Another NZ$400m from SOE sale cash

Rural News

National announces NZ$400 mln irrigation investment to come from SOE share sale cash; Brings total spending from sale fund to NZ$1.5 bln

9th Nov 11, 4:16pm by Alex Tarrant

By Alex Tarrant

Up to NZ$400 million from the proceeds of National's planned sale of shares in State-owned enterprises will be invested in irrigation projects from 2013, Prime Minister John Key and Agriculture Minister David Carter announced today.

That brings the total spending already promised from the expected NZ$5-7 billion proceeds from the share sales to just under NZ$1.5 billion.

The National Party earlier this year announced its intention to sell down up to 49% in each of Solid Energy, Meridian Energy, Genesis Energy and Mighty River Power, as well as some of its 73% holding in Air New Zealand, if it is re-elected on November 26. The shares would be sold down over a 3-5 year timeframe.

Last month Prime Minister John Key said the proceeds would be earmarked in the government's accounts for investment in social infrastructure such as schools and hospitals. In Budget 2011, released in May, Treasury indicated any new capital expenditure over the next five years would have to be found from the government's existing capital base - ie, the government would basically need to sell assets in order to invest in others.

Announcing the 'Future Investment Fund' - the section in the government's accounts for the SOE share-sale proceeds - Key said the government would use NZ$1 billion over the next five years for upgrading schools.

Then last week, Key said NZ$80 million of the share-sale proceeds would be used to help fund an advanced technology institute.

Adding in the latest NZ$400 million contribution brings the total promised spending from the SOE share-sale cash to NZ$1.480 billion.

Key has also indicated some of the NZ$5-7 billion proceeds could be given to KiwiBank for the State-owned bank to lend to the small to medium enterprise (SME) sector.

Key has said the future investment fund would be used to fund new capital expenditure over at least five Budgets, and could effectively disappear within a decade. The Future Investment Fund is not an investment fund like the Superannuation and ACC funds, which invest their capital in local and global assets for returns, but rather a section earmarked in the government's accounts for cash from the SOE share sell-down.

Irrigation plans

In May before releasing the Budget, National announced plans to spend NZ$400 million by investing in regional-scale irrigation schemes to try and encourage third-party investment. At the time, Key said he expected spending to commence in 2013/14, which was reaffirmed today.

“Should National win the election, we will provide up to NZ$400 million from the Future Investment Fund to confirm the funding for the second phase of our water priorities, to be called the Crown Water Investment Company. Funding will be available from Budget 2013, and will carry on for the following four budgets," Key said in a statement on Wednesday.

“The scheme would operate through the Crown being a minority partner, and investing with the expectation of a commercial return on that investment. The intention would be that the stake would be sold off over time. It would not be a grant scheme," Key said.

“Because we are using the Future Investment Fund, which draws from proceeds of the mixed ownership model, we will not have borrow more at a time when financial restraint is needed," he said.

“Government investment in large-scale irrigation schemes can deliver high quality projects, sooner, and give confidence to capital markets to invest. Our plan will be good for jobs, good for growth, and good for the economy.”

Compare National's agriculture policy with those of other parties in Parliament in our party policy section here.

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39 Comments

by Bernard Hickey | 9th Nov 11, 4:38pm 1320809906

Is it just me, or does it seem strange the government is willing to subsidise farmers by putting seed capital into their irrigation schemes?

And promising to sell it back to the farmers (hopefully for a very good price...) after the government has done all the hard work (with taxpayer money).

Along with the announcement today that Agriculture is basically permanently out of the ETS, this shows the National government caving completely to the farmers (in particular dairy farmers)

http://www.interest.co.nz/rural-news/56629/national-would-phase-ets-obl…-

We shouldn't be so precious when the Americans and Europeans accuse us of subsidising our exporters too when we come across all high and mighty (not mention clean and green) in trade talks.

cheers

Bernard

by Malarkey | 9th Nov 11, 5:09pm 1320811786

When have NZ farmers not been at the top of the list and the head of the queue?

National panders to them because the party is little more than the political wing of Federated Farmers. (Who is president of FF?)

