Werewolf: Ten Myths about Asset Sales

27 comments on “Werewolf: Ten Myths about Asset Sales ”

• Comments are now closed

1. Rijab 1

   13 September 2011 at 2:10 pm

   Well that pretty much does it, now wait for the media to jump up and down at such an in-depth analysis and demand a response from the Government!

   … oh wait.
2. Bill 2

   13 September 2011 at 2:26 pm

   Said it before, saying it again.

   We, the general public have no tangible expression of our ownership of SOEs. If the linked article is correct, the four power companies returned dividends last financial year of NZ$732.5 million.

   I’ve no idea how many SOEs there are or what the total $ amount for the government is through dividends collected.

   But if a small set %age of the dividend stream was earmarked for an annual cash payment to all tax payers, then we would have some tangible evidence of our ownership. It might not be much in cash terms, but it would at least be tangible. The government would more or less instantly recoup 15% of such a payout through GST and the economy would experience a boost every 12 months as most of what was paid was spent back into the economy.

   And since the payout from dividends would rise in straight dollar terms in tandem with the profitability of SOEs, it would be natural to give custom to SOEs rather than wholly private entities where a choice existed. Meaning that SOE’s would inevitably do better than they do at present as their market share rose. Meaning more money flowing to government coffers to spend on health, eduction etc.

   Can anyone tell me why such an idea might not be workable? And if there is no fatal flaw I’ve overlooked, why no-one with the potential to be a part of government is making such a proposal?

   I mean, if nothing else it ends this bloody stupid merry-go-round of selling assets and buying them back to sell all over again.
   • Blighty 2.1

     13 September 2011 at 2:50 pm

     The idea that some of the revenue should go to taxpayers is nice in theory but lets do some sums.

     What’s not a risible amount per person for an annual dividend? $100?

     That’s $440 million, or half the SOE dividend stream. A lot of revenue to replace from somewhere else.

     And then there’s the rights issue. Would you be able to sell your right to the annual dividend? Of course, not directly, I presume. But how can you stop a derivatives market? You sign a contract to annually pay me an amount that just happens to be equal to your annual dividend and I give you cash up front. – You end up with a whole lot of poor people cashing up their dividend stream at a poor price.
     • Bill 2.1.1

       13 September 2011 at 3:26 pm

       I don’t know what the total revenue stream is. You say it’s $880 million? I wouldn’t know.

       Anyway, 50% is ridiculously high. As I said, even if the dollar amount is small…even peanuts… the psychology of having some tangible mark of ownership is what counts more. And over time, with people being more naturally inclined to give their custom to their SOEs (just because they are theirs) the total revenue stream to government would increase. (I’m not saying that would one day result in fantastic yearly pay outs to tax payers, what with NZ being so small etc, but that’s not really the point…)
     • Lanthanide 2.1.2

       13 September 2011 at 5:10 pm

       $100 is chump change and won’t make a noticable difference to anyone – who would care if their annual $100 got reduced to only $50 because the SoE was sold?

       You’d need to be talking >$500 before people would sit up and notice. This is simply an unreasonable amount of money to be giving away to taxpayers though.

       Some possible ways to drive up the $ per person (by reducing the number of people eligible):
       1. Anyone > 18+
       2. Anyone not on a benefit
       3. Anyone who paid net positive income tax towards the government

       #3 probably has the biggest potential to reduce numbers eligible. Say we go from $100 to $500 year, that would cost $2.2b, but if you then reduce the number of people receiving it by 5 by and you’re back at the $440m cost but each person eligible gets $500.

       This might seem unfair, but it is these ‘rich’ people paying positive net income tax who also have the most to gain from SoE sales, so giving them a disincentive to want to hock them off is logical.

       There are of course 3 major problems with this whole thing, though:
       1. Administration overheads make it impractical
       2. Political football choosing who gets it and who doesn’t
       3. The state would be better off privitising the assets because they’re already forgoing the dividend stream, at least that way they’d be able to get a lump-sum payout.
       • Bill 2.1.2.1

         14 September 2011 at 8:33 am

         Lanth & Blighty.

