It was pretty cool that the next Finance Minister wrote a post about my post yesterday. Even if was to say I was dickishly misinterpreting him š Iāve got a couple of points in reply but the biggest is why is Labour talking about (restrictive) privatisation and PPPs policies when there are much more important economic issues at hand?
Labour is not soft on privatisation. Our opposition to private prisons and SOE sales underlines that.Ā My recent speech explicitly ruled out any dilution of any Crown equity in any state asset or existing subsidiary.Ā That bright line test restates ourĀ strong āno saleāāĀ policy that provides ongoing strong differentiation form Nationalā¦.
ā¦The vital point of difference between National and Labour on this issue is that National is committed to the private sector first and foremost, while Labour is committed to providing infrastructure in the way that works best for New Zealanders.
Now, I admit that I painted Cunliffeās mentions of privatisation and PPPs in broad strokes. And I realise that technically this wasnāt anything new (which raises the question of why Cunliffe re-announced it). But guess what? In politics your policies will inevitably be characterised by the media and interpreted by the public in simplistic terms. Thereās a difference between National and Labourās policies on SOEs and privatisationĀ ā National: we might part sell SOEs, Labour: we might part sell new subsidiaries of SOEs as long as it doesnāt dilute equity in existing SOEs ā but they look very similar to the casual observer. Especially since National could just adopt Labourās policy, carve SOEs into ānew subsidiariesā, and sell them off for the same result as its policy.
Labour has yet to be convinced of the value of PPPs for any particular project, but we are willing to weigh up the evidence. When considering the (de)merits of a potential PPP project we would take a range of critical factors into account.Ā I mentioned two in my recent speech:
āThe project scale must be right and the PPP benefits must outweigh any increase in cost of capitalā
Marty G and I should agree that this sets a high hurdle, because the Crown can always borrow at lower (sovereign) interest rates.Ā The offsetting benefits would have to be very clear, large enough in net terms (after deducting overheads like the cost of tolling), and not available by other means (e.g. non-PPP contracting) to clearly outweigh this cost of capital disadvantage.
Yeah, it does look like a tough test. But if itās such a tough test that no, or virtually no, PPPs are going to pass the test why bother with the policy at all? The same with the āwe might part-sell any future subsidiaries that SOEs createā. These arenāt exactly massive policies. So why talk about them at all, when the obvious result would be to over-shadow everything else in Cunliffeās speech and raise concerns about where Labour stands? If itās a nothing policy but bad politics, why go near it?
And, whoās to say if itāll turn out being so tough in reality? The notoriously āpro-road at any costā NZTA, Treasury, and MED will be chomping at the bit for sell-offs and PPPs, and providing advice that everything will be fine.
It is also obviously necessary that whoever is evaluating a potential PPP for the state has to have the expertise and resources to really test the proposal and establish rigorous accountability.Ā I have not changed my view that setting a $25 million threshold for compulsory consideration of PPPs by all government departments, as Bill English has done, is ridiculous and bound to lead to bad decisions.
Yeah. Iām sure that New South Wales thought they had the expertise and resources to really test the PPPs that were put to them, and its cost them $4.6 billion so far.
Davidās been working on some really good ideas. In fact, the rest of his speech (which inevitably disappeared in the shadow of his mention of privatisation) outlines some good left-moving economic concepts: investing in R&D with a focus on our clean-tech future, rather than tax cuts for the rich; bringing back apprenticeships and encouraging lifelong learning for workers;Ā monetary policy reform; restoring the Cullen Fund contributions; controls on foreign ownership of strategic resources; building Kiwibank as a true competitor to the Aussie banks.
He would be well advised to work on turning those into an implementable economic plan, and a communicable vision, rather than going anywhere near privatisation and PPPs. My view is that there are exciting changes Labour and the Greens could be running on that would be visionary, not mere tinkering, without being ārevolutionaryā and scaring people off.
PS. remember the post last week where we talked about what we want the economy to do? I am working on posts coming off that, the idea being to talk about policies that Left parties could really run on, not Utopian visions.
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