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The $10b hole in National’s budget

Written By: - Date published: 9:00 am, July 20th, 2011 - 61 comments
Categories: privatisation - Tags:

Things are going from bad to worse for Steven Joyce. Labour has released its estimate of the cost of lost dividends by 2025 if National’s asset sales plan goes ahead: $9.7b. All omitted from National’s budget. Labour has challenged National to concede the numbers or provide its own. Instead, Joyce’s excuses just show he doesn’t understand accounting. This is getting seriously embarrassing for National.

We all know now that National has booked the revenue from asset sales, which it doesn’t have a mandate for, but not booked the costs. Budget 2011 includes the revenue but not the loss in dividends. Bill English confirmed it in Parliament last week to David Cunliffe when discussing the debt track in the Budget:

Hon David Cunliffe: Given that the Minister’s 2011 Budget has already booked the proceeds of those asset sales, for which he has just confirmed that he lacks a mandate, did his Government’s Budget 2011 Fiscal Strategy Report set the upper net debt ceiling at 35 percent, and what guarantee can he offer that his policies will not break this limit when his Budget does not properly account for the costs of his Government’s plan to sell public assets?

Hon BILL ENGLISH: The 35 percent ceiling is well above where we expect net debt to peak, which will be just under 30 percent. I think this will be more of an issue for the member. If he says he will use a capital gains tax to offset sales of assets, he cannot count the dividends, because they are still in the Budget now. He cannot add dividends from retaining State assets. They are still in the Budget.

Labour took the asset sales revenue out of its debt track but didn’t add in dividends. Instead, it deducted the dividends from National. That gives the solid blue line in their graph, which includes asset sales revenue as well as lost dividends:

Labour haven’t released the full calculations but they reckon it will add up to $9.7 billion by 2025, lost dividends and the interest resulting from extra borrowing as a result combined.

That seems like a lot but we’re talking 10-13 years’ dividends on $7 billion worth of assets. Add in inflation, add in compounding interest, and $10 billion could well be in the right ballpark.

At any rate, it’s up to National to provide their own numbers to counter Labour’s. Steven Joyce, who is fronting the issue [is Bill English overseas as well as Key? – Eddie], has refused. Instead, he says:

“The Treasury has advised that any reduction in dividends as a result of extending the mixed ownership model would be offset by reduced debt servicing costs due to the proceeds from sales”

Oh dear. Joyce hasn’t been listening to the boss: the proceeds from sales and their impact on debt are already booked in the Budget, the lost dividends have not been. So, he can’t say ‘oh, the lost dividends will be offset by reduced borrowing’ because that would be counting the sale proceeds twice.

I hope he didn’t do that when he used to run Mediaworks.

– Bright Red


61 comments on “The $10b hole in National’s budget ”

  1. Lanthanide 1

    Serious Fraud Office should investigate and put out a press release, if nothing else. If this sort of dodgy accounting was done by a finance company, they’d be in the poo for it.

    Steven Joyce’s excuse doesn’t even make sense. If the dividend stream were offset by reduced debt costs, then we would see a line item in the budget called “Interest costs” that was lower, and the line item that said “Dividends from SoEs” would also be lower. You don’t record reduced Interest Costs by keeping Interest Costs the same and Dividends from SoEs the same.

    • lprent 1.1

      I thought this type of crap accounting that English put in his budget (counting the revenue, but not the downstream costs) was specifically forbidden by Fiscal Responsibility Act?

      • Pascal's bookie 1.1.1

        I thought so too.

      • bbfloyd 1.1.2

        maybe that’s one of the changes made under urgency that we are yet to discover.. there must be a mountain of them considering how profligate they have been with secrecy..

        • Lanthanide


          Laws passed under urgency are still public knowledge.

          • Draco T Bastard

            There’s a difference between them being publicly available and being advertised.

            • Lanthanide

              I’m sure if National had rushed through a change to the Fiscal Responsibility Act under urgency we would have heard about it.

