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Opinion: John Key has finally got religion on debt reduction, but he needs to worship much harder

Opinion: John Key has finally got religion on debt reduction, but he needs to worship much harder

By Bernard Hickey

John Key finally got religion today.

After a couple of years of being in denial about the seriousness of the government's finances and the nation's foreign debt situation, Key finally fessed up about the precariousness of our books.

Key spoke at length in his State of the Nation address and in a 20 minute news conference afterwards about the need to reduce foreign debt.

"We recognise that New Zealand’s high level of foreign debt is our biggest vulnerability," Key said.

He even (rightly) compared our foreign debt levels of around 85% of GDP to those of the notorious PIGS (Portugal, Ireland, Greece and Spain).

This is quite a turnaround.

As recently as the second week of December John Key was downplaying the warning about New Zealand's credit rating from Standard and Poor's and saying the government's net debt levels weren't really that bad.

"The truth of it is government debt at the moment is sitting at around about 18% of GDP and is likely to top out at, in all the numbers we have, at 28.5% of GDP. Now relatively speaking how does that put us? The answer is in very good shape (relative) to a lot of other countries. So the UK is on its way to 100% of GDP, the US is on its way to 100% of GDP, Japan is at 200% of GDP," he told Andrew Patterson of Radio Live back in mid December.

"The ratings agencies tell us ‘look if your debt is under 30%, you’re of no concern to them, if it’s between 30-60% they think it might hold back growth a little bit, but again of no major concern, anywhere near 100% then you really get their attention," he said then.

So why the big shift?

Key is even now using the shield of fiscal responsibility and the bogeyman of foreign debt to attack Phil Goff's plans for a broad tax cut without an obvious way to pay for it. He accused Goff of living in fairyland and of threatening the fiscal situation so much as to push interest rates. See more on Goff's tax cut plan here.

It's as if the boss of Standard and Poor's got in his ear over Christmas and told Key that New Zealand had to buck up its act if it wanted to keep its credit rating. I suspect though that behind the scenes Treasury and Finance Minister Bill English have been arguing hard that a tougher stance is necessary.

However, the rhetoric from Key is much tougher than the action.

He may have got religion, but he isn't doing much worshipping yet.

Rhetoric tougher than action

Key detailed in his state of the nation address how the government was cracking down on unnecessary spending by reducing the new spending allowance by around NZ$200-300 million to NZ$800-900 million.

That is a tiny cut and it's actually only a cut in the growth in spending, not a cut in total spending. That's worth about 1 week's foreign borrowing. Core crown spending in the current 2010/11 year is forecast to be NZ$70.65 billion. Key is proposing a reduction in spending growth (let alone spending itself) of just 0.4%.

Key made clear in the news conference afterwards at the Waitakere Trusts stadium that the government had no plans to touch Education, Health or the other big entitlement areas of Social Welfare (Pensions, DPB, Dole, Sickness benefits) or the bottomless pit of Health. I asked him if the government would consider cuts in the middle class welfare areas of Working for Families or Student Loans and he said these were areas he had ruled out to voters in the past and he wasn't about to go back on his promises. He also had no regrets about cutting the top personal income tax rate last year.

I've always found it curious how Key won't break promises on pensions, benefits, health and education, but was more than happy to break his promise about not increasing GST.

Moving on, Key was also unwilling to revisit the area of last year's tax cuts for the wealthy. He said Treasury had forecast they would be fiscally positive for the government.

I'd be interested to see whether that fiscal positivity is the case by the end of the year, given the lack of consumer spending growth after the GST increase and the lack of income growth. Much of the tax cut is being saved in the form of early mortgage repayment. That's not a bad thing for the economy and ultimately foreign debt, but it's not going to help the government's finances in the short term.

An investment decision

Key said Treasury would now go away and analyse whether it was a good idea to sell up to 50% of the three power generators (Meridian, Genesis and Mighty River Power) and Solid Energy through stock market floats to New Zealand investors..

The theory is that for the sale to make immediate sense then the dividends given up would have to be less than the interest costs of the debt not incurred by selling the asset.

A quick tally of the dividends received and the equity invested suggests it's a line ball call about whether selling the asset is better than borrowing.

Meridian Energy returned NZ$353.5 million in dividends to the government in the year to June 2010 and shareholder equity was valued at NZ$5.07 billion, which suggests a raw dividend yield of 7%. It reports its return on average equity at 3.9% and its underlying return on equity of 19.8%. Here's the annual report.

Mighty River Power reported an average return on equity in the year to June 2010 of 9.7%. It paid dividends of NZ$286 million and shareholder equity was valued at NZ$2.688 billion, which suggests a raw yield of 10.6%. Here is its annual report.

Genesis Energy paid dividends in the 2010 financial year of NZ$39 million and shareholder equity was valued at NZ$1.448 billion, giving a raw dividend yield of 2.7%. It says it achieved return on equity for the year of 4.9%. Here is its annual report.

Solid Energy paid dividends of NZ$54 million in the 2010 financial year on shareholder equity of NZ$436.8 million, delivering a raw dividend yield of 12.4%. Solid Energy and reported profit as a percentage of shareholder funds at 15.4%. Here is its annual report.

In total, the four SOEs potentially up for sale generated total dividends last financial year of NZ$732.5 million and shareholder (government) equity stood at NZ$9.642 billion. This implies a combined (and very raw) dividend yield of 7.6% last year.

Does this compute?

Yet the government is currently having to pay around 5.5% for the new debt it is selling, mostly offshore.

So on the face of it the government is a net loser by selling half of these state assets and avoiding having to raise new debt.

The Treasury will no doubt do a much more sophisticated analysis, but this is a question the government and voters will have to ask in a very hard way before deciding to go ahead with asset sales.

Simply stating that asset sales are a good idea for making these companies more efficient and giving investors on the NZX more options will not be enough.

Lots of hurdles would have to be jumped. For it to make financial sense, the government would have to sell the assets to the public (in theory the New Zealand public) for book value or better and be expecting long term interest rates to be much higher than they are now.

Meanwhile what's the best way to avoid more foreign debt?

The most obvious, and least politically acceptable, way for any government of whatever shade to reduce new debt is to run much smaller government deficits.

That means cutting into entitlements or core spending, including health, education and social welfare.

That means attacking the elephants in the room of Working for Families, free student loans, social welfare benefits and health spending. Or it means increasing taxes, particularly income taxes.

Another way might be to introduce new taxes, such as a capital gains tax or a land tax.

Yet neither side seems willing to pick up those hot potatoes, let alone throw them at each other.

John Key might have gotten a little bit of religion over the holidays, but he's far from a fundamentalist yet.

The high priests of international finance (Moody's, S&P, the international bond markets and the IMF) may yet force us to pay a penance for our sins in the same way that Greece and Ireland have had to pay in the last year.

But it hasn't happened yet and John Key is hopeful yet more rhetoric and a strong economic recovery will bail him and the country out.

Battle lines drawn

The two states of the nation addresses this week have certainly marked out the battle lines for the election campaign later this year and given voters a clear choice.

Labour wants to tax the rich and keep borrowing. National wants to keep taxing the poor, borrow a little bit less and partly sell off some state assets.

So far our opinion poll (look to your right) is saying the voters are against asset sales.

Your views? Comments below please.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


I would like to see a table of data showing where the spending is going and the revenue coming from projected forward into the crystal ball clouds. I suspect Key is talking total rubbish when he speaks of budget surpluses from 2014. I think the economy will be very very lucky to produce a surplus by 2024.

Can we really afford half million dollar pay packs for senior state employees?

Thanks to previous govt pork politics the economy is unbalanced, broke and living on other people's money...with the Cabinet on its knees praying for an export bonanza to hide the shite under. Housing is seriously unaffordable. The currency is being debased by 30% plus per decade. Unemployment is over 7% and set to stay there. Household debts are close to 200 billion and the banks are farming the economy happy in the knowledge the govt and RB are going to look after them.


aren't we already in an export bonanza?

Yes , I thought so , too . If the current amount that  we " sell to the world "  isn't enough , how much is ?

...... Key is gonna curb the government's spending by $ 200 m. this year , I heard Rod Oram say on Radio National . That's politician speak . Because government spending was gonna increase $ 1.1 billion above the previous year's spendfest ........... Now it's only a $ 900 m. increase .........

JK was a currency trader , not an accountant !

In my view this is cowardly - The govt have chosen the least politically risky path to addressing our mammoth debt issues. 

