Asset sales: Government starts the mood music for privatisations

ANALYSIS

Suddenly, a lot of people are talking about privatisation.

Act Party leader David Seymour floated the idea during his State-of-the-Nation speech last week. Green Party co-leader Chlöe Swarbrick then asked the Prime Minister to rule-out any such move on Monday.

National, which as the largest party has the biggest say, is happy to ponder the philosophical and economic merits of privatisation, but doesn’t really want to get into the detail, thanks to leader Christopher Luxon’s decision to “rule out” any asset sales on the campaign trail.

In opposition, Luxon said “no” to privatising state assets, but it is not clear how long that “no” applied for – in the past, political “rule-outs” have applied to either a single parliamentary term or for as long as the person making that rule-out was leader.

Luxon’s position on asset sales appears to be the former, with National now saying that a mandate for the electorate would be sought before any asset sales were to proceed.

The Government appears to be starting the mood music for that fight – and Treasury is right behind them.

The Herald has reported extensively on this process.

On November 27, 2023, the very day the Government was sworn in, ministers received a briefing arguing the Government should consider a “review of ownership rationales” – in other words, asking Treasury officials to question why the Government owns what it does.

The Government agreed and officials began drawing up “purpose statements”, which would analyse the performance of State-Owned Enterprises (SOEs) and probe the Government’s purpose for owning them. Treasury notes that sometimes the Government has non-commercial reasons for owning assets. KiwiRail, for example, is not a particularly well-performing investment, but it might fulfil an important goal for the Government in trying to shift some freight off congested roads and on to rail.

Another example is TVNZ, which is performed relatively poorly in financial terms, but provides a platform for local news and other programming. An SOE’s “purpose”, Treasury thinks, might not be limited to whether it is a good investment.

Treasury thinks that there is a chance that some assets have a poor “rationale” for state ownership. If so, these could be sold and the proceeds “recycled” into something more worthwhile.

The briefing from 2023 advised that more “active management”, meaning selling assets that there was little rationale for owning, could support the Government’s fiscal strategy by freeing up capital from SOEs in order that it might be used elsewhere.

Treasury argued for “capital recycling, reducing net capital expenditure” because the money raised from asset sales would be used to fund capital spending in things like infrastructure, instead of having that spending funded by borrowing.

Treasury’s view in the briefing was that additional borrowing for investment is difficult at the moment, given the structural deficit and the high level of debt following the pandemic. It would make sense to “recycle” some capital from assets which could be better invested in assets that are more logical for the Crown to own, like schools and hospitals.

The Government, particularly Finance Minister Nicola Willis and former State-Owned Enterprises Minister Paul Goldsmith (the portfolio was transferred to Simeon Brown earlier this month), have received several purpose statements thus far, although are fairly coy about what they contain.

David Seymour delivering his State of the Nation speech. Photo / Alex Burton

Willis gave some detail on Monday.

“We have asked the Treasury to look at the assets the Government owns and ask itself whether we are doing a good job managing them, why we own them and whether they are delivering well to their purpose,” Willis said.

Willis said that some of the reports had come back and “identified some areas where they think that the entity is no longer delivering well to its purpose and where we should consider other ways of managing that asset and getting more from it”.

Does “managing that asset” better mean privatising it? That’s unclear, with Willis saying there’s more to come – although when the Herald last checked, the Government’s commitment to no privatisations this term remained.

Official Information Act releases show ministers received two bundles of information on purpose statements in October and November, which were briefings for a meeting on the topic.

Ideologically, Act and National are pretty comfortable both with privatising assets owned by the Government by selling them, and by allowing private companies to deliver public services, which is sometimes also called privatisation. Labour tends to be less in favour, although okayed the sale of a small optics firm from Callaghan Innovation during its last stint in government.

One SOE floated by Seymour during his speech was Quotable Value, a property valuation company. QV appears to fit the bill for these potential privatisations. It is not immediately clear why the Crown should own a firm that does something other private operators also provide.

When asked about whether it made sense to own QV on Monday, Willis seemed open to selling it.

“I think that will be a question for New Zealanders to consider. Because when I talk to New Zealanders, the assets they really care about are their local schools, their local hospitals, their local transport connections. I think if you were to ask them where Quotable Value sits on that list, schools, hospitals and roads would probably sit a lit higher,” Willis said.

The mood music is playing – and very loud.

It’s somewhat reminiscent of Labour’s decision, in 2021, to commission a report on the amount of tax paid by very wealthy New Zealanders. At the time, the report was, officially, just an interesting research project with no policy behind it. However, when the report came back in 2023 finding that wealthy people paid very little of their income in tax, it read an awful lot like a case for the wealth tax that ministers were working on in the background.

The purpose statements are not directly or officially part of a programme to privatise assets, but no one will be surprised, once they are published, if ministers use them to make the case to the public for privatisations.

Even New Zealand First might be on board, with officials reviving a 28-year-old idea to create a holding company for assets marked for privatisation along the lines of Singapore’s Temesek. NZ First, which tends to prefer public ownership, is fond of that idea. Indeed, the last time they were in government, then State Owned Enterprises spokesman Shane Jones got advice on it.

They would provide grounds for National to run on some form of privatisations in 2026, much like the Key Government put asset sales to the electorate when it went for re-election in 2014. There are some differences, not least the fact that the assets that remain in public ownership might not be as valuable as the power companies part-privatised by Sir John Key — QV is not Meridian. Then, too, he argued that it was wise to free up this capital to be invested in national infrastructure, through the Future Investment Fund.

The biggest prize — and one name checked by Willis on Newstalk ZB on Monday — is probably Pāmu-Landcorp, a loss making state-owned Farm, which manages 112 “farming units” covering more than 1% of the country’s landmass. More important than the company itself is the property it owns. Its most recent annual report included assets worth $2.2b, mainly agricultural property.

Act’s Primary Industry’s spokesman Mark Cameron said last year it should be privatised, with private farmers given the opportunity to take a slice.

Privatisation is a risky move. The public tends not to like asset sales. A citizens-initiated referendum on the last round found 67.30% of voters opposed the sales. The then Prime Minister Key was popular enough to ride out that opposition, safe in the knowledge that while the public might hate that policy, they liked his Government.

This Government finds itself in a more difficult position, where popularity, like capital, is in short supply. Dare Luxon risk it?

Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.