after the best budget in living memory.

    • jcuknz 2.2

      I agree that there are no broken promises except in the minds of the gullible leftwingers who believe anything and those stirrers. It is logical that National should consider these moves at this point in time to be ready to put the proposition to the voters in 2011. Mind you they won’t get my support for it despite ecconomic arguments below but there is no harm in them getting ready to bloody their noses 🙂

  3. Jagilby 3

    “no economic logic in selling off assets that make us money”

    How about the logic that the Government is the only entity that can sell an asset and still get revenue from it???

    An asset that is valued and would be sold on its expectations of future cash flow?

    • Jagilby 3.1

      The question isn’t if they make “money” either – it’s whether they make a risk adjusted RETURN (i.e. return greater than their cost of capital).

      An asset may be ‘making’ the government $1m for instance but if that is a return of 1% on a $100m electricity generating asset then it is well below the return commensurate for the risk involved in that investment (approx 8-9%) – the government may as well sell and invest in ‘risk-free’ US treasuries.

      Even floating 20% of a current SOE would subject it to market discipline and force these entities to operate more efficiently.

      • George D 3.1.1

        the government may as well sell and invest in ‘risk-free’ US treasuries.

        Hahahahaha. That was a joke, right?

        • jagilby

          Ah, ha, no it wasn’t – look up any universally-accepted economic theory you can find.

          As much as you may dispise the US you can’t escape the fact that US treasuries are as close as you can get to a proxy for a default-free security. Even in this environment.

          If you think (as much weight as I’m sure your opinion holds) it’s possible that the US Government will default on its debt anytime soon then the world is a lot further up shit creek than I thought – perhaps you could enlighten us as to why you think this might happen???

          • jagilby

            [cue extreme contagion effect / collapse of capitalism speel]

            Please do enlighten us Chicken Little – I’m sure the world’s capital markets would love to know all about the impending US sovereign risk crisis – not least of all S&P, I’m sure your opinions will be instrumental in the forthwith downgrading of the US from their current AAA rating.

          • BLiP

            Ah, ha, no it wasn’t look up any universally-accepted economic theory you can find.

            Name just one “universally-accepted” economic theory.

            • jagilby

              Well it’s a finance model but the Capital Asset Pricing Model (CAPM) uses the Government treasuries as a proxy for the risk-free rate and given the US has the highest sovereign credit rating available I think it’s fair to say it’s as good a proxy as any for a “risk-free” investment.

              I’d chance to say that CAPM is as close as you’d get to a universally accepted theory. Do you have an alternative superior pricing model to CAPM? – If you do I’m sure the world’s investment community would love to hear from you!

              Of all the points you could argue from my post,seriously, you are on the weakest ground with this one. US treasuries FFS – you simply can’t argue than something else has less default-risk. You don’t have a leg to stand on.

      • Frank Macskasy 3.1.2

        “Even floating 20% of a current SOE would subject it to market discipline and force these entities to operate more efficiently.”

        How do you know they’re not operating “efficiently”?

        In fact, Air New Zealand and NZ Rail didn’t fare terribly well when they were under private ownership, did they? One collapsed, and the other required constant subsidies from central government and Regional Councils to stay afloat.

        So much for “efficiency”.

        On the other hand, Kiwibank, Genesis Power, and a re-nationalised Air New Zealand are all returning good profits to the State.

        So… you were saying?

      • Sam 3.1.3

        I love your blanket assumption that SOEs are not operating ‘efficiently’.

        Mind you, try asking an economist to verify any claim they make and watch their head explode.

  4. We can only hope you are right. Privatisation results from around the world look good.

    • Bright Red 4.1

      Yeah. Telecom, NZ Rail, BNZ.. the list of successful privatisations is so long.

      Hey, Paul. How do you feel about broken promises? OK to break them as long as it delviers the outcome you favour?

    • Draco T Bastard 4.2

      Privatisation around the world has resulted in under investment and the taxpayers being worse off. Of course, the people who the state assets were sold to were much better off so I suppose, if you look at it from that point only, then it does look good.

      • Nick C 4.2.1

        Define underinvestment

        Or rather, in your opinion what is an ideal level of investment?

  5. frustrated 5

    I know the blog is openly partisan but sometimes telling the whole story and getting some debate going would be more interesting.

    • Pascal's bookie 5.1

      That link is in the post, what’s your point?

      • frustrated 5.1.1

        See the comment from Andrew below – I think that’s the information worth discussing.

        • Pascal's bookie

          No one’s stopping you.

          But for the record, they don’t have a mandate for partial asset sales either, and he is very careful not to say whether or not they will be doing one before the election.

          This quote:

          ‘So one option would be to go to the market and raise capital. So keep crown ownership, majority crown ownership and raise the rest of the capital from the market. So who’d buy into that.’