I agree with Bernard that there are a range of measures that would be more effective, and more appropriate in dealing with the issue:

- getting rid of WFF

- Introducing land / capital gains tax

- Cutting back the still excessive number of bureaucrats

I even think there is merit in the idea of increasing tax on very high income earners 

What do others think? On second thouhgts, is selling off assets safer than the measures listed above? Kiwis do seem to have aversion to selling off assetts, Moot point as to whether the aversion is greater to assett selloff or things like capital gains tax or getting rid of WFF

100% Amen!

Very well considered summary, Bernard.  Interesting points about those assets and their performance regarding potential part privatisation.  But then, if the Govt doesn't try and kick some life into the NZX, what/who else will?

It is quite ironic that the austerity measures you are suggesting (welfare/service cutbacks and increased taxation) are indeed what the PIIGS public are protesting, as they don't see why the public now has to pay for the bad decisions made by the banks.  There are some similarities here regarding the NZ public bailout of the finance company investors.  What was our total cost to the taxpayer (i.e. payouts less income collected on the GG scheme?).   In other words, how much better off (i.e. less in debt) would we be had we not done our own version of a bailout?

Indeed these are interesting times.

My views?  Well, to date I wouldn't cast a vote, electorate or party, for either of the main two parties.  Hence, I'll be closely watching the minors.

Kate - I think the bail outs etc would be a fairly small part of our financial mess.

the biggest cause is the irresponsible spending spree of the Clark govt, together with their inertia in trying to do anything to restrain the crippling housing bubble 

Although that govt was viewed fairly positively in the day as a successful govt, I think in time they will go down in history as having ha d alarge role to play in rooting this country 

Yes Kate, and not just cost to the taxpayer of the finance company bailout.

I had just sold my house and bought bonds from A rated or better issuers when the government brought in the guarantee. The premium I paid for the good stuff was immediately wiped out. So instead of my good sense making me a profit I made a loss. Tough you may say, but the issue is misallocation of capital from those who have some clue to those who are clueless about what to do with it. This sort of stupidtity has long term consequences.

I would never say, "tough for you" on that one.

I agree completely.


I would say 'tough'

Hi Kate,

I think that this is a major political miscalculation. National won last time on the back of promising to a lot of liberal voters like me that they would not privatise in the first term. Now they've shot that down. i reckon that is probably equal to a party vote swing of 5% or more. Now in itself that would put national back at ~45% ewhich would still make it the biggest party. But it would need everybody but the greens to get back back into bed with them - and that everybody is now DEFINITELY going to include Winston - who is the only credible anti-privatisation candidate out there. Winnie thinks its Xmas and you can just imagine how much fun he will have over the next 12 months.

As for me personally - well like you I'm stuffed.. I refuse to vote for envy and economic destruction (so thats Labour and Greens out); I WILL NOT VOTE FOR ELECTRICITY PRIVATISATION, so bye bye Johnboy (and Rodney); Dunne is a spineless sycophant who will just prop up whoever gives him some baubles; and Winston is a deeply unpleasant individual without a single coherent constructive policy. Oh and i'm not brown, so the Maori party don't want me.

Does anyone have any suggestions on what the moderate majority should be doing?



Well if the situation is that bad in NZ, why don't you ngo to North Korea?

Hey Chris B, a bit of a weekend funny for you on why Australians voted Green in 2010; 




Agree with your comments Bernard.... But the one asset that needs to be sold is not on the books

Kiwibank is in the break even stake so its not much interest to investors to buy. Investors want captive Govn granted monopolies in markets with good yeilds, ie Meridian etc is juicy, however they'd want 51% as then they can gouge....political suicide for a govn right now....

Kiwibank has some un-tangibles you should not ignore, its very useful though as a political NZ owned hammer to nail the OZZie banks....its competitive with the banks and undercuts them....its popular with many voters...quite a fell middle income professional earners such as myself bank there because it saves money....selling would cost votes and not bring much $ in anyway.

Selling abroad takes our money out as external profits our balance of payments get hammered even more....bad news.



John Key may  finally have embraced that old Eastern saying, " Slowly, slowly; catch a monkey". Notice the 'smile" appears to have subsided; next, the 'wave'.....

Thanks for that analysis Bernard - very nice.

Problem is - every week we delay in doing the right thing - cutting deeply into the core Govt spending - we go further into a very deep and dark hole.

Very little of this borrowing is being spent on creating wealth or assets.  It is propping up an unsustainably imbalanced set of books.

Plebes like myself can't reduce Govt spending only our leaders can.

For the life of me I can't see what JK has to lose.  

He is independently wealthy, he has achieved his goal of becoming PM. Why not blow some political capital and at least be remembered for trying to force through the once in a generation change needed to lead us out of this mess.

If it fails - he will go out in a blaze of glory. If he continues down this track he will still fail but insipidly.

  To quote Electric Six - Key will be: 

"Like Jimmy Carter, 

like electric underwear.

Like any idea that never had a chance to go anywhere,
this is who you are..."

You assume the right wing? changes will lead us out....they wont Roger Douglas's changes didnt....

Prebble sold off the assets for a song....

In terms of borrowing NZ has private debt, some of the highest in the world, so we should be rich, we are not....obviously not delivering.......

Blaze of glory would be just that, the voter would can National for 2 or 3 maybe 4 elections they would be in the wilderness......

Ireland has cut into Govn spending that hasnt helped it one bit...


Thanks for your reply Steven, reading back I see I didn't make myself clear.  

I hate the idea of selling off the assets.  I think state assets should be supporting NZ citizens and industry (Manapouri style thinking) , rather than being used to extract tax paid income from us plebes via 'market pricing' just to toss it back into the consolidated fund to pay the dole next week.

However, I do like the idea of cutting government spending on unproductive money pits.

I like the idea of that money being used actively to create jobs and move the economy in new and sustainably beneficial directions.

I like the idea of a mild (GST-like 15%) capital gains tax on property (other than the family home).

I actually like the Swedish-style socialist model where state provided services are exemplary but taxation is high - you just can't have it both ways.  We have tried to have equivalent services, but no-one is willing to pay for them.  Somehow they have managed to keep incomes high so most working people are still left with plenty of disposable dosh.

Don't worry, I confuse myself as to whether I am left or right wing.


122 people need to catch a cheap flight to cuba and any other marginalised country to see how you run a country on low levels of credit.have to buy their own flowery shirts though!

Me-thinks, credit policy is the not the only differential standing between us and having 'April Sun in Cuba' on continual loop at the state broadcaster.

Not little credit, but little energy...........and the US sanctions.....a fine example of how America can and does act as a Bully....something we should be wary of.

122 ppl do indeed need to go because NZ's future inside 1 maybe 2 decades will be Cuba's today ie how to survive on little energy.


Private foreign debt not govt debt is what is standout for nz. The money getting pumped into housing blew up house prices and blew up debt, that needs servicing, yet we brought f$;$&n houses with it that don't earn nz enough money to pay off the debt. The GDP to household debt servicing fig is key, if we used the debt productively our GDP would out pace the increased servicing cost of the debt.

The real worry is the fact that the debt is real. It's not going anywhere and costs interest every day. The house prices that at present are still balancing the debt are based solely on what the next sucker is willing to pay, which any day could drop off the cliff.

Can you supply references to support your theory that inflated bank lending on inflated house prices  is largely responsible for this current level of debt - mainly private debt?  This makes sense to me but I would need more information. If your theory is true then the Government is left to fix up the mess with the BANKS whistling Dixie  and  uttering  " Who ME! "

Have you noticed the banks new luxurious buildings and profits? At best,  John Keys,  successful money trader,  attempts an idealogical smoke and mirrors routine to justify selling successful SOE's.   For idealogues,  there are only two reasons to justify selling state assets :-

1  Its making money. Best time to sell for a profit

2  Its losing money.  Cut your losses and sell it 

These SOE targeted for sale are profitable and providing a dividend to Government.  Is this a bale out of Governments weak policy which have got us into this debt? 

Bernard, is Rodney Hide OK that you are wearing his jacket???

But anyway, today's speech is what I have predicted all along...the right wing policy is starting to creep's great...many people on this website have jumped up and down that National is copying Labour...all Key has done is establish trust with the electorate and with a 2nd term approaching he will get down to business.

Or get voted out.....Its not really National coping Labour, its because Labour learned from  UK Labour (I think), the centre ground is where the votes are and National have finally figured that out as well. Sure JK could swing to the right which Im sure he and BE like Cullen before hime (but to the left) would love to, would he win a second term? maybe, probably, third? nope he's be toast.

