Monocolumn: It’s Back To The 80s With Massive State Sell-Off

After spending much of his first term taking a cautious approach – backing down on mining in state parks, for instance, after a public uproar – New Zealand prime minister John Key has finally raised a very unpopular idea indeed.

Monocolumn is Monocle’s daily bulletin of news and opinion. Catch up with previous editions here.

After spending much of his first term taking a cautious approach – backing down on mining in state parks, for instance, after a public uproar – New Zealand prime minister John Key has finally raised a very unpopular idea indeed. Key has promised to reduce national debt by selling up to 49 per cent of the government’s holdings in blue-chip power companies and the national airline, Air New Zealand.

The New Zealand government owns NZ$11.75bn (€6.5bn) worth of so-called “state-owned assets”, which are run on corporate models and return NZ$700m (€390m) a year in dividends. The float could return billions of dollars to the cash-strapped government, and a public float of such a size could rejuvenate the share market. But is it needed?

It’s certainly controversial – the assets are a relic of mid-20th century New Zealand, when it was one of the most tightly controlled and state-owned economies in the western world. In the 1980s, it became one of the most open, lurching from near-socialist control to a full-blown market economy, going further than many others in flattening taxes, removing welfare props and selling assets.

The country sold state forests, insurance companies, rail and telecommunications at fire-sale prices, until public resistance forced a halt in the 1990s. No politician has dared go near it since – in fact, the previous Labour government ended up taking an 80 per cent stake in a bankrupt Air New Zealand in 2005, and buying back the railways as well.

No longer. The small country’s emergence from recession has been sluggish – the treasury doesn’t expect the government’s books to return to surplus until 2014 or 2015 – and in January, Finance Minister Bill English revealed that the country is borrowing NZ$300m (€167m) a week to maintain spending. Worse still, Key and English’s last attempt at stimulating the economy – which cut the top rate of tax from 39 cents in the dollar to 33 cents and raised sales tax to 15 per cent last October – has done little more than put a dent in the government’s income as New Zealanders save, rather than spend, their tax cuts.

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