So John, What Does It Mean?


John Key has made it clear this year’s Budget is going to be a “very tight” one as the government tries to reduce its deficit.

So what does it mean for transport - including help towards the CBD loop and whether the Holiday highway will go ahead in its full configuration?

Key, in his major economic speech today did reveal that the government plans “$33 billion of net new assets over the next five years, including new schools, operating theatres, ultra-fast broadband and major investments in our state highways and other transport infrastructure.”

Of course how much of that will be say rail if any in that is unknown. And Auckland’s Mayor had indicated recently he expected the discussions about how to fund the loop would be made out of the glare of the media for much of this year.

Key revealed he is investigating partial asset sales saying the Government’s commercial assets presented the greatest scope for changing this mix. In particular, Air New Zealand’s mixed ownership model - where the Government owns most of the company, but with a minority of outside equity - could be extended to more of the Government’s commercial assets.

“Under this model, the government has a controlling stake in what is a crucial piece of transport infrastructure and guarantees that it will be majority New Zealand owned. But by not owning 100 percent of the airline, the government also has capital free to invest in other assets.This model could be extended to more of the government’s commercial assets.”

The Government has asked Treasury for advice on the merits and viability of extending the mixed ownership model to Mighty River Power, Meridian, Genesis and Solid Energy. Advice has also been sought on the merits of reducing the Crown’s shareholding in Air New Zealand, while still maintaining a majority stake.

Will that philosophy also mean more public private partnerships for say transport projects continuing National’s venture already with private prisons?

But in election year, the old safeguards for Mom and Pop voters of health and education look as if they will get the limited money available in the Budget rather than public transport.

“Currently we have a new spending allowance of $1.1 billion each year, compared to Labour’s average of $2.8 billion a year over its last five budgets. Our plan is to reduce that new spending allowance in Budget 2011 even further, to around $800 to $900 million.

Nonetheless, this year’s Budget will continue to prioritise new spending to health and education in particular, and to initiatives that promote economic growth.”




  1. Kurt says:

    If Key wasn’t such a populist he would make hard decisions for the benefit of the country.

    Selling off state assets masquerading as benign share floats the “Mum and Dad investors” is a sham. How misleading to suggest mums and dads have this sort of money to throw around anyway, they don’t. He knows the shares will go off shore but dresses up the wolf in sheep’s clothes.

    How about consigning the holiday highway to the bin, we can’t afford it, there’s a start, unpopular maybe to rural Nat voters but sensible.

  2. JC says:

    I honestly believe John Key as a Prime Minster is doing the best with what tools he has available and is making the most with the mess he was left with when the last government departed.

    He is a solid leader and a good business person, and in many ways he is flying solo. When you look a little deeper within the National Party, there isn’t a lot business brains or much business heart to work with. Like all polictical parties, there far too many prancers who have never got their hands dirty. They talk a good story but deliever nothing.-, every party is guilty of this.

    I am in favour of SOE/Share holder partnerships, Air New Zealand is a great example of a deal working to benefit all interested investors.

    Yes, off shore interest will also become involved, and they have to. We are a country with only 4 million people and we have only a small amount of weath. NZ as a country cannot afford to invest and owe everything, it just isn’t possible. We don’t have the money to do it.

    As long as the NZ Government(s) now and in the future, has the controlling share of the SOE, we will be alright.

  3. mark says:

    JC - I believe that John Key is thinking with the heart of a banker and financial advisor, which is where he hails from, not as someone who will benefit New Zealand’s long term interest. I do not ascribe any negative motives to him. He may well think what he is doing is the best for the country. I just disagree with his assessment, and think his education and employment past influence his thinking, both conciously and subconciously.

    As for having gotten his “hands dirty” - can you show me examples where he has? I do not know his history well - not so interested - but currency trading doesn’t inspire confidence in me. It is not what I consider gainful employment, wagering other people’s money while playing with global economies as if they are just virtual things on a screen.