      • mickysavage 1.1.3

        I believe Blinglish is avoiding the requirement to put in the lower dividend stream because the actual amounts are “unquantified”.  Beggars me how he can do it.  If there are figures there for expected income from dividends then you just have to deduct 49% from the figure.
        This is shonky in the extreme and everyone I have explained it to assume a dazed look when they try to understand how it can be happening.
        Where is the MSM when you need them?

        • Draco T Bastard

          Where is the MSM when you need them?

          Kissing NActs butt just like their owners want then to.

  2. Jared 2

    Im confused, is the inference that Nationals Budget has or hasnt included the dividends it would have received if they kept full ownership of the SOE’s?

    • lprent 2.1

      They have counted in receiving the full dividends from the their current shareholding in their revenue, whilst also counting in the revenue from the sales of part of the shares.

      Effectively they have double counted the revenue since you cannot receive dividends from shares that you have sold.

    • mik e 2.2

      This is typical National telling the country they are better at running the country . In reality the the only thing they are better at is telling porkies, while they flog off our high performance assets to their mates.

      • Colonial Viper 2.2.1

        the issue is that over half of all people seem blithely oblivious or uncaring to all the %^$# going down.

        Definitely need an independent Left MSM.

        • Roflcopter

          Independent left MSM? How does that work? 🙂

          • Colonial Viper

            yeah I know its a bit of an oxymoron lol

            I’d settle for an MSM which asked some decent probing questions around the place and didn’t put up with being fobbed off with one liners 🙂

            • Ozimandeus

              We don’t necessarily need an independent LEFT MSM. We just need and INDEPEDENT MSM. Loving the murdoch strife!

  3. Colonial Viper 3

    Can we please have a Government of nation builders and investors in the people, and not one rushing to make a quick buck, treating Aoteroa as the latest hot property to flip to the Chinese.

  4. Craig Glen Eden 4

    Cunliffe is all over these three Key, English and Joyce. If the media do their job even a half baked one the Nats are really going to struggle to get out of this.

    • bbfloyd 4.1

      you know that’s not what they have been paid to do.. it’s a nice fantasy though.

  5. Lazy Susan 5

    English pulls out the “double dip” routine again.

    This really demonstrates the contempt Key, English and Joyce have for integrity and due process. If the MSM were doing their job NAct might be a bit more cautious about playing so fast and loose.

    Cunliffe is doing a great job – he’s tenacious and has a gravitas that walks all over these three muppets,

  6. mik e 6

    The media are not tackling Joyce on this or any other issues because they are media trained and know how to answer a question with a question or just spin or cut short an interview not give an interview. But they do go on their networks mediaworks where they get asked passive questions by friendly hosts not independent genuine reporters.

  7. Tangled up in blue 7

    Oh dear. Joyce hasn’t been listening to the boss: the proceeds from sales and their impact on debt are already booked in the Budget

    So just to clarify; the money saved from paying less interest on Govt. debt has been factored in already?

    • Lanthanide 7.1

      No, because the budget effectively says:

      Before asset sales: $X/year in revenues.
      After asset sales: $X/year in revenues.

      If the interest payments are decreased, the correct way to account for that in the budget would be like this:
      Before asset sales: $X/year in revenues, $Z/year in interest costs

      After asset sales: $Y/year in revenues. $W/year in interest costs

      Where Y < X and W < Z.

      Either the government made a mistake that anyone with common sense, let alone accountancy 101, would spot, or they are producing a budget that they know is untrue.

      Choose: woefully incompetent or fraudulently corrupt.

      • Tangled up in blue 7.1.1

        Choose: woefully incompetent or fraudulently corrupt.

        I’ll take “woefully incompetent” for 500, Alex .

    • mik e 7.2

      TGIB is that why Joyce is not answering any Questions about these figures his beloved govt funded treasury predictions didn,t include longterm loss of income from selling of our best performing assets at fire sale prices why don,t you ask him tangled one.maybe its tangled up in the fobby figures like the other treasury prediction from treasury of a170000 new jobs in 4years, or we are going to catch up with Australia

      • Draco T Bastard 7.2.1

        …best performing assets at fire sale prices…

        That something that needs to asked. How much, in today’s terms, did these assets cost us to build?

