I’ve got a question for the eight Auckland city councillors who voted on Friday against any sale of the city’s shares in Auckland’s airport and for those councillors who don’t want to sell, but were induced to vote for a partial divestment after being bamboozled into accepting this as the least unattractive of the options available to close the claimed $325 million deficit in the city’s 2024 budget.
This is the question: suppose there was no budget deficit. And suppose that we didn’t own any shares in the airport. And that we had $2.2 billion lying around. Would you then vote to spend all this money on buying shares in Auckland International Airport Limited (AIAL)?
If you answer that you would vote for this: well, I respectfully disagree with you, but at least you are being consistent.
If, on the other hand, you could think of better ways to spend $2.2b of ratepayers’ money – well, I respectfully suggest that on Friday you were suffering from what behavioural economists call the “Endowment Effect”.
This is when someone values something they own at more than they would pay for it if they didn’t own it. It is very common, at the personal level. Look around your house. I’ll bet you own – as do I – things which you don’t want to sell at their market value, but which, were they lost or broken, you wouldn’t buy again at that price.
The reasons are usually a combination of self-esteem – wanting to feel good about your past decisions – and sentimental value of stuff you’ve had around for a while. That is absolutely fine at the household level, but self-esteem and sentiment should not be driving billion-dollar business decisions.
And, indeed, looked at dispassionately, our city owning shares in AIAL is a quite dodgy proposition, for ethical and commercial reasons.
It is an unregulated, unrestrained monopoly. The airlines complain bitterly about the massive increases in landing fees – more than doubling during the next five years – being foisted on them by AIAL, with no redress.
They say the travelling public will end up paying for this, and they are correct. Its lead business – long-haul international air travel – is extremely environmentally damaging. And such growth in this that can be expected may increasingly wish to land at the tourists’ preferred destination: the South Island.
Somehow opposition to share divestment has become a left-wing talisman, with cries about “privatising our strategic asset” and the like. But the airport was privatised 15 years ago, when the Government and some of the Auckland cities of the day sold out.
Now, more than 80 per cent of shares are privately held, half by foreign interests. Auckland City is no more than a passive investor, not even consulted on the “strategic” decisions like the $4b plan to gold-plate the airport terminal – which may, however, result in shareholders being called on to stump up more equity.
Whether you agree or not with this, we should surely all agree that the fate of our airport shares is a serious matter, to be considered carefully and not as part of a last-minute compromise to push through one year’s budget.
My suggestion is that we do sell out, but not so hastily as to hand over millions of easy pickings to financial industry coupon-clippers.
Then, after a diplomatic pause, we should vigorously lobby the Commerce Commission to intervene against the airport’s abuse of monopoly power, perhaps by imposing final offer arbitration – sometimes called baseball arbitration (Google it!) – on setting airport fees.
What about my claimed bamboozling about the budget?
The unattractive options threatened by the mayor to induce a vote to sell shares were: raise rates above inflation, borrow more or impose disruptive cuts to operating expenses – art gallery, museum, etc.
But there was a fourth alternative: cut the capital expenditure budget.
Much of this is for things we get along without okay now, but which council planners think we should have.
Just in the current transport budget, more than $800 million is set aside for capex – we could surely defer $325 million of this, without much distress.
If your household suffers a budget crunch – well, you just put off that new deck or the remodelling of the kitchen, and sleep well at night.
In this matter, household wisdom applies to bigger things, too.
- Tim Hazledine is Emeritus professor of economics at the University of Auckland.