Cullen Michael: Debate on Crown Entities Public Organisations and State Enterprises 
Text is incorporated into the Bound Volume 
Cullen Michael: Debate on Crown Entities Public Organisations and State Enterprises 
[Sitting date: 10 June 2003. Volume:609;Page:6097. Text is incorporated into the Bound Volume.] 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 I move  
That the House take note of the performance in the 2001/02 financial year and the current operations of Crown entities public organisations and State enterprises 
. Last year in speaking to this debate I said that this is one of the less enticing and enthralling debates that Parliament holds on an annual basis. It is part of the annual cycle of financial debates. In the early 1990s and late 1980s when we were looking at the review of the financial debate and structure we agreed to have a 4-hour debate on State-owned enterprises subsequently reduced to I think 3 hours. This debate has turned into yet another long extended round-arm debate covering everything under the sun except the things it is supposed to by and large which is actually the performance of the State-owned enterprises Crown entities and similar organisations and it is therefore a classic occasion on which various members get up and improve their adeptness at reading the research unit notes provided to them earlier in the day. Linda Scott I am sure will fulfil my expectations in that respect to the nth degree. 
 It will be useful for the Standing Orders Committee to have another look at this particular debate to see whether we can tie it more closely to specific issues. One of the sad features of Parliament over the last 5 to 10 years has been the increasing tendency for all debates to degenerate into general debates as opposed to being specific debates on nuts-and-bolts issues. Indeed I have noticed that many members are now completely incapable of debating nuts- and-bolts issues and are capable of debating only at a sort of high level of low rhetoric if I can put it that way—not of course that I myself am necessarily bad at debating at a high level of low rhetoric but occasionally it is nice to get down a demonstration of an ability to master facts in some detail. 
One of the issues that I want to address myself to this evening—through the supportive barracking from the National Party opposite— 
Brian Connell 
: Ring the bell! 
Hon Dr MICHAEL CULLEN 
: It is good to see the entire intellectual grunt of the National Party lined up opposite. I want to discuss the issue of capital budgeting as it relates to the State-owned enterprises in particular. Since the late 1980s and particularly the 1989 Public Finance Act New Zealand has under successive Governments developed I think what is fair to say is the most complete and effective control of its operating expenditure of any Government in the world. In that respect our systems and our accounting procedures are certainly much more well developed than almost any other country although it does lead to some confusion amongst members opposite in terms of what a surplus actually is in that regard. However it is true to say that partly because of the necessity of bringing Government spending under control and moving into surpluses capital spending has been much less well addressed in terms of the controls upon it and indeed capital expenditure and capital budgeting is still a very very ill-defined and indeterminate art compared with that of operating expenditure. Generally speaking the Government nearly always underspends its forecast capital spending for a variety of reasons. 
Brian Connell 
: Who wrote this speech? 
Hon Dr MICHAEL CULLEN 
: Nobody wrote this speech; I am actually giving it as I go along. I thought the member might have picked that up. I do not need notes to do this stuff. This is the job of being the Minister of Finance. [ 
Interruption 
] This is about State-owned enterprises. So what I am trying to explain to the member with the well-known curriculum vitae which is circulating now for a price in the Russian underworld I am told as an example of how to do a curriculum vitae for the future is that we are facing the issue of trying to work out how to control better and get a better picture of what our capital spending is. The reason the State-owned enterprises come into this—and it is the reason that I am developing this theme—is that the State-owned enterprises have a very large amount of the Government’s capital tied up in them. 
Brian Connell 
: Get a real job! 
Hon Dr MICHAEL CULLEN 
: This is a real job. The State-owned enterprises are responsible for a great deal of the Government’s capital expenditure either directly or indirectly but very little of that actually comes back to the Government for direct oversight. One thing that we are working through with the State-owned enterprises is trying to incorporate into the next Budget round any forecast they may have for requirements from the Government for capital injections because those capital injections from State-owned enterprises need to be dealt with on the same basis as the Government’s other capital expenditure in terms of what the priorities may be. 