And with the fallout from the Asset sale fiasco, the Nats are feeling vulnerable for the first time since Double Dipton got caught with his hand in the accommodation allowance cookie jar.

So they are desperate to buy back any votes they may have lost from what has always been their core constituency.

Labour have always bent over backwards for farmers because they are frightened of them.

So there you have it, BH: the NZ political landscape in a nutshell.

You're welcome!

by Ralph | 9th Nov 11, 5:17pm 1320812239

It would be a pretty stupid government that didn't pander to a lobby group who contributes 50% of all export earnings.

by Malarkey | 9th Nov 11, 5:22pm 1320812567

DING! DING! DING! DING!

And there it is, the inevitable empty-headed "But mate, farmers earn the country a lot of money!" comment.

The country invests in two things: houses and agriculture. Is it so surprising that while it's losing cash hand-over-fist on moronic and unproductive property "investment", it's making money from farming?

One day NZ will finally grow up and invest in something besides those two things, something highly productive that's not solely focused on cow poo, and then we'll hear fewer comments along the lines of "FARMERS R DA BESTEST!", at long last.

by Ralph | 10th Nov 11, 11:49am 1320878943

By your reckoning pointing out fact and empty headeness are one and the same thing.

You may not like the fact but that does not lesson the truth of it.

by Anon good nurse | 10th Nov 11, 2:26pm 1320888392

On this very site a while ago I read an interesting post.

IIRC, it stated that agriculture earned NZ approximately NZ$15b per annum and employed around 200,000 people. But at the same time, IBM earned something like US$100b p/a, and employed 350,000 people. Then there are the companies such as Google, Intel, Microsoft, etc that earn even more than IBM, and between them employ more people than the population of NZ.

So the point of the post to which you replied was well made, that while some Kiwis get and stay rich from farming, we as a nation are condemning ourselves to poverty by investing in nothing but agriculture. Oh, and houses.

by Ralph | 10th Nov 11, 4:07pm 1320894452

I suggest the point was muddled thinking and poorly made.

To group housing and farming as equivilent investments is eroneous. Farming is an investment that gives a return. Housing (unless it is rental) is a speculation that has no return (only a potential for capital gain).

You connect "some (individual) kiwi's getting rich" with the "we" a nation. But the collective "we" is nothing more than the sum of the individuals - including the farmers.

A nation does not economically condemn itself by investing. Economic failure is more associated with the lack of any useful investment, sometimes because the money goes to speculation instead.

Almost all investment decisions are made by individuals and not "nations". IBM is not owned by the nation USA, rather it's shareholders of many individuals or companies of individuals.

Poverty can come from many causes, but investing in farming is not one of them.

So regardless of our opinions about farming as an investment it remains an export earner for us as a collective "we". How this can be painted as a disaster is beyond rational thought.

by Anarkist | 10th Nov 11, 4:27pm 1320895660

Well Ralph, its largely capital gains on farmsales and subdivision that has allowed the farming sector here to continue to be viable without subsidies. So you could argue that farming is as much a speculative activity as property investment. In fact, property development on greenfield land, probably generates more income and employs more workers than farming. So what if it doesn't bring in foreign exchange. Would just mean we wouldn't be able to buy so many flat screen televisions, etc.

by Ralph | 10th Nov 11, 4:36pm 1320896169

just mean we wouldn't be able to buy so many flat screen televisions, etc.

That it would, I guess if you can get everyone else in the country to agree you're onto a winner. Until then we need to get foreign exchange from somewhere.

by Lucky Basket | 10th Nov 11, 5:51pm 1320900706

Mate it seemed very clear to me. The point said that this country doesn't invest in any thing that ever makes any real money. NZ puts all it's eggs into the same 'safe' old baskets that never make much money compared to a real business like the ones mentioned above. But a few farmers do very well which is the main thing. And fools like Olly may have stashed away some money when he fluked into some but more likely as not he piled it all straight back into his property mug's game again.

So that point was while we timidly stick to the farming based knitting that earns a pittance as well as throwing money away on houses others make a lot of money because they had the guts and foresight to invest in lucrative things that NZ will run away from like a bunch of terrified girls.

by Ralph | 10th Nov 11, 6:25pm 1320902728

1. "NZ", "This country" and other such phrases just mean ordinary people.

