The politics of asset sales
September 2nd, 2011 at 1:00 pm by David FarrarMy NZ Herald column is on the politics of asset sales. I look at the risks to the Government, and ask and answer the question about why they are doing it , despite the political risk.
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September 2nd, 2011 at 1:47 pm
There’s a commenter called ‘Balance – not left or right’ who of 322 posts is invariably anti National and frequently signs off with
“I’m voting Labour”
The point is, their name is bollocks – they lean so far left they couldn’t walk clockwise round a mountain.
Vote:September 2nd, 2011 at 2:10 pm
This has sparked a lot of negative comments in the NZ Herald website. It strikes me that a lot of people have a borrowers mentality and are enslaved to their lenders. There are a few investors out there for instance that will be saying, I would love to own a piece of Meridian Energy. Even the Green Party would put Meridian Energy on one of their socially responsible investment portfolios.
From my point of view, the last thing we need is to be so far down the shitter like Ireland or Greece. This idea that we can live forever while being enslaved to our lender’s must stop. While a partial sale of these assests may capture some revenue, we must realise that it is a one-off and their sale must also come with behaviour change, otherwise we will have to sell them in IMF terms and not our own. The people who advocate that we should not sell them I bet they are not prepared to change their spending behaviour either. I am concerned that the government will not change their spending behaviour as that will be deemed to be “unpopular”.
Vote:September 2nd, 2011 at 2:20 pm
Wow, the comments on the Herald are incoherent splutterings at the best of times, but on this article….
Some say, without absolutely nothing other than a reflexive hatred of the party, that National will just sell more than 10%.
Others are making the moronic statement that why should taxpayers buy shares in the company when they already own 100% of it! DURRR!
Vote:September 2nd, 2011 at 2:24 pm
What I don’t get is that the sale seems to have zero benefits other than a meagre short-term cash injection to the government’s books.
If the companies aren’t performing then the owner (Govt) should step in and ensure they meet performance targets. I see no evidence of this, so it appears they’re performing well (Treasury’s numbers seem quite high in terms of return on investment). Thus, they’re earning money and helping pay down debt. Opportunity cost of holding them is low as there’s unlikely to be better performing assets purchased instead, and again they’re a tiny part of the asset based held by the government.
There may be some argument that they’ll perform better if someone else owns them. In rebuttal I give you Contact.
The Government seems to have been putting no credible reasoning as to why these should be sold. Unfortunately they’re going to get in, and then they’ll claim a mandate even though it’s clear through the polls that the majority of folk don’t want asset sales. As DPF says: Not enough of them are willing to switch their vote.
Vote:September 2nd, 2011 at 3:01 pm
LL, the value of a company is the discounted value of all its future profits. Roughly, that means if the price received is true, then you are indifferent between lots of small cashflows over time and a large one now. The difference is, that the debt costs interest and some of the money being earned is being used to pay the interest.
Do you really want to have to respond to someone listing a much larger set of examples of the opposite?
Vote:September 2nd, 2011 at 3:58 pm
Kimble: Sure, but then one should only sell if the large short-term cashflow is greater than the long-term small cashflows, accounting for opportunity costs in either direction etc. There doesn’t appear to be any evidence that this is so. Similarly, there doesn’t seem to be any evidence of a lack of efficiency in these companies. It all seems a bit half-arsed.
Vote:September 2nd, 2011 at 4:02 pm
It’s a hard cold world and nobody is out to do us a favour. Kiwi’s need to wake up.
Vote:While it can be labeled xenophobic, it does make sense to be defensive and hold on to our stuff.
1. Only New Zealanders should be the owners and controllers of our land and important resources. It does not have to be the government.
2. The stated reason for the sale of these assets is to raise some cash. That’s suicidal in this competitive world. We need to bite the bullet and pull back on government spending.
Lets look after our kids and grandkids.
September 2nd, 2011 at 4:25 pm
LL, will you accept there needs to be a change in bahaviour? If you do not want to sell state assets, will you accept the government needs to cover its budget shortfalls through other means? That means accepting the government has less money to spend on programmes and welfare and needing to pay higher taxes (Not Labour’s policy as that collects even less tax than what is collected now!). If you do not accept that New Zealand needs to change its behaviour, you will be enslaved to our lenders forever and a day. One day when the IMF turns up, we will have to sell ALL of our state assets on their terms, not ours. Don’t believe me, well look at Iceland, Ireland and their good friend Greece.
Vote:September 2nd, 2011 at 5:01 pm
Grizz: Absolutely, the govt definitely needs to stop borrowing large swaths of money and restrict spending to within it’s means. If that means more taxes (my wife and I both pay the current top tax rate) then I have no problem with that.