The second element of course is to try to ensure by a series of benchmarking and other measures that State-owned enterprises’ capital structures are the most appropriate from a commercial perspective. In particular the Government is concerned that some State-owned enterprises may develop what are called lazy balance sheets which then enables them to behave in such a way that they may engage in less than optimal usage of that capital for investment purposes. No commercial organisation should have those kinds of lazy balance sheets because it does not lead to the best commercial behaviour in their respect. 
Brian Connell 
: Who told the Minister that? 
Hon Dr MICHAEL CULLEN 
: Treasury. This Government and a few other people around the place like the Institute of Directors Business New Zealand and those sorts of people have some interest in that—I am sure that if the member ever visited them they are on his CV as people that he has close relationships with. What we are therefore concerned to try to ensure is that this Government is committed to long-term ownership of the State-owned enterprises. That has led to some very significant differences in the way in which they have behaved and performed. Let me pick out an example. Landcorp which struggled for a long period of time under its present leadership of Alison Patterson and a very good board has managed to produce outstanding financial results. Landcorp Farming has a record net profit after tax in 2002 of $38.4 million. That is because it has been encouraged to take a fully commercial approach allowed to reorganise its assets selling some that are less useful consolidating some of its other assets and the result of that is a massively improved performance and return to the Government. 
The problem with the previous Government was that it was so concerned to sell that it was not worried about the thing operating effectively in the meantime. The purpose of State-owned enterprises was to simply get them flogged off as soon as a pack of mates appeared over the horizon get rid of them and pretend that this somehow improved the Crown’s balance sheet and on the National Party proceeded from there. Of course the previous Government improved the Crown’s balance sheet only if it sold them for more than they were worth on the books. So what the National Party used to do was keep them undervalued on the books and run them down. Then when National sold them it made a paper profit in terms of accruals accounting procedures and that therefore pumped up the operating balance for that year. But one cannot keep doing that trick year after year after year. One runs out of that kind of trick as an approach to the Government’s fiscal policies. 
We need to get a clearer picture from the National Party about where it stands on the sale of State-owned enterprises. This afternoon Mr Sowry said that if and when the Government gets control of the railway tracks we will have to wait and see whether it will sell the railway tracks again. I tell Mr Sowry that 70 percent of New Zealanders support buying back the railway tracks. 
Dr Lynda Scott 
: That is just poll-driven! 
Hon Dr MICHAEL CULLEN 
: Lynda Scott will oppose that because she opposes anything that 70 percent of the people support. She is happy to be a 21 percent party getting 70 percent of the 30 percent that oppose what the Government is doing. That is her approach to life. We say that the people want control of that track. We believe that it is a sensible strategic asset. We are doing our best to purchase it back but the National Party cannot even tell us whether it will sell it again should it ever ever get lucky enough to get back into power. Will it sell off more of the State-owned enterprises in terms of the electricity generators? Will it flog off Transpower? Will it follow Dr Brash’s prescription? Dr Brash believes that we should sell most of the schools. 
Government Member 
: What! 
Hon Dr MICHAEL CULLEN 
: He has said that we should sell most of the schools. It does not matter who owns the schools he says as long as we have phonic teaching of reading and as long as we have performance pay. As long as Auckland Grammar can have 15000 students then it does not matter who owns the schools. That is Dr Brash’s approach to education. Dr Brash has said that it does not matter who owns the hospitals. [ 
Interruption 
] Yes I am to be given a senior honours tie in the next few weeks and I am terribly grateful for that recognition—somewhat delayed I must say—by about 41 years—by my old school but I am extremely pleased that it will do that at last. 
What is the National Party’s policy on the ownership of hospitals? Dr Brash said that it does not matter who owns them. He said it would be a good idea to realise that asset and to hand them into private ownership and for the Government to purchase services from those hospitals. Is that Lynda Scott’s policy on health? She has gone very quiet. She has had a sort of sudden attack of modesty on those particular matters. Is it the National Party’s education policy to flog off the schools? We want to hear some answers from National tonight not just a series of questions.