          Could imply that he thinks they can do a partial float and as long as the crown holds 50.1 percent, they haven’t broken their promise. Good luck selling that to both the public in general, and kiwibank customers in particular.

          • burt

            This didn’t raise much complaint.

            New Zealand State-Owned Kiwibank Says Hybrid Issue Oversubscribed : 7 April 2010

            WELLINGTON -(Dow Jones)- State-owned Kiwibank said Wednesday its offer for a NZ$150 million hybrid retail issue was oversubscribed in a book-build process, with the securities largely issued to financial intermediaries and institutions.

            • lprent

              This is for a subsidiary self-funded entity? Exactly how much of a voting rights do those offered shares have? Pretty close to zero? Reads like a bond issue…

            • Pascal's bookie

              Gee burt.

            • burt

              lprent you should have read what I was responding too.

              This quote:

              ‘So one option would be to go to the market and raise capital. So keep crown ownership, majority crown ownership and raise the rest of the capital from the market. So who’d buy into that.’

              Followed by; Good luck selling that to both the public in general, and kiwibank customers in particular.

              Pascal’s bookie

              Can you elaborate? Did a “bond offer” not qualify under your description of; Could imply that he thinks they can do a partial float and as long as the crown holds 50.1 percent and you were clearly wrong (due to over subscription) with your good luck selling that.

              • Pascal's bookie

                ‘Ownership’ of kiwibank is what we are talking about. Hybrid securities don’t necessarily give the holder equity in the company as far as I understand them. These look like debt instruments.

                Perhaps you could help me out, and tell me what percentage of kiwibank is currently owned by the govt?

                Perhaps we are reading English’s quote diffrently, I see the bold as a correction of the italics, how do you read it?

                So keep crown ownership, majority crown ownership and raise the rest of the capital from the market. So who’d buy into that.’

              • Pascal's bookie

                And just for honesty’s sake, the ‘that’ in this…

                Good luck selling that to both the public in general, and kiwibank customers in particular.

                clearly referred to this…

                he thinks they can do a partial float and as long as the crown holds 50.1 percent, they haven’t broken their promise

            • burt

              From that link about the “bond issue”;

              The shares, designed to strengthen and diversify the bank’s capital base, will have a minimum dividend rate of 8.13% p.a. for the first five years and will have tax credits attached, Kiwibank said in a statement.

              The actual dividend rate for the first five years will be set on May 3 and will be set at a margin of 2.90% per year over the five-year swap rate.

              The proceeds of the issue will be used as tier-one capital for the bank, which is owned through New Zealand Post Limited.

              Sounds a lot like going to the market for capital to me.

              • Pascal's bookie

                Does offering an interest payment for a fixed term loan sound like going to the market for capital to you?

                Does to me.

    • lprent 5.2

      That is what the comments section is for. You just have to be able to argue your point (and stay within the very loose policy guidelines).

      The authors on the site pretty much write the opinion that they wish to – that is the whole point of this blog. We seldom agree fully with each other, and you’ll sometimes get dissenting opinions offered by authors in back to back posts.

      But I’ve only had to interfere with authors post content very few times over the last two and a half years for various reasons (although I’ve fixed a few spelling, syntax, and layout errors fairly frequently).

      The mix is pretty effective and why the site keeps growing despite my periodic hair-tearing technical glitches that have taken the site down at various times.

      However if you want to determine policy and the content for a blog, then I’d suggest you start your own. Read this section of the about. It takes a lot of time, work and effort to make a blog site reasonably successful. But if you start now then you may be capable of attracting an audience before the next election.

      That is the polite way of saying “Get stuffed”. My fellow authors are always trying to get me to tone it down a bit *sigh*

      And I view ‘editorial’ questions as simply being diversionary trolling for which I’d be happy to drop you back on the spam list (despite your recent better behaviour).

  6. Andrew 6

    “But we have made undertakings to the public and we certainly won’t move anywhere without getting a mandate to do so,” English said in answer to a question about asset sales.

    ”So one option would be to go to the market and raise capital. So keep crown ownership, majority crown ownership and raise the rest of the capital from the market. So who’d buy into that.”

    So, umm, lets see if i have this right. Get public mandate, keep majority crown ownership, nope, nothing to see here. Picking out bits of an article to make sensationalist claims eh marty?

    Surly not.

    • Bright Red 6.1

      Selling half an asset is still an asset sale.

      And he’s talking about doing this before the election. He’s not saying ‘we’ll wait until after the election’ he’s refering to some kind of vague mandate.. maybe the same one Brownlee claims for mining.

    • Draco T Bastard 6.2

      But there’s no need to go to the “market” for capital on a state owned enterprise. All that’s needed, if extra capital is required, is a rise in taxes. The SOE gets the capital and we get the benefits of an improved service.

