Selling state-owned assets isn't a growth plan, in fact it makes debt worse

Whatever side of the politics you sit on asset sales, no-one except the government thinks this is a good time to sell. 

But they’ve already banked the $7 billion they expect from the sale. They need it to look real before the May budget, and be over by the next election. Timelines are being set by politics - not by the best interest of the country. 

I'm amazed how many people declare they are definitely going to buy the shares in Mighty River Power before they've seen a prospectus or offer price. You can hear the sad hucksters in the brokerage firms salivating at their commissions - they get paid so long as they make a sale. 

Our power companies are pretty good assets but everything has a fair value. If Mighty River is over-priced that will disadvantage the 'mums and dads' and brokers should be telling them to steer clear; or the sale will be over-subscribed, which will be irrefutable evidence the price is too low and we're flogging our assets at the $2 dollar shop.  

One minute the government’s priority is to raise as much money as possible to build schools/hospitals/roads or pay off debt (depending on which minister you talk to).

Next, its priority is to sell to local 'mums and dads' rather than foreigners.  

Which is it? It can't be both. A recent Financial Times column pointed out the pace of privatisation in 2012 was less than half that in 2010. Volatile markets and political uncertainty make this a bad time to sell, they argue. 

In an article in the Herald late last year personal finance and investment writer Brent Sheather referred to the 2012  KPMG privatisation barometer.  

Here’s a quote from that report: 

“While 2011 will doubtless be remembered as a down year for completed privatizations, it was actually even worse in terms of the number and value of privatization sales that failed, were cancelled, or were withdrawn.” 

Everywhere else in the world, asset sales are either being delayed or cancelled because this is the wrong time to sell. It's no better time here: Our growth rate since 2008 is one of the lowest of any country outside Europe. 

One day the Government is telling us our high unemployment and low wage economy is due to global and celestial forces beyond our control. The next we’re in a golden economic bubble and it’s a great time to sell our assets. 

Some local shareholders will start selling out of listed New Zealand companies to buy shares in Mighty River. Instead of investing in growth, the Government is driving capital toward assets that already exist. 

Selling assets isn’t a growth plan. No jobs will be created except for lawyers in Australia. No new markets will open to New Zealand exporters.

There’ll be no innovation or R&D. Any benefits will be one-offs.

What’s the plan for building schools, hospitals and roads in the future when there’s nothing more to sell? 

Treasury showed that selling assets actually makes the debt worse. New Zealand’s public and private sectors together owe foreigners $148 billion (net international liabilities at September 2012.) After 2016, when all the assets are sold, we'll owe nearly $200 billion. By then we’ve lost the dividends from the electricity companies so they won't help pay off debt.

It makes no sense. The dividends are higher than the interest we pay on the debt. 

When the government fails to raise enough money from the sale to carry through on its promises, and mums and dads on-sell to foreign mums and dads to make a quick buck, asset sales will be exposed as the desperate act of a government who rushed in at the wrong time with the wrong idea.

 

Comments (5)

by Matthew Percival on March 07, 2013
Matthew Percival

Not the best timing for your article Josie.

NZX surged to an all-time high this afternoon. http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10869818

It it isn't a good idea to sell at an all-time high I'd like to know when exactly is a good time to sell?

by Ross on March 08, 2013
Ross

Matthew,

Tell us what's happening with wages and employment. I don't think the NZX is a great indicator of the state of the NZ economy. The fact that the government is saying we have no alternative but to sell assets suggests the economy is in poor shape. Or it could mean that politicians are not telling us the truth.

 

by Fentex on March 08, 2013
Fentex

Stock exchanges are poor indicators of economic well being. They measure only the activity of traders in a limited pool of companies and not the much greater economic activity of much more numerous and aggregrately larger small to middling companies where the majority of a nations business happens.

It should be obvious from observation that stock exchanges are a useless lagging indicator of economic information from their tendency to fall off cliffs they don't see coming.

by Matthew Percival on March 08, 2013
Matthew Percival

@Ross Wages and Employment are stagnant. As businesses utilise their existing capacity they will reach the maximum production with their workforce and have to hire more people to achieve greater revenue. As unemployment drops the choices available to employees in terms of who they work for increases and with it wages will also increase.

The arguments about the NZX are just plain silly. If the NZX is overpriced in relation to the underlying economy it would be an even better time to sell than it already is!

by stuart munro on March 09, 2013
stuart munro

The NZ stock exchange is quite small for our GDP - a product of failure to regulate the issues around the 1987 crash. Being small any little thing can make it behave oddly. Ideal for rigging though.

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