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Simmons destroys asset sale talking points

Written By: - Date published: 1:44 pm, February 8th, 2011 - 21 comments
Categories: privatisation - Tags:

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?

21 comments on “Simmons destroys asset sale talking points”

  1. Lanthanide 1

    Fonterra is our biggest company, and they’re a co-operative.

    Why can’t the power companies be made into co-operatives owned by their customers? This would guarantee the ownership stays in NZ and also that the prices won’t be hiked.

    • Marty (Other) 1.1

      Why not? Why can’t the Cullen Fund buy up the companies and farms currently going to foreign interests. Keep the dividend flow in NZ, for the common good!

      [lprent: You should probably use another pseudonym (like your previous one) to prevent confusion with the author Marty G. I’ve adjusted this one ]

      • Lanthanide 1.1.1

        The purpose of the Cullen fund is to get a better return on the money invested than they could in government bonds.

        Now, you may wish to alter the purpose of the fund, to support NZ businesses or such-like. But at the moment it is striving for the best return on investment, so investing in companies in NZ may not be the road to achieving that goal.

    • Rich 1.2

      For once I (almost) agree with you.

      Staff and customers though. That way people working at the firms (and I would expand that to include long term contractors) have a real stake in their jobs and an incentive to work together for positive results.

    • Bright Red 1.3

      they already are owned by their customers through the cooperative enterprise known as the state.

    • KJT 1.4

      Because they already are.

  2. SHG 2

    Tax. Cuts. For. The. Old.

    Fixed that for you.

  3. Marty (Other) 3

    A pity that the Herald has not asked for comments on the article and its editorial. I suspect there would be an avalanche of anti-National opinion.

    [lprent: You should probably use another pseudonym (like your previous one) to prevent confusion with the author Marty G. I’ve adjusted this one ]

  4. Oscar 4

    The opportunity cost if the SOE’s were sold given away, would be far higher than the 210$ million quoted I would surmise.

    Im amazed at the number of people I talk to about this, who think it’s a good idea because “we need the money”, notwithstanding the fact that in August 2008, NZ was in a position to be a lender, rather than a borrower, thanks to Michael Cullen (give that man a knighthood)
    Just 30 months later, we’re in a hole that’s getting bigger, and no way out unless the tax cuts are reversed.

    But try telling that to “Mum and Dad” and they’ll look at you like you’re a filthy commie. Of course, it’s not the myth I’m talking to. This is what I’m hearing from Labours traditional support base.

  5. Drakula 5

    I hate to sound cynical, but this seems to be history repeating itself and Trans Rail comes to mind when that was run into the ground by a private operator; and the government bought it back.

    Public assets like electricity, water, roads, railways should be kept in the commons as a service to both the public and private enterprise.

    What is radical about that?

    You can’t compare the running of the above like Ma and Pa run a bloody cake shop can you?

    Yet that is what the neo liberals are trying to do! and when they have stripped all the public assets and profiteered from them there is nothing left.

    Completely predatory!!!they are a bunch of criminals!!!! It’s about time we put the bastards in the dock or send them to Campbell Island!!!!!

  6. SPC 6

    The Herald editorial somply shows an ignorance of the purpose of interest free student debt and WFF and a sycophancy to the latest economic spin from the Beehive – so now we have a debt problem – when whatever foreign debt problem we did have when the GFC occured has actually got better (falling against GDP) since then. Our public debt level is one of the best in the OECD and still will be till we balance the budget again.

    The interest free loans are one reason for workers to stay, rather than migrate. WFF enables people to afford families, despite our low wages. Without WFF we would face the prospect of 50% of children being raised in poverty (rather than the mere 20% supported by parents on benefits). Then only those managing their assets, or those unable to get jobs across the Tasman, would remain, them and those who migrated here to qualify to go to Australia with us.

    Even National realises these policies and universal Super at a rate to keep the old out of poverty is all that is holding our society together. And the Heraldines/Heraldettes would give that away for the chance of another tax cut for themselves. The TINA line is, as usual, more of the same aplogia for class war against the weak underclass of the poor and the young.

    Any good international credit agency would distinguish between debt, as either a bad debt risk or debt as a valuable asset – thus that New Zealand home-owners are a good asset for the bank, we own the debt and we pay it back with interest. As most of the foreign debt is here we have no foreign debt problem. An asset that a foreign corporate would buy up, given the chance, is not the basis for a debt problem.

    Countries in as good a position as we are should be looking to increase ownership of assets, not sell any.

  7. Fair Trade 7

    Anyone opposed to free trade and privatisation sign up and get involved in protecting public assets:

    http://www.nznotforsale.org/
    campaign update:

    Bryan Gould, the well known economic commentator and author, former Vice-Chancellor of Waikato University and senior British Labour MP, has accepted the invitation to become Patron of the New Zealand Not For Sale Campaign, a network of groups formed to fight the Tran-Pacific Partnership Agreement (TPPA), which is currently being negotiated in secret.

  8. 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,

    But this is just nonsense – how much money does your microwave earn you, the drapes, the lawnmower? The only assest that is likely to earn you any money as a householder is the house itself and even then over a long period of time. SOEs are a whole different matter and cannot sensibly be compared to a household (and I am not saying I support them being sold – just that the comparison is, at best, silly).

  9. Rubbish – Thats an even worse analogy – a microwave is not productive in itself but a drop saw for a builder is.

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