PM reiterates asset sales plan, injection of investment

John Key speaks to reporters shortly before delivering his speech

Prime Minister John Key has promised this year’s sell-off of two energy companies will provide a “shot in the arm” for capital markets.

He has delivered his opening statement to parliament today.

In it, Mr Key reflects on National’s achievements last year but focuses largely on what is planned over 2013 and beyond.

He has repeated the government’s priorities this term:

  • To responsibly manage the government’s finances.
  • To build a more competitive and productive economy.
  • To deliver better public services to New Zealanders, within the tight budgets the government is operating under.
  • To support the rebuilding of Christchurch.

Mr Key says the government is still on track to return a modest $66 million surplus in 2014-15, having set an operating spend of $800 million in this May’s Budget and a zero allowance for capital spending.

“Instead, new capital spending will be funded from reprioritising existing capital and, in particular, the proceeds from the government’s share offer programme, which is expected to raise between $5 and $7 billion in total. That is $5 to $7 billion the government would otherwise have to borrow.”

He says the government is still planning to sell up to 49% of Mighty River Power, subject to the Supreme Court hearing into the Maori Council’s water rights’ claim, which is being heard on Thursday.

It also plans to proceed with another IPO later this year.

“The government’s share offer programme is designed to give New Zealand savers an opportunity to invest in big New Zealand companies, and to bring those companies the benefits of private sector disciplines and increased monitoring.

“The share offer programme as a whole will be a shot in the arm for New Zealand’s capital markets.”

Mr Key says New Zealanders will be at the front of the queue for shares.

“But in general we continue to welcome foreign investment in New Zealand. That’s because overseas investment adds to what New Zealanders can invest on their own.”

Investment needed

He says overseas capital can make things happen which would not otherwise happen – grow business, create jobs and pay wages.

The government plans to secure more “high-quality” trade agreements with other countries as he believes that will encourage more investment.

“Investment is crucial to building a stronger economy. In contrast, and through poor policy decisions, the New Zealand economy lost competitiveness in the mid-2000s, when growth was built on debt, consumption and large increases in government spending.”

Mr Key says the government is currently negotiating free trade agreements with 11 countries in the Trans-Pacific Partnership, including the US, and separately with a number of other countries including India, Russia and Korea.

“TPP negotiations are well advanced and negotiators have been asked to try to conclude the broad outline of an agreement by October this year.

"This year we will also begin negotiations for a new 16 nation regional free trade agreement – the Regional Comprehensive Economic Partnership – that involves the 10 Asean countries including China, Australia, India, Japan, Korea and New Zealand.”

Affordable housing

On the hot issue of affordable housing, Mr Key says National is planning to build more than 2000 houses over the next two financial years and wants to work with local councils on “underlying issues” which are driving up land and building costs.

Alluding to housing plans from the Greens and Labour, he says other proposals which do not do anything to fix the actual cost of building will either “fail miserably, deliver dwellings that people don’t want to live in, or require massive taxpayer subsidies”.

He says 2013 will be a challenging year but assures parliament the country is on the right track.

“The government’s economic programme is laying the foundations for a stronger economy, sustainable jobs and higher incomes. It will leave New Zealand well-placed to take advantage of the main opportunities available.”

bcunningham@nbr.co.nz

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16 Comments & Questions

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How does the sale of publicly owned assets to shore up annual accounts, when the annual return from those assets far outweighs the current (and likely future) cost of capital connect at all to "...responsibly manage[ing] the government's finances"?

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It's hard to argue this. If the companies remain unlisted, their only return is their dividend. The rate of return being the dividend / unobserved market price if they were listed. You'd expect this to be about 2.5% to 3.5%. The government's cost of capital is the opportunity cost of the best foregeone expenditure, be it a new school or a new hospital. Or all the poor children we apparently have. Now, I'm sure these spending streams are higher hurdle rates than 2.5% - 3.5%...

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One could argue that the government's cost of capital is the opportunity cost of each and every taxpayer.

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Correct

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The government would be in credit much sooner if $30 billion wasn't being spent in Christchurch. The earthquake didn't cause that much damage. Most of the damage and destruction was caused afterwards by overzealous civil defence, demolition companies and the council. From only a few hundred damaged buildings we now have thousands of destroyed ones. The city's heritage is being needlessly - and often illegally - destroyed. And the whole country is footing the bill.

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But its not a shot in the arm. The country will not be on the right track until we start acting intelligently (like Iceland did). This vaccination against our very sovereignty, this shot in the arm, is a downward spiral.
http://www.globalresearch.ca/why-has-iceland-experienced-a-strong-econom...

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Global Research, bringing us great stories such as "9/11 Troof".

http://www.globalresearch.ca/the-911-plan-cheney-rumsfeld-and-the-contin...

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An excellent plan. Recycle the capital and really build a better country.
Should have been done 20 years ago.

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It's a shot in the head to sell the "free power forever" companies using hydro and geothermal. Sell the coal powered assets instead.

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Any shewd businessman will tell you, you don't sell revenue-producing assets in order to improve your business, especially to turn around and spend the he proceeds on non-returning ones. What a bunch of economic muppets.

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Selling these assets has nothing to do with improving the nation's finances, and everything to do with political ideology. It is madness.

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Exactly. Ideology that says let's manage our economy to peak efficiency to benefit us all, rather than follow the emotive bleating about 'saving the family silver' and similar cliched claptrap.

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So the reason we risk losing our prime assets is because of (the professed) past poor decision making?
That's not good enough.
It's another extremely poor decision by a govt that feels the people will never hold it accountable (and responsible) for the economy or for their poor (past and present) decisions.

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They aren't "prime assets" they are depreciating assets with huge Opex. The MOM model will bring in a much-needed influx into the stock exchange, plus will give those SOEs more of a commercial perspective being partially privately owned.

The cash received from the partial sale can then be utilsed elsewhere for our "prime assets" - the children and their learning... But you already knew this and have had this explained to you before. Don't let facts interfere with your dogmatic ideology and socialist viewpoint.

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They had better believe that the next generation WILL hold them accountable. They can all laugh now, but when enough is enough they will know all about it.

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These comments are unbelievable. Why on earth is the government running companies ?
Further , when times are tough good companies sell their jewels in rider to keep trading
It is a nonsense to fret about selling these companies as to 50%
When the funds are so desparately needed
Nobody is fretting about Cullen's toy train set. They should be

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