         It’s not about the money.

         It’s about generating a sense of ownership. If you want to focus on the quantum of money for the individual, then have the whole bloody lot privatised and buy shares.

         The money is a token – a gesture if you will. And it’s for nothing. It’s a bit like somebody walking up to you in the street and giving you a $20 note….just because ‘you’re in’.

         Or think of it as brand, brand recognition, brand building and brand support. The ABs ‘belong’ to NZers, right? People support them in an emotional sense, even though they are nothing but a business these days due to the professionalisation and corporatisation of sport. But utility companies and all the other SOEs can’t key into that sporting ticket…they can’t offer entertainment and spectacle.

         Odd thing is, the SOE’s actually are ours. The ABs aren’t. And the SOEs do provide us with tangible things, both directly through various services and indirectly through the revenue stream collected by government. The ABs don’t.

         But what sort of reaction do you reckon there might be to a suggestion that the ABs were floated on the stock market? You think there might be an outcry? At least a lot of debate and limelight? A demand from people for information and explanations?

         Yet, the ABs are a wholly private concern offering no tangible benefits to ordinary people. Yes, they are a somewhat useful marketing tool that raises NZs profile and yes, they can engender a ‘feel good’ factor in people due to peoples’ emotional identification with them. But that’s all pretty abstract.

         SOE’s give us real things. But there is no sense of attachment; no identification with them…no projected pride or whatever.

         In a social democratic setup we just aren’t going to get any hands on democratic participation happening with regards these entities that are ours. And most of us don’t consider them to be ours. They are just companies, removed and detached from our every day experience. Hell, who knows how many there are or what they do? Sure. You can look it up, but the fact is you’d have to look it up. (Or at least the overwhelming majority of people would)

         So a token – a gesture, which with the right propaganda (marketing) has the potential over time to engender a sense of ‘belonging’ or of identifying has no down side.

         Adminstratively it would cost minimal amounts. The IRD could simply use it’s existing systems to pass the ‘token of good will’ as it were, on to every NZ tax payer…in tandem with good marketing hammering home the good points of SOEs and the fact that they belong to us in a very real sense.

         And with good amrketing, us customers switch to our companies in preference to the other companies and the governments’ revenue stream increases over time with the increasing market share of SOEs.

         It could even become such (and why not?) that companies spawned from government R&D are set up on similar lines in preference to the fruits of publicly funded R&D falling into private hands for wholly private profit.

         And if you don’t want the $20 or whatever, then pass it to charity. $20 spread across whatever the total number of tax payers in NZ going directly back into the economy means the government recoups 15% anyway and the economy, the private sector, gets a wee bit…just a wee bit of a boost. Which isn’t a bad thing in a market context, is it?
       • Vicky32 2.1.2.2

         14 September 2011 at 5:21 pm

         $100 is chump change and won’t make a noticable difference to anyone – who would care if their annual $100 got reduced to only $50 because the SoE was sold?

         Lolwut? $100.00 chump change? $100.00 has never been chump change to me, even when I was working… There’s a huge chasm between the way you see the world and the way I see it, obviously. $100.00 is what I earn from a day’s work (when I can get it.) $100.00 pays my power bill and part of my phone bill. $100.00 is 2/3 of my weekly benefit. Chump change? Don’t be absurd. Really, I don’t have the words, but I have to ask, would you light a barbecue with $20.00 notes? Are you one of the people the Reserve bank used to quote as considering that 5c and 10c  should be abolished because “no one” bothers to pick them up in the street… If so, thanks a whole bunch. Obviously you’ve never raised children!

         2. Anyone not on a benefit
         3. Anyone who paid net positive income tax towards the government

         Again, thanks a bunch. Marie Antoinette much?
         • Jum 2.1.2.2.1

           14 September 2011 at 8:13 pm

           You tell ’em Vicky32.

