John Key reveals plan for asset sales

00:15, Sep 06 2012
ASSET SALES: Prime Minister John Key says Treasury will be asked to advise on the merits of selling up to 49 per cent of Mighty River Power, Meridian Energy, Genesis and Solid Energy.
ASSET SALES: Prime Minister John Key says Treasury will be asked to advise on the merits of selling up to 49 per cent of Mighty River Power, Meridian Energy, Genesis and Solid Energy.

Prime Minister John Key believes the Government could free up as much as $10 billion from the partial sale of key assets including state owned power companies and a stake in Air New Zealand.

In a speech to an Auckland business audience today Key confirmed National was likely to campaign on partial sales of the three big energy generators and coal company Solid Energy in a bid to pay down Government debt a year earlier.

It is also planning to cut its provision for new spending from the current $1.1 billion to between $800 million and $900m in this year's Budget with Key signalling potential savings in welfare reform and further public service cut backs to be announced over the next few weeks.

In his first major speech of the year, Key said Treasury would be asked to advise on the merits of selling up to 49 per cent of Mighty River Power, Meridian Energy, Genesis and Solid Energy.

It would also look at selling some of its existing shares in Air New Zealand, while maintaining a majority stake.

"No other SOEs are being considered and no decisions have been made," Key said.

The Government would consider Treasury's advice and make its plans clear well before the election.

It would also look at ways to borrow less for its capital spending programme over the next few years.

Key said as well as freeing up capital for other investments, the mixed ownership model, created by a partial float of shares in SOEs, would broaden investments available to New Zealanders.

It would only go ahead if the Government retained a majority stake and NZ investors would be in the front of the queue.

The partial sales would have to provide good opportunities for investors, the freed-up capital would be used to fund new public assets and they would have to be satisfied that industry-specific regulations would protect consumers.

Speaking to reporters after the speech, Key said the measures outlined today could potentially slash billions from Government debt.

"If we could do that with those five entities ... if we can make some savings in terms of what were looking at in the budget and maybe a little on the upside you're talking about somewhere in the order of $7 to $10 billion less borrowing that the Government could undertake."

Asked what had changed since the budget policy statement in December, when none of the measures outlined today were signalled, Mr Key said the international environment was changing.

"And I think we saw that when Standard and Poors put New Zealand on negative outlook because of what was happening particularly in Spain.

"The Government has to stop borrowing as much money; if we don't quite frankly New Zealand will be downgraded and interest rates will go up for all New Zealanders."

On the plan to cut new Government spending, Key said Government ministers had "kicked the tyres" over the summer break and identified areas where savings could be made in the upcoming budget.

The Government had already reprioritised around $4 billion in spending over the last couple of years and had reduced the size of the core bureaucracy in Wellington with "more to come in the next few weeks detailing where other changes will happen".

He said this year's Budget would focus on savings and investments.

"New Zealand as a whole needs to save more, spend less and reduce our reliance on foreign debt."

The Government would consider further changes to the tax system, to KiwiSaver and investment products suggested by the Savings Working Group.

Effective tax rates on some forms of saving remained very high, he said.

''The Government is also interested in ideas that increase participation in KiwiSaver and raise national savings, but which don't result in an ongoing and unaffordable fiscal cost, which again would have to be borrowed,'' Key said.


Labour's SOEs spokesman Clayton Cosgrove said National's plan lacked vision.

''They've done it before. It didn't work then though we were promised we would be better off. And it won't work now. It's a dumb idea.''

The three big state-owned generators had a combined value of $11.75 billion, and earned $700 million a year.

''If John Key's economic plan consists of hocking off the family silver to the foreign pixies from whom he's also borrowing $120 million a week to give tax cuts to the rich, then he's living in a fantasy land.''

NZ First leader Winston Peters said National's plan to sell off state assets was disastrous. It meant half New Zealand's state assets would soon be owned by Chinese interests because China was one of the few countries with ready cash to invest in countries like New Zealand.

"Selling state assets represents a fraud on the people. It is nonsense to suggest that New Zealand will retain control of companies that are 49 percent privately owned.

"Why would any country sell off key assets that cannot be replaced? The taxpayers own these assets - not a bunch of National Party cabinet ministers."


Yesterday Key slammed Labour's plan, which would create a tax-free band up to $5000 and put in a new top tax rate on income ''well into six figures''.

Phil Goff said Labour would not borrow to pay for the tax free band, and the new top tax rate and a clamp down on tax avoidance and loopholes would help cover the cost.

But he is yet to release details of how he plans to fund the full $1.3 billion cost, which comes on top of a pledge to take GST off fresh fruit and vegetables at a cost of $250m a year.

Key said the Labour plan left a shortfall of $1.1 billion.

That would push up borrowing from foreign lenders, increase interest rates and prompt a rating downgrade.

''There's no magical fairy with a printing press at the end of the NZ garden.''

Goff had signalled Labour would look at ring-fencing losses on investment property so they could not be offset against other income tax.

Key said National had considered and rejected it. At most it would raise $260m a year, but once sophisticated investors restructured their financial affairs ''you might raise $130m if you are lucky''.

He said the Government was borrowing $300m a week.

If Labour borrowed the full $1.1 billion that could rise to about $320m a week.

''Exactly which little pixie is going to deliver that? The answer is a foreign pixie that we have to borrow from.''

Labour countered today, saying Key was planning to ''sell the family silver to foreign pixies''.

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