TVNZ was once valued at around $2 billion, says Richard Prebble. But the Government retained ownership of what is now a loss-making company. Photo / Getty Images
TVNZ was once valued at around $2 billion, says Richard Prebble. But the Government retained ownership of what is now a loss-making company. Photo / Getty Images
Opinion by Richard Prebble
Richard Prebble is a former Labour Party minister and Act Party leader. He holds a number of directorships and is a member of the Waitangi Tribunal.
He said being abetter government than Labour would not by itself reverse New Zealand’s decline. “Superannuation expenses increase by $1.4 billion each year. Healthcare spending has gone from $20b to $30b in five years.”
America and Australia will insist that New Zealand increase defence spending to 2% of GDP. It will cost $3.2b a year.
“This year the Government is planning to borrow $17b, about $10b is for interest on debt.
“We need to get past squeamishness about privatisation and ask a simple question: if we want to be a First World country, then are we making the best use of the Government’s half a trillion dollars’ plus worth of assets?”
It is the issue the Lange Government faced. A fiscal crisis and growing debt.
I was put in charge of the Government’s businesses that were demanding 20% of the country’s total investment but producing just 10% of GDP.
Not one government business was profitable. None had ever paid a dividend. Services were expensive and poor. In my electorate, now represented by the Green Party leader, my constituents had to wait six months to have a phone connected.
The Public Service Union says public ownership is the “New Zealand way”. But should it be?
We converted the government trading departments into State Owned Enterprises, companies under the Companies Act and appointed experienced businesspeople as directors. In just three years all 23 businesses were profitable, even post and railways. Service standards were world leading. Prices were reduced. SOEs began paying dividends.
The State Owned Enterprises still insisted that they needed investment to remain efficient. Ferries cost a lot of money.
I had my team examine the top 20 firms on the share market and for America. They discovered that on average companies requested more money from their investors than they paid out in dividends. Shareholders made their money when they sold.
Few top 20 companies 20 years ago were still top 20 companies today.
Act leader David Seymour. Photo / Alex Burton
If the Government was never to sell, then the cost of investing to keep the businesses efficient would always exceed income. Over time the government portfolio would be yesterday’s technology like television channels, radio stations, railways, and the post office.
The private sector was willing to not only take the risk but pay the taxpayer to do so.
New Zealand’s privatisation was extraordinarily successful. The investors provided much better services and lower prices. Only profitable businesses pay company taxes. The privatised businesses are paying every year in company taxes more than they ever did in dividends.
Where the investors failed, Air New Zealand and KiwiRail, the Government should have let new investors buy the businesses.
The history of the State Owned Enterprises retained in government ownership is abysmal. Solid Energy went from a valuation of $3.5b to being worth less than its $390 million debt. My office valued TVNZ in 1990 at around $2b, $4.3b in today’s money. The station now runs at a loss.
For 20 years the Asian Development Bank, ADB, has conducted a benchmark study of State Owned Enterprises in the Pacific. The study in 2016 included New Zealand.
The ADB said:
“In New Zealand, which undertook a very successful SOE reform programme in the late 1980s, portfolio performance steadily declined from 2000 onwards.
“From 2010 to 2014, New Zealand’s 15 SOEs generated an average ROA of (0.4%) and ROE of (1.3%), one of only five countries in the survey generating negative returns.”
The ADB recommended “privatisation, which international experience demonstrates results in more efficient public service provision than state ownership”.
The Government does not need to run businesses.
The Prime Minister says privatisation is “not something on our agenda right now”. Why not?
Hospitals and schools are businesses. If the Government cannot run a railway, why do we think it can run a hospital?
The Gibbs Report found our least efficient private hospital was more efficient than our most efficient public hospital. Maniparathy’s study of productivity in public hospitals found that despite huge advances in medicine, productivity is getting worse.
The NCEA results are dominated by private schools including St Joseph Māori Girls’ School, by no means a school for the rich.
Public ownership not only does not deliver quality it does not guarantee access. The state rations healthcare by waiting lists. Pupils are denied access to the best schools by zones.
Instead of taking on debt the Government should be privatising and rapidly achieving improvement in access to world class health and education.
Sign up to the Premium Opinion newsletter for a wrap of the week’s best commentary and analysis, compiled by our Opinion Editor and delivered straight to your inbox every Wednesday.