           The reason for SOEs is to not only act as a watching brief on private business in New Zealand but more importantly to provide an income stream for New Zealand public’s welfare and health. Take those assets away and this government removes the security of income and safety for future generations.

           Look at Ports of Auckland, e.g.

           I was told that the income from Ports of Auckland was partly/wholly put towards decent public transport for New Zealanders. With the safeguard of 75% agreement to sell off that asset removed by the sad, bad Rodney Hide, we not only lose that income from 2012 but we lose income directed solely to supporting public transport infrastructure.

           Don’t think it will happen Kiwis? Watch this space if NAct gets in again.
3. randal 3

   13 September 2011 at 2:47 pm

   Well if you think you are going to get any change out of the press then you are badly mistaken. The entire media is taken up with stories about standing in queues after a football match, slavish drooling over long forgotten literary anachronisms and other total irrelevancies. The radio is cluttered with manic n*bars using interrogatives at the end of every sentence and playing naff music. The country has regressed into an atavistic state of post bottle feeding euphoria that will not admit any reality whatsoever.
4. tc 4

   13 September 2011 at 2:52 pm

   ‘Asset sales will bring private sector disciplines and efficiencies to bear on the performance of these assets.’
   Not gunna happen in the power sector, no competition in generation so it’s a gravy train and there’s little technology innovation that’s not already known to the power generators.
   Like this happened in telecom/rail etc and also if it were true why aren’t contact energy sooo far ahead of the other generators as an efficient model operator eh…..cue the trolls.
5. Rick Rowling 5

   13 September 2011 at 3:17 pm

   /not denying anything in the above article, just food for thought

   (1) Are all asset sales (of NZ Gov’t owned assets) bad?

   (2) If so, does this mean that the NZ Gov’t has exactly the right mix of assets now?

   (3) Or does this mean that all assets the NZ Gov’t currently own should be gov’t owned, but there are more that it should own.

   (4) or something else?
   • Lanthanide 5.1

     13 September 2011 at 5:14 pm

     1. No.
     4. Assets should be sold on a case-by-case basis that carefully considers the importance of the asset to the country, the likely price that will be realised, the reduction in future dividends or costs and the overhead costs of the sale. At the very least.
     • queenstfarmer 5.1.1

       13 September 2011 at 6:31 pm

       Agreed, I would add a couple of other criteria (to the extent not implicit in the above), such as:
       – opportunity cost
       – ease of renationalisation (an overlooked advantage of publicly floating a minority stake is that the Govt can relatively easily launch a takeover bid if it wants to renationalise the full asset, or even part of it)
       – the likely future capital requirements of the asset
       – market timing
       – sharemarket stimulation (e.g. the Kiwisaver funds will be able to buy into more local assets, instead of boomerang investing the borrowed money back off shore).
       • NickS 5.1.1.1

         13 September 2011 at 11:42 pm

         One thing you’re missing: – Is it a natural monopoly?
         • insider 5.1.1.1.1

           14 September 2011 at 9:40 am

           That can be overcome by regulation. Think lines companies which are owned by a variety of players around the country.
           • NickS 5.1.1.1.1.1

             14 September 2011 at 6:16 pm

             Regulation only works so far, for one it’s useless in getting private monopolies to properly invest in infrastructure per Telecom and Toll, and there’s also an incentive to under invest in order to boost profit margins in the short term. On top of tending to lead to higher prices on services due to lack of competition.

             Where as SOE’s can be easily built to purposely fully maintain and invest in new infrastructure as needed, and ironically some of those line companies you talk about are SOE’s such as Orion, which owns the lines and distribution infrastructure in Christchurch.
             • insider …

               15 September 2011 at 12:41 am

               Orion is not an soe its community owned, and it is highly regulated in terms of rate of return and investment. But so is powerco which is private, and transpower which is an soe, and vector which is mixed. Note that vector and transpower have both had special measures imposed by the commerce commission for rorting customers, private ones haven’t.
       • insider 5.1.1.2

         14 September 2011 at 9:45 am

         I’d add another – will it limit govt temptation and opportunity to meddle in day to day business.