  7. bobo 7

    Was he slightly drunk after this luncheon speech still on the highs after the MSM lovein with his latest budget,its like Helen said, its all going up in a bonfire. Looks like a Kiwibank share float might be on the cards in the same way they privatized the power boards..

  8. Joe Blog 8

    Marty it seems that you may have missed part of the article which says: “Asked later was he softening up for asset sales in the future English said ”No no, we are just outlining the position.””

    • Bright Red 8.1

      Well, Joe, as long as the guy who’s softening us up for asset sales says he’s not softening us up for asset sales, that’s alright. And you might have spotted that the position he is outlining is privatisation.

      ‘hey, man, are you backing me down this alley and reaching for your knife because you want to rob me?’

      ‘nah, man, I just want to outline my position on possibliy robbing you in the future’

  9. Lanthanide 9

    I wouldn’t mind privitisation of these assets, if the government kept >51%, and only verified NZ citizens or well-known 100% kiwi-owned investment funds could buy the shares. Eg only NZ citizens, or kiwisaver portfolios, or the Superannuation Fund.

    I wouldn’t expect National would put such restrictions in place, however.

    • bobo 9.1

      Look at how quick the public flicked the power shares for whiteware appliances back in the late 90s , its just a short term high that the public pay back x10 over down the road. Westpac / ANZ would love to buy Kiwibank and slowly absorb it away. Interesting how English refers to Kiwirail as Nostalgia as if it has no place modern infrastructure, the guy is a buffoon..

      • insider 9.1.1

        I’m not sure they would want Kiwibank. It doesn’t make a lot of money comparatively and it provides a sink for low value customers that take a lot of time and hassle to service.

        So when was the last time you took a train between cities or shipped your freight on it? It doesn’t have no role, it’s just nostalgia that people will choose to use it in preference to more direct and quicker modes if only we poured more money into it.

        • Bright Red

          We own Kiwibank because it breaks up the banking oligarchy. It has brought down fees and rates. And as a side benefit it makes us a profit. Great stuff.

          Even you must be able to see that the banking system was not a functioning competitive market before kiwibank, which has improved competition dramatically by being a low-profit honest broker.

          • insider

            There were plenty of low cost alternatives in the market whether they be PSIS/credit unions or building societies. It’s hardly been a dramatic change. Indeed two of the major banks got merged in that time – far more dramatic than KB. There were also online banks through insurance companies and foreign banks. On entry KB charged fees and rates remarkably similar to other banks.

            is low profit another name for subsidised or uncompetitive?

            • Draco T Bastard

              On entry KB charged fees and rates remarkably similar to other banks.

              My on call ASB account at the time charged 25c per transaction. My Kiwibank on call account charged zero.

              “remarkably similar”: Yeah, right

            • nzfp

              Also to continue with Draco’s comments, the Kiwibank profits are recycled back into the economy as compared with the 3Billion NZD in profits sucked out of the NZ economy each year by the Australian banks like ASB. Every dollar within the NZ economy is a dollar less of foreign borrowing or tax required by our Government (not exactly but you get the picture).

          • Frank Macskasy

            Absolutely spot-on, ‘Bright Red’!

  10. insider 10

    You’re being contradictory. You say we shouldn’t sell assets that make money like Air NZ, but then say ANZ needed a govt bail out (presumably because it wasn’t making money). So which is it?

    If the busienss makes money then where is the rationale for state support? If it can’t make money then should the state really be in that area if others can do it without subsidy?

    Isn’t there a good case to take the money locked up in a business that doesn’t require state support (like Air NZ which you said makes money) and apply it elsewhere in the economy that needs it more? But first you’d have to accept that there is a limited ability for govt to raise cash and I;m not sure a lot of people think that.

    • Bright Red 10.1

      “You say we shouldn\’t sell assets that make money like Air NZ, but then say ANZ needed a govt bail out (presumably because it wasn\’t making money). So which is it?”

      wow, that’s pretty dumb even by your standards, insider.

      The private owners stuffed it up. They were going to have to sell off to Singapore Air and close the regional routes.

      Now it’s making a profit. Simple.

      It’s not a question of money being ‘locked up’ in Air NZ. If we sold it again, the private owners would asset strip it into the ground again and we would lose a transport network that is far more valuable than the mere profits made by the company.

      • insider 10.1.1

        So they “stuffed it up”. By that I assume you mean they got the numbers wrong and didn’t make money. Lots of airlines have had that problem. They are notorious for failing – even state owned ones.

        It’s simple to make a profit if your shareholder doesn’t demand a return and you are buffered by the taxpayer. But is that profit enough to keep it going and be competitive. It’s worth over $1b but made about $50m. You’d get more return putting that in kiwibank.

        Have you not noticed recent reports saying Air NZ is not making a profit on key routes with competition? Or consumers complaining about the fares on their monopoly domestic routes? Or that they have cut staff by 5% over the last two years?