        If sale price is less than the cost to build them then we will be directly subsidising the private owners for the difference.

        • Colonial Viper

          Ah good question. Replacement value of those assets. Need to find that out.

  8. tsmithfield 8

    1. There is the offset in reduced interest costs for the government not having to borrow so much to take into account.

    2. If the partially sold entities are able to raise funds through equity sales rather than borrowing, then the percentage yield to equity holders (including the government) will increase as the money saved in interest is passed through to equity holders (including the government) as increased dividends. Also, if the entities are able to more easily raise funds for expansion etc and thus increase profitability faster, the dividend returns to equity holders (including the government) will increase in percentage terms.

    3. It is likely that the superfund will invest purchase shares in the entities. Thus a portion of any short-term loss in dividend will be returned in the form of longer-term returns to the superfund.

    Taking these factors into account, I am not sure it is at all clear that the government will be losing revenue as a result of asset sales.

  9. johnm 9

    Let’s leave out the rational techno management accounting BS.These asset sales are DAYLIGHT ROBBERY from the Public purse which empowers us(Whom the Government is supposed to represent-all of us!) to help all NZers not just the rich!(And foreign Investors,a Neo-Liberal tenet is that foreign investment is always good in your economy-look what happened to the Celtic tiger!) However NeoLiberalism does not recognise the Public commons but seeks to have us ruled by BS bankers and accountants,ruled by the Profit motive not the common good.

    “Neoliberalism, at its heart, is class war from above waged under the guise of rational, technocratic management of an economy that must – as neoliberals claim – be shielded from the corrosive influences of democratic politics. But if inequality and social injustice is to be reversed, we need more politicization, more class conflict, not less.”

    The simple answer is to obtain more revenue: We need a CGT retrospective for the last 10 years plus a reversal of the last tax cuts for the rich.

    • Colonial Viper 9.1

      The simple answer is to obtain more revenue: We need a CGT retrospective for the last 10 years plus a reversal of the last tax cuts for the rich.

      The retrospective CGT is not likely to be do-able.

      One reason being that anyone who owned a house through that period and sold now, would likely not be left with enough to buy another home at current market prices, any where in NZ.

      Another reason being that many of the people who sold out during that time and realised those gains are either long gone, or their money is.

      Thirdly, the effect of the mortgage debt overhang on the system needs to be considered. Asset prices may fall but the debt remains. Enforcing a broadly retrospective CGT would cause many home owners to go ‘under water’ as housing prices fell precipitously.

  10. mik e 10

    You would think Queenstreet farmer would have all the answers for Joyce aye !I think they will just keep Quiet an hope the mainstream media doesn,t ask the hard questions

  11. TightyRighty 11

    so labour, who can’t be trusted to cost anything, say that the costs of of nationals plan are wrong? they can’t even figure out how to cost an election campaign, so must borrow from the public purse skirting dangerously close to the law. this is classic blue star digital misdirection by labour to deflect attention away from the poorly thought out grab bag “game changer” that is there announced fiscal policy. yawning, so tired from being bored by the parrots and sock puppets on this site slavering away at the altar of opposition.

    • lprent 11.1

      I realize that after casting your brain patterns in concrete that you might have a problem. But you can satisfy yourself that having a calcified intelligence and a unwillingness to face inevitable change is the mark of a true bonehead conservative.

      Or you could look at the content of the post – something you are obviously too afraid to do.

      • TightyRighty 11.1.1

        oh, I looked. I did the math and cunliffe and BR have it wrong. As usual. I don’t know why i bothered to do the math seeing as it was silent t opening his mouth and making sounds roughly equivalent to a make cow defecating, but i did, and Silent T and BR are wrong. quell horreur.

        • TightyRighty

          and by the way, i’m not a conservative who clings desperately to the old ways. I’m a classical liberal. I actually support the idea of a CGT, but as part of a wider measure to reduce paye-tax levels for all earners, that doesn’t include a no income tax bracket. backed up by a two tier income tax system with low rates and no exemptions anywhere, a benefit regime that is closer to sweden than stalinist russia and little difference between business, personal and trust tax rates. Labours policies are shit because they formulated by politicians who have passed through the parliamentary digestive tract and are about to be shat out of parliament. Like cheap meat, they have hung around in the digestive track for far to long.

