Joined by Labour's finance spokeswoman Barbara Edmonds, party leader Chris Hipkins unveils the NZ Future Fund policy. Photo / NZME
In one of The Simpsons’ more inspired episodes, Homer’s long-lost half-brother, Herb, a Detroit auto mogul, recruits him to design a car for the “average American”.
Homer rises to the challenge: the vehicle boasts separate cabs – one for himself, the other for his wailing brood (restraints included); an engine whose roar suggests apocalypse; and a trio of horns that blurt La Cucaracha on demand.
Despite being, in Homer’s words, “powerful like a gorilla, yet soft and yielding like a Nerf ball”, the car turns out to be far less than the sum of its parts. The car fails, taking Homer’s half-brother with it.
This automotive misadventure is not unlike Labour’s new economic policy: a new sovereign wealth fund, a Kiwi echo of Singapore’s vaunted Temasek, which was name-checked in Labour’s policy document.
Funded with a $200 million cash injection and dividends from as-yet unnamed state-owned enterprises, its ostensible mission is to rebuild infrastructure and invest in undercapitalised local firms, all the while saving the country from the indignity of another round of half-baked privatisations.
All these objectives are, in isolation, logical: New Zealand’s capital poverty and crumbling infrastructure are undeniable realities. Labour is ideologically bound to be opposed to privatisation, but the party (and the public’s) scepticism is justified. While privatisation is not inherently malign (Telecom, State and some of the minor commercial entities managed fine, even well, in private hands), the national memory is not unreasonably scarred by the disastrous privatisations of Air NZ and the railways.
Craig Renney, Council of Trade Unions (CTU) economist and probable future Labour candidate, has argued convincingly that our energy woes stem from part-privatised gentailers that prioritised short-term profit over investment in cheap renewable generation.
On the surface, a fund that deepens the proverbial capital pool, funds infrastructure, and stops Transpower from becoming Tranz Power ticks three important boxes.
Labour has been sparing with the details – a prudent omission, one might suspect, as the devil may well be lurking in them.
New Zealand has long looked enviously at Singapore’s Temasek, established in 1974 by the Government of Lee Kuan Yew (who himself looked enviously at New Zealand – former diplomat Gerald Hensley recalled Lee’s many visits to New Zealand, including to his Martinborough vineyard, not far from Brackenridge, where Labour holds its annual retreat).
Temasek was designed as a holding company for Singapore’s state-owned enterprises. A purer form of the SOE model deployed by New Zealand’s fourth Labour Government, Temasek was designed to manage these assets on a commercial basis, allowing the Government to focus on public policy.
Treasury has always loved the idea. When then-SOEs Minister Paul Goldsmith got advice (later released to the Herald under the OIA) on establishing something similar two months after being sworn in, Treasury, presumably rolling its jaded eyes, noted it had been pursuing the idea in some form or another for ministers since 1996.
Labour has this advice too. Shane Jones, a minister in the Ardern Government, pursued the idea in 2019 - the advice was regurgitated for Labour’s Grant Robertson and David Clark after the election in 2020. There were two key points to Treasury’s papers, which were also released under the OIA to the Herald.
The first was the only SOEs that make any money are Air NZ, the gentailers and Transpower – any holding company would need one or more of these to be viable.
The second, which killed Jones’ 2019 scheme, was stark: the entity must freely buy and sell assets, recycling capital. Otherwise, tying up funds in profitable power companies is folly, and clinging to troubled KiwiRail or TVNZ (technically a Crown Entity and not an SOE) undercuts the fund’s commercial mandate, which may require jettisoning poorly performing firms.
Labour’s proposed fund is less Temasek and more Elevate. The brainchild of David Parker, the Ardern-era Elevate fund is a Super Fund-run venture capital fund that invests in growing Kiwi businesses. It’s scored wins with Dawn Aerospace and darling agritech firm, Halter – now a US$1 billion ($1.7b) “unicorn”.
Unlike NZ Green Investment Finance, which the coalition shuttered, this year, it tipped money into Elevate, which is now exists as a living, breathing, funding riposte to those who argue the Government cannot do the investment work of the private sector.
The most glaring omission in Labour’s policy is cost. In 2025, the Crown pocketed more than $700m in SOE payouts, $570m of it from the gentailers and Air NZ – a tidy sum that Labour will now put, in whole or in part, into the fund.