         The electricity market is a shocker for that, with govt appointed lackies to boards and regulators, and managers always having to second guess what the minister may or may not want. It makes planning very difficult around a change in govt, and it makes the industries far more political than they perhaps should be. You don’t see the kind of industry wide game playing in finance, oil, insurance or manufacturing. Getting rid of that is a good thing.
         • NickS 5.1.1.2.1

           14 September 2011 at 6:35 pm

           lolwut?

           The electricity market is a mess because of Max Bradford’s idiotic reforms based solely on ideology that split up the single power gen and distro SOE into multiple SOE’s that had to compete against each other. And so created multiple inefficiencies via duplication and the need for marketing departments, and so on.

           Though yes, SOE’s are not meant to messed around with by Crown Ministers in order to avoid the funtimes had during the Muldoon era without very solid reasons…
           • insider 5.1.1.2.1.1

             15 September 2011 at 12:35 am

             It’s solely ideology and selective memory to say things were better before the reforms. There was large scale cross subsidization of retail consumers and the system was less reliable.
   • Vicky32 5.2

     14 September 2011 at 5:26 pm

     Rick Rowling

     Never gonna give you up
     Never gonna let you down
     Never gonna run around
     
     and desert you…
     

     
     Sorry, I can’t resist…
     
6. Jum 6

   13 September 2011 at 9:55 pm

   ‘ 3. Asset sales will help boost the appeal of the New Zealand sharemarket as a place to invest.

   Yet again, one has to query whether existing public assets should be being used for this purpose, to enhance the appeal of investing in shares. Shouldn’t the private sector be creating new enterprises that attract investors? Isn’t that how capitalism is supposed to work? ‘

   So now I can add extras to the already dismal characteristics of National and ActU – thieving, selfish, greedy AND lazy.
7. mik e 7

   13 September 2011 at 11:42 pm

   well they can’t do that fast enough now because the opportunities in the private sector are laissez fair, No long term projects that would reap a more consistent returns .Short sighted quick buck mentality Brian Gaynor says that I agree with him. Rod Oram New Zealand Is run by bad management Pike river dairying including a very poor investment in R&D surveys showing time after time that we need better trained management . Dairying is one area that would benefit hugely with better training would have a huge lift in productivity and therefore profitability while lowering pollution and carbon tax. Govt leadership on this issue is at lada level when toyota is needed
8. mik e 8

   14 September 2011 at 8:22 am

   Killing the geese that lay golden eggs
   profits of four out of five of these companies are up by as much as 50%
   Ditching your best performing assets is only done in the private sector when a company is going bankrupt or badly managed.
9. marsman 9

   14 September 2011 at 8:58 am

   Privatisation whether total or partial of publicly owned assets is plunder pure and simple. We have plenty of imperical evidence showing this. NAct have NO rational argument for their scam.
10. Afewknowthetruth 10

    14 September 2011 at 9:31 am

    The term ‘Fifth Column’ came out of the Spanish Civil War to describe a group within an organisation who sabotage the organisation from the inside.

    Key and his cronies couldn’t care less about the future of NZ or the future of NZers. Key is working to promote the interests of global corporations.

    If global corporations want a beer swilling contest in Auckland, that is what global corporations get.

    If global corporations want to take control of utilities vital to the functioning of a nation that is what global corporations get.

    Of course, in the case of Bolivia it did eventually backfire: Bechtel had to make a hasty retreat when ‘the natives’ revolted and the governer was forced to flee.

    NZ is quite along way from that point at the moment.
11. Afewknowthetruth 11

    14 September 2011 at 11:30 am

    The entire economic-political system functions by establishing and maintaining myths. And a large portion of mainstream media works frantically to maintain those myths.

• Comments are now closed

• Log in
• Donate
• Contribute post

• Articles RSS