    Departing a bit from the ad hominem about Key, I do not think state asset sell-offs will benefit this country. It is also ridiculous to argue that selling them off will improve our balance sheet - not when the INCOME that this state property gives us goes away with the ownership. Say what you want about electricity price increases in recent history, at least they went mostly back into state coffers, not overseas.

  4. Matt says:

    JC, Labour left the country in a very good state, National’s distortions notwithstanding. The only reason National could afford to cut taxes in a recession was that Labour paid down government debt in a big way. Honest National cheerleaders will even admit that Cullen managed the economy well. Our debt problem is not Crown debt, but private debt. The “$300m/week borrowing” that National keeps trumpeting is nearly half dedicated to paying off Crown debt. So they’re actually only borrowing about $180m/week for extra spending, and that’s largely because they chose to throw lollies at the electorate in the form of tax cuts.

    National refused to make the hard calls on taxation of property that needed to be made. They cut taxes at the top, increased taxes that disproportionately affect those at the bottom (when you spend all your income of just surviving, GST increases hit you harder than they hit those whose choices are buying, or not, a new TV, or a new car), and now bleat about how the country has no money. Cause, effect, anyone?

  5. Matt says:

    State asset sales have not benefited Kiwis in the past. Why should we think anything has changed? Especially when English is of the “slash-and-burn” school of economic management, and learned the trade under the likes of Max “Power prices for consumers will decrease with the introduction of competition” Bradford.

    All that privatisation means is profits going offshore. Our history is of privatisation being the forebear of a royal shafting at the hands of foreign asset strippers, and there’s no reason to think that “partial” would remain “partial” rather than becoming “wholesale”. We also have a history of companies being bought out by foreign entities and then delisted from the NZX, giving us the worst of all worlds - profits going offshore, and no option to invest locally.

  6. JC says:

    Mark - you rise some fair points, and I agree with many of your statements.

    Maybe you should (a sugguestion only) take some time to look at the past history of our current leader. You say you are not so interested in our Prime Ministers working pass , neither am I , however I am very interested in the person who leads our country and his business pass is colourful and interesting, with a fair amount of personal sucess.

    His polictical party is not one I support, however I still believe he is the best leader we have right now, at this point of time. Not one other person stands out amongst other parties as a better replacement.

    I am very happy to have a person with a strong banking background lead us out of the troubles that others put us in. It is just a shame that other around him within his own group have no strength, nor do I see strength from any other party.

  7. JC says:

    You must be wearing Red today Matt,

    You rise some good points, however I don’t share your views. SOE/Private share holder investment wil be a way of the future. It has to be.

    Tax cuts is not always the best option, I would of been happy to not have a tax cut and kept GST at 12.5 %. However what is really hurting us, is the amount of money going out in benefit payments every week, to a number of families who are just riding the pigs back.

    Come spend some time out in South Auckland where we live, and I will show you a 100 families that have a state home within the area, where each member of the family has a benefit and cannot work so they tell us, but they a V8 car or a 4 x 4 ute, a boat, play station, a person who comes around and mow’s their lawns, and new fence because they burnt the last one on the bbq……….

    These are the issues that hurt our bottom line and why the country is spending money hand over fist.

  8. Matt says:

    JC, if we take away super and assume that a full 10% of all other benefit payments are “fraudulent” (for want of a better word), do you know how much the country is spending unnecessarily on welfare? About $1b/year. See for yourself. Table 4.2

    Big f’ing whoop. $1b/year. Steven Joyce can waste that on motorways over morning tea.

    And given that the percentage of non-super benefit payments that are to people who are less than entirely deserving will be dramatically less than 10%, the waste will be a lot less than $1b.

    Sorry to burst your “beneficiaries are dragging our country down the toilet” bubble, but these are the hard facts by the people who watch the country’s money. It sounds nice as a sound-bite from Pull-ya Benefit and B’linglish, but it’s just not supported by the facts.

  9. Jeremy says:

    I never heard any of this speech but incidentally I watched most of the Obama’s speech which was pretty well delivered and well received in house. In the speech he talks about infrastructure and that he wants 70% of Americans to have close access to high speed rail.