2. That farmers do well does not exclude any other party doing well.

3. There is nothing wrong with farming as a way to make a living.

4. "We" don't timidly stick to farming - farmers do.

We should want every investing party to do well and good on them - away with the idea because farmers manage to do ok we should in some way vilify or think less of them.

Get out there everyone - invest. Personally. Choose farming or don't choose farming, I don't care. The main thing is you have a go.

I hope you are very successful.

by amalgam | 11th Nov 11, 1:01am 1320926518

Farmers do well because they get first dibs on resources, which means that others (ie non-farmers) miss out.

We, as a nation, do stick to farming: remember that mantra of yours (and most others) "We must support the farmers because farming earns lots of money".

Since we are uncomfortable with the idea of trying new and different things, farming will continue to overwhelmingly dominate the economy, with severely and increasingly detrimental effects.

And I don't think the original post was about the personal investments of individuals: it was about the incontrovertible fact that the economy of NZ as a whole revolves around agriculture and property, and that nothing else has a shit show of a chance because of it.

by Casual Observer | 11th Nov 11, 2:20pm 1320974447

nothing else has a shit show of a chance because of it.

What rubbish! Tell that to the Technology industry in NZ - they are our 2nd export earner after agriculture. But the problem is that they are a bit of a good news story - and we all know on-one wants to write about that!

by Andrew R | 12th Nov 11, 5:44pm 1321073084

Farming may be the/a big earner for our economy. However if you follow the analysis by Paul Callahan you will see that it doesn't produce the return we need for the country. His argument is to promote/rely on industry. See a recent talk of his http://youtu.be/OhCAyIllnXY

by Kakapo | 12th Nov 11, 5:54pm 1321073682

It's not so much that farming's big and productive, as it is that every other industry is completely stunted. Nothing to be overly puffed up about in winning a race where every other competitor is dead or has a leg missing.

by Gareth Vaughan | 9th Nov 11, 5:24pm 1320812685

And most of whom vote National...

by Kate | 9th Nov 11, 6:06pm 1320815192

It's definitely not just you.

:-)

by Don m | 10th Nov 11, 10:44am 1320875052

Bernard says ...."Along with the announcement today that Agriculture is basically permanently out of the ETS, this shows the National government caving completely to the farmers (in particular dairy farmers) """

..Bernard.. maybe they are "caving into common sense.."

I dont see it as a subisdy when..

no other country has ag included in an ets

the science/measurement regarding methane emissions and animals and this relationship with AGW is dubious at best

there are no known effective ways to reduce methane emissions economically and wasting research dollars to do so is crazy

regards

by Andrewj | 9th Nov 11, 5:25pm 1320812724

The irrigation schemes left are fairly marginal, I dont think they are an answer. Good to see short term thinking and buying votes is still with us. One irrigation scheme I looked at was going to cost 10k an hectare to the farmer, not many farmers are willing to pay that much, so up steps some brainless politicians and the taxpayer.

by Malarkey | 9th Nov 11, 5:36pm 1320813373

The thing to remember is that the farmers don't actually pay for any of it in the end. The taxpayer always foots the bill, one way or another.

And look at the once-magnificent areas that recently have been utterly despoiled forever by dairy farming. In order just to keep the grass alive, the landscape has to be criss-crossed with hideous irrigation systems. Natural flora has been obliterated, replaced with gigantic billiard table-like pasture. But turn off the taps and it will all blow away, so the zillion dollar canals and pivots become the number one priority.

At least someone is getting rich out of it. (Hint: it's not you, and it's not me, and it's not 99% of NZ, and the money isn't taxed, and in fact is probably no longer even in NZ bank accounts.)

by Don m | 10th Nov 11, 10:48am 1320875295

Malarky..you dont like the sight of centre pivots but ok with 120m windmills on every suitable ridge line..?

by Omnologo | 10th Nov 11, 2:57pm 1320890250

Will add 10k/hectare to land values. Good for financial industry.

by marcf28 | 9th Nov 11, 7:22pm 1320819733

wont this be in the area where SCF lent alot of money

by amalgam | 9th Nov 11, 7:27pm 1320820066

Are you asking Bernard or Malarkey?

