Net core crown debt is forecasted to increase from $175 billion to $210b by 2028.
Asset sales can reduce debt and drive economic growth, especially during the current recession.
The debate about asset sales has been thrust into the political limelight, with Act leader David Seymour advocating for privatisation to be reconsidered.
This is while Christopher Luxon has stated it will not happen in National’s first term, butan election win in 2026 might give him the mandate to do so.
Therefore, the discussion over if and what could be sold is likely only to intensify, and rightly so. Willing buyers are waiting in the wings.
In addition to helping plug a gaping debt load and reducing the interest burden, one of the arguments for asset sales is that New Zealand should make far better use of its assets to drive economic growth.
The argument is highly pertinent to the Kiwi economy, which is experiencing the worst recession in over 30 years.
The debate over whether we should engage in further asset sales is multi-faceted and involves philosophical, economic, and practical considerations.
There is also the school of thought that it should not be discussed, given the risks of selling off more “crown jewels” too cheaply, losing effective control, and creating societal risks.
From an initial philosophical standpoint, the case for government asset sales is anchored in the belief that the private sector is better at managing businesses (unless there is a compelling public interest). The private sector, driven by profit motives and competition, tends to be more efficient and innovative.
This has become highly apparent in recent years. The mixed-ownership model, where the Government retains a stake while selling a portion to private investors, has proven hugely successful.
Partial privatisation in the energy sector has resulted in significant dividends for the Government while improving operational efficiencies. Being thrust into the public eye has made financial and societal outcomes much more transparent.
Accountability has increased for these businesses, and Kiwi investors have been able to join in on the journey.
The contrasting performance of the Port of Tauranga and the Ports of Auckland also illustrates the benefits of private ownership. The Port of Tauranga has become the country’s largest and most efficient port during its time on the New Zealand Stock Exchange.
Over the same period, the council-owned Port of Auckland has struggled and appears to have veered from one misstep to another.
The financial case for asset sales is compelling. The Government faces an estimated infrastructure deficit of over $200 billion.
Funds are needed to fund new infrastructure and maintain or renew existing assets. The Government already has a huge debt load, and our economy is not in the position to have this balloon further.
Net core Crown debt is forecast to increase from $175b to $210b by 2028. That will work out to over 45% of GDP and approximately $40,000 of debt per person.
Funding this through rates or higher taxes is challenging. Monetising assets by selling them to the private sector, where there are investors eager to invest in high-quality infrastructure, is a highly viable alternative.
A march to voice concerns over asset sales in April 2012. Photo / Bradley Ambrose
Some have suggested that there are not a lot of assets to sell. However, there are ample potential assets to sell, be this fully, partially, or under a quasi-leased model.
Starting with the most recent successful experience, the Government could sell its remaining shares to electricity generation and retail companies.
The Government holds 51% stakes in Meridian, Mercury, and Genesis, which, at current values, would be worth nearly $15b. These companies are already operating in a competitive sphere and performing well, and ongoing oversight from the Government can be achieved through regulation. The Government does not need to hold an equity stake, strictly speaking.
Transpower, a state-owned enterprise that manages New Zealand’s electricity transmission system, requires significant capital investment. Privatisation could attract the necessary funds.
The Government could also sell its remaining 52% stake in Air New Zealand, which would bring in another $1.4b. Elsewhere, the courier business of New Zealand Post has been making competitive progress and is an attractive business that could be run even better.
Kiwibank needs growth capital to allow it to compete more effectively with the bigger banksPhoto / NZME
The idea of selling Kiwibank also continues to surface regularly. In addition to delivering a substantial windfall, this move would provide growth capital for Kiwibank and allow it to compete more effectively with the bigger banks. Listing the bank on our stock market would be very well received by Kiwi investors.
Another model the Government could consider for raising funds is the implementation of public-private partnerships (PPPs) for infrastructure projects, such as toll roads.
These partnerships can leverage private sector expertise and funding without fully relinquishing control, providing a solution to an “age-old” problem in New Zealand. This model, as seen in successful international examples, could be a game-changer for our infrastructure development.
