Greens argue SOEs better off funding growth through debt issues than share floats

Greens argue SOEs better off funding growth through debt issues than share floats

Greens argue SOEs better funding growth through debt than share floats

Green Party co-leader Russel Norman has argued the government should avoid privatising state assets and should instead issue debt to 'Mum and Dad' investors to fund any growth. He also said he was open to the idea of a tax break on on savings in the wake of a similar proposal in Australia. 

Norman told interest.co.nz in a Double Shot video interview (above) the government risked losing control of these assets through any part privatisations via the NZX. He was referring to the debate around the future of Kiwibank and its demand for new capital, but said the same issues applied for other State Owned Enterprises. 

Norman said the first option for Kiwibank was to build up its capital by retaining its dividends, rather than paying them to the government.

"If that's all they want to do over the next 10 years to achieve the capital investment that they need then that's quite do-able for the government. If they need NZ$100 million up front, that's a different issues," Norman said.

"But why not do debt? Why do we have to do equity? There's nothing to stop Kiwibank issuing bonds or any of the state owned enterprises issuing bonds. You don't have to do it through equity, you could do it through debt," he said.

Asked about the weakness of the NZX without the part-privatisation of state assets, he said: "Our position is not to privatise them and that does create problems for the NZX because some of those key industries are missing. If we did sell Meridian or whatever, and listed them on the NZX, what's to say over time the shares aren't gathered together and it's effectively taken over by someone else and de-listed from the NZX. There's no guarantee that won't happen over time, which is the kind of process we've seen with a lot of other companies./"

Norman said regular investors would rightly ask where they should put their money when equity was not listed on the NZX.

"Why not bonds. Why does it have to be equity. Why not debt. From the point of view of a Mum and Dad investor, they're looking for a safe return. Shares have certain advantages because you might get a higher rate of return over the medium term, but bonds are safer and you still get a rate of return on them," he said.

Asked about a tax break for savings, similar to the one proposed in Australia, Norman said: "The Greens are not opposed to it. The thing about the Australian one is that for anyone with significant savings, (having) tax free the first $1,000 isn't going to change your behaviour. How far would have to go before you really started to change behaviour, which from a macroeconomic point of view is what you're trying to achieve. You'd need some pretty significant tax breaks."

The Australian proposal is for a 50% tax break on the first A$1,000 of interest earnings on savings, although I have proposed tax be exempted on the inflation component of interest earnings.

Asked about exempting tax from the inflation component of interest returns, he said: "In terms of discounting the tax due to inflation, that's a reasonable argument and we've been having that argument amongst ourselves when looking at proposals for a capital gains tax as to what extent should a capital gains tax discount for inflation. They tended not to because of the complications involved in doing that, but it's a legitimate argument."

Norman acknowledged the concerns about future funding of healthcare and pensions as New Zealand's baby-boomers retired over the next 10-20 years. He said a public healthcare system was the sign of a civilised society, but rationing had to be debated.

"As a society we need to face the question of rationing of healthcare. It is rationed right now and so it's a question of how you ration it. The debate around healthcare needs to move beyond: 'We're not doing this or that or the other to let's be rational and honest and transparent about what rationing we need to do.'

The Green Party did not favour an increase in the retirement age or a reduction in benefits, he said.

"We haven't supported that, but I think it's a debate the country is going to keep having, but at this stage we've said we stick with the status quo at this stage."

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Chris B

Patsy here. Kiwibank has already issued NZ$150 million of non-callable perpetual preference shares that qualify as Tier 1 capital but pay interest like a bond. Mums and Dads loved it.

But you are right that there's a limit to this issuance. That reminds me to ask Kiwibank where the limit is.

cheers
Bernard

Alex

I struggle to run with anyone these days. We've had David Cunliffe and Bill English on with Double-shot interviews several times.

We've even had Rodney Hide.

I've asked John Key and Phil Goff. They haven't said yes to a video interview...yet.

I'm proudly independent and a pain in the rear end for most politicians.

cheers
Bernard