But you'd probably be correct in either case.

by Andrewj | 10th Nov 11, 8:18am 1320866280

Just watched Russel Norman on the telly, he's been rafting on the river down the road (Tuki tuki) and telling us its a green river and a mess. Its bullshit, I was fishing there last week, its full of trout, whitebait are swimming well up the river, my friend who spent his life fishing said he had never seen such good condition fish, he hooked 8, everyone took the line way out past the backing. The fish were fat and fighters, the water was clear and we drank it. Ive never seen so many fish before, we used drys and hooked a fish every few minutes. My friend hooked a 8 lb fish but it was too strong and got away.

by Kunst | 10th Nov 11, 11:14am 1320876873

Andrew - Russel says: The river is ok now but as summer comes on it will shortly be drained for irrigation and will become smelly with a low flow. Just ask Fish and Game...

Reading the summer reports – I think lack of rain is a problem - Irrigation another.

http://www.fishandgame.org.nz/Site/Regions/HawkesBay/fishingReports.aspx

So – after all - bullshit – hmmm ??

by Anarkist | 10th Nov 11, 3:23pm 1320891800

Nice one Kunst. Plus summer is the time when algae starts blooming. I should know. I did a season Raft Guiding in Rotorua and the guides in my company had to be tested to chart the toxicity of the Kaituna's algae.

by sam stevens | 10th Nov 11, 10:11am 1320873115

malarkey

can you explain your comment on how the taxpayer always ends up paying for farmers water and irrigation and if so why is this a bad thing?

as taxpayers we are also propping up the welfare state, so is it best for this country to invest in economic growth or more bludgers?

if you are a little disgruntled with the economic progress bought about by improved water usage and efficency then maybe the outback of australia underground in a mine might suit you better?

sam

by Anon good nurse | 10th Nov 11, 2:33pm 1320888787

"as taxpayers we are also propping up the welfare state"

By welfare state, are you referring to the Super Annuitants who cost the nation in excess of NZ$8b p/a (excluding medical costs, etc), which is easily the lion's share of the annual social welfare budget?

by steven | 10th Nov 11, 3:09pm 1320890950

This argument makes no sense.....supporting welfare and farmers are not the same thing....funny thing but i thought farmers cared for the land...yet I see little sign of it at times.

Economic progress where it is brought about by increasing damage to the eco-system makes no sense....its a short term run for profit for some at long term expense for most....If famers want more water then they should be paying the full economic cost.....otherwise we are into the moral hazard of supporting production where it cant survive by itself. Now where this is short term and an unusual problem, I can accept temp Govn / ta xpayer support.....but not long term forever, that is just pork barrel politics.

regards

by iconoclast | 10th Nov 11, 3:24pm 1320891842

You refer to "farmers" generally - presume you are referring to dairy farmers ? if you believe two items in interest.co.nz last week, the entire dairying industry as a whole paid no tax whatsoever over the past 2 financial years.

by steven | 11th Nov 11, 8:33am 1320953588

Hi, its certainly a Q that has to be answered.....if its a (say) 5 billion dollar industry then the tax take should reflect that.....for simple argument say its 10% profit and 30%tax ....so 150million in tax.......should be expected, if its $100k then something is seriously amiss and needs fixing.

regards

by Anarkist | 10th Nov 11, 3:20pm 1320891632

Well since welfare recipients spend their benefit payments largely on food and rent, they're arguably the same thing. If the unemployed ceased getting the dole and those whose manage the unemployment system are added to the unemployed then thats a massive amount of demand for food that drops out of the market. What'll you think will happen to food prices then? And therefore the livelihoods of our hard working farmers. No jokes as I can testify myself how hard farmers work.

by iconoclast | 10th Nov 11, 3:28pm 1320892114

two items in interest.co.nz last week, the entire dairying industry as a whole paid no tax whatsoever over the past 2 financial years. So what's going on here? Is that long term clever arrangement of the affairs of all farmers collectively, (acting in collusion) or is it welfare?

by steven | 10th Nov 11, 3:34pm 1320892489

Collusion, no perfectly rational behaviour to act alone on this due to "good" financial advice....and yes it effect its welfare.....or tax evasion....

regards

by Omnologo | 10th Nov 11, 11:23am 1320877405

It's just you and Malarkey Bernard.

