OnPoint by Keith Ng

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OnPoint: Election 2011: GO!

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  • Keith Ng, in reply to Neil Morrison,

    Which is part of Key's argument. We have a high level of debt and sooner or later we will have to deal with that or pay higher interest rates.

    Yeah, what Ben said.

    More specifically, our downgrade risk isn't due to net debt (public + private debt) in isolation, but the effect that it has on our current accounts (i.e. heaps of money going overseas to service our debt). Selling off productive assets reduces our debt and the interest payments, but if we lose investment income in the process (because we sold the productive asset), then we are no better off.

    Auckland • Since Nov 2006 • 530 posts Report Reply

  • Dismal Soyanz, in reply to Keith Ng,

    then we are no better off.

    may not be true if the productive asset is held by NZ residents as the investment income is not lost to NZ.

    Wellington • Since Nov 2010 • 168 posts Report Reply

  • Keith Ng, in reply to Gareth Ward,

    Please just remember everyone that Key has explicitly said he’ll sell these assets and only buy others with the proceeds. There is still arguments against that, but we aren’t just getting rid of assets here, we’re swapping them.

    Possibly the best argument against is that we aren’t increasing assets here, but capping our asset investment

    NO. In fact, that's the most deceptive part of the argument.

    Let's say borrowing costs 5%, current SOEs return 7%. Let's say the government is faced with a project that's expected to return 6.5%. Should they a) sell current SOEs to fund this project, b) borrow, or c) not do it at all?

    Think carefully about it.

    What if the project returned 10%?

    --

    The answer is that the SOE is a red herring. There is no reason to sell the profitable SOE simply as a source of cash when you can borrow for a lower cost.

    Borrowing for productive activities *is* capitalism. The level at which you borrow depends on your ability to pay it back, the opportunities available and the cost of borrowing. Arbitrarily capping it at some fixed level, and ignoring all other factors is fucking crazy.

    Auckland • Since Nov 2006 • 530 posts Report Reply

  • Keith Ng, in reply to Dismal Soyanz,

    may not be true if the productive asset is held by NZ residents as the investment income is not lost to NZ.

    GAH! The operative word is *sell*. The plan is to *sell* the asset. If NZ residents are to get the asset, they must buy it. In order to buy it, they need money. To get this money, they must sell something in NZ (in which case, who buys *that*?) or they must sell something overseas (in which case, we no longer profit from that overseas asset).

    Auckland • Since Nov 2006 • 530 posts Report Reply

  • Dismal Soyanz, in reply to Keith Ng,

    Not that I am disagreeing with you but what if the money used to buy the asset is cash?

    Wellington • Since Nov 2010 • 168 posts Report Reply

  • Keith Ng, in reply to Dismal Soyanz,

    Not that I am disagreeing with you but what if the money used to buy the asset is cash?

    There is no cash. Not unless it's physically under your mattress. If it's in the bank, the bank is already doing something with it. And if you go buy something with that cash, then the bank cannot do whatever they were doing with it.

    Auckland • Since Nov 2006 • 530 posts Report Reply

  • Dismal Soyanz, in reply to Keith Ng,

    then the bank cannot do whatever they were doing with it.

    Like mortgage lending? Or consumer debt financing? I don't see why the asset that is liquidated must be one that is "productive" (e.g. a loan to a company producing widgets).

    Wellington • Since Nov 2010 • 168 posts Report Reply

  • Kyle Matthews,

    There is no cash.

    Don't you hate it when people point out the realities of the world around you, and it makes no sense for it to be that way, and yet that's the way it is.

    Since Nov 2006 • 6147 posts Report Reply

  • DeepRed, in reply to Geoff Lealand,

    @ Christopher. Why do we bag the Herald? Because it is a monopoly news source in NZ's biggest market and because it is so damn sycophantic.

    In which case, why isn't the Commerce Commission batting an eyelid?

    And it's obvious who really profits from selling what's left of the family silver - MiniPlenty Holdings Inc.

    The southernmost capital … • Since Nov 2006 • 4060 posts Report Reply

  • Morgan Davie,

    But what if the mum and dad investors are the debt of borrowing responsibly and fiscal into funding our future? And constructing our assets? And great opportunities the exchange rate overvalued. Mum and dad investors fiscally responsible. Unaffordable and debt. Holding the country back? And much-needed new life to the stock market. Low-risk investment creating competitive cities and. The disciplines of competition? And mum and dad investors. And mum and dad investors. AND MUM AND DAD INVESTORS.