Much of our infrastructure has suffered from under-investment. As noted in a recent position paper by research and advocacy group Infrastructure New Zealand, unlocking economic value from the assets we already own presents an opportunity to deliver more infrastructure without increasing debt.
This PPP model has been used successfully in the likes of Australia (Sydney Metro Northwest and Royal Adelaide Hospital) and the United Kingdom (including for the M25 and London Underground).
It is a win-win for New Zealanders as we can future-proof our infrastructure for a growing population more quickly and effectively without taxpayers having to foot the bill and bring our infrastructure into line with international standards. Meanwhile, these assets would not have to be sold as such, with long-term leases in place.
While the Three Waters reform programme was a contentious issue, the reality is we have substantial infrastructure assets which also need investment.
At the regional level, high-quality assets wholly owned by local governments, such as ports and airports, could be sold to address regional council balance sheet issues. Some councils, of course, are already looking at, or have looked at, this.
In addition to the successful sales of our electricity companies, there are many international examples of successful asset sales.
The UK (Royal Mail and British Energy) and Australia (Medibank Private, Snowy Hydro, Ports of Melbourne, and Queensland Motorways) have raised significant funds through asset sales, which were then reinvested in public services and infrastructure.
This, of course, raises the critical point about what the funds from asset sales are used for by governments, but that is a separate and more political discussion topic.
Opponents of asset sales often point to cases that have not gone well, both here and also internationally. But it is essential to learn from the past, not be bitter about it.
The 1980s and 1990s saw a mixed bag of outcomes in New Zealand. The Government printing office was sold to the Rank Group, transferring value from taxpayers to a concentration of private buyers. Telecom New Zealand was privatised in 1990 with mixed results. Tranzrail, which was sold and later listed in the 1990s, ultimately failed, highlighting the risks involved in privatisation.
These mixed outcomes highlight the importance of transparency and careful planning with future proposals. Consultation is paramount, and the Government already has the blueprint for privatising the retailers, which can be improved on further.
Engaging with stakeholders is crucial, as this builds public trust and ensures that the interests of all parties are considered, including the impacts on Māori communities and considerations of the Treaty. Ensuring that privatised entities adhere to environmental and social governance standards is also extremely important, however it is achievable.
One of the primary concerns about asset sales is the potential loss of control over critical infrastructure and services.
However, there are ways to mitigate these concerns. The Government can retain oversight through regulation, as seen with Auckland Airport. Assets can be ring-fenced through legislation to ensure they continue to serve public interests, providing a sense of security to the public.
Naysayers for asset sales have cited examples of asset sales that have not gone well across the Tasman. Aussies may well be paying over the odds on some of their toll roads because of privatisation, but there are lessons here. This can be addressed through tighter regulation and oversight if our Government progresses down this route.
Finding buyers for these assets would certainly not be a problem.
Institutional investors, including investment firms and offshore pension funds, are standing at the ready. However, a more optimal alternative for many of these divestments could be through initial public offerings.
As the sell-down of the electricity companies showed, New Zealanders are patriotic investors and have a strong appetite to invest in high-quality local names.
New listings would also be a welcome tonic for the NZX, with these thin on the ground in recent years. Providing locally listed alternatives for Kiwi investors would also mean that some of the capital flowing into offshore names would have a home here instead.
KiwiSaver funds would be natural owners of these assets and would have a precise alignment of interests.
Ultimately, many businesses operate more optimally in the public eye. Accountability is higher, and transparency is far greater. Boards and management teams are answerable to shareholders regarding how businesses are run, how capital is allocated, and the strategic plan going forward. Those companies that do this well are rewarded as such. The stock market model is proven and works.
So, further asset sales by the New Zealand Government could provide significant benefits, including debt reduction, revenue generation, improved efficiency, and economic growth.
Risks and concerns can be managed through careful planning, regulation, and legislative safeguards.
By leveraging private sector investment, New Zealand can address its infrastructure deficits and build a prosperous future. Kiwi investors can also share in this journey.
