SOE sell-down is nothing to be scared ofTIM HUNTER
With election day looming, it seems the partial sale of state-owned enterprises hasn't been the vote-killer for National some have feared, and others perhaps wished.
There's no doubt many people find it alarming, but in my view it's a straightforward, practical policy.
Sure, the numbers are large, but the partial privatisation of SOEs is no big deal.
State-owned enterprises are set up to be profit-driven businesses. By law, their principal objective is to be "as profitable and efficient as comparable businesses that are not owned by the Crown".
Their only non-commercial goals are to be good employers and to accommodate the interests of the communities in which they operate.
In effect, state ownership means SOEs operate in the public interest no more than private sector companies do.
Why, then, should governments own businesses?
It's plausible to say ownership helps safeguard assets of vital national interest. Plausible, but with SOEs required to operate the same way as private sector businesses, it's not clear what difference state ownership makes. If national interest was a genuinely important factor for the SOEs we might expect an explicit reference to such objectives in the State-Owned Enterprises Act, but there isn't.
Also, if the principle of national interest plays a part in some way it seems to have been applied rather haphazardly.
The government owns coal mining business Solid Energy, for example, but doesn't own an oil company. It owns most of an international airline, but not an international shipping line (unless you count its stake in Pacific Forum Line, which isn't exactly the maritime equivalent of Air NZ). It owns a TV broadcaster but not a newspaper company.
In terms of national interest considerations, it's not clear that owning less than 100 per cent of the SOEs would make much difference.
That's not to say state-ownership is a bad thing, necessarily. Only a government could really have contemplated setting up a bank in competition with the big Aussie institutions, and Kiwibank has been a welcome addition to the banking market.
But even Kiwibank has got to the stage where it needs more capital and 100 per cent government ownership is starting to look more of a hindrance than a help.
So if there isn't a compelling national interest reason for 100 per cent ownership of SOEs, are there other reasons?
It's often argued that the investment returns from SOEs are larger than the government's cost of borrowing, so it makes more sense to borrow rather than sell a bit of an SOE.
This would be a good argument, if it were true. However, one, it's not clear that SOE dividend returns are actually more than the government's borrowing cost - Goldman Sachs, for example, calculates the opposite is the case - and two, there is a limit to the amount it is prudent for the government to borrow.
It's also said that the government won't get a good price for the assets because a) now isn't a good time to sell, b) selling a partial stake won't fetch a premium and c) limiting foreign ownership will limit demand.
These arguments are hypothetical, so it's hard to say how big these effects could be. But, within reason, achieving the maximum price isn't the only goal.
Extending the ownership of these SOEs and listing them on the stock exchange will be a boon to the share market. A healthy share market means healthy capital markets, which are good for business and good for the economy.
But then some say we don't need any more energy companies on the market. We have Contact and Trustpower after all, so adding more won't deliver the benefits proponents imagine.
This view makes a curious assumption about what's normal in a share market. Certainly, in New Zealand we have become used to slim pickings among our listed companies - one big telco, one big building company, no banks, and so on.
However, in overseas markets there are usually many listed companies in each sector. Australia has four big banks, for example, and several other hefty financial institutions to invest in. Its plethora of mining and resources stocks is not seen as overkill, rather an opportunity for competition to thrive.
Of course, you could fill a book with arguments about the SOE sell-down, but I'll restrict myself to one final comment. We're not talking about selling off assets here, we're talking about reducing government ownership to a minimum of just over 50 per cent. Indeed, it's likely the government stake will be a bit higher than that, at least initially.
That's nothing to be scared of. Air NZ, Vector and Auckland Airport manage pretty well under mixed ownership and it's a well-used model overseas.
- © Fairfax NZ News
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