    Wellington • Since May 2008 • 36 posts Report Reply

  • Keith Ng, in reply to Dismal Soyanz,

    Like mortgage lending? Or consumer debt financing?

    That is productive for the lender (i.e. They make money out of it).

    I don't see why the asset that is liquidated must be one that is "productive" (e.g. a loan to a company producing widgets).

    Because we live in a capitalist society. Because our entire banking system exists to utilise every cent of capital that's available (to be precise, utilise many cents for every cent that's available).

    You really have to go out of your way to make sure that your money is genuinely idle. And if you did that, you probably aren't the kind of guy who buys shares in an SOE.

    Auckland • Since Nov 2006 • 530 posts Report Reply

  • Christopher Nimmo,

    I'm somewhat suspicious that this is a move being made to forestall Labour's plans for the government to get a lower dividend from the power companies (stop Labour from snaffling up the elderly vote).

    In any case, there's might be little point in talking about the virtues of a partial sell-off when National could well hand off the remaining 51% in short order.

    Wellington • Since May 2009 • 96 posts Report Reply

  • nzlemming, in reply to Geoff Lealand,

    Keith Ng for Minister of Finance, I reckon.

    Fuck that. Keith Ng for President!

    Waikanae • Since Nov 2006 • 1768 posts Report Reply

  • BenWilson,

    In any case, there's might be little point in talking about the virtues of a partial sell-off when National could well hand off the remaining 51% in short order.

    Word. If you're selling 25%, why not 100%? Once the entire debate boils down to the terms used by portfolio managers, without any consideration of the issue of control over the nation's actual destiny by targeting key infrastructure classes, there's no real argument against liquidating everything we own, if it's not looking profitable one day.

    Auckland • Since Nov 2006 • 8305 posts Report Reply

  • Dismal Soyanz,

    Ok. Now I think I understand your position. From a static point of view, every asset that exists right now has some form of return, other than money sitting in on-call accounts. [Note that even banks have assets with very low returns e.g. accounts with the RBNZ.]

    The problem with this perspective is that there is no way you can ever create (net) assets. What is missing is the dynamic element of agents receiving income from some source (exports, if we are looking at NZ as a whole in the current account context).

    Wellington • Since Nov 2010 • 168 posts Report Reply

  • Dismal Soyanz,

    I'm somewhat suspicious that this is a move being made to forestall Labour's plans for the government to get a lower dividend from the power companies (stop Labour from snaffling up the elderly vote).

    I would have thought anyone on a relatively low income. One problem though is whether not paying a dividend (or paying a relatively small one) necessarily means that retail prices would fall or at worst stay the same. Seems to me there is enough discretionary power within the generator/retailers to actually view the two issues (prices and dividends) quite separately.

    In any case, there's might be little point in talking about the virtues of a partial sell-off when National could well hand off the remaining 51% in short order.

    Which is hard to argue against. Given the poor economic rationale for the move, one is naturally drawn to the view that it is ideologically driven and is a means to softening up opposition to asset sales.

    Wellington • Since Nov 2010 • 168 posts Report Reply

  • Paul Campbell,

    I'm trying to get my head around the difference between the govt owning the shares and the income from them reducing the amount of tax that has to be extracted from me - and me owning the same shares and receiving the income - the question I'm trying to answer is "am I personally better off?" - it seems at a first hack at the problem I'm better off if the govt owns the shares because if I own them I have to pay tax on any income from them

    Another issue is that it does seem that the rich gain the most from the govt owning the shares as if the govt sold them and had to raise taxes to cover the income loss the rich would have to pay the lion's share of that increase ... and, well, aren't the rich generally the Nat's supporters - it makes no sense politically - unless the Nat's are depending on the short term cash from the sales to sort of patch up the budget for a year or so rather than fixing the tax system to actually cover the costs of running the country

    Dunedin • Since Nov 2006 • 2031 posts Report Reply

  • Stephen Judd,

    A consequence of partial sales no one (except Bryce Edwards) seems to be talking about is that they will help cement the corporate model under which state enterprises are managed.

