Is it the right time to sell assets? Lessons from the past

Even if you think it's smart to stimulate the sharemarket and create some capital, is it the right time to sell portions of our state assets? It's a telling question and you'll be surprised who asked it

Voters don't like it, don't want it, but the polls say they'll most likely go along with it – National's plan to sell off chunks of five state assets.

Even as John steps up efforts to sell the policy, with promises the money raised from the sales will go into schools and other infrastructure, New Zealanders prefer to hold onto the assets. In the latest One News-Colmar Brunton poll released on Q+Athis past Sunday, more than two-thirds of New Zealanders – 68% - said no thanks to National’s policy of partial asset sales; just 26% are in favour.

National’s line is that we’re better to cash up and use the money on other government spending than to borrow more for the things we want. So how much money?

The government has estimated the 49 percent stakes in the four state-owned power companies and Air New Zealand at $5-7 billion. Although on Q+A, Finance Minister Bill English admitted he couldn’t guarantee the government would get that much. All he could assert was that the companies are “worth a lot of money”.

The problem for National is that it has mocked Labour’s sums for the past week, saying the Opposition is making assumptions about future numbers it cannot possibly know for sure. Super Fund profits, for example. Despite that, National has been doing the same thing, including assumed profit from asset sales in its financial forecasts.

Given the volatility of world markets at the moment, and the repeated hits they’ve taken this year, it’s anyone’s guess what our assets might realize. The question, as always, is what the market is willing to pay.

And that question prompts another. Even if selling makes sense, does selling nowmake sense? National has committed itself to selling 49 percent some time before the end of 2017. Politically, however, the party will need to sell in its next term if it doesn’t want to have this argument all over again during the 2014 election campaign.

So it might want to listen to words such as these:

“The concern I have overall is that the government is talking about selling at a time the market’s most depressed. It’s really a cop out to try and avoid the realities of the economic problems. What they should do is address the economic problems, not try to hide them behind asset sales”.

Who’s that talking? Labour? The Greens?

None other than then-National leader Jim Bolger in 1988, criticizing the Labour government’s asset sell-off almost a generation ago.

National at the time had a similar policy to the one being advocated by the party today. It wanted a partial sale of shares, but would have limited foreign ownership to just 24.9 percent, something the current batch of leaders won’t do.

What Bolger promised at the time was that “any sale would only proceed at a time of maximum advantage for the taxpayer”. So where’s that promise from National now? Ain’t it funny in politics how principles bend to fix the times?

Given the pain suffered on sharemarkets around the world in recent months, it’s hard to believe we’ll be able to maximize our profit in the short-term. Neither can we expect the market to have bottomed-out and reached a new peak within three years. Yet the government is promising to forge ahead without any commitment to opt out if the market isn’t right.

Sure, governments can only work with the time they’re given. But if National’s true concern is financial rather than ideological, surely it should be putting conditions around its proposed sales.

When you sell your house, you don’t sell it in a certain timeframe regardless of what offers you get. Not unless you absolutely have to. You have an idea what you want to get from the sale and you don’t go below a certain price. If you really want to maximize your profit, you wait until the market peaks before you sell.

So what is the government’s minimum price? If the market remains volatile or depressed, will it take the advice of its own former leader and delay any sales?

There’s another point that Bolger made worth listening to. He said you don’t sell assets to cover up other weaknesses. National has made much of New Zealand’s limp stock market and our need for more businesses to invest in. But is it really for governments to create companies to fix that?

Parties of the right like to be less interventionist and to leave the market to fix problems. Most notably in the labour market, National is opposed to calls from the left to create jobs to lower unemployment. So why is it willing to create companies to fix the share market? That doesn’t seemed to be joined-up thinking.

Put another way, if National’s willing to intervene to create companies, why not intervene with some job creation schemes as well? Or are jobs not as important as investment opportunities?