The right wingers here and elsewhere seem to forget us in the centre voted National on a central mandate not on an ACT mandate...its a contract, break the contract and pay the piper.


Steve, I hear what you are saying...elections are won by winning the centre ground...and National can't swing too far to the right or risk scaring these centre voters...but the point I was raising is that National were elected with a "Centre Right" agenda...their policy has mainly been Centre in this first term, and I believe more Right policy will be implemented in the second term...

Ha. Nice one. My's a bit different though. Taller, bit thinner and not quite so yellow. An experiment. Won't do again. Didn't look quite right on the telly



We are selling valuable assets for worthless paper printed by federal reserve. We can print our own plastic notes and repay our debt. 

Well, we've been "first in the world" in a number of govt policy initiatives in the past (sufferage, no fault personal accident insurance, nuclear free zone etc..).  I even read somewhere we declared war on Germany before England.

Perhaps we could be first in the world to call our own Jubilee Year;



The 1st cost reduction initiative should be getting the "Benefit Cost Ratio" (BCR) Genie back in the NZTA bottle.

Selling quality assets that will increase in value over time, to fund roads that destroy NZ's Economic Capital (i.e. BCR=<1), under the guise of "National Significance"... is totally fucked logic.

We could save ourselves 11.7 Billion + interest (over 10 years)...and if you believe NZTA's report #357 from 2008...and we could generate 35billion dollars in economic value by 2035, by ceasing to build for peak capacity, and instead funding Walking, Cycling, and other public transport initiatives.


Here, here - and welcome new poster!

Why do we get this kind of common sense thinking in blogs as opposed to in political parties?


We dont get taht much logic in here or in blogs IMHO.....its mostly regurgitated fringe political viewpoints with a few sensible ones thrown in here and there.


Yep....of course its totally f*cked....just look how well Prebble's sell offs did the first time around. We have watched our balance of payments suffer for years as profits are sent offshore as a result while the asset was run down.  The SOE's are profitable and nicely so they pay a tidy dividend, so selling a cash cow is frankly in-competent business logic...but then there isnt any business logic....JK has handed the problem to the neo-classical retards in Treasury who Im sure will make the numbers add up to the sale they want somehow. Pity these types cant be held responsible for the errors they perpetuate on us.

In ten years time petrol wont be affordable by many, yet more roads make no financial sense when there will be less car use.....the peak will be bicycles, electric powered buses and telecommuting....


I cant believe how retarded  some of the readers are. Anybody voting against state  asset sales is just flat out financially and economically uneducated. Its very disappointing. I understand the ignorance of the public at large and have grown used to it. However its just flat out sad that poll results on this site show that even those who take an interest in finance are so misinformed and stupid. No wonder our  economy will never evolve beyond primary products. State controlled  businesses are not efficient  people ! Wake up already! 

Um hello, then why are they giving such great returns?

Why is the private sector complining that the NZX lacks anythign of value? and are drooling over SOE's being added...

Answer because you are the financial retard...make a political statement by all means but justify your wonky political beliefs based on zero financial evidence and cal other retared is just pathetic.



Well if the state is so dammed efficient at running these things why just go all out and buy every large business in the country we will all be in wonderland just like eastern Europe once was 

Because industries operating as large natural monopolies (e.g. electricity) have absolutely nothing in common with free-market enterprises (e.g. Fletchers, Nuplex etc.). Perhaps you could raise the sophistication of your argument from the schoolyard?

So where does Air NZ fit into this?

So the logic goes that the state should always own monopolies so they can charge what they like seen you power bill lately


Air NZ are interesting - but lets not forget that government ownership here is a result of a previous failed attempt at full privatisation. They are a pseudo-monopoly in that they are the dominant (but not only) carrier into NZ, but they also operate on the international market. In principle they could be fully privatised but the risk to the nation is that, if they go bung again, NZ becomes isolated from the rest of the world as noone else will fly here regularly enough. So the NZ government conitnues to own enough of the company to ensure our tourist industry gets visitors and our exports can leave the country.

The requirements for a natural monopoly are:

(1) a large barrier to entry (usually capital or regulation based)

(2) a captive and compelled market (ie you can't refuse to buy their goods)

Everybody needs electricity and with capital costs of $1bn+ for a new generating plant there is a major obstacle to new entrants, as this represents >5% of total market size. Airplanes are also expensive, but the global market is massive and there are numerous other carriers (many of whom are also government-owned for the same reasons Air NZ is). Most importantly people can choose to just not fly thus exerting customer pressure on the business, but few people are able or willing to just cut-off their electricity supply.....

"NZ becomes isolated from the rest of the world as noone else will fly here regularly enough"

Sorry i am struggling with this one if Air NZ goes bust nobody else will want  to fly to NZ

The last time I checked we have numerous  foreign carriers operating there here there is demand the market will provide.. 

Yes private enterprises do go broke. When Govenment operations get into trouble they simply take taxapayer funds and keep them afloat because they have the power to tax .


Air nz holds ~80% of the total NZ air business. see e.g.

This figure rises to nearly 100% for domestic services to provincial centres. As such it is a systemically important business. Singapore, Virgin, Quantus each fly international flights into auckland (and ChCh and Wellington) because Air NZ provides the bulk of the onwards flights and enables the country to operate a 1st world transport system. Without it the national air transport infrastructure would not be self sustaining - hence Air NZ is systemically important.

When systemically important business go broke they are deemed to big to fail and government pays out the private investors and owners, who also get to keep any historic profits. And all this occurs without the private owners ever having to pay a dime of insurance premiums to the taxpayers who underwrite their risk taking (See e.g. Northern Rock (UK), AIG (US), BNZ (90's NZ) or Air NZ (2000's NZ)). privatisation is a volatiule, risky and  extremely expensive way for a nation to access long term infrastructure. The growing body of evidence is rather more convincing than outmoded chicago-school dogma.

"The growing body of evidence is rather more convincing than outmoded chicago-school dogma"

So whats the new model???


"The growing body of evidence is rather more convincing than outmoded chicago-school dogma"

So whats the new model???


The chinese are presenting a convincing case for pragmatic mercantilism - although i personally prefer my models a little less totalitarian..... :-)

Seriously though - horses for courses. Air Nz seems to be working currently, so if it ain't broke don't fix it. The electricity industry doesn't work well now - but any changes are pointless unless there is clear expectation of improvements in price stability and supply security. In recent times it has suffered from a lack of transparent pricing and no strategic whole-of-system leadership. Nationalisation is one option but NZ politicians can't be trusted to leave a new national electricity board to get on with its job. I wonder whether an independent RBNZ equivalent could be set up, with the twin mandate of electricity price stability and supply security (ie ensure installation of total generation capacity at 120% of peak load). The key with any nationalised public service is to ensure the presence of best-practice management systems, with performance bonuses thoriughout the pay-scale and fit-for-purpose management structures. individual behaviour is the key to efficient performance. such a body would also need committed, diligent , competent and wholly politically independent long-term leadership - much like the RBNZ governorship.

If we can't agree on this then it would be acceptable to sell all the gen-tailers  to the super fund  (with a 'do not sell' covenant attached) and put in place a new super-regulator. At least that would follow the hippocratic principle of "first do no harm".....


I thought the chinese wolud come into this somewhere a dictatorship!!!

Coming back to the real problem that the debt problem seriously what do you about it.

All this debate about selling assets is a suggested solution to a very seroius issue we do need to look at the bigger picture paying the piper. iin an MMP enviroment realistically what are the options not many most politically impossible

Government Debt? - Aha now we're talking. Well first up we should agree that this is a completely different conversation to privatisation. To fix a negative cash-flow situation, you need to reduce outgoings and increase revenue  - not sell productive assets. Basically the cash-flow problem is welfare expediture - so scrap WFF - we can't afford it. Tighten up DPB as far as you can without actually chucking babies onto the street. Cut unemployment benefit by removing the tax component. All up, that should realise at least ~ $3.5bn per year of savings (ie half the proposed SOE sales revenue in a  single year!).

Revenue wise: - Taxation of transactions is a global trend that we should be leading. Stamp duty, RBNZ transaction tax, bank licensing tax (simpler than a tobin tax), possibly a land tax on secondary residences (if you can stomach the back-lash). You'll probably need to put back the recently abolished gift tax to stop people playing silly buggers in advance of these measures coming in to force.. Then consider raising GST to 17.5%. Total extra revenue ~$2.5bn.

This package will yield a total increase to the annual bottom line of ~$6bn and put the treasury in a much healthier position than floggin off vital state infrastructure. As the governemnt current account deficit for last year was $5.8bn, this should be sufficient.