    I expect it will be much harder to get a partly-privatised power generation company to investigate alternative generation methods, or encourage consumers to reduce consumption, or any other policy objective that isn’t strictly profit-related. Even the limited influence obtained by electing directors will be diluted. And the company certainly couldn’t be turned back into a government department without a great deal of pain and squealing.

    There seems to be this assumption that government can only ever own assets for the income they produce, rather than the policy objectives they can achieve. I don’t think that’s true at all.

    Wellington • Since Nov 2006 • 2917 posts Report Reply

  • DexterX, in reply to Keith Ng,

    I agree - it is phucking crazy.

    We are told that we need to sell power generation so that we can build more schools and roads and other things.

    Selling parts of the pie, wh8lst shrinking the pie, so that you can eat more of the pie doesn’t help grow the pie.

    This announcement by Key shows the Nats enjoyed being the govt for the last 2 years but haven’t got a clue on what to do next.

    Power consumers have been reamed hard by the NZ Govt, you can guess how much it will hurt when the Govt needs the same return they were getting from 100% off of their 51% and the other 49% of the “owners” want the same.

    Auckland • Since Nov 2006 • 1174 posts Report Reply

  • Keith Ng,

    The problem with this perspective is that there is no way you can ever create (net) assets. What is missing is the dynamic element of agents receiving income from some source (exports, if we are looking at NZ as a whole in the current account context).

    Yes there is - when you take something, invest labour and capital in it, make it better and sell it for a profit. That's how the economy grows. We create value all the time, just not in the act of selling shares.

    Auckland • Since Nov 2006 • 530 posts Report Reply

  • Keith Ng,

    I'm trying to get my head around the difference between the govt owning the shares and the income from them reducing the amount of tax that has to be extracted from me - and me owning the same shares and receiving the income - the question I'm trying to answer is "am I personally better off?" - it seems at a first hack at the problem I'm better off if the govt owns the shares because if I own them I have to pay tax on any income from them

    How much you benefit depends on how much money you have to buy shares. So basically, it depends on how rich you are.

    Auckland • Since Nov 2006 • 530 posts Report Reply

  • Neil Morrison,

    If, for arguments sake, there is no gain to be had through a partial sell-off then presumably it would make sense for the govt to buy all the Air NZ shares.

    Since Nov 2006 • 932 posts Report Reply

  • Dismal Soyanz, in reply to Keith Ng,

    Yes there is – when you take something, invest labour and capital in it, make it better and sell it for a profit. That’s how the economy grows. We create value all the time, just not in the act of selling shares.

    Selling for a profit to who? Given you said

    To get this money, they must sell something in NZ (in which case, who buys *that*?) or they must sell something overseas (in which case, we no longer profit from that overseas asset).

    then either they can create an asset in which the value created can be used to purchase the shares or they have to sell an existant asset - which is it?

    If you can make a profit to create an asset, then the same source of funds can be used to purchase shares in an existing asset.

    I agree that the partial sale does not add anything to the economic picture per se but I disagree that it can only be funded by selling down existant assets.

    Wellington • Since Nov 2010 • 168 posts Report Reply

  • Paul Campbell, in reply to Keith Ng,

    How much you benefit depends on how much money you have to buy shares. So basically, it depends on how rich you are.

    and that was what I was trying to get at with my second paragraph - the rich pay more tax than the rest of us - if tax rates go up because the govt loses the income from the SOEs they end paying more extra tax than most of us - unless of course the Nats decide to do something with the tax system to soak the middle class and protect the rich

    Dunedin • Since Nov 2006 • 2031 posts Report Reply

  • Tom Semmens,

    “…But Key and English are the reason we have this gigantic deficit. John Key’s perceived strength during the election was that his financial genius would transform the national economy, and English was supposed to be this shrewd, wise guardian of the government’s books. In reality they’re proving to be a pair of colossally irresponsible, incompetent fuck-ups…”

    Danylmc finally admits that voting for National in 2008 was a bad, bad idea.

    It seems to me that Key has been in power long enough now to start beliving his own P.R. He genuinely seems to think that because everyone loves him he can ram these sales through after winning the next election.

    But privatisation is one of the main reasons we got MMP as our electoral system in the first place. The polls at the moment point to Labour losing the next election’s race to form a coalition. But if MMP works as advertised, Mr. Key might find the day after polling that he hasn’t won the electoral mandate he is after either.

    Auckland • Since Nov 2006 • 1741 posts Report Reply

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