  11. Tom 11

    Only a fool would buy shares in a company they already own? It’s a bit like borrowing money to give yourself a pay rise (or tax cut).

    • insider 11.1

      So I own all or part of a company but I need to raise cash to expand and the cheapest way to do that is issue shares. Are you saying I’d be a fool to buy any of them?

      • Bright Red 11.1.1

        If the government needs more capital for these businesses the cheapest way to raise it is by borrowing at sovereign rates (an extra billion doesn’t make a difference, just ask Bill, he borrowed a billion for your tax cut). Selling off your future proftt stream when you don’t need to is bad business.

      • Draco T Bastard 11.1.2

        For a state the cheapest way is to raise taxes.

        • nzfp

          “For a state the cheapest way is to raise taxes.”

          No the cheapest way is to raise capital is to issue credit directly. In the case of a soverign state, they can do it by law. Our Government already does this, every note and coin in circulation was issued free of debt and interest by the RBNZ on behalf of the Government. However, the NZ Government has chosen to privatise the creation of credit to foreign owned Australian Banks (ANZ/National, BNZ, ASB, Westpac).

          There is absolutley no credit crisis any where in the world as every nation state can issue it’s own credit, if they don’t it’s because their government chooses not to. Consequently there is a political crisis not a credit crisis.

          • Draco T Bastard

            No the cheapest way is to raise capital is to issue credit directly. In the case of a soverign state, they can do it by law.

            Well, yes but then you would need to raise taxes to remove excess liquidity. Money is not a resource and too much of it representing the limited amount of real resources available leads to economic bubbles. This is the major problem with the world ATM – there’s about a trillion dollars in the real economy and about quadrillion in derivatives (read debt).

            There is absolutley no credit crisis any where in the world as every nation state can issue it’s own credit, if they don’t it’s because their government chooses not to. Consequently there is a political crisis not a credit crisis.

            Pretty much.

    • Frank Macskasy 11.2

      Tom, I wonder how long it’ll take before New Zealanders wake up to that little fact…

      • Most likely never Frank.! I have come to the conclusion that the majority of NZ public are complete dim wits when it comes to political discussion. I have no doubt you have read ‘The Ragged Trousered Philanthropist “.The marjority of the NZ public are reminicent of the workers poor old Owen worked with.
        As a very active LP member I have been amazed !No gobstruck! at the reasons working people have voted for Conservative (Nat) governments.
        Of course one must take into account that my canvassing is in the Waikato
        so I expect one has to make allowences for a huge number of Red Necked cow cockies.
        By the way as a regular “Letters to the Editor” I always enjoy your letters

  12. Joshua 12

    What it looks like Marty is that he is paving the way for a 2011 election manifesto including a partial float of certain SOE’s – probably around 20 – 25%. In no way is this a broken promise. It would be if they were going to sell some before the election, but the timeframe indicates that this is not what is on the cards. Further, there is every indication that such shares will be made available to kiwi investors. I do love how you reference Air New Zealand – as you know it is not a SOE, nor is it fully owned by the Government. The Government has a majority shareholding, and private interests are still able to buy into the company – a company which, by pretty much every measure is performing exceptionally well.

    Honestly, instead of your hysterical rant how about you actually engage with the policy?

  13. ‘Eight months’ is interesting. I’d say that squarely puts the election in March or April. I wonder if Bill has just had another Dipton moment and accidently confirmed a snappie?

  14. toad 14

    Marty, this is exactly the same strategy that Douglas and Richardson used in the late ’80s and early ’90s.

    They reduce Government revenue through financially unsustainable tax policy, pretend they are speculating on forecasting an increase in economic growth to an extent that just isn’t going to happen, and then when it all turns to brown stinky stuff, tell us that there is no alternative but asset sales to balance the books.

    It is all ideological bullshit – asset sales are the objective, not the consequence. Everything in this Budget is setting up a fire-sale to the Nats’ wealthy mates. Hey, we could even see Michael Fay and David Richwhite back on the scene again – the guys who gave consultancy advice to Government to sell the railways – to themselves!

    We’re still paying for that one.

    • insider 14.1

      We were paying for all those wonderful examples of government investments like synfuels, and the refinery expansion, and a few others for a couple of decades. No doubt we will be paying for that bargain of the decade called Kiwi rail that Cullen chose to ‘invest’ in for a long time coming too.

      • Bright Red 14.1.1

        insider. You might have missed it but Kiwirail is making a profit -$3.5 billion over the next decade, which the govt is reinvesting in rail.

        And don’t forget the value of the rail network to the economy far exceeds its value as a business, just like the state highways.

    • wtl 14.2

      No only have the tax cuts made asset sales necessary, but they have also put a lot of extra cash in the hands of the rich to buy up these assets that are suddenly being put on the market.