As DonM said no other nation has included agriculture in an ETS, so how are the NZ tax payer subsidising farmers. Farmers contribute to the ETS, for what it's worth, in the same way the rest of NZ does, by paying at our processing points and through the inputs we purchase which are required to be accounted for in terms of the ETS.

Will the country be better off developing irrigation schemes in the contexts of David Chastons recent article on this website about feeding an increasing world population, or funding more roads in Auckland, or a future world cup etc...

However if the government is going to support farming so it can further advance down an ignoble corporate path eg Landcorp expanding, TAF etc, sure get Fish and Game on board and kick the rich corporate fat cat farmers in the guts Bernard.

by sam stevens | 11th Nov 11, 7:02am 1320948177

thanks all for feedback and discussion

to anon good nurse

yes i suppose it does include super annuitants.

to steven

i agree farmers ( sheep, beef, orchardists, etc) and welfare recipents are different, but they are still taking money from the same pot, which is really my point would we rather create jobs or dependency?

as a country we have both a social responsibility and an economic one i guess the debate here is which would (in the case of the $400 m) put emphasis on.

a question for steven you say that you see little evidence of farmers looking after the land, where are you looking?

you also mention about farmers should be paying the full economic cost of using water

we pay our rates

we paid for the infastructure

we pay the power bills

we pay for the extra labour, fertiliser (organic or not) etc

we pay for the shares in the irrigation scheme

so who else would you like us to pay?

the government will not give this money to farmers to develop irrigation it will be paid for in the form of interest

also is tax evasion another way of saying good accountancy???

i see this deabte as further exemplifying the town/country divide

cheers

sam

by Sheep Shagger | 12th Nov 11, 10:01pm 1321088510

Sam, you make some good points, especially the last one re the rural urban divide. If this site is infact representitive, then many urban people cant get their head around the fact that it doesnt have to be them or us. NZ can(and does) have a strong agricultural sector and also have great tech or manufacturing sectors as well. There is no reason for them to be muturally exclusive.

As for the irrigation debate, I think this is probably the most sensible policy that National could concieve. Water storage in times of peak flows to utilise for irrigation has an absolutely garanteed payback for NZ inc. From memory its been found that there is a 6 to 1 multiplier effect for every dollar invested in irrigation. Ask the good folk of Ashburton, Timaru or Oamaru whose business and communities benifit from these flow on affects.

As Andrewj points out above the problem is irrigation schemes are extremely capital intensive up front. Not only do farmers have to pay for the onfarm infastructure but also the off farm stuff as well. AJs 10k per ha would be quite typical. For the govt to help at the start for the off farm part of it then get payback over time is a very sensible move. The govt and wider community then reap the benifits from the increased revenue from the extra economic activity created.The beauty of it is its not just a one off but for 100 years or more.

The other point id like to make is that irrigation doesnt necessarily mean dairy and its assumed enviromental effect. Many sheep and beef farmers would love to have some irrigation. As it has stood recently the costs of irrigation normally preclude us. However as our profitability has increased (and dairying recently decreased) the numbers for intensive sheep farming will be more favourable. Very few sheep farmer I know convert to dairy because they want too, most because they wish to be more profitable. Until now if you wanted to take up the opportunity to get irrigation dairying was almost mandatory to fund it. I suspect that this is not necessarily the case anymore and if the govt steps in to help less so still.

by Casual Observer | 12th Nov 11, 10:50pm 1321091438

Well said SS. Your comments re irrigation being assumed to be for dairy, when that is not necessarily the case is spot on.

The ignorance about the reality v fiction in agriculture among urbanites is scary at times. This was shown to be true, right up to the decision makers in the Waituna Lagoon issue. It was interesting to see Russell Norman come out and say that dairy farmers have done nothing wrong in regards to the lagoon.