OnPoint by Keith Ng

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OnPoint: Election 2011: GO!

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  • Dismal Soyanz, in reply to 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.

    Not really. If this was automatically true then you would never see shareholder structures with significant/controlling minority shareholders as it would be better for them to always have the entire shareholding.

    What the partial sell-off does sound like is almost the opposite - trying to push various SOEs into a model that is more typical of publicly traded companies by mimicing a diversified shareholder structure.

    Wellington • Since Nov 2010 • 299 posts Report Reply

  • Lilith __,

    Keith, will you hurry up and run for Parliament already? Your country needs you.

    Dunedin • Since Jul 2010 • 3490 posts Report Reply

  • Andrew C,

    This may actually be worse than paying interest on debt. Bernard Hickey looked at the SOEs being singled out and found they had an average dividend yield of 7.6% – considerably more than than the 5.5% interest the government is paying on new debt.

    One of the financial commentators on the Business Hour Larry Williams ZB show, from memory either Fran OSullivan or Brian Gaynor, said the current return on capital were around 2%. This is quite a way from Hickeys 7.6%.

    No idea who is more likely to have the right figures.

    Auckland • Since May 2008 • 149 posts Report Reply

  • Dismal Soyanz, in reply to Andrew C,

    Return on capital and dividend yield are quite different beasties. In one way the easiest way to think about it is that the dividend yield does not take into account the cost of buying the share that generates the dividend stream whereas the cost of capital does.

    Wellington • Since Nov 2010 • 299 posts Report Reply

  • BenWilson,

    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.

    Oh I'm damned sure it's going to be a lot closer than current polls suggest. You only get one term where you can blame everything on the previous government. So far absolutely everything they have come up with has actually been a consequence of the energy crisis and the global financial meltdown. Labour is only one hardening-up away from a massive poll bounce.

    Auckland • Since Nov 2006 • 8737 posts Report Reply

  • Andrew C, in reply to Dismal Soyanz,

    Return on capital and dividend yield are quite different beasties.

    OK, thanks for clearing that up.

    As im not much of a financial person, could you give insight into which would be the more appropriate figure to use in this case?

    Auckland • Since May 2008 • 149 posts Report Reply

  • Dismal Soyanz,

    whereas the cost of capital does

    return on capital, that last line should read.

    Depends really on the question you are asking. If you were a company looking at what projects to invest in, you would use return on capital. If you were a cashed up investor looking at various equity investments, dividend yield. But neither of these lends itself to analysing the partial sale in terms of answering the question "Is it worth it?"

    Part of the problem here is that although we know the types of assets that could be sold, we don't know anything about the assets that are going to be funded. For example, if it is for social infrastructure like schools, how do you measure the return on a school? So while we know what the sale of the assets might do in terms of lost revenue to the consolidated fund (and thus the revenue that goes to the ultimate purchaser), it's very hard to put a value on the benefit of the alternate investment.

    If you are asking how much would the asset sale cost then the answer would be along the lines of the sum of expected dividend stream (ETA: obviously times the %age of shares sold), discounted over time.

    Wellington • Since Nov 2010 • 299 posts Report Reply

  • Neil Morrison,

    What the partial sell-off does sound like is almost the opposite – trying to push various SOEs into a model that is more typical of publicly traded companies by mimicing a diversified shareholder structure.

    Why “opposite"? Isn’t what’s proposed for the power companies the same as Air NZ?

    But I’m curious, if a partial sell-off of the power companies would have a net negative effect then surely, by the same logic, the govt buying all the Air NZ shares would have a net positive effect.

    Since Nov 2006 • 932 posts Report Reply

  • BenWilson,

    My own gut feeling on sales of assets is that they would only make sense for assets that the government really had no business being in. For instance, they could own a chain of fashion stores. If so, I'd actually rather they didn't, that the business was sold and the proceeds used elsewhere. If it was also possible to shoot the Minister who purchased them, the bullet could be paid for from the sale.

    It's still quite hard to think of a clear underlying philosophy on why they shouldn't own fashion stores though. Keith spoke of natural monopolies as things they should be in, but I think that's only part of the story. Schools aren't natural monopolies, but I think the state should own a lot of them, just so that everyone has access to free school education if they want it.

