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Copeland details part sell-down of SOE’s

Media statement

For immediate release

Tuesday, 7 June 2005

Copeland details part sell-down of SOE’s

United Future finance spokesman Gordon Copeland today released details of the party’s policy of a 40% sell-down of selected State Owned Enterprises.

“There are a number of very positive aspects which would flow from such a sell-down but first I want explain the financial implications and how they provide scope for tax reductions,” he said.

“A 40% sale of selected SOEs would generate something in the order of $5-7 billion. This would immediately be applied to the reduction of government debt (or alternatively to new capital investments such as roading so that additional borrowing is not required).

“This reduces the debt servicing costs, i.e. payment of interest and the repayment of loan principal for many years to come.

“Put another way, there is a significant annual cash saving to the Crown which can be used to fund tax reductions. However the Crown loses 40% of the much smaller annual dividend revenue which it presently receives from the SOEs , and that amount needs to be subtracted.

“In net terms, the annual net cash gain to the Crown would still be within the range of $650 million to $990 million per annum with a middle figure of around $780 million.

“That would be more than sufficient to fund the $500 million cost of income splitting for couples with dependant children.

“Alternatively it would cover some 70% of the $1,110 million cost of abolishing all tax on the first $3,000 earned by taxpayers and the adjustment of the present tax brackets from $38,000 to $43,000 (the 33 cents threshold) and $60,000 to $65,000 (the 39 cents threshold).

“However this is only the beginning of the benefits to New Zealanders.

“A 40% sell-down of SOEs would create a wonderful investment opportunity for both the NZ Superannuation Fund and Mum and Dad Kiwi investors.

“The Guardians of the NZ Super Fund have stated that they need to invest the majority of their share portfolio overseas because the NZ Stock Exchange is not big enough. Thus, in addition to providing a sound investment for individual Kiwi savers, the 40% sell-down would see a greater proportion of the NZ Super Fund invested in this country.

“But the good news doesn’t end there. The shares of the SOEs would be listed on the NZ Stock Exchange and they become public companies akin to Telecom or Carter Holt Harvey.

“The non-government shareholders would elect their own directors, thus ensuring the best possible governance. This would give


• Greater monitoring of the SOEs by a broad pool of investors.


• Direct participation by equity holders at Board level.


• The introduction of greater commercial expertise and financing capacity.


• A 40% reduction in the call on government for new equity capital. This relieves the Crown of a very significant future liability and frees up capital for investment in health, education, student debt, and the like.


• Better access to capital, thus allowing the reconstituted boards to pursue commercial opportunities as and when they arise.


• Greater transparency and information arising both from shareholder annual general meetings and the continuous disclosure requirements of the NZ Stock Exchange.

“In short this really is a win/win situation for New Zealand with no downside. It should occur for the good of the country and United Future will keep hammering these themes as we move towards this year’s elections,” said Mr Copeland.

Notes


1. The SOEs which would be considered for part-sale are

Genesis Power Ltd

Landcorp Farming Ltd

Meridian Energy Ltd

Mighty River Power Ltd

NZ Post Ltd

Solid Energy (NZ) Ltd

Timberlands (West Coast) Ltd

Air New Zealand Ltd (currently 82% owned by the Crown)

2. Transpower NZ Ltd would not be sold down but rather converted to a public utility with the sole objective of transporting power through the National Grid at the lowest possible long term cost.

3. The sale of shares, in parcels, would go mainly to NZ based investors including the NZ Super Fund. Those investors would be free to sell their shares at any time on the Stock Exchange in the usual way. However since 60% of the shares will remain with the Crown in perpetuity, the companies will always remain NZ controlled and predominantly NZ owned.

ENDS

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