Asset sales will leave Govt worse off

JOHN HARTEVELT
Last updated 13:03 21/05/2012

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Partial asset sales will do nothing to curb New Zealand's growing debt problem, a new report by economic analysts Berl says.

The Berl report, commissioned by the Green Party and released today, says the Government's partial asset sales programme to build new assets would leave the Crown accounts ''permanently worse off''.

Government debt, the ratio of debt to assets, net worth and total assets would all be worse off after the programme was carried out, Berl found.

''The interim loss of earnings resulting from reduced dividends and the period of time before the new assets reap benefits is never recouped,'' the report said.

''Subsequently, the option of asset sales can only significantly improve the Government's accounts if a set of assumptions are adopted that are at the extreme ends of plausibility.''

The partial asset sales programme will see up to 49 per cent of four state owned energy companies and Air New Zealand sold down to private investors over the next four years. The sales are expected to net around $5b to $7b for the Government, some of which has already been tagged for re-investment in infrastructure like schools and an irrigation fund.

Berl chief economist Ganesh Nana said the loss of dividends from the companies was not compensated by a decrease in spending.

In the longer term, the new investments might perform just as well or better than the dividends from the former assets, but there was no clear evidence that would happen.

Some of the shares may also be sold overseas, guaranteeing a worsening of net external debt.

''While the initial offering may be directed towards domestic purchasers, future private share transactions could increase the portion of shares [and earnings] in overseas investors hands,'' Nana said.

''Such an outcome would lead to a further deterioration in the external deficit and external debt position.''

New Zealand's sovereign debt, while climbing, is at around 20 per cent of GDP and among the healthiest in the developed world.

However, private debt at 72 per cent of GDP was ''uncomfortably high,'' Nana said.

Instead of selling down the assets, the Government could attract investment in the SOEs via new government bonds.

The ''investment vehicles'' could be touted as ''infrastructure or national development bonds'' with competitive interest rates and directly targeted at the retail investor.

Greens co-leader Russel Norman said the Berl report showed the partial asset sales programme was bad news for the Government and ''even worse'' for the wider economy.

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''Even [Finance Minister] Bill English accepts that our high levels of indebtedness to overseas lenders is our number one economic vulnerability,'' Norman said.

''His programme of asset sales would make that worse.

"It's a completely reckless decision," Norman said.

- © Fairfax NZ News

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