  10. AKT says:

    I’m pleased Key is at last revealing some plans for how this country can get out of debt. To be on a par with Greece and other failing European countries is a worry. I dont really find selling off some but not all of the companies mentioned like Air NZ which was done before is going to cause grief and if it enables us to get out of some of the debt and get some of the infrastructure we all want to happen, that’s something we have to live with in these troubled economic times..

  11. Matt says:

    Jon, we’re not on a par with the PIGS, though. Their problem is government debt, the lowest of which is over double the predicted peak of our government debt; that is, we’re predicted to top out at government debt of about 30% of GDP, against government debts amongst the PIGS ranging between 65% and 105%.

    Our problem, as I said above, is private debt. Yes, our net foreign debt is 85% of GDP, but right now our government debt is less than 20% of GDP. So less than a quarter of our net foreign debt is government debt.

    Key saying we’re like the PIGS is a complete fabrication, but one that’s useful because it softens people up for the inevitable economic shafting he’s got in store.

    Once the shares are gone, the income is gone too. At least while the shares are in government hands the returns go back to the country. Selling income-generating assets for a short-term capital injection is not good considered economic management from any school I’ve ever encountered.

    If we’re going to get out of debt, the action needs to be from households, not the government. If we’re drowning in household debt now, how will “Mum and Dad investors” afford these shares? They’ll have to borrow to buy them, and the borrowing will be funded by foreign investors which’ll just make our net foreign debt even worse.

  12. Jon C says:

    @Matt That is true. I dont if anyone is pretending Key’s cautious move towards privatisation is going to be any magic wand but I am pleased to hear something at last in the form of the start of a debate about what this country needs to do to start growing instead of retreating into a growing pool of private and public debt.

  13. Cam says:

    “Key saying we’re like the PIGS is a complete fabrication” - and it’s exactly this type of twisting of the truth that annoys me. Key inherited low public debt, his government has proceeded to increase public debt to finance tax cuts.

    As Matt pointed out the level of private debt and lack of savings is much more concerning.

    This is exactly kind of rhetoric we’ve heard in the past to justify stuff like asset sales. After all if there is a crisis then we have no choice right?

  14. Cam says:

    “I am pleased to hear something at last in the form of the start of a debate about what this country needs to do to start growing instead of retreating into a growing pool of private and public debt” But this does nothing about future growth it’s about making a quick buck here and now and foregoing future government revenue.

  15. KLK says:

    This isn’t an asset sale like Labour - yes Labour - subjected us to with the flogging off of Air NZ, Telecom and NZ Post.

    If you are concerned about asset sales, then raise that when we actually have one. This is about opening up investment to NZ investors - retail and institutional. But I agree that something must be done to ensure that shares aren’t flogged off to overseas investors once a gain is made.

    I’d appreciate not hearing again that ownership and control is going to be “lost” under such a scheme, when our government will retain majority onwership and therefore, control. Ditto the “quick buck” rubbish, which ignores the impact for changing investment options of individual NZers, boost in the local capital market, and the flow of capital for NZ businesses - provided it is done right.

    This isn’t a silver bullet but its a start that should be at least investigated further. And its nice to hear some new ideas rather than the pathetic “take from peter to pay paul” approach of taxing the “rich” until they leave the country that Goff is proposing. One trick pony.

  16. Matt says:

    Jon, this won’t increase private savings. It won’t encourage money to move away from property. It won’t discourage borrowing. It’ll just take some money out of the NZ economy on a long-term basis, make it easier for the companies to be sold off entirely in future, and if we’re lucky it’ll net less than a quarter of National’s projected $33b capital spend.

    We’d be better served by canning all the RoSN that’ve not yet turned a sod, throwing money at Auckland’s rail network, and bringing back the R&D tax credits that National scrapped to help pay for tax cuts.

  17. Matt says:

    KLK, NZ Post is still an SOE, Telecom was sold off under National, and most of the other privatisations happened under the last National government.

    You haven’t explained how this selling-off will benefit the economy long-term, though. The taxpayer loses the dividend income, and that loss will have to be offset in other ways.