    Also, there's plenty of unnatural monopolies that are harming our economy. Our supermarket chains, for instance. There's a case for government taking a controlling stake, just so that the profits from our skyrocketing food costs are returned to us. I'm not actually suggesting this, just pointing out that it's not potential for monopolization that is the sole factor in whether we should be owning something as a nation.

    Auckland • Since Nov 2006 • 8737 posts Report Reply

  • Lilith __,

    Given that the sale of power-generating companies is likely to make electricity super-expensive, can the Opposition revive the "Cold Showers!" slogan used so successfully by the Nats in 2008?

    Dunedin • Since Jul 2010 • 3490 posts Report Reply

  • DeepRed, in reply to BenWilson,

    Also, there's plenty of unnatural monopolies that are harming our economy. Our supermarket chains, for instance. There's a case for government taking a controlling stake, just so that the profits from our skyrocketing food costs are returned to us. I'm not actually suggesting this, just pointing out that it's not potential for monopolization that is the sole factor in whether we should be owning something as a nation.

    Or taking a leaf out of America's Sherman Anti-Trust Act. Mass media is another area where unnatural monopolies have emerged.

    So far absolutely everything they have come up with has actually been a consequence of the energy crisis and the global financial meltdown.

    Sticking heads in the tar sand, methinks?

    The southernmost capital … • Since Nov 2006 • 4431 posts Report Reply

  • Stephen Judd,

    It’s still quite hard to think of a clear underlying philosophy on why they shouldn’t own fashion stores though.

    If there were clear policy objectives that could be met by doing so, then there would be an argument for owning fashion stores. That's why we own a bank, for example. The fashion stores idea strikes me as wrong basically because I can't think what important policy problem that would solve.

    This relates to my earlier comment about private ownership and the corporate model making it hard for state operations to implement policy goals. To me, it is the extent to which state ownership enables policy that justifies that ownership. When we neuter the state's ability to direct the governance of an operation, why then sure, what's the point of the state owning it? People who believe government is intrinsically bad also agree with this point, and I believe that this is the ideological base for the right's love of asset sales, and why the economic justifications don't add up.

    Wellington • Since Nov 2006 • 2977 posts Report Reply

  • Christopher Dempsey, in reply to Geoff Lealand,

    @ Geoff - my point about bagging Granny is simply why waste all the energy pointing out the behaviour of Granny, which we know will never change? Surely one aim of criticizing behaviour is to change behaviour, and given the screes of words written about Granny Herald (within PA, and elsewhere), she's plainly and clearly hard of hearing and/or deaf, and hasn't visited an audiologist in decades, and doesn't have a hearing aid.

    Could we not simply just say a few words that instantly everyone knows refers to the synoptic, duplicitous, and clearly irrational and non-fourth estate behaviour of the Herald? Something like, oh, USIREBOH (USual IRrational non-fourth Estate Behaviour of (the) Herald)?

    That way we could perhaps focus on the times when Granny does get it right - which does happen, from time to time, but we can't deny they do happen. When they do shouldn't we celebrate this?

    Parnell / Tamaki-Auckland… • Since Sep 2008 • 642 posts Report Reply

  • Matthew Poole, in reply to Keith Ng,

    QV – authoritative services seems like a kind of natural monopoly too, but I haven’t given it too much thought.

    Given the subtle corruption of the ratings agencies leading up to the GFC, I would call valuation of property a service too essential to be trusted to the private sector. Introduce competition, and suddenly there's scope for ratings to be unreasonably favourable just to avoid having the client take their business elsewhere.

    The pit from whence crawl… • Since Mar 2007 • 3934 posts Report Reply

  • Lyndon Hood,

    Case studies: Goff throws around numbers on the contact energy sale.

    Also, if nobody else has said it, here's Gordon C from yesterday.

    Wellington • Since Nov 2006 • 1096 posts Report Reply

  • Sacha, in reply to Dismal Soyanz,

    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).

    That's what I was saying earlier - there's no focus on the income side of the ledger in Key's public pronouncements so far about this. And you do need to consider both to know whether it's a good idea.

    This government has a dangerously weak understanding of sovereignty and of governance rather than management. You've seen that play out in their actions with Auckland and Canterbury's regional democracies, for instance, and their abject unprincipled cronyism in many decisions.

    Having said that, the return on extra investment in early childhood education is so high that if the government were proposing to sell off stakes to fund *that* it would make the opposition's job harder.

    But my main objection remains the sad lack of ambition in hocking some of the family silver to pay for dinner. It's forked.