    • john 14.3

      Yes toad it’s totally corrupt. The Rogernomics gang should be in prison for treason against the New Zealand people.

  15. Brett 15

    I think you need to keep repeating how evil rich people are,the peasants are beginning to rise up.
    Start a class war – Kill the Capitalist running-dog !!!
    Me and you in the trenches aye comrade.

  16. sk 16

    This is a loaded topic, given the long list of disasters from the late 1980’s – Telecom (and the start of gross mismanagement under Bell South), BNZ sold for book value or below, NZ Print (which got Graeme Hart started when he paid 25% of book for it). Privatisation in NZ was not too far removed from Russian style oligarchisation – which is why a former Treasury guy like Stephen Jennings could thrive in Russia.

    But that is now the past. On the hand Marty you say NZ should save more but not in property, and on the other you say absolutely no privatisation. NZ’ers do need alternatives to invest in, and to be able to invest in Kiwibank for example, is a hell of a lot better than giving your money to Hotchin and Co.

    Finally, look at Jim Anderton with his shares in CBA – very sensible. Why should we not be able to have the similar in NZ? Who knows, the gov’t could use the proceeds of privatisation to buy back the BNZ.

    • rainman 16.1

      So why sell off the public assets rather than just invest in growing existing private business? What stops us investing in existing businesses here and elsewhere?

  17. big bruv 17

    Let’s just clear one thing up, I hope nobody is dumb enough to class Kiwirail as an asset?

    • RedLogix 17.1

      Well Dr Cullen could have always just passed regulation and nationalised the rail system for $1. Would that have made you happy?

  18. sk 18

    the issue with Kiwirail is the price Cullen paid for it. If he had screwed Toll down on price, yes, it would have been a great asset. If Buffet thinks railroads are great assets, I am not going to argue with him

    • Anita 18.1

      How does that amount we paid for an asset alter whether or not is a great asset? It might make it a bad purchase, but it doesn’t alter the actual asset.

      • sk 18.1.1

        because what Cullen gave Toll could have been injected into the business on day 1 as new capital. When you over-pay for a business, it severely limits your options later on. $600m for Kiwirail was a huge mistake, particularly in light of the global crisis that followed.

    • Rich 18.2

      Cullen should have just levied a one off 100% asset tax on NZ railway companies.

  19. Nick C 19

    “We know what happens when states assets are sold, they are bought up by foreigners who take the profits overseas and under-invest”

    Define underinvestment. In my book the ideal amount of investment is the profit maximising level of investment because it maximises efficiency in the use of limited resourse.

    Thats also the level of investment that any businessman -foreign or local- will put in as they are interested in maximising profits. Its when politicians run businesses according to polls and focus groups that the economy doesnt opperate well.

    • Draco T Bastard 19.1

      Define underinvestment. In my book the ideal amount of investment is the profit maximising level of investment because it maximises efficiency in the use of limited resourse.

      Well, that’s what Telecom did and now the network has been so thoroughly downgraded the government is having to pump billions of tax payer dollars into it to bring it back up to par. That, quite simply, was a massive transfer of wealth from the taxpayers of NZ to the shareholders of Telecom with no accountability.

      Generally speaking, I’d say that your definition is delusional.

      • jagilby 19.1.1

        “That, quite simply, was a massive transfer of wealth from the taxpayers of NZ to the shareholders of Telecom”

        I’m sure the shareholders who purchased at $6 now sitting on $2 are eternally thankful for that “transfer of wealth” from the Government.

        • Draco T Bastard

          How much profit did they take out first?

        • Pascal's bookie

          jaggy, seeing it was the new private owners that listed it in 91, what are talking about?

    • burt 19.2

      If NZ Railways hadn’t been severly under invested in when it was sold (having been publicly owned it’s entire existence till that point) then you could indeed blame the private owners for it’s poor state of repair. Then, like now, we have a state owned under capitalised organisation with insufficient reserves to replace end of life rolling stock. Tell me again what’s so good about public ownership?

      The only change I see if we sold it for market value and paid more than market value to get it back, that was one hell of a profit shift overseas.

      • Lanthanide 19.2.1

        Or, alternatively, if the private owners had been doing a proper job, we wouldn’t have needed to buy it back!

  20. Nick C 20

    Also you say that the ‘profits’ will be taken overseas. Are these supernormal profits or normal profits? If the profits are normal then the government/taxpayer is equally well off selling the asset and investing the money somewhere else.

    • Draco T Bastard 20.1

      Which is another delusion of the RWNJ and economists. The profits going overseas decreases available capital for reinvestment here and so decreasing our ability to move into a higher value products and wages economy. Of course, NACT don’t want higher wages – as Jonkey said, they want wages to lower.

      • Nick C 20.1.1

        Draco its quite obvious that you have never understood basic economics. In fact i would be surprised if you ever got school certificate.

