The increasingly compelling case for state asset sales
If you harbour any doubts about the precarious nature of the country’s economy, then advice Treasury released this week will dispel them. The economic agency’s report showed that not only was the economy in structural deficit, but that the Crown owned $537 billion in assets carrying $345b of liabilities which were susceptible to “contingent and implicit risks”.
If the coalition Government was to deliver on its promises it would need to find another $1.6 billion across the budget forecast period to make the much-vaunted tax cuts fiscally neutral, Treasury advised.
The political reality of two of its solutions to this crisis – spending cuts and tax increases – together would be implausible for any government, but particularly a right-wing one.
However, there’s a case for another solution.
Treasury boffins euphemistically call it “active management of the balance sheet”. Its real name is asset sales.
As a wealth tax is the ideological ground zero for the left, so are asset sales for the right.
National already knows what an incendiary issue it is after it sold off 49% of energy companies Mighty River Power, Meridian Energy and Genesis between 2013 and 2015.
Then-prime minister John Key ignored a 2013 citizen-initiated referendum which strongly opposed sales, claiming National’s success at the 2011 election gave it the mandate to introduce the “mixed ownership model”.
And despite that political heat, National was returned to power in 2014 with 46.1% of the vote, while the sell-off was in progress.
This Government, with a popularity rating 10 points lower, doesn’t have assets sales on its agenda now. It can’t afford the political capital to pay for it.
However, State-Owned Enterprises Minister David Seymour is kicking the tyres on whether asset sales are fit for purpose.
This week Seymour was quick to follow the Prime Minister’s and Finance Minister’s assertion that there was no policy work to divest state-owned enterprises, only that they were “working on improving the clarity and the purpose of owning SOEs”.
If clarity and purpose aren’t the start point for creating policy, then what is?
What’s more, several SOEs in Crown ownership have alternated between not delivering and actively failing; from TVNZ not posting dividends, to KiwiRail viewing government coffers as its own endless bank, to NZ Post reducing its services to rural customers. Which qualifies all those SOEs as likely candidates for a partial sale.
Treasury has expressed concern about them for several years.
A 2022 report made a clear distinction between the SOEs under the mixed ownership model which were performing well, and the 100% state-owned companies, which had “underperformed with cost of capital” with revenue, earnings and dividends decreasing over the past five years.
Many fully owned government companies faced limited growth prospects which exposed them to future disruption risks, Treasury warned.
Which brings us to TVNZ. A scant two years on from the Treasury report, its decision to cancel two news shows, along with long-form current affairs programme Sunday and Fair Go, may have accelerated its likely demise in government ownership for Seymour.
Not only is TVNZ included in his clarityand-fit-for-purpose exercise, but he’s also looking into whether TVNZ should start returning a dividend to the government. For TVNZ, that’s simply an unattainable prospect, given that what it will really want in the future is a hand-out.
Wouldn’t it be wise to sell it as an asset now, before it becomes a worthless liability?
Meanwhile, KiwiRail’s $3 billion overrun on the Interislander mega ferries, which Nicola Willis deftly dumped, could lead to its own untimely demise from Cook Strait. Officials are investigating what would happen if KiwiRail didn’t provide a service between the two islands and if rival BlueBridge could.
After all, when a SOE holds a gun to the head of a government because it has a $551 million fixed-price contract for a couple of mega ferries, before repeatedly coming cap-in-hand to ask for more and more and more, doesn’t that designate it as a particularly egregious basket case?
The left will make the claim that these SOEs aren’t all about the money; that other measures, such as “public good”, are as important.
But what public good is being served when services like NZ Post are only able to deliver an ever-decreasing amount of postage on three days a week? Isn’t it better to place the risk, not to mention the need for efficiency, in the hands of those who will pay their own price if it doesn’t work?
Let’s go back to the partial sale of those energy asset sales. National put an official selling target of $5b to $7b for them. They sold slightly shy of that, for $4.7b.
Since then, the Crown has received $2.2b in returns and the other shareholders another $2 billion.
Combine the ongoing fiscal turmoil facing us and the Government’s SOE tyrekicking, and one thing’s for sure – at some stage, asset sales are a certainty.
Janet Wilson is a regular opinion contributor and a freelance journalist who has also worked in communications, including with the National Party.