NZ Elections Warm Up

Both National and Labour are obviously thinking about the next election as battle lines are being drawn up.  On one hand National is signalling a sell-down of profitable SOE’s to ostensibly to reduce debt.  Labour has flagged the idea of no tax on the first $5k of income.

Both of these approaches are blatant vote buying gimmicks and at last National is reverting to type. Many of us have expected asset stripping and a hollowing out of government.

There is merit in taking stock of what a government should do but really both National and Labour must think they are dealing with a bunch of idiot voters.

In very simple terms a partial sell-down of SOE’s would be a way to reduce government debt but it would also lose dividend income from those assets. On the face of it, encouraging NZ investors to own shares in local utilities seems like a good idea.

But hang on – don’t we already own those companies as they are tax payer funded. If the National government wants NZ families to own NZ assets more directly why not set up something like the Consumers Trust that owns most of Vector . (worth approx $1.5 billion)

“The AECT’s key asset is a 75.4% shareholding in Vector. As the major shareholder in Vector and through our two Trustee directors on the Vector board, we make sure we fulfil our responsibilities to beneficiaries by maintaining proper oversight of Vector’s operations.”

That is not going to work though because John Key has obviously done deals in the back room to sell down to the usual suspects – that is the usual practice for right wing parties.

And – more to the point. There is a large tax cut to fund for National voters (mostly.)

Reducing debt is also makes a certain amount of sense but both National and Labour have been stung by this before. And as Bernard Hickey calculates

“The theory is that for the sale to make immediate sense then the dividends given up would have to be less than the interest costs of the debt not incurred by selling the asset.”

…In total, the four SOEs potentially up for sale generated total dividends last financial year of NZ$732.5 million and shareholder (government) equity stood at NZ$9.642 billion. This implies a combined (and very raw) dividend yield of 7.6% last year.

Does this compute?

Yet the government is currently having to pay around 5.5% for the new debt it is selling, mostly offshore…

So on the face of it the government is a net loser by selling half of these state assets and avoiding having to raise new debt.

The Treasury will no doubt do a much more sophisticated analysis, but this is a question the government and voters will have to ask in a very hard way before deciding to go ahead with asset sales.”

OK so the government really does think voter are just another mark waiting to be fleeced. John Key has a chance here to show real leadership instead relying on yet another shell game.

The rough calculation on National’s tax cut was reported as something like $15b (over 4 years) and the Labour no tax on first $5k is $1.4b (per year?) so those amounts are hugely different in scale and $15b is a monkey on Key’s back.

There is probably a case to be made for selling down Air New Zealand but I won’t be buying any shares. Prices of aviation fuel will increase much faster than they can get smarter planes into service so a sell down there is better now than later.

I’m not sure what 24% of Air New Zealand is worth. A quick look at their share price says market cap is $1,551,284,628 and so even if it could be done there is only $300 -$360m there which is loose change on an annual government spend of $70b. (leaving aside that share prices change.)

And Phil Goff. Its time for him to step aside and let Cunliffe have a go. The party would explode but as as the cliche goes “its better to burn out than to rust”.

Bring back the Values Party. And I’m only half joking. If Labour doesn’t wake up we will need a revived Green party or something new in case Winston does his Rip van Winkle act one more time.

Both Labour and National need to rethink the green issues because we all need to do that.

Update: On Feb 2 – the PM announced that NZ election is on November 26 after the Rugby world cup – when everyone would be feeling good about that event and would hopefully vote for him. Actually he didn’t quite say that but this is clearly an afterglow election with a long lead time.