Fran O'Sullivan: Govt dancing way to privatisation

John Key. Photo / Mark Mitchell

John Key's Government has switched into its well-practised "two-step" mode to soften up public opinion for partial listings of state-owned assets.

It is important to the Key Government's political branding that it gets this game right. For far too long, it has danced in Helen Clark's shadow - some of its own supporters have been openly disparaging of it as "Labour lite."

But in next year's election voters will want a clear choice, not simply choosing between the Tweedledum and Tweedledee of the past 18 months.

The political stratagem is a simple one. First, float the boat by signalling it will look at selling shares in Kiwibank.

Then close off any immediate or violent reaction by announcing a Go/No Go decision won't happen until a full review has taken place.

Then defuse resultant opposition by crafting additional policies that counter any major political downsides to what key Cabinet ministers had already decided - at least in their own heads - before mounting their spin mission.

It's a simple repeat of the media management programme the Government adopted to get the public used to the notion that GST would go to 15 per cent in Bill English's second Budget.

There was no way English could have cut personal taxes without funding this through a GST increase.

But by signalling its intention well before the May 20 Budget, the Government had enough time to cover potential flash points. Hence the relatively bigger top-ups for superannuitants and larger-than-expected cut to lower personal tax rates.

Labour will rage long into the night on this one. But the Key Government's decision to cut the top personal tax rate to 33c in the dollar finally creates a real point of difference to the heirs of Helen Clark's regime.

The Kiwibank two-step will not be a simple one to execute. The Finance Minister foreshadowed the intention to look at whether shares should be sold in state-owned assets at a post-Budget meeting in Christchurch.

English said a partial sale of Kiwibank would "free up capital and put the product on the market for Kiwi mums and dads".

Within hours, the Opposition had spun his comments as a sign of another full-on round of 1980s style privatisation which would result in SOEs being flicked into foreign ownership.

Or - horror of horrors - controlled by private owners who would indulge in an orgy of asset stripping and/or bad management, resulting in the Government buying the businesses back to bail them out.

This was a clear distortion of what English had said. In fact, the Capital Markets Development taskforce set the scene earlier in the year, recommending a broader range of high-quality equity offerings for retail investors by encouraging "partial listings of central and local government-owned companies, agricultural businesses like Fonterra and local subsidiaries of financial services firms".

In Kiwibank's case, the state-owned retail bank does require extra capital to underpin its growth. The Government can either tip the cash in itself - at the expense of funding other developments that need capital, forgo dividends, or request the bank go directly to the market for new equity.

And it can maintain control. It would be a simple step to alter the bank's constitution so that any equity raising does not dilute the Government's holding below a majority level and that other entities like the NZ Super Fund and iwi corporations can acquire a slice with retail investors.

But at this stage of the debate, common sense is missing. Labour initially achieved the desired effect by reawakening long-held distrust over the 1980s era when too much family silver ended up in the hands of some of former Labour Finance Minister Sir Roger Douglas' rich mates.

But this suspicion will diminish as New Zealanders get used to the idea that they will be able to buy shares in Kiwibank. Particularly if the Government sweetens the offer with a discounted rate for shares.

To counter Labour's counter-spin, all Key and English have to do is point the finger back at former SOE Minister Trevor Mallard, who floated the notion in Labour's last term that subsidiaries of state-owned enterprises could be floated on the NZX to help give depth to the Kiwi capital markets and "get some transparency around those companies".

Pot? Kettle? Black. Labour Leader Phil Goff was in the Cabinet when the decision was taken to privatise state assets through outright "trade sales" instead of fuelling popular capitalism by issuing shares to "mums and dads".

This fundamental decision set the course of our ownership society back 20 years. Where National is now going may change direction.