(back of the envelope figures calculated from: )

Whilst i agree with some of the first mnetioned that aside its not going to happen under MMP

The pollies have to operate within political realiity the punters just will not buy it so what are you left until we have a complete melt down all very sad.

Whilst i agree with some of the first mnetioned that aside its not going to happen under MMP

The pollies have to operate within political realiity the punters just will not buy it so what are you left until we have a complete melt down all very sad.

No, the logic does not go like that.........

Private business always tries to get to a monopolistic position in order to maximise shareholder value.....

The State's job is to stop that strike a balance and keep the playing field level.

The biggest issue for the last 20 years is the ease with which shareholders can buy and sell shares bears no resemblence to running a compnay for its long term good. Institutional investors only want huge short term profit, they then sell and go elsewhere....often leaving mom and pop investors out of pocket and shafted....

Some sectors have to have some guarantee of profit in order to ensure there is always spare capacity, you only have to look at the power problems of california and Enron's escapades to see that private provision can be as big a disaster....

If you dont businesses put in their own generators and like China we get a diesel shortage...

Another example is crude oil production, if demand exceeds supply the price rockets if there is no reserve output capacity or that capacity cant be brought on line fast enough....result pain.




So its central planning??

" Private business always tries to get to a monopolistic position in order to maximise shareholder value " .......... Where does this nonsense spring from ?

Cavalier Carpets ( NZX : CAV ) has always rewarded its shareholders with generous tax-paid dividends . And they don't have any sort of monoploy , nor strive for one . Point of fact , they compete against larger rivals worldwide ( Tai Ping of China as one example ) .

Steel & Tube , no monopoly . The Warehouse . Michael Hill . Ryman Healthcare ditto ..

.... Can you provide some evidence to back up this ludicrous claim ?

Because the SOE is an independant entity....that means its run as a business and is expected to generate and operate like a competant business, the sole shareholder is the Govn.

Its a case of moving on and not being fixated on the past and assuming that didnt work so nothing else will...but then such blinkers suit your political viewpoint.

SOE's were thought up to counter just that comment that state ownership isnt always the best way. On the other hand looking at thel evidence of say US healthcare its a classic and irrifutable example that just as Govn can run things like a disaster so can private businesses....

So indeed maybe SOE's are the answer Nation wide....I think not myself but for somethings clearly they are a serious contender for someone with an open mind.




Feck I hate people who try to get there point across by calling everyone with a differing opinion uneducated and retarded.

What a shitty argument.

While I still prefer National, that fact that they are now having to go to these measures, proves how stupid the tax cuts were.
At a time where virtually every other government in the world was looking claw back some tax revenue, we were throwing it away.
Why can't we just have responsible political parties here?
Labour's polices look even more irresponsible, Goff doesn't seem to have a clue.

Tax cuts will cause innovation to grow , and assist GDP growth ............ Up to a point . There are some services that Gumnut needs to provide ....

........ But many of the current " services " are bogged down in a bureaucratic  morass ....... for instance , the health system . If public hospitals had to compete more directly against private ones , efficiency gains would drive down the burden on tax-payers .

Similarly with running of the prisons . .......... Where's the harm in a trial of outsourcing one prison , to compare the cost-efficiency & recidivism vs. government controlled lock-ups .


As for WFF and interest-free-student-loans  :  they are an out-right bribe by Michael Cullen to buy votes for Labour ....... and ought to be scrapped ASAP .

National backed themselves into a corner by talking about tax cuts for so long and before the election, so almost had no option to cut taxes, no matter how irresponsible it was.

I'm in the top top tax bracket, but didn't mind paying the previous rate, it's was only the higher rate on the money above 60K or something anyway, we must be one of the only countries around that doesn't have a top tax bracket anymore.

We have to pay all this debt back one day.

In saying all that, I really don't want Labour back, they are complete rubbish and look to be getting worse.

Agree with your comments about WFF and interest free student loans.

Bush tax cuts didnt....


@ philthy 26 Jan 11, 10:46pm

He doesn't. Goff has been in Parliament since he was 27 years old. Take out the years he was at Uni and that will give you how many years of real world work experience he has. 2/3 of ¾ of bugger all. He has no relevant contemporary real world work experience that inform his views; he has never worked in running a business, in creating wealth, in being responsible for making sure his company makes enough money so that the workers will continue to have jobs. He’s a career politician and all he knows how to do is to spend other people’s money wrapped around a warped set of left-wing principals that have little to do with contemporary life and no regard whatsoever for how wealth and opportunity are created. And he could be the next Prime Minister. It’s a joke!

I don't think this point can be underestimated. It is all too easy to spend other peoples money.

As an aspiring architect I get to hear lots of stories of Architects blowing the budget. Answer was made apparent by the head of the school in a lecture one day. He asked how many here would consider themselves from a working class background? All the kids there are from wealthy families and don't understand how hard other people work for their money, they are thus careless with it. They should go out and work for a bit to get some perspective on the value of peoples labour.


Maybe it's about time the government set up a Debt working group, they've had just about every other kind. Or is the Act party not really too interested in worrying about debt?

Yep, the Govt parasits need to take a %10 cut . What would that save the country ??? 

Take a look at just that effect on Ireland....


Acc is on its way to privatisation and wouldn't mind betting public health will be privatised in some form compulsory Medicare. Smile and wave looks like he is wishing he had a bottle of mould removal liquid.............. spray and walk away!

If capital gains tax considered there would have to be a one of correction for those affected by "official "property value decreases maybe an opportunity to deal with restructuring rural debt at the same time and then farming would focus on profitability not capital gains. Make My Farms and the like cry, stop the boom and bust cycle.

Interest rates are going to increase anyway regardless of which govt in because of the Basel III regulations that will affect Bank accreditation. The Banks will pass on the cost of compliance to the borrowers as usual.

Increased National Savings ....


Maybe I'm getting too old but would someone please confirm that selling Govt assets to Kiwi's does not increase national savings.

I really do struggle as to how increasing Govt spending ( at a lower rate ) is going to cure a debt problem.



Good idea I say, but only if they limit the purchase of the shares to mum and dad investors or NZ entities.  They should then use some of those funds to subsidise building materials and get Fletchers and the like onto building about 100,000 new houses throughout the country pronto so property demand is eased coming into the next few years and as our incomes rise, house prices stay flat or fall......and then we all have more money in our pockets.  Introduce rules around mortgage terms so they are limited to 20 years and never let them increase.  The single biggest reason we all complain of having limited money is because we are paying large its time for everyone to bite the bullet and cop a loss on their homes and get it under control.  If housing is then unattractive as an investment option, where else better to invest your money then in SOE majority owned companies that provide you with almost guaranteed dividends.  Good on them I think for thinking of giving NZ'ers some safeish investment alternatives.

John Key mentions asset sales are needed to fund other investments. He should state what those are so we can assess the opportunity cost / returns of those other investments. He said something about irrigation in Souhtland....sounds to me like that should be a private sector he spell this out.

If the asset sales are simply to retire debt for operating costs e.g. health, welfare, edcuation - we will be in a worse position in future. That is just kicking the can down the road of cost savings that need to be made, and in the meantime we will have lost $10 bill of assets returning 900 mill a year.

Both politicl partiies currently very weak ideas.


Will spend 10 minutes of my day to support this one. I too can't help but think these assets are essentially the property of a previous generation and whilst they have intrinsic value, they essentially cost us nothing (yes short sighted analysis) and provide a dividend each year which disappears into the public "kitty" to service govt costs.

The sale of some of the majority of these assets will in most cases not cover a months borrowing at current rates of debt rollover. So for the sake of keeping NZ afloat for another month, we've lost control of our power companies completely (ie. they completely go across to being market driven) and as covered in some other posts across the site, we'll all end up paying even higher prices for power, while those of us who took a stake (mum & dad investors..... lol) will take our dividends and offset them against those higher prices..  What a great circle of BS.

All of which could be avoided if the pollies hardened up and attacked the actual problem, which is the huge burden that is social spending. You don't sell assets to cover operating costs! Toughen up, raise the retirement age, reduce WFF entitlements, crackdown on all the people who are on invalids benefits due to cannabis addiction(!)  and find some creative solutions to contain healthcare costs.

I'm off to work.

"All of which could be avoided if the pollies hardened up and attacked the actual problem, which is the huge burden that is social spending."

But, but, but, .... That would require someone to show some leadership.


"John Key mentions asset sales are needed to fund other investments."

Start with the premise that John Key is a politician trying to stay in power. Then interpret "fund other investments" as "buy votes".

