Editorial: Key ignoring real benefits of asset sales

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John Key. Photo / Getty Images
John Key. Photo / Getty Images

If National is guilty of trying to gild the lily, Labour is equally culpable of portraying the proposal in a false light.The most unpopular aspect of the 15 years of economic reform at the end of last century was undoubtedly the sale of state assets to private shareholders. More than a decade on, not too much has changed. A Herald-DigiPoll survey in May found that 62.6 per cent of respondents disapproved of the National Party's plan to partly privatise the state's three power companies, its coal company and reduce its stake in Air New Zealand. National is now seeking to win over voters by ring-fencing the $5 billion to $7 billion it expects to make from this for feel-good projects such as modernising schools and expanding Kiwibank. Few voters are likely to be won over.

Indeed, it is a pity that National feels the need to resort to this, rather than trying to increase public understanding by selling the partial float on its merits. The case is, in fact, strong, more so than that for the grandly titled Future Investment Fund. It is all about these state assets operating more efficiently and providing a better level of service.

A sharemarket listing would bring a discipline and transparency that is absent under the state-owned enterprise model, and inject valuable capital, allowing the companies to expand. Additionally, the exercise would breathe much-needed life into the stock exchange and provide an economy-enhancing alternative to property for thousands of investors.

John Key knows all this. He has talked of the Government retaining a majority holding in the assets being the "best of both worlds". Yet he seems to have given up on making the case on these grounds. Instead, there is the sweetener of the future fund, from which $1 billion would be tagged for education, including wiring schools for ultra-fast broadband and an IT network between schools. The Prime Minister says the fund could also be invested in Kiwibank to strengthen its business banking credentials.

While the country's external debts are a source of such concern, it is reasonable to release capital from its commercial assets for other capital requirements. But what National seems to be implying is that the projects for which money from the future fund is being set aside might fall by the wayside if the partial floats did not occur because the cost of borrowing would be too high. That is unconvincing. A large education spending programme over the next decade is an inevitability for any government whatever the source of funding. Similarly, Kiwibank has been singled out because it is well regarded by many people. Yet if it wants to expand, the best vehicle would, somewhat ironically, be a public float.

National is also trying to give the impression that the sale of 49 per cent of Mighty River Power, Meridian, Genesis and Solid Energy and a reduction of the state's 75 per cent shareholding in Air New Zealand will deliver a windfall. In fact, the process will have to be staggered over several years. The impact of the funding available from it will, therefore, be considerably diluted.

But if National is guilty of trying to gild the lilly, the Labour Party is equally culpable of portraying the proposal in a false light. "If they're sold, you get a one-off bonus but the dividend stream is lost," said the Labour leader, Phil Goff. In fact, dividends remain because 51 per cent of the assets will still be in state hands. The dividend stream will also probably be much stronger thanks to the assets' improved performance.

Labour is, of course, keen to make National's plan a central focus of the election campaign because of the ongoing public unease.

But that makes it all the more important that both parties debate the issue on facts, not flights of fancy. So far, unfortunately, there is little evidence of that.

- NZ Herald

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