  18. 0.o says:

    I can honestly say that I whole heartedly agree with everything Matt has said…The fact that John Key has even compared us to the PIGS countries is ridiculous and not the first time he has lied through his teeth. What people seem to forget is that the global financial crisis began mainly in 2008, the same year national took power. It is them that have lead us through this, and I dont think that they have done a very good job of it to be honest, yet, even though theyve been in power for about 2 years they seem to think its ok to still blame labour for all the issues that have come about in the last 2 years under THEIR leadership…so, go figure. Also might I point out, what ever arose from the PMs job summit? And the cycle way and the jobs that was supose to create?

  19. KLK says:

    Possible benefits? Let’s see. The partial sale will boost the local stock market - massively. And let’s face it, it needs it. We’ll see NZ funds - most notably KiwiSaver - benefit. Greater savings will require new investment opportunities and we haven’t even started about the extra funds for power companies to invest in green technologies and expanding operations.

    It really only takes a little bit of thought, but that’s increasingly difficult for the left it would seem.

    I don’t see this as a silver bullet, and it needs to be done in conjunction with other changes, in other areas (e.g. CGT for investment property), to get a generational shift in how we live. But its at least a start.

    The alternative? The brain-numbing approach outlined by Goff of “let’s get another dollar out of the “rich”. How inspiring….

  20. Cam says:

    The alternative? The brain-numbing approach outlined by Goff of “let’s get another dollar out of the “rich”. How inspiring….”

    Seriously are we turning this into “you must support Labour if you don’t think JK’s doing a bang up job” . Saying well Labour’s worse, that’s a weak response. Goff’s policy announcement was equally underwhelming. If these are the two choices we have god help us because both of the two main parties appear to be cluless. Neither is proposing anything that’s going to make us better off long term.

    With regards to the power companies does anyone really, honeslty believe that these shares are going to be snapped up by “mum and dad” investors? My arse they are. This does nothing to really encourage savings and insentivise reducing private debt levels. Which is what we have established is the biggest problem.

  21. KLK says:

    No Cam - I am saying we have been given two options this week by our two major parties. Are both clueless? One certainly appears to have more clues than the other.

    “Does anyone really, honeslty believe that these shares are going to be snapped up by “mum and dad” investors?” I don’t know, but I’d like to hear about how we can ensure they will (or by NZ funds). Not just shot down immediately because it comes from one side of the political spectrum. If we could ensure investment stayed predominantly in NZ, that would be a good thing wouldn’t it? Its not an asset sale and it is something a little different - why not explore it a little?

    And as for weak responses: “My arse they are” (re going to be taken up by NZ retail investors) ranks right up there….

  22. Cam says:

    “One certainly appears to have more clues than the other” - Well based on the evidence before me I can’t say I agree. I do agree something should not be dismissed because it comes from one side of the politcial spectrum but likewise things shouldn’t be lauded for the same reason.

    This appears to be nothing more than a bit bit of short term cash raising at the expense of foregoing long term revenue that could be invested back into the country and that will now more than likely go offshore, and as mentione does nothing to address the problem of private debt.

    Firstly how exactly are these Mum’s and Dad’s that are so heavily leveraged going to stump up the cash to invest in these shares.

    Secondly are you suggesting that ensure that the revnue that was once received by the government is not not just sucked offshore they are going to list these companies with NZX but stipulate that only NZ citizens are allowed to buy shares? Can they even legally do that? If so do you really honestly believe they are going to do that?

    There was an interesting article on the subject in this morning’s Herald:

  23. JC says:

    Matt , you know your stuff, I can see this in the way you write, and the information you have delivered.

    Regardless in your or mine view point, the country voted for John Key because they trusted him and they were sick of a Helen Clarke dictaitorship.The voters had enough of being told how to live there lives and wanted a leader to guide us through what was going to be a tough ride through a world market crash. Voters didn’t believe in Helen anymore or her Green friends, and they were kicked to the side line, to be replaced by a business person who knows money and investment.
    The polls don’t lie.

    No government is ever ready to deal with what unfolded throughout the world markets and no NZ government is to blame for the hard times. This was beon anything anyone in NZ could do.

