SMELLIE SNIFFS THE BREEZE: Why sell?
SMELLIE SNIFFS THE BREEZE: Why sell?
by Pattrick Smellie
May 28 (BusinessWire) - One big problem about the argument for privatisation is that the most politically palatable reason for doing it - reducing the public debt mountain - is no longer there.
New Zealand's public debt is more of a mound than a mountain these days. Even with one of the largest fiscal stimulus packages in the western world over the last couple of years - the International Monetary Fund says the combination of tax cuts and infrastructure spending added 6% to GDP over 2008-2010 - net public debt still tops out at less than 30% of GDP over coming years.
By the standards of the
rest of the OECD, and especially debt-drowned Europe, that's
not just respectable, it's downright thrifty. Greece is
knocking up public debt to around a dangerously high 115% of
GDP. And Spain, Portugal, Italy, Ireland and others face
similar fates, whether or not the current bout of Eurozone
hand-holding saves the world from another credit crunch.
However pleased Finance Minister Bill English may feel
with himself for pulling this off, it's completely unhelpful
as he leads the government stumbling into a debate on
privatisation.
The big reason for asset sales, when
they first came on the scene, was that they were one of the
only easy ways to get mad levels of public debt under
control.
In the absence of that threat, why
bother?
The fact is that far too few New Zealanders
have ever believed that selling a public business to private
owners produces better results. There is long term
simmering distrust that neither Telecom nor Contact Energy
have done better by consumers than they would have under
state ownership.The deep sceptics point to the
re-nationalisation of Air New Zealand and KiwiRail and the
launch of Kiwibank as proof that private ownership is no
panacea.
Ignore for a moment that Telecom and
Contact have undoubtedly done a better job than they would
have under government ownership, and that as Telecom's
future hangs in the balance in a ultra-fast changing world,
taxpayers should welcome the fact that it's private
shareholders - two-thirds of them offshore - who are exposed
to losses as Telecom's share price has plummeted to historic
lows.
Ignore, too, the fact that KiwiRail was a dog
that should never have been bought back and that Air New
Zealand would be a subsidiary of Singapore Airlines - the
Emirates of the Far East - had Labour Ministers not had a
nationalistic panic at the prospect nearly 10 years ago. If
that were the case, it would be Singaporean rather than New
Zealand taxpayers who would be wearing the risk of the
appalling economics of international aviation today. The
fact that Air New Zealand remains well-run is a tribute to
its management, not its owners.
However, the
political fact remains that there is a sizable group of
Kiwis who get as cross about privatisation as they do about
mining. Despite government asset sales being
uncontroversial just about everywhere outside North Korea,
it's still a bellwether issue here.
So the
government needs a better economic reason for selling than
the slender economic reed that says private ownership trumps
public, and if the books aren't in bad shape, then why sell
anything at all?
The answer, helpfully hinted at by
the International Monetary Fund this week, is that New
Zealand's public accounts may look OK, but they only help to
offset the ongoing ugliness of the country's foreign debt
mountain.
True, most of that foreign debt mountain
belongs to the private sector and, ultimately, to
over-stretched households that piled on debt before the
global financial crisis. At 135% of GDP, New Zealand's
total foreign debt is officially as scary and potentially
destabilising as a European country whose government has
gone way too deep in hock.
Whether New Zealand is
really too deep in hock to foreigners is arguable. Every
Australian investment counts as a foreign liability, and
retained earnings in New Zealand belonging to foreign-owned
companies count on the balance sheet against us. If this
was California, which runs a perpetual "balance of payments
deficit", no one would bat an eyelid.
It's likely
New Zealand should expect to run higher levels of foreign
debt than, say, Japan or Germany.
It's the primary
driver - along with low productivity and sluggish exports -
of current account deficits into the future at around 8% of
GDP - a level of annual national shortfall with the rest of
the world that is far too high to sustain in the current,
debt-averse age.
So, while high foreign debt is not,
strictly speaking, a problem the government created, it is
nonetheless one that a government can not only help to fix,
but must try to fix.
The Budget tax package was one
part of those efforts. Its underlying goal was to shift in
favour of rewarding savings and productive investment,
rather than borrowing and sinking capital into housing - a
message uniquely suited to the frugal mood of the times.
The Budget in turn supports a raft of other work, most
notably the action spurred by the Capital Markets
Development Taskforce, which aims to give New Zealand savers
something more interesting to invest in than a breeze-block
unit rental unit in some benighted suburb.
But where
are those opportunities to invest in New Zealand going to
come from?
How about a slice of MightyRiverPower, or
Meridian, or Kiwibank, or a chunk of any number of
state-owned companies that would benefit, at the very least,
from the disciplines of having to report to active
shareholders.
If it makes everyone feel better
about, then let the government remain a cornerstone
shareholder, so that economic sovereignty isn't ceded.
But if New Zealand's greatest remaining and arguably
most long-standing vulnerability - a reliance on the savings
of people in other countries - then there have to be things
to invest in at home.
Privatisation isn't the complete answer to that. But it would help - and it would even keep those flinty IMF types happy. They're really worried about this ongoing foreign debt exposure, even if most New Zealanders only vaguely get it. And they reckon Key and English should be hacking much harder at bloated government spending to improve national savings.
Key
and English know them IMF is right, but they're not about to
blow their political support by emulating Roger Douglas or
Ruth Richardson. Selling some of the family silver,
carefully handled, could provide the same effect, but with
nothing like the political cost.
(BusinessWire)
18:57:29