        For simplicy sake lets assume that everyone makes normal profits. Lets say that the government sells an asset with a value of $1,000,000, and that the average return on that asset was 5% pa ($50,000). The government sells the asset to a foreigner (theres no evidence that is what National plans to do, but anyway) who pays $1,000,000 and takes $50,000 in profit out of the country every year. We’re worse off right? Wrong. The $1,000,000 can used to pay of debt which might save us $50,000 a year on interest. It could be invested in the export sector where (again assuming normal profits) it might increase the value of exports by $50,000 per year.

        So in reality we’re no worse of in that regard.

        • prism

          But you are balancing an actual return of $50,000 while in government ownership with just a possible return of the same from other sources. One is assured and the other is only possible.

          And also the $50,000 return must come from the export sector to replace the profit drawn off. Mightn’t our exchange rate affect that? Because we are price takers when our currency exchange rate is struck, changing at any moment, and also often for our commodities, then there is no assurance that we can match with earnings the drain of profit repatriated to the foreign company.

          • jagilby

            “But you are balancing an actual return of $50,000 while in government ownership with just a possible return of the same from other sources. One is assured and the other is only possible.”

            What are you talking about? No returns from any asset are ever “assured”.

            Nick C is absolutely right – If an asset has expected future cash flows of $50,000 per year then the purchase price would reflect the present value of those expected cash flows. If an asset is highly profitable then the sale price would reflect that. Thing is that the Government can sell that asset for the present value of expected cash flows and in addition can take 30% (will be 28% from next year) of all returns by right – no other entity can do this and effectively means that a government can realise more through the sale of an asset than it would otherwise through full ownership.

            Any government has limited resource – if there is an asset that could be sold and funds redirected into more profitable investments then that is clearly the most responsible use of those funds. If an asset is incurring a loss, resulting in a misappropriation of those limited resources then they should be sold – if a private sector operator can leverage synergies from that asset then all power to them, the Government will realise those synergies to an extent through higher tax revenues anyway.

            • Pascal's bookie

              Nick C is absolutely right If an asset has expected future cash flows of $50,000 per year then the purchase price would reflect the present value of those expected cash flows. If an asset is highly profitable then the sale price would reflect that. Thing is that the Government can sell that asset for the present value of expected cash flows and in addition can take 30% (will be 28% from next year) of all returns by right no other entity can do this and effectively means that a government can realise more through the sale of an asset than it would otherwise through full ownership.

              So why would anyone buy it at that price?

        • Draco T Bastard

          Well, for starters, government SOEs tend to be monopolies with super-profits available. Please note, I said available not that they were taking super-profits. Privatisation will immediately lead to profit maximisation , ie, the taking of super-profits. It will also lead to under investment (less than what is needed to maintain and improve the SoE) which will decrease the service eventually leading to the government having to step in fix it. Then we have to ask if the asset was sold for what it was worth. This is a valid question because all state asset sales so far have been far below what they were actually worth.

          So, what we’ve got is a loss of capital that isn’t replaced by the money from the sale, loss of profits which aren’t replaced the “savings” that the money may bring in because the normal profits have been pushed into super-profits and then the fact that we’re going to have to pay to bring the service back up to the standard it was in before the sale and then improve it from there. So, basically, the sale of state assets costs us a hell of a lot and makes a few people very very rich at our expense.

          BTW, the reason the state built those assets up in the first place is because private enterprise never will as it’s far too expensive and takes too long to get any sort of return. They’re quite happy to buy it once it’s been built because they’ll get it for pennies on the dollar and they’ll get those super-profits.

        • Frank Macskasy

          Except, Nick, you forgot a few things…

          1. As foreign owners of our ex-state assets demand a return on investment capital, profits will eventually flow out of the country that EXCEED the original purchase price. At that point, our Balance of Payments goes further into the red, creating a higher deficit.

          This impacts on other capital we borrow, pushing up interest rates for business and home mortgage-holder, alike.

          2. We are still seeing jobs exported to low-wage societies like China, India, Philippines, etc. We then have to pay resulting unemployed welfare. So the tax-payer picks up the tab for overseas owners making New Zealanders redundant, so they can maximise the return on their investment.

          What part of that do you see as desirable?

          3. Private ownership of state assets does not guarantee better performance. Air New Zealand and NZ Rail are proof of that.

          But the advent of Kiwibank DID create competition, and banks had to reduce their charges or face massive loss of clients. (My old bank, ANZ, made a very interesting offer to me before I switched to KB.)

          Privatising Kiwibank will most likely reduce competition and hike up bank charges again.