          • lprent

            i’m not a conservative who clings desperately to the old ways.

            You could have fooled me.

            ..but as part of a wider measure..

            And your statement of which that was a part had this uncanny sound of Sir Humphrey to me. I finally tracked it down to the phrase above. Wasn’t that his signature phrase for when he was dissembling into a very long way of saying “I don’t want to do it?”.

            The point is that you can study this kind of thing as much as you like, it makes no difference. At some point it just has to be done. Since damn near every other OECD country has a CGT it is easy enough to put one in that works roughly the way we need it to and then change it over the long term as the need arises.

            As for other tax adjustments – after significant revenue starts arriving from a CGT (because it’ll take a decade with grandfathering) then you will have had a lot of time to consider how you’d adjust the overall tax package. But the primary effect; a slow change in investment behavior will happen from pretty much the time that the tax bill is introduced.

            Face it, you’re just blithering like Sir Humphrey..

            • Secret Squirrel

              But the primary effect; a slow change in investment behavior will happen from pretty much the time that the tax bill is introduced.

              If different investment types are all treated the same with CGT why would behaviour change? Unless you mean structuring to avoid CGT?

              • Colonial Viper

                It changes because you don’t seem to (want to) understand the impact of a CGT around leverage and gearing around property vis a vis SMEs and start ups.

                A CGT changes the balance of business cases in several subtle ways.

                Do a bit of reading up on it is my suggestion.

                • We can only guess at what it would change, leading up to, and then short and longer term afterwards. We can guess a bit better looking at what has happened elsewhere but we would be changing from different conditions to anywhere else in quite different economic times.

                  Expecting to change behaviour is a major punt.

                  About the only thing that’s certain is there will be predicted consequences and unpredicted consequences.

                  • Lanthanide

                    It’s really not “guessing”, it’s an informed estimate, or forecast of what is expected.

                    “Expecting to change behaviour is a major punt.”

                    If behaviour isn’t changed, then the government will get a greater revenue stream than what they’re predicting, won’t they?

                  • Colonial Viper

                    Expecting to change behaviour is a major punt.

                    What, don’t you believe that people are economically rational agents? That’s one of the foundation stones of Chicago school neoliberal economics.


                  • Even Labour aren’t sure of a lot of details, they’re leaving plenty to the Expert Group.

                    What the Expert Group recommends and Labour ends up doing will be critical to how it works – you can be sure that loopholes will be searched for, and some will be found, and that will determine behaviour as much as anything does.

                    So until the Expert Group does it’s bit, and until Labour implements the final structure, there has to be a lot of guessing. And even then it will take years to see what works as intended, what loopholes are used, what loopholes prove popular, and what holes are plugged etc etc.

                    Revenue streams are also major guesswork (from both parties). Even with existing tax structures with known foibles and effects the forecasts are often awry.

                    • Colonial Viper

                      wah wah wah

                      If you don’t like uncertainty please don’t be a politician

                      Getting to the same point in repaid debt but without selling off our key strategic assets seems like a bloody good deal mate.

                      As your broker, I recommend you take it.

                    • One thing you can say with certainty Squirrel if you had an appreciation of history is that Cullen consistently adopted a cautious prudent set of figures and they were always better than forecast whereas Blinglish has this habit of pulling figures out of his arse and the actual figures are worse.
                      Revenue streams are not major guesswork.  Leaving in an income stream that will half is dishonesty verging on fraud.

                    • I agree that Cullen was generally prudent, although that could be argued on policies that cost big time like student loans and WFF. And if he predicted his revenue streams carefully he knowingly screwed wage workers with bracket creep.

                      But like every country Cullen would have had difficulty predicitng revenue streams from 2008 through to now.

                      And he would have even more trouble predicting revenue 15 years ahead on a complex, unfinished and untested new tax regime.