    At least John Key is doing what he thinks is the right thing to do to keep us above the water line.
    SOE/Private share investers will help, and they wont be Mums and Dads, they will be large off shore investors. It is the way of the world, and believe or not, nothing will change, the sun will come up tomorrow, we will enjoy our coffee in the kitchen, regardless that an SOE is 35% owned by India or China or the USA,

    All Governments sell SOE’s - everyone of them

  24. KLK says:

    “This appears to be nothing more than a bit bit of short term cash raising at the expense of foregoing long term revenue that could be invested back into the country and that will now more than likely go offshore, and as mentione does nothing to address the problem of private debt.”

    If you consider it an “asset sale” then you are probably right. But that would be silly. If you actually look at it for what it is - a government retaining majority control and ownership, with a view to directing that “future revenue” forgone directly to NZ investors (instead by way of the NZ Govt) and, ultimately, capital to NZ businesses, it starts to look much different.

    “Firstly how exactly are these Mum’s and Dad’s that are so heavily leveraged going to stump up the cash to invest in these shares.”

    So everyone is stuffed are they?….If they are leveraged into property they might not be interested. Or they might be looking to diversify. And not everyone is highly leveraged. And what of those that can’t afford to get into housing (as a dwelling or as an investment) but are looking for low-risk alternatives? (like NZ power companies…). They’d never be short of retail NZ investors. Never.

    “Secondly are you suggesting that ensure that the revnue that was once received by the government is not not just sucked offshore they are going to list these companies with NZX but stipulate that only NZ citizens are allowed to buy shares? Can they even legally do that? If so do you really honestly believe they are going to do that?”

    a) They can legislate to do anything if they really want to.

    b) Do I honestly think they will? I have no idea. That’s why I would like to hear more. Because if they can and they do then it would start to seem attractive now wouldn’t it?

  25. KLK says:

    I actually thought this was the most balanced article I read, mainly because it (correctly, IMO) put the point across that money for reducing debt is only part of the motive (some of the others I paraphrased in an earlier post)

  26. GJA says:

    What a great opportunity for Maori to use their settlement funds to buy into these SOEs. I’m sure they would want to hold onto these assets and not sell them to foreigners.

    Let’s face it, they HAVE the money.

  27. Matt says:

    Here’s a question for the supporters of the sales: if the dividend yield of the SOEs in question is 7.6% or thereabouts, and the government can borrow at an interest rate of 5.5% or thereabouts, why would we trade them off? It makes no economic sense.

    And Bernard Hickey is not known as a breathless worshipper of Phil Goff and Labour. It’s a good article, and reiterates that it was Key himself who said that a) our government debt will top out at about 28-29% of GDP, and b) it’s government debt that is the problem for the PIGS.

  28. Matt says:

    KLK, sure the government can legislate to do pretty much anything it wants, but it won’t in this case. And even if it did, how do you enforce it?
    NZ-registered companies can be foreign-owned. Foreigners can invest in NZ unit trusts or other vehicles. And on it goes. The practicalities of restricting ownership to natural persons who’re NZ-resident would just be impossible. What if they travel? What if they leave? When do they have to sell? Who checks? What’s the penalty? Do you fine someone who sells their shares to a foreigner? Cancel the sale?

    There is no practical way to stop the shares ending up sending at least some of the dividend yield overseas. Absolutely none. The four major banks would be prohibited from investing, for starters, and that’s a recipe for disaster right there.

  29. Mike F says:

    “With regards to the power companies does anyone really, honeslty believe that these shares are going to be snapped up by “mum and dad” investors?”

    I brought as many Contact Energy shares I was able to which were allocated to NZers when Contact Energy was sold off.(over subscribed)
    From memory brought about $2.50 (limited to around 1000) sold about $8.
    Dividends were better than money in the bank over the 5 odd years I had these.
    There are plenty of people in NZ with money and I’m sure like Contact Energy the share offer will be oversubscribed by “Mum and Dad” investors.
    The only issue I have however is the allocation of share numbers to private investors vs institutions.


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