By Selwyn Pellett*
Both the media and the public need to look deeper than the carefully constructed sound bites coming from the government on its asset sales plan, because the long term consequences for New Zealand are massive.
In effect John Key has, by resurrecting a failed strategy from our past, signaled that he and his government have no idea how to grow the economy and demonstrated that National’s ideological views are driving its decisions without reference to the reality of the situation we find ourselves in.
There are a limited number of arguments in favour of asset sales and so far that’s what most of the media is picking up on. But let’s ask the serious questions about what sits behind such a move for New Zealand’s economy, and how it may affect our society.
Firstly, the justification for the plan is invalid or at least greatly exaggerated. New Zealand doesn’t have anything like the same Crown (government) debt as Portugal, Spain, Iceland or Greece. The combination of private sector debt -- via our foreign banks -- and Crown debt is unacceptably high at around 90% of GDP. However the difference in New Zealand’s case is that a greater proportion of our debt is private sector debt. A default on this debt impacts on the balance sheets of foreign banks not the New Zealand government.
Our Crown debt is, by global standards, still low. Lumping these two types of debts together, as the Prime Minster is doing to attempt to justify this policy, is at best mischievous and at worst dishonest.
The second problem is a failure in the financial logic: Who gets the proceeds of the assets sold? It’s not the SOEs so all this talk of them suddenly behaving better and more efficiently is simply wafer thin spin.
Have we forgotten what happened with Telecom?
The dividend stream that flowed out of Telecom - and indeed out of the country - would have been enough to see our broadband infrastructure in place a decade ago, with all the positive effects on GDP growth. Telecom’s ability to extract monopolistic pricing effectively became a foreign tax on all New Zealanders and a handbrake on our economic development. That is the history of the failure of asset sales in this country. They simply do not deliver the alleged benefits the politicians of the time promise.
The promised benefits in this case? Debt reduction, for one. But what’s the real debt reduction involved here? If the government gets all the proceeds from the sale of the assets and later the SOE sees an opportunity to increase its business that requires additional capital it will come back to the market.
If the government is going to maintain its 51% shareholding it will be required to participate in a rights issue or allow its shareholding to be diluted below 51%. So now the Government’s spin doctors have a problem; either they say we will allow the shareholding to go below 51%, or there will be no need for capital for these SOEs, or the short to medium term benefits to New Zealand will be less than the $10 odd billion indicated.
The third issue here is sovereignty: John Key can stack up the initial sale however he likes, but he must know the reality is just like a fish quota: ownership will progressively roll up to less and less people and eventually it will end up becoming substantially foreign owned. It would take serious legislation to prevent this happening and that would hardly be free market behaviour.
Finally, there are a few social issues to ponder. Is it right that a generation that inherited all these state assets and enjoyed those benefits for most of their life, leaves the next generation devoid of any? Shifting debt from the current generation to the next or removing wealth creation assets from a future government’s income stream are essentially intergenerational theft. It certainly isn’t strategic planning. Surely the current generation should be the one to knuckle down and pay for its mistakes, not future ones?
In the same vein should we be selling state assets to fund tax cuts? The reduction in taxes for the wealthy would enable them to participate in a share purchase with no change to their net income. In other word the Crown is effectively subsidizing the ability for wealthy individuals to take a private stake in what used to be public assets. Meanwhile, Joe Thirtysomething - with two kids, an average income, high expenses and not enough disposable income to join the sale bonanza - has had his and his children’s’ birthright sold to his wealthier neighbour.
The reality is the free market is not free and it is certainly not fair. We should all be fighting this move very hard if for no other reason than to be fair to future generations of New Zealanders.
* Selwyn Pellett is a technology entreprenuer who founded Imarda and was co-founder of Endace. He is a spokesman for the Productive Economy Council.