Norman Russel: Mixed Ownership Model Bill — Second Reading 
Text is incorporated into the Bound Volume 
Norman Russel: Mixed Ownership Model Bill — Second Reading 
[Sitting date: 14 June 2012. Volume:680;Page:3007. Text is incorporated into the Bound Volume.] 
Dr RUSSEL NORMAN (Co-Leader—Green) 
: 
 I rise to speak on the Government’s bill the Mixed Ownership Model Bill to privatise or partially privatise some of the nation’s energy assets. Under this Government the New Zealand economy has run into some real trouble. In fact you could argue that the wheels have fallen off this Government’s management and that under this bill it proposes to sell the engine because somehow selling the engine will improve the performance of the New Zealand economy. In fact every argument put up by this Government around the privatisation programme has been a very weak argument.  
Let us talk about the first argument that the Government put up. It said that companies need to be privatised so that they can access capital. Well the problem for that argument is this: the money that is gained through the sale does not go to the companies—right? The companies do not get any of the proceeds so they do not get the capital that way. If the Government sells 49 percent of the shares in the companies the only other way that the companies can raise capital is to issue more shares. So they could issue more shares in these companies. Once they do that the Government will be required to buy 51 percent of all of the new shares issued if it is to maintain its 51 percent ownership. So the Government would be required to come up with half of all the capital that these new companies require if it is to maintain its 51 percent ownership of the companies. Of course the Government has got no intention of providing half of the new capital to the electricity companies and what is more likely to happen is that over time there will be a dilution of the Government’s ownership and it will go under 51 percent. The alternative of course is what it can do currently; it can issue bonds. These companies currently issue bonds—debt instruments not equity instruments—to raise capital and they will be able to do that under the current structure just as they will have to do it once they are partially privatised which is what the Government is going to do anyway.  
The second argument that this Government then moved to once the first argument was seen to be completely ridiculous was the argument about debt. And it keeps coming back to the debt argument. I am reminded of the quote from Roger Douglas who was the previous architect of privatisation who many years after he had conducted the privatisation wrote in a book: “I’m not sure we were right to use the argument that we should privatise to quit debt; we knew it was a poor argument but we probably felt it was the easiest to use politically.” That is what Roger Douglas said. It does not make any economic sense to sell these assets to quit debt. It is not an economically rational argument or a fiscally rational argument. It is a politically rational argument and that is why the Government has now moved to that argument. Why does this argument not make any sense? The reason is very very simple. The return on the assets is much greater than the cost of Government debt. That is a simple fact. 
 If that was not the fact then there is no way you could sell these assets because you could not take them to the market and tell people that the return on these assets is actually less than the cost of Government debt—about 3 or 4 percent. No one would buy these assets if that was the actual return. The truth is that the total shareholder return which is the key measure that Treasury uses in actually measuring the return on the assets is 18.5 percent. That is the total shareholder return according to Treasury on these assets. So it is actually much more fiscally responsible to hang on to the assets and hang on to the dividend streams and the capital accumulation than it is to privatise the assets. It is for this reason that Treasury in the Budget Policy Statement was forced to admit this exact fact. If you look at Treasury papers of 2011 and 2012 where it looks at the operating balance excluding gains and losses and at the impact of privatisation Treasury says that the Government is worse off by $100 million per year as a result of the privatisation programme. That is when you account for the lower interest costs because they have retired some debt or not accumulated more debt but then you balance that off against the loss of the dividends and the capital gains from these companies. So when you balance those two things off Treasury’s advice is that the Government is worse off by $100 million per year.  
If the key issue is Government debt the reason we have Government debt is the accumulated operating deficits. That is the reason why the Government gets debt—year after year it has run deficits and under this Government they have been very very large deficits. Those deficits have to be covered by borrowing and over time we accumulate debt. By selling the assets we make our debt position worse because we make the yearly deficit worse by $100 million per year. There is not a strong or even rational fiscal argument for privatising these assets. That is what Roger Douglas conceded after he was engaged in the privatisation programme. It is a political argument; it is not an economic or fiscal argument. The argument does not make any sense from that point of view.  
Let us look at the other argument the Government has put up which is around the efficiency of the electricity market. If you recall one of the things that this Government did was to swap assets between Meridian and Genesis a couple of years ago in order to improve the competitiveness of the market. Because they were State-owned enterprises the Government was able to force Meridian to sell some of its generating capacity to Genesis and force Genesis to buy some of that generating capacity theoretically to improve the competitiveness of the market. The problem is that it can do that when they are State-owned enterprises but once they are partially privatised it cannot require the companies to do that. If God forbid Treasury got this a little bit wrong and we find out later that the perfect electricity market has not been actually created through this transfer of generating assets and we might require in order to improve the efficiency of the market a further transfer of generating assets we will no longer have that capacity once the assets are privatised because the Government no longer owns them 100 percent. If your argument is that you want to improve the efficiency of the electricity market then you would not go down this path because it does not give you the ability to do what the Government has just done which is move generating capacity if that is what the Government thinks is the relevant way to improve the efficiency of the market. Of course we also know from the evidence presented to the Finance and Expenditure Committee and never challenged by Treasury that the private electricity companies currently charge higher rates than the State-owned enterprises. We would have liked Treasury to test that evidence but we were not given sufficient time at the select committee to enable that to happen.  
We need to I think take a step back to the bigger picture about the fiscal position of the Government as well. If you recall the Government introduced some very large tax cuts for upper-income earners. These tax cuts were very very large. At the time the Government told us that they were fiscally neutral because it intended to increase the GST on middle and lower income earners in order to pay for the tax cuts for upper-income earners. That was the central part of the so-called tax switch. The Government argued that this would be fiscally neutral by making middle and lower income earners pay more for their groceries in order to pay for a tax cut for the chief executive officers of the banks. That was the deal. Unfortunately this never happened and in fact it was never fiscally neutral and the Government’s books got thrown much deeper into deficit than they would otherwise have been. In order to cover the hole in the Government’s Budget that this Government created through its very poor fiscal management it is now saying to us “Oh we have to sell the assets because we’ve got a big hole and we can’t afford to pay for schools and hospitals because we gave the tax cuts to upper-income earners which are costing maybe $2 billion a year—it is hard to quantify but in that order.”  
When you think about it the thing is that most mums and dads do not have the money to buy these companies that they currently own. Most mum and dad New Zealanders are struggling to get the kids to school and they are struggling to pay the groceries because National increased GST to pay for the tax cuts for upper-income earners. Most mum and dad New Zealanders simply will not buy these shares. A very small minority will. Of course the people who will have the money to buy the shares in these companies are the very same people National gave very large tax cuts to. So if you earned $1 million a year National gave you a tax cut of $1000 per week; $50000 a year was your tax cut from the National Government so thank you very much to National. With that extra $50000 a person will be able to afford to buy shares in these companies but most New Zealanders got bugger all out of the tax cuts and they can barely afford to make ends meet now. They will not be able to afford to buy a single share in these companies that National is effectively handing over from all New Zealanders who currently own them to a tiny minority who got the tax cuts who have the cash in hand and who will be able to buy these companies. It is a shocking piece of public policy. It is bad for the economy it is bad for the Government books and it just bad government.