  21. Jum 21


    Global Financial Intelligence Since 1926
    Former prime minister Jim Bolger on the promise of Kiwibank
    By Michelle Price | Published: 01 February, 2010
    Privatisation of state-owned assets will be inevitable, he continues, but it is critical that the governments in question use the funds raised to service the budget deficit, he argues – not to shore up politically popular spending programmes or run day-to-day government.
    “When my government privatised assets, we put it all to repay debt in order to try to get our costs of servicing the debt down,” he recalls. “But most countries have been privatising assets for the past two decades and most assets that are easy to privatise have been privatised,” he adds.”

    On so many levels that comment shows how lacking NActional people are in really caring about their country. But the real question is: what country? These wealth transients don’t have a country they have a duty to; that’s why it is so easy to betray any country. Key and Ashcroft have no loyalty. They are running our country. Frightening.

    I didn’t see a single mention of Jim Anderton as being the political catalyst for Kiwibank, the New Zealanders’ bank. This government just does not get the importance of this loyalty-driven bank. Let’s make sure they do if they try to sell it off.

    Nick C
    Sigh… tax cuts are where that money goes and it’s always to the wealth. Or to paying off the borrowed money for this lot of tax cuts. Unbelievable. How can that ever help ordinary New Zealanders, unless they’re waitressing in Bali!

    The first thing a budgeter tells a client wanting to buy something is if you have to borrow the deposit, you cannot afford the item. This government are so cleverly stupid, on behalf of rich dxcks.

  22. prism 22

    If Kiwibank shares were sold to private investors in NZ I don’t know if there is any way to stop them being onsold to overseas investors. Then the profits flow out of the country. There is a religious zeal that the nation shouldn’t own any of its assets. There is some economic text these zealots address us from. Let’s not be led by the nose into believing this anti-government stuff.

    National doesn’t want the country to have any government assets apparently. The government exists for them as a seedbed to grow infrastructure and when it matures, it gets sold off and we lose strategic control of it. As for preparing for the future, on ACC we must have all future liabilities in hand today. For superannucation, well it can be left until the numbers are dire, and then somehow turned back on the Opposition’s shoulders. Some excuse being thought up right now probably to be presented in five years time.

    • jagilby 22.1

      The only religious zeal is shown by the xenophobes who have a problem with other people owning our assets but encourage New Zealand entities to own foreign assets.

      Can’t have your cake and eat it too.

      Also, the whole argument about foreigners “taking our profits” (insert nasal South Park “took-our-jobs” voice) is completely fallacious, because as I’ve said future profits are reflected in the purchase price paid to the Government – any asset valuation is based on FUTURE profit. The purchaser, in buying shares, is effectively paying for the rights to those future profits. So the seller (i.e. the NZ Government, i.e. the NZ taxpayer) has been compensated to the value of discounted expected future earnings in any case.

      Floating a portion of an SOE imposes market discipline on these entities too. Even as small a share as 20% would be enough to do this. Market discipline cannot be under-estimated in terms of making these entities more accountable for their decisions. This is exactly the recommendation from the Capital Markets Taskforce – there has to be some zealotry going on here to believe there is some sort of mass conspiracy by these esteemed minds to defraud the country when these recommendations are grounded in sound thinking.

      • ak 22.1.1

        Oh, sound as a bell Gilly. No argument here – please keep arguing for asset sales, it’s a real winner. I mean, we did so well out of the last lot. You go son, and all power to Mr Key.

      • Frank Macskasy 22.1.2

        I’ve not read that anywhere, Jagilby.

        But two things I do know; (1) foreign owned assets put our Balance of Payments further into deficit and (2) foreign owned companies shift their workforce to offshore, low-wage societies.

        I don’t think you’d be so happy if it was your job exported to China or India.

  23. SPC 23

    It’s a colonial mentality, whereby participation in a greater empire is actively sought – the tradition of knighthoods, flag and Crown on the one hand and being owned by (the rising world power – American or anyone else who now owns their Greenback debt) international capital on the other.

    The aspiration of Tories is to extract landlord rent on behalf of the superior power in the world.

  24. Zaphod Beeblebrox 24

    Why would anyone want shares in Kiwibank- it barely makes a profit. Thats the whole idea of it- a customer focused bank. If you had other owners you’d have to run it for the shareholders rather than the customers, then it wouldn’t be Kiwibank and there would be no point it existing.

  25. Adrian 25

    The 8 months mention is interesting, they obviously know that they’ve got to get the election out of the way before councils set their rates, because boy are they going to be doozies, extra GST of 4.25% ( 1.75% clawback from this year) plus inflation. Nothing fucks people off more than rates rises, not to mention the Auckland fiasco. Cunning bastards.

