Written By: Marty G - Date published: 8:02 am, February 11th, 2011 - 45 comments

Categories: privatisation - Tags: brian fallow

Well, I think Brian Fallow has put the nails in the coffin of the Nats’ privatisation arguments. His column goes through each of the excuses that National has come up with for selling the family silver and none of them stack up.

“Reducing borrowing the easy, soft, cosmetic way by selling assets and shrinking both sides of the Crown’s balance sheet will make little or no difference to its net worth or its operating deficit. As long as we get a fair price we will be no worse off’ isn’t much of an argument for selling anything.”

Especially in the current economic environment, when we are unlikely to get a good price.

“It would reduce the Crown’s future interest bill (all else being equal) but reduce its future revenue at the same time. The net effect might be positive, or negative, but either way it is unlikely to be material in the context of a $70 billion budget.”

It would almost certainly be negative. Our power companies make returns in excess of the cost of government borrowing and any private buyer would need them to make higher returns than that too – only sovereign governments get to borrow cheaply, everyone else has to make a higher return on capital.

“Treasury advice recently released takes it as a given that in the case of enterprises operating in competitive markets (as those proposed for sale are) their efficiency and performance are likely to be lower under Crown than private ownership. “The commercial disciplines that come from investors risking their own money are difficult to replicate in the public sector.”

Is that thought-out advice or just brain-dead recitation of a quasi-religious belief?

But it is a fair bet that most of the shares in semi-privatised SOEs would end up being held by institutions like fund managers, iwi, the Cullen Fund, and overseas investors likewise entrusted with other people’s money. They can hardly be said to be “risking their own money”.

Indeed. In fact, the ultimate risk would still lie with the taxpayer, who would have to bail out the companies after they asset strip them itno the ground.

“The SOE model requires their boards to run the enterprises as if they were privately owned. Where is the evidence in the case of the energy SOEs that the boards have failed in that statutory duty?”

Nowhere. You have to realise that asset sales is rooted in ideology, not logic. That’s why the excuses that are presented for privatisation don’t stand up to any critique. In fact, Bill English is going around simultaneously saying that the SOEs current returns are too high and that privatisation will make them higher. Even Treasury admits:

“there is little evidence to suggest privatisation would significantly improve the financial performance of many of the SOE companies”.

But don’t these SOEs need capital to grow? Capital they can’t get from the Crown (and which they wouldn’t get from a partial sale, since the proceeds go to the Crown)? No. Again, Treasury:

“This investment is funded from the SOEs’ own balance sheets, whilst maintaining dividends, indicating that Crown ownership is not starving these enterprises of capital.”

Finally, Fallow addresses this argument that asset sales would be good for the stockmarket, which would supposedly then make it cheaper for companies to borrow. He just has to quote Treasury:

“We think the gains would be modest,”

And that’s from privatisation-mad Treasury!

There’s one final thing Fallow doesn’t address. That is National’s argument that the Cullen Fund or ACC could buy up listed SOEs.

Remember, the SOEs are government-owned and so are the Cullen Fund and ACC. So, National is saying ‘lets get parts of the government to sell its holdings in private assets to buy different parts of the government and the cash will go to the government, which will then spend it to fund tax cuts’.

Get me of this money-go-round, I feel sick.

Share this: Twitter

Facebook