I also agree that Labour’s CGT is ineffectual, primarily due to the exemptions. I’d be quite happy to support it if the exemptions were removed (for the same reason I disagree with the Green’s CGT as that also has the family home loophole.)
Vote:September 2nd, 2011 at 5:15 pm
Maybe it’s two separate issues.
Vote:1. Sales taking these entities out of New Zealander ownership. I am very opposed to that. It is to our benefit in a hard cold world to maintain ownership and control. Our land and important enterprises should have ownership limited to citizens and such as Kiwisaver funds and Iwi and similar. Xenophobia about ownership is practical in this difficult world.
2. Sales taking these entities out of Government ownership. There are some that government need to own. But few. Government needs to reduce in size drastically and if that means sales to private interests – that would be a great thing.
September 2nd, 2011 at 6:01 pm
Given that the Govt. has an infrastructure investment program that runs in the billions then where does that cash come from? Borrowing and screwing the taxpayer.
What logic suggests that the Govt. should continue to grow its asset base without thought to disposing of assets to purchase new ones?
You want Broadband, new hospitals, schools roads, trains, airplanes.
Why should the taxpayer fund all this?
Why shouldn’t it be at least partly optional?
Indeed why should Govt. just spend spend spend with the sole purpose of owning assets?
Vote:September 2nd, 2011 at 7:03 pm
Call me old but don’t call me stupid well that is most of you, the rest DILLIGAF.
The big advantage of the PARTIAL ASSET FLOAT, geddit, PARTIAL, it gives those who are into long term growth investment in the country’s future a safe secure stake in a company that will be New Zealand controlled with directors who are proven, professional and not just time servers from the retired ranks of the ruling party.
As investments for those who choose to provide for their future with the added bonus of being able to pass the shares to their heirs in the case of early death.
FFS why don’t those of you with a modicom of economic understanding not shout this opportunity from the bloody roof tops.
Do you not get the success of Air New Zealand, it is a PARTIAL FLOATED NEW ZEALAND COMPANY.
If the energy companies, the Airport companies, the trading arms of local bodies et al are not exposed to commercial reality they will continue to be mismanaged by political hacks, time servers without a skerrik of commercial nouse and we will all be the poorer.
Vote:September 2nd, 2011 at 11:01 pm
For the life of me I can’t understand why people are against state asset sales. Using the term “selling the family silver” is incorrect, its more like a person that owns 3 holliday homes and is borrowing money to pay their weekly bills selling a share in one home. But the foolish tards that are against SOE sales would try to rationalise that they can rent their holiday home out…despite the fact the rent earnt is less than the weekly interest you pay on that house. If I ran my budget like that nats and labour run the government then I would have been bankrupt a long time ago.
Will all the people against State asset sales be OK if every voter was given a share ownership in the companies instead, that way we can all decide on what we want to do with our share of the “family silver”. I somehow dout they will be ok about that as they are just a ignorant, greedy mob.
Vote:September 3rd, 2011 at 12:38 am
Gravedodger, perfect examples being Auckland and Wellington Airports. Their local councils being cornerstone shareholders. However, we can all agree they both have improved greatly from the days of being wholey government owned. Just wish Auckland Airport would build a new domestic terminal. the latest spruce up is just trying to dress mutton up as lamb.
By the way, I am a longterm shareholder of Contact Energy and Trustpower. Recent difficulties aside, over the years they have seen good earnings and shareprice growth. What is holding back Contact Energy at the moment is Transpower’s inability to get their shit together and improve transmission capacity between North and South Islands. I also would like to own some of Meridian Energy, and I would campaign to see Comalco pay a fair market price for their electricity.
Vote:September 3rd, 2011 at 12:41 am
LL, if people are going to willingly pay more taxes, they have to be reassured that the government will spend it wisely. If they go out on a spending spree, people will be less willing to give up their money.
Vote:September 3rd, 2011 at 3:41 am
David, could you provide a link to the evidence that private companies outperform public companies?
Vote:September 3rd, 2011 at 3:52 am
I would have thought the main concern about public ownership is not underperformance, but the issue of the government being both a player and the referee. And also a major user of company services. The temptation to skew regulations, or govt procurement in favour of govt owned companies might be too great.
Vote:September 3rd, 2011 at 2:47 pm
The comments in the NZH are indicative of the populations concern on asset sales. That they see through this flawed and biased article gives me faith that the rorte that was the 1990′s will not so easily be repeated. Bottom line is that the amount earned from these assets outweighs, by some considerable margin, the amount earned from any sale. True too that having a partial ownership model will make this even worse – when investment is required the state will no doubt pay, when return on investment is required – prices will rise and the people will pay. We see this in most respects now under the SOE model -both care little for the general populous and only benefit those very few who can afford to invest heavily – a small number in our low wage/high cost of living country.
Vote: