The kneejerk righties have praised John Key’s plan to sell our public assets (indeed, the Herald seems to be calling for something far more radical in today’s editorial) but all the substantive analysis of the proposal continues to show it’s an ideologically-driven rip-off. Here’s Geoff Simmons’ take:
Any householder knows that selling your assets doesn’t necessarily lift your savings. Sure, debts cost us money, but assets usually earn us money too, so selling an asset to pay off debt means our income and our expenses both fall. Unless the asset is useless we would most likely be in the same situation afterwards. It is the equivalent of selling the house in order to pay back the mortgage; unless the house is a poorly performing asset (too big for your needs) or the debt is crippling, then it is pointless. The bits of family silver on the block are clearly not poorly performing assets – electricity companies are getting good returns.
According to Bernard Hickey’s analysis, they earned a 7.6% return vs the 5.5% cost of government borrowing. In other words, selling $10 billion worth of assets to pay down $10 billion of debt would cost us $210 million a year, every year, forever.
this policy alone is unlikely to increase national savings by much, if at all. The real issue is that the Government is running a budget deficit – our income is lower than our spending by nearly $300 million a week. Asset sales will provide a quick cash injection, but then not having the income from those assets will make it harder to get back into surplus. This makes it crucial to see what the money will be spent on.
Five words: Tax. Cuts. For. The. Rich. – remember these asset sales would only raise as much money as Key has gifted to the wealthiest 1% of New Zealanders (including himself) through tax cuts.
in the case of New Zealand Government debt, creditors have little to worry about.
The real concern is the level of private debt. It is private debt that has seen our total foreign debt near the levels of Greece. Again, whether you worry about this depends on whether you think Kiwis can pay these loans back. Either way, Government asset sales are not likely to make much difference. If the Government was really concerned with levels of foreign debt, then it would not have shunned a tax on capital so easily.
Exactly. And, if National cared about private savings, how come it gutted Kiwisaver and is planning to cut it even more in this year’s budget?
Finally, let’s look at exports. Will the asset sales improve our current account deficit and allow us to pay back our overseas debt? Despite the promises of favouring Kiwi ownership, we would have to expect the past to repeat itself. Foreign interests will likely buy up some of the assets, resulting in a one-off fillip to the national accounts, but result in a drain on our economy in the long term as profits disappear overseas.
Every year, hundreds of millions flows out of this country, the product of work that Kiwis do being enjoyed by foreign owners, whom we sold public assets to for a pittance during the last round of privatisation. And we’ve spent billions on bailouts of asset-stripped former public assets. So bad was that experience that National has had to wait 20 years for us to forget before trying again.
In sum, asset sales will (at best) have a negligible impact on national savings, reducing our chances of economic meltdown, or exports.
I think he means ‘negative’ not ‘negligible’.
Even if Standard & Poor’s arbitrarily ruled that Government debt was “too high”, selling these assets is not necessarily the best option. The Cullen Fund has $17 billion of assets, some of which could be sold to pay down the same debt as these partial floats would yield.
I’m sure the Cullen Fund is already on their secret ‘for sale’ list, as is ACC and its billions of investments.
given the impending issues of climate change, energy security and rising energy prices, these electricity SOEs are strategic assets which could have a huge bearing on the future of our economy. We should only sell them if we can be certain they will be better at helping us reach our goals under partial private ownership.
Selling strategic assets during the age of peak oil and climate change is nuts – National is trying to give away our economic sovereignty and our ability to weather these storms.
Some are portraying the PM as being brave for prodding the sacred cow of asset sales. But the case has yet to be made, and regardless if there was one policy change that New Zealand really needed, few would point to this as the answer. Introducing a tax on capital or making superannuation sustainable would leave a legacy worth remembering
Yeah, that would be a worthy legacy but what to date makes you think that John Key is interested in a legacy other than enriching members of the elite like himself?