  26. ak 26

    By George, Nick C, I salute you sir, and admire the cut of your jib. Yes! How in the dickens could we all have missed it! By the fiendishly simple process of selling off every saleable asset available and reaping the rewards as you so convincingly describe, our status as the Switzerland of the South Pacific and ultimate victory over Australia will be ours at last!
    I implore you, dear man and fellow patriot, to immediately initiate a campaign to convince the National Government and our dear Mr Keys to adopt this course as an election promise forthwith. (kindly forward your domicile address and I promise, good sir, a hefty campaign contribution is in transit)

  27. ianmac 27

    Having a mandate bothers me. Everyone votes in an election for a multitude of different reasons. For any Government to claim a mandate (or a womandate) because their party won the election gets used I think wrongly. Anne Tolley – mandate for National Standards. In time Bill English – mandate for selling Kiwibank. Maori Party – accepting Nacts mandate to raise GST. Big issues need a better way of canvassing.

    • The Chairman 27.1

      Voting on a specific issue rather than a specific political party is far more clear-cut in determining the public mandate.

      Most would agree there are certain issues/policies within the party they last voted for that they don’t fully support.

      The current system is a poor representation of the public mandate. We can and must do better.

      The most effective way to determine the public mandate is to let us have our say on the issue.

      How do commentators here feel about ‘Direct Democracy’?

      New Zealand First wants to form a practical partnership with the New Zealand people by the judicious use of direct public referenda (note: see more at NZ First under policies).

      This is the kind of policy that Labour should consider adopting.

  28. Frank Macskasy 28

    Interesting thing about “mandates”, Ianmac (not that I’ve ever been on one) is that right-wingers accept them when it suits them.

    But the Republicans sure as hell didn’t accept that Obama had a mandate to carry out his policies…

  29. john 29

    Also in borrowing a billion dollars it’s a further impoverishment of the public sector because interest must be paid to the rich on top of the principal. I don’t know but to speculate by the time it’s paid back 1.3 billion might be down the drain. All this so the rich here can pay less tax, Nact want to completely dismantle Publicly owned wealth in NZ,this will result a feudalistic system in NZ Where the rich will be our Barons.

  30. randal 30

    so what are the odds on them selling it to themselves or their mates?

    • Frank Macskasy 30.1

      Oh, surely not, Randal!! *mock horror*

      As Anthony said, of Caesar’s assasins, “… So are they all, all honorable men…”

  31. coolas 31

    Privatisation in the form of PPP’s is obviously the agenda. Last year Weldon from the stock exchange started instructing CEO’s of the SOE’s how to prepare for Private Public Partnerships: http://www.nzx.com/about-nzx/nzx-updates/2616097/Mark-Weldons-speech-to-SOE-Directors

    The economic model of partnership between government and business has its modern roots in the fascist regimes of Germany and Italy, most especially the latter, where Mussolini declared, “Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power.”

    Curious how we honour all those who died in WW2 fighting fascism but now we’re letting it in the backdoor with PPP’s.

    And if this article is credible the grand architects of this latest fad in PPP’s are the same rouges who created the sub prime mortgage racket. http://www.larouchepub.com/other/2006/site_packages/econ_recovery_act/3349ppps_rohatyn.html

  32. Kleefer 32

    I agree with the sentiment expressed in one comment (can’t remember who said it) that governments use asset sales to paper over the deficits left by fundamentally unsustainable tax cuts that aren’t matched by cuts in government spending. However the tone of the comment suggested it is the tax cuts that are the problem rather than the lack of spending cuts.

    National needs to get rid of Working for Families, get rid of interest-free student loans and take the axe to superannuation. Really, can all you socialists support millionaires getting National Super? It needs to balance the budget first then sell the state “assets” and maybe give one-off dividends from the proceeds of the sales rather than doing what governments are often tempted to do and use it to fund dopey and unsustainable spend-ups.

    • Pascal's bookie 32.1

      Thanks Kleef. All them things you hate and think the government has no business doing, are things the government can’t just stop doing and stay in power. The people like them. They really really do.

      Hence the subterfuge. If you hate those things, the only way to get rid of them is to bankrupt the government first. That gives you an argument the people might accept. Fundamentally dishonest and undemocratic, but there you go.

      I’d love for right wing parties to be more honest about it, as you are to your enormous credit. Then we could have a proper debate at the party level about the fundamental things we want our government to do.

      But it’s easy for me to say that, because it’s an argument the centre left damn near always wins 🙂

  33. Frank Macskasy 33

    Who in their right mind would pay for something they already own? Because that is exactly what the Minister of Finance, Bill English, is saying when he suggests that “mum and dad” investors would want to buy shares in state assets like Kiwibank, Genesis Power, etc. We already own these assets. Why would we want to part with our hard-earned cash to buy that which is already ours?

    Not that these valuable assets would actually end in in the hands of ordinary :”mum and dad” investors. More likely they will end up owned, yet again, by Australian banks, or other trans-national corporations. Which would eventually result in less competition; reduced services; higher prices; and more jobs exported to India, China, Philippines, etc.

    It seems that this government has not learned a single lesson from the lunatic economic ideas of the late 1980s and 1990s. It all sounds depressingly familiar.

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