Asset sales could be delayed: Key

Prime Minster John Key. Photo / Getty Images

The fresh bout of financial market mayhem, which has wiped billions of dollars from the value of companies in New Zealand and overseas, may delay the Government's asset sales plan, but by only a few months Prime Minister John Key says.

However Opposition Leader Phil Goff says the market turmoil means the asset sale plan is even more flawed than before and assets will fetch poor prices if they are sold in the current uncertain environment.

Yesterday, as the New Zealand sharemarket plunged to an 11-month low, Mr Key continued to offer reassurances that New Zealand's economy was well placed to handle the fallout from the United States and European debt crises.

"I'm less pessimistic than I was at the back end of 2008 ... I don't think this is going to be as bad as what we saw in 2008-2009," he said.

"Since we came into office, this Government has focused on debt and managing spending. This approach has shown in all three Budgets we have delivered. Recent events have provided further evidence that the Government is moving in the right direction."

He was "reasonably confident" the economy would meet forecasts of strong growth over the coming few years, despite the latest problems.

Asked whether the Government would hold off on its asset sales plan if markets remained unsettled, Mr Key said that would be assessed "on a case-by-case basis".

"Whether you're a public entity or a private sector company looking to go to the equity markets you always have to have a mind for what's happening but we've got time on our side and what's happening today is not necessarily what the position is going to look like in 12 to 18 months' time."

Nevertheless, he acknowledged the sales process could be delayed if market conditions were unsuitable.

"The history of IPOs [initial public offers] shows you that sometimes a product doesn't go to market but it's usually a timing differential of a few months, maybe six months."

Mr Goff said the asset sales plan was "never a good idea". "It becomes an even worse idea at a time when prices would be depressed by uncertainty in the international environment." He said the market turmoil was "a worry given the fragile condition of the New Zealand economy".

"Very clearly we need to be doing a lot more in terms of planning for economic recovery.

"The Government has its head in the sand if it believes that just selling assets and borrowing to pay for tax cuts for the most well off will be the answer to New Zealand's precarious economic position."

Mr Key said suggestions that the market uncertainty might hamper his Government's plan to raise the $7 billion it was banking on from asset sales was "lame analysis".

"These are very strong assets that New Zealanders will want to own," Mr key said.

"I don't think there will be any question there will be a very strong appetite for shares in SOEs if we're in position to roll out that policy."

- Adam Bennett

THE GOOD NEWS: NO RATES HIKE

If there's a silver lining to the storm clouds which have rolled over the global economy in the past week, it's that it now looks unlikely mortgage rates will rise next month.

When the Reserve Bank reviewed its official cash rate on July 28, Governor Alan Bollard signalled he intended to take back the "insurance" cut he made to bolster confidence immediately after the February earthquake. The financial markets expected him to start doing that on September 15.

But that was "provided current global financial risks recede". Far from receding, they have intensified.

The markets now think there's only a one-in-five chance Dr Bollard will lift the OCR next month, and thereby floating mortgage rates, now about 5.9 per cent.

They're also betting by this time next year, interest rates will be only half a percentage point higher than now. Only a week ago they expected rates to be a full percentage point higher by then.

The markets can change fast - in both directions.

- Brian Fallow