                    • Colonial Viper

                      If you can’t deal with uncertainty in working with the long term future of the country (not that planning forwards 15 years is particularly long term), don’t be a politician.

                    • lprent

                      That is the point of legislation (and any other type of software). You know that it won’t be perfect when released – what you’re after is that it works, is functional and doesn’t have any known blue screen flaws. You’ll have to tweak it several times as the real world (and the accounts, lawyers, and courts have a go at it). You do that by releasing updates (and amendments) as required. Hopefully if you get it right, after the first couple of years, you’ll only have to update every decade unlesss you put out a marketing (political) release.

                      I’m afraid that I have zero time for people that want anything to be perfect when released. They obviously don’t spend a lot of time engineering systems. I do it for a living and you build with the best development systems in the world and the damn things will still spring bugs in the real world…..

                      Of course I’m not a randite or any other type of branch of the politically religious

                    • Colonial Viper

                      S.S. has at least 15 years of work experience in an R&D focussed company. So he has said previously.

          • mik e

            you can tell when the right are wrong they have no other option than to be abusive bullies

          • Draco T Bastard

            I’m a classical liberal.

            Yeah, a conservative. An idiot looking back to the failed ideas of the 18th century as a solution to today’s problems caused by those failed ideas.

          • Craig Glen Eden

            Show us your figures Tighty,its show and tell time genius!

        • Lanthanide

          If you “did the math”, surely you wouldn’t mind sharing it with us to show us how Cunliffe and BR are wrong?

          In other words: put up, or shut up.

        • lprent

          If you “did the math”, surely you wouldn’t mind sharing it with us to show us how Cunliffe and BR are wrong?

          Pretty much my thought as well.

          All I did was to check that the relevant bits were in and out of the budget as Cunliffe had specified (and yes he was correct). Then a bit of the back of a piece of paper to see what kind of compounding I got something in the right order. It had bugger all to do with any kind of calcs – it was simply a matter of book-keeping. They put both types of revenue into the budget despite ‘selling’ the source of the revenue. In my views that is simply criminal accounting.

          I was thinking about doing a NPV on the revenue streams but realized that our governmental accountants weren’t treating this like a project, so there wasn’t any discount rate.

          • Ozimandeus

            And that is the point surely? To claim the value of the sale of assets without accounting for the loss of revenue from the sold assets into the future ( I am unable to write “going forward”) is conscious fraud. I am no accountant but I can see a cheat at work

  12. tc 12

    Attention all you believers in the Nats budget and economic plan…..I gotta few bridges I’d like to sell you, great return, good patronage, one careful owner….just like our power compaines.

  13. Jum 13

    (Hope this is okay to transfer) – found this on Public Address: priceless…

    ‘Monopoly 101, never sell the utilities…

    The utilities were lame assets in Monopoly. The average payout from landing on them if someone owned both was $70. Compare that with $700 for landing on one of just the weak blue properties with a hotel on it. Or $2000 for landing on Mayfair with a hotel – game over, most times.

    The railways were pretty good earners too, the best thing being the constant drip feed of cash since they’re evenly distributed…

    You can’t force anyone to stay at a Mayfair hotel, but if you own the electricity and water, you can pretty much force them to pay you every month.

    You could quite easily make Mayfair an undesirable suburb by cutting the power and water.’

    Let’s cut off the power and water to Key in Parnell and Joyce on his holiday highway…

    (Given that I haven’t forgiven Russell Brown for getting it so wrong on the Warner Bros sellout by Key)

  14. mik e 14

    Tighty Ireland Portugal Greece the piigs are being forced to sell their assets no one wants them except Greeces lotto business which has been sold for 400million euros yet it is returning 900million euros in profit each year its true value should be around the $15-$20 bilion dollars. Same with our assets they are returning 700million+ a year they should be worth $10-$13 billion not the 1/2 that price National are trying to sell them for . Steven Murdoch Joyces figures only covered a 5 year period after the sale not the consequences of the lost income after that period when the govt would lose the $700 million a year lost income however they won,t be around then so all they care about is winning this election .If he was able to get their true value i wouldn,t have to call them and you economically ignorant.

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