Expect asset sales because there is short term political gain, but don't expect them to be sound or sensible on economic grounds.

..maybe so Colin...kleptocracy 


It's energy we're talking of here. Without which, nothing at all happens. Given that energy has effectively peaked, those who tout growth (Key yesterday, and some here) are deluded, cynically misconstruing the truth, or just plain dumb. In my humble opinion. :)

The only area for debate re energy, is in the realms of efficiencies, and whether discretionary use can be reduced (that un-needed trip to the beach on a Sunday arvo is still part of the holy GDP, though).

Beyond peak, energy is worth more than it's weight in gold - it becomes the new gold. For the 'nothing at all happens without it' reason.

Putting your snout in the trough now, has to beat the odds as an 'investment', and I for one don't think it's any coincidence that these are the assets earmarked for the boys.

They won't get more efficient, nor will energy become relatively cheaper, through this or any other measure. Energy is now in contention, and what slack from oil that electricity can take up, it wll. Less diesel-fired boilers, more heat pumps kind of thing.

We own the system now, and we're here for the long term. Selling your house and renting it back may work in the short term, but never, mathematically, in the long. Sooner or later the cumulative rent gobbles up your one-time windfall. Or it wouldn't be an investment, would it?


Your analysis is incorrect Bernard, currently dividends in many of the SOEs are higher than underlying profits (i.e their leverage is increasing year on year).

So the level of dividends you quote is unsustainable and therefore not the correct "yield" from an investment standpoint.

But yes even so it is not going to make much difference from a cashflow position (likely none in fact). However it will make capital available for other uses, it will help our capital markets, it will impose commerical disciplines on the SOEs, it will provide great investment opportunities for "mums and dads"



'But yes even so it is not going to make much difference from a cashflow position (likely none in fact). However it will make capital available for other uses, it will help our capital markets, it will impose commerical disciplines on the SOEs, it will provide great investment opportunities for "mums and dads".'

I respect your candour. You make no pretense of national economic benefit - just being appreciative of additional fees as capital is moved around a sector in need of a bailout and with close links to John Key.

SOE's have disciplines, good long term  ones.....commercial ones seem to be at odds with growing a long term business, ie short term rape....thats why the NZX is a basket case filled with basket cases.........


There are other issues here that are important. Why do we think it is a good idea for government to own businesses?

It is in a compromised position as owner and regulator, which is not good.

We are quite rightly concerned about foreign ownership of core assets, but that does not mean the government is likely to be the best owner.

We are quite rightly concerned about monopoly businesses extorting excessive profits. The only basis for fair business is that people have choices.

I have an issue with large well funded existing businesses creating a massive barrier to change. They do this in two ways, by undercutting new competitors and by encouraging excessive regulation. Government ownership would seem to make these issues muddier and more complex.

The key issue seems to be we just don't trust corporate business. We roll the charlatans in with the good guys and distrust the lot of them. I freely admit to doing so myself even though I know I should not.

Trouble is I don't trust government much either.....

This cannot be healthy.

Competence comes regardless of the cut of your jib.

Or your owner.

A fascinating read is 'Slide Rule' by Neville Shute Norway (aka Neville Shute of 'Town like Alice', Pied Piper, On The Beach).

He was a mathematician for Barnes Wallis on the R100 airship, working for Vickers. Competing with Govt airship R101 at Cardington. Govt people vetted Vickers - no other experts. Cardington were inept engineers - it could have been the other way round. Shute uses their ineptitude to denounce Govt ownership - a long bow.

He then started Airspeed - which lost money yoy forever untl the Ministry made a supply deal mandatory just prior to WWII. Bailed out by the Govt - I wonder if Shute ever appreciated the irony.....

Good read, makes you think. Both styles have Achilles heels. Private enterprise cuts corners, maximises profit and thinks short. If there's no profit, it's doomed. Govt suffers from yes-men, who need to pay their mortgages.

Given that max energy = max profit potential, private enterprise is destined to be the more hamstrung of the two.

You see electricity as a business - I see it as a necessity. I would rather the government own it and at least that way if they gauge the money is effectively coming back to us, and if they make a loss well at least our power is cheap. Why would a foreign owner not charge as much as possible for power.  We see it time and time again in NZ that we are too small for proper competition and we end up being ripped off.

Would it be a better idea for the government to fully sell one or two of them, but keep the 3rd so it can basically control prices through competition?


Competition....yes I agree, commercial entities are free to compete with Govn ones ie what we have now seems to work quite well........can it be done better? No pretty sure not.


I forgot to say that Air New Zealand is a particularly bad example. One of the first things they did after their bailout was kill their domestic competition. We had two airlines here in Nelson; when things got tighter the big one got a Government handout and access to unlimited free capital. Fares were very cheap for a while from Nelson until the competitor was destroyed, they are now about twice what they were and have been ever since. A monopoly is still abusive if it is government owned.




Oh let's sell the goose that lays the golden eggs.  Makes sense except we have done that before and it didn't work.  It is just a way of imposing a defunct economic policy on an unsuspecting nation.  Economics is not a science like physics or chemistry, but a political exercise.  Wait and see.  At some date a National Government will call in the IMF who will impose this defunct economic policy on us.  That is what the IMF does.  It is in the pay of overseas interests.  This country is at  War and all this Government does is fluff around.

I know what I would do if I were in power to reduce the Country's debt.

1. Manage the exchange rate in favour of the exporter.

2. Provide R&D deductions for profitable predetermined possible export areas

3. Legislate that everybody buying a house has to have a deposit of 20%.  No second mortgage, no Family or Company guarantees or family gifts allowed.

4. Ring fence rental housing.

6. A non tax deductible tax on all foreign money into the Country and all foreign purchases.

7. GST on ALL foreign purchases.

8. Increase taxes on all income over $100,000.00 to 50%.

9. All company borrowings from related overseas companies be declared equity.

10. A group set up to manage any loopholes in the above and tax avoidance with  legislation implemented immediately to remedy them.

11. A non tax deductible tax of a 1/4 cent in every dollar deposited in the Banks.

12. A Tobin tax on all hot foreign money.

And that is all just off the top of my head but when you have an international financial system that is out of control an economy HAS to be managed.  And that is something this Government does not do.

Ah yes but what does this say to those it affects?

8. Increase taxes on all income over $100,000.00 to 50%.

Surely it says (and I paraphrase):

"Please go away, we don't want you here."

We need people who can earn that sort of money in an honest fashion.


It is the income OVER $100,000.00 that is taxed not the PERSON who earns over $100,000.00.  If they have good ideas then the R&D proposal can help them.  Otherwise Tuvalu might suit them.  Just because some one earns over $100,000.00 doesn't mean that  "they earn that in an honest fashion".  Even if they do they can contribute to their country.  Most people in the countries that have practised the current political economic policies have been bled white over the past 30 years.  A country will only recover when a Government  starts looking after them.  The poor spend everything they earn.    The rich do not.  Read Wilkinson's and  Pickett's "the Spirit Level" to get a good understanding of what the economic policies of the past thirty years has done. .


"...even if they do they can contribute to their country..." appears to assume they are not already making a contribution, tax take and other ways...good grief, what a narrow perspective!!

100k an't rich, just highlights how poor this countrty has become.

The R & D in previous legislation was compliance based and of limited scope it was a joke.

No comment about effective spending or investment by Government lets just tax.....

I agree speckles, $100,000.00 is not a lot of money but do you honestly think that the people who make comments on this blog are the majority of the people in this Country who earn a lot lot less than $100,00.00 and who are struggling day after day trying to make ends meet - and they never can.  As I said to Roger Witherspoon, read Wilkinson and Pickett's Spirit Level and then start reading more and more.

I know the argument well "we do better when we are equal" which actually does not exist even in the countries which are often highlighted, enterprise and innovation always reward otherwise it will be fostered in other international markets and a foundation of wealth has to exist as a prerequiste...naturally it assume as long as we are not poor, a bit late for that!!

As I said speckles, economics is politics - nothing more and nothing less.  I rest my case.

well you rest you case!!! lol based on simple statement...hmmm


Patricia, I agree with some of your points but I'm with RW & Speckles on #8. Re "...even if they do they can contribute to their country...", I assume you do realize that according to the figures quoted yesterday by Gummy Bear Hero in the Top 10, people earning over 100K represent only 5% of all tax-payers but contribute 29% of all tax-take? This tells me they already contribute a heck of a lot to their country.