    Ak • Since May 2008 • 16996 posts Report Reply

  • Sacha, in reply to Matthew Poole,

    Given the subtle corruption of the ratings agencies leading up to the GFC

    Including the geniuses threatening the credit downgrade that trader Key is jumping to avoid.

    Ak • Since May 2008 • 16996 posts Report Reply

  • Sacha, in reply to Paul Campbell,

    the rich pay more tax than the rest of us

    No, they don't. I'll leave that one up to Keith or others. Been tackled here many times in the past, but the amount of dodging is striking.

    Ak • Since May 2008 • 16996 posts Report Reply

  • Richard Llewellyn, in reply to Andrew C,

    Andrew - the attached Crown Monitoring Performance report is one source of the SOE performance. Not sure of the accuracy, but it does differ from the figures quoted by Bernard Hickey, and is closer to the average 2% return you had heard, comparing quite unfavourably to the top NZX companies over the same period.

    That said a well-run company is a well-run company, regardless of whether it is state owned, publicly listed, or privately owned.

    Mt Albert • Since Nov 2006 • 399 posts Report Reply

  • Sacha, in reply to Lyndon Hood,

    Also, if nobody else has said it, here's Gordon C from yesterday.

    Thanks. Worth a read. And concise.

    Ak • Since May 2008 • 16996 posts Report Reply

  • Matthew Poole, in reply to Sacha,

    the rich pay more tax than the rest of us

    No, they don’t. I’ll leave that one up to Keith or others. Been tackled here many times in the past, but the amount of dodging is striking.

    And even if they don't dodge, is paying more tax inherently bad? If I get paid six figures a year, I have more flexibility to structure my expenses than someone who gets paid, say, $50k. Or $40k. Or those poor bastards who're trying to raise a family on the back of two, or three, minimum-wage jobs.

    Saying "but the rich pay more tax" carries the implied message that paying more tax is a bad thing. Given that income disparity has bad outcomes for everyone, not just the poor, surely it's in the interests of the rich to pay more tax to allow for quality services to the less well-off and help redress some of the imbalances?

    The pit from whence crawl… • Since Mar 2007 • 3934 posts Report Reply

  • Matthew Poole, in reply to Richard Llewellyn,

    That said a well-run company is a well-run company, regardless of whether it is state owned, publicly listed, or privately owned.

    As has been said many times, it wasn't the wholesale flogging-off that improved Telecom's performance, it was turning it into an SOE.

    The pit from whence crawl… • Since Mar 2007 • 3934 posts Report Reply

  • George Darroch,

    Thanks. Worth a read. And concise.

    He always is. Gordon and Lyndon both deserve columns at a major newspaper, or at least regular slots. I'm sure there's a market for clear-headed analytic commentary. In the meantime, we'll just keep on Scoop'n.

    The People's Republic of … • Since Nov 2006 • 2136 posts Report Reply

  • George Darroch,

    those poor bastards who’re trying to raise a family on the back of two, or three, minimum-wage jobs.

    The disgustingly discriminatory secondary tax rate still applies, right? If there's any tax that slugs the poorest, it's the one that means the person struggling to pull together 30 hours a week from two minimum wage jobs pays higher effective rates than someone earning large multiples of her income.

    The Economist looked at New Zealand's taxes in 2006, after six years of Labour government ("The case for flat taxes" April 25 2006). They found that because of the low levels of progressiveness, tax exemptions, and the high level of GST, only the top 10% paid significantly more than they would have under a 25% flat tax system., and only the lower 10% paid less. With the recent increase in the flat tax (GST), and tax cuts to the top brackets, I'm sure those results would be largely replicated.

    (This does not count after-tax redistribution of income and public/private-goods, which is another thing entirely)

    The People's Republic of … • Since Nov 2006 • 2136 posts Report Reply

  • Richard Llewellyn, in reply to Matthew Poole,

    You may well be correct Matthew - just as I am sure there are good examples where the reverse is true, I was just pointing out that different ownership models are not, as far as I am aware, necessarily correlated with good performance (in fact, if I've read it right, the Crown monitoring report is quite interesting in that regard). But happy to be corrected if I'm wrong.

    As to what is a desirable or preferable ownership model from a community and national asset perspective, well thats another matter where political and ideological battle lines tend to get drawn, and I'm not game enough to get into that :)

    Mt Albert • Since Nov 2006 • 399 posts Report Reply

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