That question was posed in my research report this week, The People’s Portfolio: A $571 Billion Question. It is a real question. It describes how Crown ownership and the public debt are affecting your household right now.
The Crown owns a lot of things. It owns about 40% of all land in New Zealand, plus other assets like state houses, hospitals, schools, and many businesses. The government valued these assets at $571 billion last June. That averages out at over $275,000 per household.
But here’s the catch: the government’s income in rent and dividends from all these investments is less than its interest payments on its borrowings.
Households will feel the pain when a government’s interest payments exceed its revenues from assets. Sooner or later, they fund the difference through higher taxes. It is as if households discover they owe a lot of money on a phantom credit card for payments they had no power to control.
This situation is likely to get worse. The government needs billions more of householders’ money. It needs it for important things like better infrastructure, national defence and improvements for schools, state housing and hospitals.
It will have to borrow more, but its debt is already much higher than experts considered prudent before Covid struck. And the world looks riskier. Governments are more in debt now and Trump is upending the international order.
The tax and rate increases are already a real worry for many. The net interest on the public debt alone took 3.7 cents of every tax dollar in the last fiscal year.
Further spending cuts are needed, but that is hard politically.
An option that householders would consider is to reduce debt by cashing up some assets. Sell a car, move to a cheaper house. The government should similarly assess what it could usefully sell.
Governments should be assessing why it owns what it owns anyway. Why? Because overall, it is not a good asset manager. In the polite language of government officials, the quality of asset management in government is “variable”. The Treasury, the Controller and Auditor-General and the New Zealand Infrastructure Commission have all pointed to persistent problems.
This is not surprising. Politicians have conflicting pressures and incentives. So do officials, albeit of a different nature. Pressure groups are passionate about many things but not often about flaws in the quality of the Crown’s asset management.
Even so, many people have genuine concerns about the outcomes of state asset sales. They are worried about what might happen to jobs, prices, service quality, local control and the public good.
However, research from around the world shows that private companies exposed to competition usually do a better job than governments in these respects. Those needing repeat business have a strong incentive to provide value for money.
The public is right to be concerned about the integrity of any sales process. That process must be squeaky clean to attract bidders and achieve public support. All bidders must receive the same information, and it should be clear what they are buying. There should be no hint of special favours, possible post-sale government support or protection from competition. Regulations to protect the public interest (e.g. a KiwiShare provision) must be settled before the sales process begins. Perfection is unlikely.
New Zealand has done this before. Between 1988 and 1999, the government sold 30 major enterprises and earned $19 billion (in the money of that time). Most of these sales have endured. The proceeds were used in part to reduce the public debt.
In short, selling assets that it does not need to own is an option householders would consider, and so should a government.
Of course, this does not mean selling everything - some things, like national parks and defence facilities, clearly should remain Crown-owned. However, private ownership might work better in less clear-cut cases, especially commercial businesses.
The key is to look at each case carefully and assess what ownership structure will likely give the best result for all New Zealanders. The report suggests that the government set up a professional non-partisan body. It would assess the case for the Crown to continue to own assets it is not necessary for it to own.
This body should assess the public’s fears and emotions respectfully. Its reports should inform public debate. Emotion counts, but it should not be allowed to preclude rational public discussion about what it is sensible for the Crown to continue to own.