It'd be nice if earning a good income didn't have to come accross as something deserving, well, dare I say it...punishment. Maybe reversing the tax rates, lowest rate on higher incomes, would encourage people to work and perform, attract good brains into the country, and help bring NZ on a par with the rest of the developed world. Just kidding of course, or maybe daydreaming...

Just because  the "top 10, people earning over 100K represent only 5% of all tax-payers but contribute 29% of all tax-take"   Why does contributing to you country amount to  "well, dare I say it...punishment".   We  get it so we will automatically contribute more!!



Yes, you would contribute more even if there was a flat tax rate accross the board... You don't need to make the tax rate higher for that!!

We get it if all is equal, especially wealth... which varies naturally in different stages of life, personal circumstances and when people acquired assets ....therefore the income tax contribution will not be the same effect on individuals equally.... regardless if we were on the same income and taxed at the same rate. Wealth is held and not tax effectively so no equality.

It is a punishment to watch the tax be wasted because it is not valued and not used to enhance this country, people pander for agendas, bias, vested interests and abuse the system.

What is not earned on a personal level through sacrfice, endevour or own risk can never be valued at the same level. It is the human condition.



A harmonious society produces overt time the best economic outcome and that is not much different from businesses down to the smallest units - families.

Yeap - I agree, your proposals would be a great start into a better future of our economy and fair outcome for our society.

One of the best contributions I read on this site.


It would be good if there was a party that you could vote for that was concerned about the future instead of the present. A party that adjusted taxes or handouts so that the books were always in the positive. A party that wanted to save for the baby boomers retirement instead of racking up debt and selling off what little assets we have. A party that wanted to lift people out of poverty and educate them for the future but offered handups not handouts.

Surely in the days of MMP we could have a minority party for forward looking people to vote for, even though the majority of NZers and the Labour and National parties just live day to day.


Quite the smartest set of pragmatic  initiatives I have seen on a single page.

Don't agree with them all - but on balance they will WORK !

Until we manage our exchange rate we are going nowhere but down the gurgler.

But first there requires an acceptance of how near we are to the cliff - and the Pollies are not there yet.

Another roll of the dice - then more kicking the can down the road as we have done for many years.  Can't discuss Super, WWF, Benefits and God knows what else that's important.

It's IMF eventually I am afraid - now just timing.



"Until we manage our exchange rate we are going nowhere but down the gurgler"

JB Can you please explain how we do this??.

When the boat springs a leak, you dont sell the (bailer) bucket.

You quickly sell the boat pretending it is in 'as new' condition

Colin  -  Singapore   Hong Kong   Brazil   Korea   all manage their exchange rates very successfully.

The US and the UK are now managing theirs by default via QE.

The best example is Singapore, an economic miracle  who target the exchange rate vs interest rates.

It's well documented on the web.


I wouldn't call Singapore an economic miracle - if you can get your people to work twice as long as everywhere else of course your economy is going to be fantastic! 

and pay them peanuts and give them no welfare....its a choice a society makes, huge growth benefiting some or a smaller growth rate benefitiing many if not all, I'll go with the latter thanks.

...and lets see who's keen to move to Singapore V NZ, not even the libertarians......

Twice as long hours, I dont believe so, actually NZers work some of the longest hours globally apparantly....yet our productivity is low, this makes no sense....of course productivity is measured against GDP and labour costs and if a lot of so called GDP is financial pillaging bringing up the numbers, well the numbers are meaningless....also

The wood manufacturing industry seems to be having finally to invest in automation gear and that means less ppl employed....this I think is symtomatic of NZ, NZ labour is/was cheap in comparison to automating tools, hence it was cheaper to use NZ labour instead....

Oh and there have been comments that of China's 10% per annum growth, half or more of that was damaging China's rivers, land and pillaging resources, when you catually financially account for this destruction their so called wonder growth is a lot closer to developed nation's sure 10% is great if you are happy living in a polluted cesspit.


I talked to a guy in Singapore who implied that most people worked 10 hour days, 6 days a week. So its more like 50% more than us.

We do QE???

Or we somehow accumulate huge reserves !!

is the rbnz doing QE at the moment?


if so, what path does that money take to the wider economy?

is the rbnz doing QE at the moment?


if so, what path does that money take to the wider economy?

No the rbnz is not doing QE at the moment the day they do we will all be broke in 5 minutes.

Our economy is way too small to strat that sort of nonsense>



My take on this.... Key offers up some family jewels....the media etc baulk, in the meantime he is telling us we are BROKE.... so we have to do SOMETHING.....he is breaking this to us gently..... the only other option is spending cuts....WELFARE...WORKINGFORFAMILIES....he backtracks on the jewels, as we all acknowledge that yes we have to cut spending....

He gets us thinking, and generally brings us along to the party, heres hoping it works.

this PR reverse psychology BS is really starting to insult - who do they think they're kidding? National will back down on the electricity SOE's and say they are listening to the people then plough through with welfare cuts - pointless - these conservative neanderthals time is up but god help us the socialists are worse. Who heads the military at the moment?

If Key won't touch Social Welfare, Health, Education, Working for Families or Student Loans on the expense side where are the savings coming from? And on the revenue side with tax cuts and a GST increase there arn't any options there either to increase revenue.  So like most things we'll just leave our heads in the sand and the mavericks in Wellington can look after it all for us cause they know best.

And as for going away and making an investment decision about whether it is a good idea to sell SOEs, well read that as we have already made the decision to sell, we decided ages ago, we are just softening you all up, we know exactly which of the old boys will get the memorandum - Cameron and Co, NZ First Capital - and who knows those vultures out on Great Mercury must be salivating at another chance to rip off the country all over again....(ah David and Michael those were the days Tranz Rail, BNZ...)

Well bugger me .. If Key won't touch ???????
according to reports elsewhere the ROI on "all" SOEs is only 2% and thats including the 7% from the power generators, in which case if you take out the power generators the ROI on "all the others" is less than 2% .. Well bugger me .. why not apply the blow-torch to the non-performers, get them up to an ROI of 7% and bobs-your-uncle .. debt disappears .. very productive. Now check out the top salaries on the 2%'ers


The asset sales are joke. we all know that selling ourhydro powerstations off won't solve anything. Except of course they will generate some amazing fees. Say 3-5 % that the government will pay. Then list fees underwriting fees. It is a guess but it could be in the region of 300-400 million in fees. I am sure someone here could work it out properly. But in the end you have to follow the money and the only point in selling them is fees. Sorry. It is sad isn't it. Fake economics dressed up in a shiny new crisis all just to generate fees.

Good points on the real numbers from selling the assets.  

I'd prefer more govt cuts instead of off loading the assets.  At least the assets are productive entities, giving tax payers a service and a return of dividends to the govt, i.e. the tax payers.  Whereas WFF, welfare, free-interest student loans, are unproductive spending.  

Thanks for the piece Bernard. Just wanted to make a quick response to your last line where you stated

"Labour wants to tax the rich and keep borrowing. National wants to keep taxing the poor, borrow a little bit less and partly sell off some state assets."

I'm not going to disagree with your summary of National, they are after all borrowing net $120 million a week to fund the two round of tax cuts they have already ushered in.

But I do disagree with your assessment of Labour's proposals going into the election. Coming off the back of a record of having substantially reduced gross and net crown debt while in Government, and having consistently delivered budget surpluses, we have no intention of abandoning our record of fiscal responsibility.

That's why Phil Goff was really clear earlier in the week that "before we introduce a tax free income zone in Government we will show how we are going to pay for it....The first area we'll look at is how to crack down on tax evasion and avoidance.... A second source of funds will be to claim back some of the windfall tax cuts from the very top income earners....We haven't set a new top tax rate, but it will only affect the top few percent of earners... How big we can make the tax-free zone will depend on how much we get back by making the tax system fairer and closing the loopholes."

Those are some hefty caveats, but necessary ones.


"How big we can make the tax-free zone will depend on how much we get back by making the tax system fairer and closing the loopholes."

Indeed, it wasn't in invisible ink, how could it be missed so easily?

"I'm not going to disagree with your summary of National, they are after all borrowing net $120 million a week to fund the two round of tax cuts they have already ushered in."

Can an independent source verify this please?

Cheers, Les.

12 years too late!  What did labour do to stop the property bubble? NOTHING. Even queen Helen was in on it! Not surprising though when looking at the ethics of the woman. Who in their right ethical mind would sign a painting they did not paint?

