John Armstrong: English good at doing Kiwibank groundwork

While Bill English was seriously off-message when he gave his strongest hint yet that he wants to privatise Kiwibank, his faux pas may be a blessing in disguise for National.

The Minister of Finance's less-than-guarded remarks to a Christchurch business audience single-handedly managed to upstage his own Budget delivered less than 24 hours earlier.

That was some achievement. Sooner or later, though, National was going to have to grasp the nettle and declare its stance on privatisation before next year's election.

Its position at the 2008 election - that there would be no sell-offs during its first parliamentary term - has left a large void should National win a second term.

As one of Kiwibank's two shareholding ministers by virtue of the bank being 100 per cent owned by Government-owned New Zealand Post, English has now been caught at least twice talking about the bank being a prospect for sale in whole or in part.

His argument that partial privatisation would be one way of raising the capital Kiwibank needs to grow into a fully fledged trading bank sounded like an attempt to disguise a desire to sell. English would find the money elsewhere if he believed the bank should stay in state ownership.

Moreover, such talk suggests he is keen to offload other state-owned enterprises. The left has accordingly treated his remarks as a deliberate softening up of the electorate to the inevitability of second-term sell-offs by National. Fortuitously for his party, English's slip has come at a time when National is strong enough to absorb any electoral damage his comments might have caused.

Even if his remarks weren't part of a deliberate strategy, they may prove useful for National in having provoked debate, thereby allowing it to gauge the public mood on the matter.

Not only has the political climate shifted to the right over the last decade. In line with National policy, English last year issued a directive to the New Zealand Superannuation Fund to work towards a target of 40 per cent of its investments being New Zealand-based.

A more sophisticated approach to selling down state assets, which re-introduced partial share floats to small investors alongside divestment of large chunks of shares to the Super Fund while still maintaining majority state ownership, could see privatisation no longer such a dirty word.

But National's defensiveness after English's comments suggests the party is unsure about the electorate's tolerance for sales, especially when it comes to something like Kiwibank and its ultra-patriotic branding.

The inept manner in which Labour and then National handled many of the privatisations of the 1980s and 1990s has left a sour legacy. By the time it left office in 1999, National had at least adopted the "popular capitalism" model of using public share floats rather than straight sell-offs to large corporates or consortiums which had proved to be hugely unpopular.

Even then, National's preference for selling all of the Government's shareholding in a particular venture still meant awarding large parcels of the likes of Contact Energy to "strategic" or "cornerstone" institutional buyers to ensure the enterprise's management did not lose focus and direction.

But that left powerless the so-called "mum and dad" investors wooed by National to make such sales more politically palatable.

With National trotting out the "mum and dad" investors' line again, the big question on which any fresh debate about privatisation may hinge is the degree to which those small investors cut and run once the share price increases, leaving the big boys to pick up their scrip and with it control of the company.

The stickability of "mum and dad" investors might best be measured by the experiences of Contact Energy and Auckland International Airport.

In the decade since Contact was floated, the number of shareholders with less than 5000 shares has declined from just over 186,000 shareholders to little more than 81,000.

Around 55,000 New Zealanders secured a $1000 parcel of 556 shares in Auckland Airport in 1998. More than a decade later, there are still some 38,000 shareholders with 5000 shares or less.

In both cases, those investors hold only around 10 per cent of the total shares. But the lack of any leverage over company decisions does not seem to have deterred a large chunk of investors from keeping hold of their shares. Even allowing for the many shareholders who would have brought in to those companies post-float, the figures suggest many original shareholders are there for the long haul.

Yet, the figures are also relatively small in population terms and hardly an advertisement for claiming New Zealand has embraced popular capitalism.

It is not clear whether National had been planning to make a broad statement on privatisation policy in the run-up to next year's election; whether it intended to flag particular state assets or companies that might be put up for sale; and whether it would state what form such sales might take.

English's remarks about Kiwibank have now left the party little option but to be anything other than upfront and detailed about its privatisation plans. The onus is now on National to set some parameters about which state assets might go on the block, if only in part.

After the debacle over the listing of potential mining sites in national parks, however, the Prime Minister may be wary of offering easy targets for opponents by being too specific about National's plans.

At his weekly press conference on Monday, Key was even suggesting it should not be assumed the moratorium on sales would be lifted. That sounded more like an attempt to shut down the privatisation debate before it could get serious legs. And the more the week went on, the tighter the lid came down, especially during question-time in Parliament, with Key repeatedly replying to Labour and Green Party questioning that "no consideration" had been given to possible asset sales, Kiwibank or otherwise.

Even if National had wanted to restoke the debate, English could not have chosen a worse example with which to do it. The mere mention of selling shares in Kiwibank immediately resurrected old fears about foreign ownership, the repatriation of profits and the loss of independence and local control of banking.

But Kiwibank is something more than just a subsidiary of NZ Post. Jim Anderton cunningly created an institution which incorporated national pride as its prime marketing tool. Selling even a partial shareholding, the critics argue, could result in the Australian-owned banks gaining stakes in their competitor. Even minor holdings would defeat the nationalistic rationale for having an account with Kiwibank and the bank would suffer accordingly.

Yet, a partial float would not see the sky fall in as long as the Government retained majority ownership, offered the remainder in a public share float and placed some limit on foreign ownership of that minority portion of the company.

If National wants to reactivate a privatisation agenda - and it seems unsure about that - it has to be honest about its motives. Is it because the party inherently believes the private sector is better at running businesses than the state? Is it because it wants to use the revenue to cut Government debt? Is it because new and solid investment vehicles are needed for savers? To win the argument, National needs to reframe the debate and push ideology well into the background.

Rather than treating all state companies as candidates for auction lock, stock and barrel, National needs to take a more practical, if not pragmatic approach.

If, like Kiwibank, something works, the priority should be on finding ways to make it work even better regardless of whether that is done with or without private capital. It is hardly going to be an election winner, but an innovative privatisation policy could be sold to many voters, even if many others would still find it anathema.

But that isn't going to happen if National continues to creep around the subject, treating it like a sore bear in hibernation, which, if awoken, might well run amok.