Labour’s economic policy really about cornering National on asset sales – Jenée Tibshraeny

Labour’s first economic policy is more about giving it a platform to campaign against assets sales than grow the country’s wealth.

The party today announced it would take a new policy to next year’s election – the creation of a fund that would invest in, or lend to, Kiwi businesses.

If elected to govern, Labour would put $200 million in the “New Zealand Future Fund” upfront. This is cash it would likely need to borrow.

It would then divert the dividend payments of to-be-determined state-owned enterprises (SOEs) to the fund, rather than use this money for general government expenditure.

In linking the SOEs to the fund, Labour would commit to not selling these entities.

This is the key point.

Labour wants to emphasise its commitment to keeping and growing SOEs – in contrast to National.

There is no real need for it to tie SOEs to its pledge to support Kiwi businesses.

Indeed, the past two administrations invested in businesses and gave them grants and loans (partially in response to the pandemic) without involving SOEs.

Think back to the Provincial Growth Fund, Small Business Cashflow Loan Scheme, Government Investment in Decarbonising Industry Fund and NZ Green Investment Finance.

The Labour Government also used its balance sheet to make it easier for businesses to get bank loans via the Business Finance Guarantee Scheme and KiwiBuild.

Which takes one back to politics.

Labour needs to present the electorate with fresh ideas to support job creation. As it stands, the fixation is on the tax policy it will take to the election.

Unveiling a new fund, likely smaller in size than those it created in the past, isn’t going to cut it.

But doing something that links investment in Kiwi business to SOEs creates an opportunity for it to attack National for its willingness, and Act for its eagerness, to sell SOEs.

Labour can also say that rather than lean on foreigners to invest in New Zealand businesses, it would step up and do so itself.

To make the narrative even more compelling for Labour voters, it’s saying the people who run the New Zealand Superannuation Fund, founded by Michael Cullen, would run the new fund.

Another tick for Labour from a political optics perspective.

Associating the new fund with the Super Fund, which is worth a whopping $89 billion and has performed very strongly over the years, is a good look.

Of course, the new fund would be completely incomparable in scale and in mandate.

Rather than maximise returns in the long run, the new fund’s goal would broadly, if not vaguely, be to support New Zealand businesses.

This would entail taking riskier punts on businesses that could fail.

Labour will be criticised by those on the right for engaging in corporate welfare – using money that could be spent on health, education and infrastructure to invest in businesses that align with its worldview.

There will rightly be debate over whether this is really the best way to grow the economy.

It’s also questionable whether businesses would want government equity/debt if they knew one of their investors/lenders might want out if National came back into government.

This is an issue that businesses tied up with the NZ Green Investment Finance are currently grappling with.

But these are the details.

Labour will be hoping phrases like “the Guardians of the Super Fund investing in New Zealand” and “Labour keeping Kiwis in New Zealand” will resonate with its support base.

More importantly, it hopes to set the stage for a debate on asset sales – something New Zealanders typically oppose.

But like any prudent investor, the Government should always be assessing whether its investments are fit for purpose.

Selling an asset that’s no longer serving the country to free up cash to invest where it’s needed makes sense.

The question is whether National will be able to successfully shift the conversation from one around asset sales to asset recycling.

Without the SOEs element, Labour’s investment fund idea is economically uncompelling.

Jenée Tibshraeny is the Herald’s Wellington Business Editor, based in the Parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.

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