Phhh, Labour and Goffy can suck eggs

How about removing 2 of Labours unaffordable election bribes FIRST? Namely the ridiculous WFF's scheme that's costing us billions a year and the interest free student loans scheme that's costing billions a year? How about down sizing WINZ and government spending? How about  removing the DPB? How about encouring real savings by removing RWT ? Instead of the ridiculous Kiwisaver paper shuffle that is actually just another kind of "benefit"

Let's not lose sight of the fact that Labour was neither better nor worse than National, ACT, NZ First, or anyone else.

Paintergate, speedinggate, accommodationallowancerortgate, lotsofcrookedMPsfrombothpartiessackedgate...the list can and will go on forever.


Oh I agree 100%. I wouldnt't and don't vote for any of them for this very reason. I want CIBR's. Nothing else will do as far as I'm concerned. I'm probably dreaming but it's still more realistic than the 'kiwi dream" Goffy talks about!

Why sell SOE's , when the idiotic Cullen fund is sitting there , a great chunk of tax-payers' munny , enriching the fund managers ......... Do we need both KiwiSaver & the Cullen fund ?

......... And whilst we're on the subject , ACC is sitting atop a mega billion nest egg of Kiwi munny ........... Why do we pre-fund ACC ?

The problem justice...whatever action National take can be reversed and would be by an incoming socialist any reductions or removals of benefits must measure the voting cost.

Jacinda said, "...we have no intention of abandoning our record of fiscal responsibility... ""

Please correct me if I'm wrong but my recollection of Dr Cullen's budgets in the years preceeding the 2009 election are that the Labour Government had been fiscally responsible if such responsibility were measured in terms of the record of government surplus.  But as Dr Cullen himself pointed out when being hounded (and he was hounded) by the media and the opposition National Party for tax cuts - much of the surplus during those years in office was actually 'earned' through gains on government investments, such as those in the Cullen Fund, ACC etc.

These investment gains began their reversal just as Dr Cullen began to spend some of that surplus in Labour's last term by way of new initiatives (i.e. buy back of the rail network) and the Labour government income tax bracket changes announced in the budget prior to the election.

National during the election campaign decided to better those scheduled tax cuts as part of its promises - and bingo - thanks to the two major political parties - the GFC impact on our balance sheet was  made much worse than it need be.


"selling these SOE's to NZ mums and dads"? We already OWN them Bernard!

This from Don Brash via email:

Bernard, I see you're suggesting that it is a “line-ball” call whether it makes sense for the government to sell stakes in some of the SOEs because the government is getting a dividend yield of 7.6% on its investment in the energy companies but can borrow at 5.5%.   I’m not sure I understand what you were saying, but if I do understand it, I certainly disagree with you!  Leaving aside the fact that of course the government would expect to get a higher return from a risk asset than it pays on a debt instrument, you seem to be assuming that the government would sell the shareholdings for the net asset backing of the shares.  Why on earth would it do that?  Shares in both Trustpower and Contact currently trade on a dividend yield of well below 7.6%, and both trade on P/E ratios of around 24.  So even in strictly/narrowly short-term financial terms, selling stakes in the SOEs makes sense.

And of course, getting those very large corporate entities exposed to the disciplines and opportunities in the private sector should pay dividends for the economy as a whole which would be substantial, as the second report of the 2025 Taskforce argued late last year.  Of course, the Government’s commitment to retain majority ownership stakes shows just how far New Zealand is from a rational discussion on privatisation.  How Goff can argue against the move – when he was a minister in the Lange/Douglas Government of the eighties, and a strongly pro-Douglas minister at that, and when the Labor Governments of both New South Wales and Queensland are busy privatizing state-owned assets as fast as they can – is beyond me.

Best wishes


And my response via email:


Many thanks.
One risk for the government is that in setting limits on how much it sells (no more than 49%) and favoring NZ Mum and Dads it will have to sell at a lower price than 'market value'.
Also, by selling at a discount and then seeing a big stag on the first day/week/month you are handing over speculative profits to some taxpayers at the expense of others.
I wonder too, why can't Treasury and the government appoint boards that apply the same rigour as NZX listed companies? Other non-listed entities can do it.
I'm not philosophically against asset sales (or for them for that matter), but I think it's worth questioning the logic and having a good old debate.
We're not that indebted (publicly) that we have to sell them off in desperation.


And his response via email:

Bernard, several comments:

  • Yes, I agree that if the government is committed to having “mum and dad investors” buy the shares the price will be lower than it would be with a trade sale.  But it seems to me that the price which mum and dad investors might be expected to pay is indicated by the price at which Contact and Trustpower trade, and they are on much lower dividend yields (and much higher P/Es) than you assumed.
  • And yes, I agree that selling to mum and dad investors has the substantial disadvantage that profits are handed to those who subscribe to the shares at the expense of other taxpayers.  Which, of course, is exactly why the privatisations of the late eighties by the Lange/Douglas Government were mainly trade sales.  Those privatisations have got a very bad name, for absolutely no good reason in my view.  You may recall that when Telecom was privatised (by a government of which Helen Clark was Deputy Prime Minister at the time) the sale price was, at $4.3 billion, a full billion dollars higher than the Treasury had expected, notwithstanding that the government had already opened up the telecommunications market to competition (unlike the way that the Telstra privatisation was handled as I recall).
  • There is no good reason why SOEs can’t have good directors, and the 2025 Taskforce has suggested ways in which that process could be improved.  (I must declare my interest as a director of Transpower since mid-2009).  But a wholly government-owned company will inevitably behave differently than a similarly-sized privately owned company would, no matter how robust the directors are.  The second report of the 2025 Taskforce, in arguing for privatisation, noted that Nokia had begun life as a lumber company – it would never have transmogrified into a mobile phone company had it been in state ownership.  All SOEs are under pressure virtually all the time to maximize the dividend flow to government in a way which is certainly not conducive to them growing dynamically.
  • You say that you are not for or against privatisation in principle.  I’m unambiguously in favour of it.  I can see absolutely no reason for government to own commercial operations except perhaps where there are overwhelming policy arguments – Transpower, as the ultimate natural monopoly, is a good example of a company I would not privatise, and Radio New Zealand is another (important for cultural reasons having nothing to do with economics).
  • I see John Key’s announcement has a step in the right direction, but a very timid one.  Why on earth would government want to own a majority share in three competing power generators?  Government doesn’t produce the food we eat, or the clothes we wear, or (most of) the houses we live in.  Why should they own three of the five generators?  The New Zealand government is now one of the very few which seems to believe that they should continue to own trading operations.  The NSW Labor Government has just privatised its power companies, and the Queensland Labour Government has just sold its rail system.
  • By the way, when the 2025 Taskforce argued for privatizing the SOEs in its latest report, we quite explicitly said that reducing debt should not be the primary driver (as it had been, arguably, with the privatisations of the late eighties) given that current debt levels, though rising strongly, are not yet at a critical level.  We argued in favour of privatisation on the grounds that that was important in order to expose some of the largest corporates in the country to the opportunities and disciplines in the private sector.  (Note the reference to Nokia above.)  We just couldn’t see any reasons whatsoever for retaining them in government ownership.


Best wishes.



And my response to Don Brash via email:


The debate about book value and market value will be an interesting one for Treasury in its analysis. Perhaps there is scarcity value which artificially inflates the market multiples at the moment? They could subside when all this new scrip hits the market.

The debate about partial and preferred sales (and who benefits) will be just as interesting.

One idea to make it completely fair would be to do a building society style handout where the government simply handed the shares in equal measure over to taxpayers. There would be no question then about some benefiting at the expense of others or questions about market valuation. Your view?

You note that Transpower shouldn't be privatised because it is a natural monopoly. Isn't that the case ultimately with these three generators? Do you really think there has been decent competition in the last decade. Various official reports question how competitive they have really been and Treasury itself is I understand sceptical about how competitive the market is with the latest reforms.

I agree with you that debt reduction should not be the primary driver for such a sale.

On the Telecom sale: having worked for Telecom in its privatised mode, I have no confidence it was better managed than under the public sector. It seemed just as sclerotic and riven with politics as a large government department despite having been privatised for 20 years.

I also think privatising the Telecom monopoly (despite what you say about the market being deregulated before privatisation) was a mistake. It hamstrung the development of the broadband sector for at least a decade and delivered monopoly profits to private shareholders for at least 20 years.

There is a bit of competition now in mobile, but mobile charges are much higher here than in other countries. Telecom has had and still has a monopoly in the lines and broadband businesses.

Telecom's shadow still dominates the industry. It has consistently fought in the interests of shareholders at the expense of consumers (and the economy) more broadly since its privatisation.