At present, these dividends prop up Treasury coffers, funding essentials such as health and education. Diverting them into a new fund means the shortfall must be covered by slashing spending, raising taxes, or borrowing – a choice set as unappealing as it is inevitable.
None of these are appealing – and the latter two undercut the economic growth objectives of the fund.
Labour could cut the likes of $6b InvestmentBoost, but that would mean funnelling investment incentives for all businesses to pay for investments in a select few.
Raising taxes is another avenue, yet Labour’s likely capital gains tax and potential interest deductibility reversal (expect more on that soon) is unlikely to fully pay for the $12.8b cost of reinstating pay equity, let alone further investment in health and education.
More borrowing is possible, but far from painless. Even an extra half-billion annually would, at the margin, put upward pressure on interest rates, punishing households and businesses alike. It would be a blow to investment and sabotage the policy’s growth ambitions.
Labour has promised an answer in its fiscal plan, which will be published closer to the election. This is defensible, it’s when fiscal plans are normally released. However, it’s not unheard of for parties to fund their election policies one-by-one (Labour’s 2023 tax policy, for example, was self-funded).
Unless voters can see explicitly where the money for this policy is coming from, they won’t know for sure whether it will help the economy by backing ambitious firms, or harm it by lumping households and businesses with marginally (and let’s be honest, it really is marginal) higher costs.
It also appears to be an overture to NZ First, who announced a similar, costlier variant of the policy earlier this year (rather conspicuously for a Labour policy, the new fund lacks a te reo Māori name). Labour appears keen to court its former coalition partner, putting distance between itself and an imploding Te Pāti Māori, though Winston Peters has already dismissed such a coalition while the party is led by Hipkins.
Labour should be thinking about state assets – Hipkins is right, National certainly is.
Herald reporting shows that soon after taking office ministers swiftly ordered “purpose statements”, scrutinising why the Crown owns what it does. You don’t need to be a genius to assume the logical conclusion to this exercise is National deciding there is no purpose to the ownership of these assets, which will then be frogmarched to the saleyard or the NZX.
National, true to its ideology, is looking more deeply at its balance sheet. As the proposed sale of Chorus debt shows, this probing could result in things being sold, with the proceeds recycled into other infrastructure – expect to hear “capital recycling”, the term for this, used a lot on the campaign trail.
The advice Labour received on its Temasek idea in 2019 urged ministers to think similarly: why does the Crown own what it owns?
The answer isn’t as simple as ownership versus sale.
The 1980s corporatisation model presumed SOEs would operate as genuinely commercial entities – as if state ownership were by accident rather than design.
But as Treasury observed in 2019, the reality is rather different. Many SOEs are lousy commercial entities but pursue broader public policy goals.
KiwiRail underwrites the freight transport networks but in 2019 was bleeding cash to the point Treasury had to adjust its accounting framework to treat it as a public good rather than a commercial entity.
TVNZ is another example. The company is a mostly commercial Crown Entity, but bound by the TVNZ Act to deliver public policy goals, such as putting local content on TV.
For decades, TVNZ was profitable enough to pay Crown dividends and fund a not inconsiderable amount of quality public broadcasting. No longer. It is now neither very commercial, nor does it deliver a substantial amount of public broadcasting. It’s measly dividend this year was only achieved by feeding Sunday and Fair Go into the shredder.
The Crown now gets the worst of both worlds. It owns a poorly performing asset, which does precious little public broadcasting.
The 2019 advice suggested a rethink: why own what you cannot justify, and is the commercial facade even suitable? Labour made tentative moves: David Clark investigated whether the SOE model was right for KiwiRail, and the Government considered merging TVNZ and RNZ.
Labour should be looking to fix the flaws in the SOEs the Crown owns. Some of these may be better in a less commercial form that reflects their broader policy value.
This policy risks ossifying their flaws, particularly the flaws of the gentailers.
Funding a new investment vehicle with SOE dividends simply risks making a future Labour Government addicted to the profits of a gentailer model it should be challenging; Renney has even suggested re-nationalisation of the energy companies.
This policy, by contrast, would pocket that revenue stream for the fund.
This is a problem for all governments. This year, the dividend income from the gentailers was just a tad lower than the $550m the Government paid out in winter energy payments to households struggling with the high cost of power.
It’s a grotesque money-go-round that suits the gentailers, who get to keep their profits, and suits the Government, which gets to pretend they’re helping people deal with it.
The public, however, are left poorer.