Does Twyford not understand financing?

The Herald reports:

Finance Minister Bill English has disputed reports Housing New Zealand is going broke, saying it has to significantly scale up its housing development and had a “complete reassurance” the Government would fund that.

A Treasury paper showed was due to run out of cash for development and maintenance by February.

English said that was because Housing NZ was moving from building 300 new houses a year to between 1000 and 2000.

It had previously been able to pay for its building developments out of its revenue from rental subsidies.

“If they’re going to build 1000 or 2000 they’ll need more money to fund it. It will probably need more support from Government to do that, just because of ramping up the building programme.”

This is standard practice. If you want to expand from your normal activities, you need to finance the costs of any capital investment. You generally do that by either equity or debt.

English said it did not mean Housing NZ was in financial straits.

“Housing NZ is heading into a very strong expansion mode and, like any other business, as it expands it needs cash to finance its activities.

“Housing NZ is not going broke. This is an organisation with $20 billion in assets and $3-4 billion of liabilities, there is no way it is going broke.”

Solid Energy is broke. Housing NZ is the reverse.

Earlier today, Labour MP accused the Government of running the housing corporation into the ground.

“English has taken Housing New Zealand to the brink of financial ruin while at the same time publicly musing about getting it to build 30,000 extra state houses,” Twyford said.

Twyford is talking nonsense. I suspect he has never worked in the private sector. He seems to not know the difference between needing to finance an expansion and “financial ruin”. God forbid if this is the state of Labour’s financial literacy.

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