Just imagine what a Telecom working solely to build national infrastructure could have done if it had gone with the gut instincts of its engineers in the early 2000s and built out very fast broadband networks. Instead it fluffed around and decided not to invest because shareholders understood deeply that it would eventually kill off their monopoly profits. Delay meant more money for them.

Do we really want to make the same mistake with our electricity generators when the next disruptive technology comes along?


And here's Don's response to me via email

Bernard, several comments:


  • Yes, I have a good deal of sympathy with the idea of gifting shares in the SOEs to all New Zealand adult citizens.  That certainly avoids the problem of the lucky few investors gaining at the expense of taxpayers generally.  Of course, making a trade sale achieves the same objective, because that price would almost certainly be higher than that achieved in an IPO.  And at the end of the day I suspect that the government is favouring the IPO route because of the lack of comprehension on the part of the general public about why a trade sale would probably better serve the interests of taxpayers.
  • No, I certainly don’t accept that the generators are a natural monopoly.  Yes, the price of electricity has risen in recent years, as one would expect given the gradual exhaustion of the (very cheap) Maui gas-field – very cheap only because of the take-or-pay agreement signed umpteen decades ago.  There was not the slightest doubt that power was going to have to become more expensive as that very cheap source of power was exhausted, and the cost of the next source of power was markedly higher.
  • I certainly can’t speak from first-hand experience of working inside Telecom, and I don’t doubt that very large organisations tend to get very bureaucratic, even when in the private sector.  But at the end of the day Telecom is being forced by Vodafone, 2 Degrees, and others to up their game, and there isn’t any doubt that the service Telecom provides today is vastly superior to what the Post Office provided.


At the end of the day, the view one takes about privatisation is inevitably coloured by what one thinks about the efficiency of government operations generally, compared with private operations.  Of course, some private operations are inefficient, and the great virtue of their being in the private sector is that eventually competitors will wipe them out.  No matter how inefficient KiwiRail is, and how unprofitable (as of course it was for decades prior to its privatisation), it is hard to see its government owner admitting it is a dog, and selling it or winding it up (as Treasury once suggested I gather).



And my response to this via Email:


cheers. enjoying the debate.
Interesting thoughts on electricity generation competition and Telecom upping its game.
I still have my doubts on whether network monopolies, or even former network monopolies, can become anything other than monopoly generating beasts that need tough regulation.
The risk of turning over monopoly profits from public assets paid for over many years by taxpayers to private owners remains substantial.
I have become a lot less trusting of the current publicly-listed large corporate model in the wake of the Global Financial Crisis.
But I shouldn't throw out the babies with the bathwater.
Although I'm keen for a pretty robust public debate on this well before it happens.



I worked for EDS at one time, my obervations are BH's comments on Telecom stack up....


I can see absolutely no reason for government to own commercial operations except perhaps where there are overwhelming policy arguments.........

I actually agree with that statement. But the problem as I see it is in the realities of New Zealand’s geopolitical situation. We are a small country with limited capital markets yet we are a highly stable functional English speaking democracy that is largely predictable and safe. We are no Egypt, and business loves that.

The danger with full privatisation of SOE for New Zealand is the risk that those assets will inevitably end up in overseas ownership as they are good companies in a highly stable environment and for large overseas companies with very deep pockets reasonably affordable. For them, what’s not to like? It’s a win for them all the way and easy to make an attractive takeover offer to NZ shareholders to buy them up.  We ourselves are simply not big enough or rich enough to stop that from happening.

The problem then becomes that the profits of those companies are exported offshore; they are no longer available to benefit this country. Sure the jobs are still there and the opportunities that they create, but overall our wealth potential as a nation diminishes.  And I don’t think that’s a good thing.

Due to our size and nature, I can’t see any workable alternative to partial privatisation of our SOE where the Govt, retains majority ownership. But I’m open to be convinced otherwise. 


How about "limited infrastructure"? The deregulation of power and the lame ass commission and commissioner set up has been a dismal failure as far as the NZ consumer is concerned  so why the hell would we want more of the same. We are with those scum’s Contact who very soon are going to put up my power bill 7% for absolutely yet again no justifiable reason. I could maybe switch to Trust power but they too are doing the same in August(whether it's 7% is anyone’s guess) That's the choice we have here in Nelson. We are well over a barrel

"policy arguments"

Generators dont need to add supply to cover failures....or growth or cover dry years.....Enron/California are pretty clear and classic cases of just what private companies can get up to....Govn on the other hand can and should guarantee the safety of NZ's economy by making sure spare electricty capacity is adequate....somethings dont need to make a huge profit because the profit is made further up the chain....forcing a private business to buy its own generator because of shortages or lack of confidence isnt the answer....its a waste.......

Disaplines of private boards.....if private boards are doing so well why is the NZX so eviscarated? why wont mom and pop investors invest?  simple they have been gutted....they are worthless entities many of them...

Why are private investors and agents drooling over the SOEs? because its an opportunity to make windfall short term profits while turning the SOE's into yet more NZX zombies....


I read John Key's announcement (as published in carefully a number of times. Firstly Key stated his state-of-the-nation address was just that, an address, and "The Plan" would follow later. Secondly, the more I read it, it began to smell of gesture-politics (I'm on top of the problems, I'm the Commander-in-Chief) and Wedge-Politics (differentiate between National and Labour) to demonstrate National sees debt as a problem and NZ needs to tighten its belt, whereas Labour will propose to spend more (we can let the belt out a bit more) which will establish in the minds of voters the need to make a choice between the two. Until Key releases "The Plan" it is merely Dog-Whistle-Politics.


Great attempt to present some workable proposals to realign the economy. 



Nice dialogue with Don. I too am not anti-privatisation either. I don't see why governments should own companies operating in non-core areas. Air New Zealand is borderline...flying is pretty elastic (for example I have flown to Wellington much less since Pacific Blue left and prices rose) and so I'm not too bothered about that.

But energy is a core asset. As PowerdownKiwi notes, we all have to use it. Until we can afford thin film solar and mini-wind turbines, we are pretty much stuck with our current providers. There is absolutely no excuse for selling these assets. The arguments are weak at best. And frankly who cares if the Aussies are selling their assets off. Take a good look at their debt numbers....not too flash either. 

I actually believe we should re-fcous our energy companies with a different purpose: to generate energy at the cheapest prices possible whilst exploring and investing in renewable technology. Providing a purpose would help realign corporate culture and focusing strongly on efficiency would bring huge gains. We have to stop believing that we need profit driven private ownership to drive great management. We need people who believe in the purpose...and sure we can rid of the seat warming directors who feast off the public purse. 

Get people into these organisation who care about what they are doing, namely providing the most important basic (ok this applies to water as well) service we need as a society. 

I could argue all night about the financial merits of selling off our energy assets but really there aren't any above simply getting some cash in.

What I love about this policy is that finally we have an opportunity to debate and argue the case against and shine a light on the nonsense people have been fed by the "boffins" and "experts".....well the game is up now. People can see through it and people understand exactly what the result will be: another major wealth transfer to the haves. 



Non-Core Assets? you must be joking surely. Ask Powerdownkiwi what is the most important element at the moment and I'm sure he would say "energy" and ask Wolly where the price of oil is going, and thus energy, in the next 5 years, and ask the masters of BHP (a huge energy producer) about selling assets mid-cycle or at the bottom of the cycle.


i believe you mis-read my statement. i say "energy is a core asset"...after water the most important one we have. 

Raf, yes you're correct, got hung up on the first paragraph


Ah, I'm not alone.

I feel energised already


“I'd put my money on solar energy… I hope we don't have to wait til oil and coal run out before we tackle that.”

—Thomas Edison, in conversation with Henry Ford and Harvey Firestone, March 1931

Is that a real quote? What kind of solar was he referring to exactly in 1931? I myself would put my money into Thorium Reactors, the clean and 'original' nuclear power solution with no radioactive waste or weapons grade bi products (hence they went for uranium shortly afterwards). Thorium sounds like a great answer combined with say solar and H2

It is.

I suspect he didn't know, or have to.

All energy is solar-origin, all transmission is a loss, and he was ahead of the pack in thinking about light, and transmission. Probably got there with intelligence and first principles.

It always amazes me how the smart ones stand out in history, but the mob present never learns from the mob past. Each intellectual jump renders the status-quo obsolete.

This is why the conservative mind is more often wrong, but they never learn the lesson.

Go figure.


So what happens after these guys have sold all the assets off? we know they wont pay the debt off, they'll cut taxes again, because that is their mantra.
If they were so worried about our debt they wouldn't have the taxes that made it worse anyway.