by Keith Rankin, 13 February 2012
The Crown Ownership Monitoring Unit's 2011 Valuation Report suggests that the four big energy companies of which the government plans to sell half - Mighty River Power, Genesis, Meridian, Solid Energy - are worth 14.4 billion dollars. Such valuations are based on expectations of future dividends.
Based on the valuation of 14.4 billion dollars, if the proposed SOE half-sales go ahead at the end of the year, then the present government (2011-14) would gain 7.2 billion dollars, and lose two years' worth of dividends ($1.44 billion, assuming annual dividends are 10% of valuation), an overall gain of $5.76 billion. All future three-year governments would be about $2.2 billion worse off. So the sale would essentially be a grab by the present government of nearly $6 billion, at the expense of future governments.
We can deal with the issue better if we take a new more transparent approach to public ownership. Thus, we could understand these assets as being owned by the people of New Zealand (directly), and not by the government of New Zealand.
Again assuming annual dividends payable are 10% of these valuations, then the public ownership of those companies represents $420 per year per New Zealand tax-resident aged over 16. Instead of simply going into government coffers, this money could be paid out to each adult New Zealander as an explicit 'energy-dividend'. (It would be $480 if we include Transpower.) If the corporations listed above were subsequently half-sold, energy-dividends payable would fall by $210 per adult New Zealander.
The payment of a $420 annual energy-dividend could be made fiscally neutral by raising the 10.5% lower tax rate to 13.5% (which would cost $420 to all taxpayers earning more than $14,000) and by reducing Family Tax Credits payable on behalf of teenagers over 16 (who would receive the new energy-dividend) to the same rate payable to younger teenage children.
If the half-sale of these energy assets goes ahead, the energy-dividend would then halve, while taxes on lower incomes would continue to be at the higher rate. New Zealanders would thus be able to easily assess their financial loss.
To adopt the direct-ownership approach more completely, the proceeds of such a half-sale would be distributed as a one-off payment of $2,100 to all adult New Zealanders (instead of passing into the coffers of the government of the day), in return for future receipts falling from $420 to $210. That should be what we are deciding - $420 to each recipient every year (Option A, no sale), or (Option B, half-sale) $2,100 to each New Zealander on sale and $210 each subsequent year. I think most New Zealanders would, if they had a chance to decide, choose Option A.
Now, consider what would happen if we, the proprietors of our water (which is a raw material), charged users (such as electricity generation companies) for their hydro fuel. Water from rain and snow is a fuel, just as coal and gas are fuels. If we charged just over one billion dollars in total for all water used for hydro-generation, irrigation and reticulation, then that would enable us to pay an annual water dividend of $300 to all adult New Zealanders, in addition to the energy dividend.
These water buying companies would of course pass on their extra costs - much as retailers do when GST is raised. The point is that people who conserved electricity and water would pay less than $300 extra as a result of higher retail prices, while profligate users of electricity and water would pay more than $300 in additional prices arising from our sales of water to the corporates. The owners of the resource - us - benefit equally, while the users of the resource pay in proportion to their use. That's how it should be in a sustainable capitalist society.
The present government is unlikely to be sympathetic to this more transparent 'public property rights' approach to public sector accounting and income distribution, for two reasons. First, under existing accounting and distribution conventions, the sale of these assets represents a cash windfall to itself (the present government) at an ongoing cost to all future governments. Second, by charging a royalty on the commercial use of water, this property right argument extends to the remainder of the resources in the public domain - many being intangibles such as knowledge and public institutions - that we assume to be free.
This notion, of charging royalties for the use of publically-held resources, is only scary if we forget that the income taxes we pay already represent such a royalty. So the argument is really about making public finance more explicit, more transparent. Charging royalties for the use of water (and paying dividends from those royalties) could be a useful way of starting a more general - and more engaging - debate about public finance.
I have written much about tax and welfare reform from a public equity perspective: see my December 2011 article 'Creating a Welfare Society based on Public Equity Principles' which contains links to other work of mine on this topic, as well as linking to a recent article by Gareth Morgan and Susan Guthrie on the perils of excessive income inequality.
The main immediate benefit of adopting new accounting and distributional principles is much more clarity of understanding about who owns what, and who is rightfully entitled to what, given the totality of the assets that they have equity in.
The main future benefit of adopting these new principled standards is that it opens up solutions that make capitalism sustainable. It's like opening a new door, that expands the "adjacent possible" (refer to author of Where Good Ideas Come From; Steven Johnson, 'The Genius of the Tinkerer', Wall St Journal, 25 September 2010, citing the creative thinking of Stuart Kauffman), that allows for future directions hitherto unconceivable.
New Zealand's public domain - including its ownership of water - is unique, thanks to the Treaty of Waitangi. An appropriate interpretation of the Treaty is not that individual Maori should receive an annual water-ownership dividend of more than $300, with Pakeha each receiving less than $300. Rather, it is that Maori, as the Treaty partner, should be consulted on all matters pertaining to the sale of and drawing income from Crown assets (such as the electricity generation companies), and to assets (such as water) that belong in New Zealand's public domain.