Our exporters could be slammed if Donald Trump is re-elected as US president (he has pledged to impose a 10 per cent tariff on exports to the US). The OECD and IMF have issued warnings to New Zealand to address issues with balance sheets.
Finance Minister Nicola Willis has said she needs more time to get the books into the black. Her pre-election scenarios now appear to have been built on unstable economic ground. All this points to an urgent need to derisk the economy.
Just how we do this is a conversation New Zealand must and should have.
Willis has made a big deal out of targeting spending. She has also indicated she wants to find more revenue.
She could start to do that by coming off the fence and preparing to launch another round of state asset sales through selling (for instance) some of the Government’s 51 per cent stakes in either publicly listed Genesis Energy, Meridian, Mercury (formerly Mighty River Power) and possibly Air New Zealand following in the footsteps of the highly successful mixed ownership model (MOM) floats launched by Sir John Key and Sir Bill English in their second term in office.
If Willis was to be truly creative she would sell down altogether the control stakes of two of the power-generating companies and tuck the remaining generator into New Zealand’s version of Temasek (Singapore’s standalone investment arm) with all the other SOEs and Crown commercial entities. And hand over management of the holding company to a strong commercial board with the ability to be an active portfolio manager completely free from day-to-day political interference. Temasek is an active investor. It has stakes in financial services, telecommunications and media, technology, transportation, industrials, life sciences, consumer goods, real estate, energy and resources.
Treasury has advised that more active management of the Government’s commercial portfolio is likely to result in asset growth. The evidence is there from looking at how the three generators have performed since they were publicly listed.
A Temasek-style holding company board might decide it makes sense to free up some capital to put Kiwibank on a better footing where it can grow and more successfully compete against the Australian trading banks.
The other benefit of following the Temasek model is it forces politicians to focus on their core business. By putting assets into a commercial company, the Singapore Government freed up its Ministry of Finance to concentrate on its core role of policy-making and left the Temasek board to own and manage the investments on a commercial basis.
Temasek’s investment philosophy is to invest in industry sectors that correlate with the economic transformation of the country; find opportunities where growth is fuelled by the increasing purchasing power of middle-income populations; tap the potential of competitively positioned companies; and identify emerging champions.
A similar Kiwi vehicle could also buy shares in distressed NZ companies when private players will not step up to the mark and then sell them on to local KiwiSaver funds and other such investors once they have been restructured.
Key and English opted to place the MOM proceeds into a “Future Investment Fund” – this was purely cosmetic to build public acceptance for the 2014 sell-down by using float proceeds to reinvest in new infrastructure.
But the floats also resulted in the newly privatised companies being exposed to private sector discipline with greater scrutiny and access to capital without being fully dependent on the Government.
There is no reason why a Kiwi version of Temasek could not be set up to hold the Government’s majority stakes in nominated commercial assets and then run an active portfolio policy which maximised the return to the Crown through dividend streams and capital paybacks when warranted.
Moving on.
It’s no secret the Government’s tax take is down. There’s been a large gap between revenue forecasts and reality in recent months. International agencies have strongly suggested it is time to broaden our tax regime by implementing a capital gains tax. So too has, Treasury.
The late Sir Michael Cullen produced complex recommendations on this score.
Then prime minister Dame Jacinda Ardern said, no. So too, did her successor Chris Hipkins to his own Cabinet’s recommendations for a wealth tax.
The answer is to start small.
New Zealand did this with GST. It came in at 10 per cent, it went to 12.5 per cent and is now 15 per cent. It’s all about incentives.
Then there is the need to restrain spending.
The Government is making good progress there. The May 30 Budget will reveal just how successful Government heads have been in trimming their sails.
The various Treasury economic scenarios that have been played out in recent months are a grim lens into what lies ahead if we don’t face up to the fiscal challenge.
There is a much brighter path ahead if we don’t mortgage the future of younger generations through failure to address the major issues now.
So bugger the politics. Let’s get rational.
