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Colin Craig says Air NZ selldown makes sense - but iffy on wider privatisation

Conservative Party leader Colin Craig says he supports the government's selldown of its Air New Zealand stake. But National's potential coalition partner remains dubious of its wider asset sales programme.

"The government bought a share holding as a temporary 'bail out' when airline stability was an issue," Mr Craig says.

The 2001 bailout saw the government pay $885 million ($1.25 billion in today's dollars) for 80% of the airline as it struggled in the wake of its failed Ansett venture across the Tasman.

Today, "Returns are modest and the stability issue is resolved so liquidating the holding makes sense," Mr Craig says.

But support for the Air NZ selldown does not translate into wider support for National's partial asset sales programme.

"Apart from the question of mandate -  less than 50% party vote for asset sales last election- there is an issue of best use of money," Mr Craig says.

Beyond the basic right wing principle that private ownership is better than state ownership, Prime Minister John Key has argued that while power companies pay dividends, using partial asset sale proceeds to pay down government debt delivers the best fiscal outcome.

Mr Craig disagrees with the PM on the best use of money argument, and the timing of the sales He also worries that loss of dividend income to the Crown from the partially privatised power companies - a line that could come straight from a Labour, Greens or NZ First manifesto.

"Setting aside AirNZ for a moment the other assets returned to us the taxpayer on average just over 13.2% return on equity, 2007-2011. Our rate of borrowing is around 4%. I am not supportive of selling 'cash cows' in a difficult market," he says.

"My own business practice has always been to retain cash cows and divest myself of assets that have small returns. It works very well long term - surely the government should be thinking long term

"I for one am also not excited about the additional future taxation that will be required to cover the loss of income from these assets."

Another wrinkle, as voting papers are mailed for the Citizens-Initiated Referendum on assets sales: the Conservative Party leader want referenda results to be binding if 66% of those who vote are in favour of a proposition. Prime Minister John Key says the private asset sales programme was on the table at the last general election.

Mr Craig made his comments in a new round of responses to NBR readers' questions. Monday night, he added replies to questions he ran out of time for Friday.

See the whole session - which also covers his controversial land banking comments, teaching creationism in schools and possible coalition with NZ First - at ASK ME ANYTHING: Colin Craig.

Comments and questions
17

Colin Craig and his party are insignificant and unlikely to gain any traction with voters - unless of course National are so stupid they gift the Conservatives votes out of their own kitty. One would suggest that this strategy would be a dumb one for National as they may well need every vote they can gather to stay in power.

Best thing National can do is finally come up with some legacy policy and also back down on compulsory superannuation and the retirement age - that would have far more long term benefit to NZ Inc than selling off assets.

John Key has already hinted at a cup of tea with Colin Craig that could see the Conservative leader win the new seat due to be created in Auckland. And if the Conservatives vote stays steady at around 2.85%, Craig will bring three other MPs in with him. That's significant in MMP terms - which are the only terms.

Key has said he'll resign if he breaks his pledge not to lower the age of Super, so it seems a non-starter for the Conservatives to put that on the table (the Conservatives policy is for a gradual lift in the retirement age).

Goodo

Who is the guy bringing with him - his Mum dad and brother?
It will be hardly anyone of quality or whose contribution to the Government will add any value.

You say the Conservatives will gradually increase the retirement age

I say if we had compulsory super and the Government had of continued their contributions they could have sold Air NZ, Meridian and Mighty River to NZ Super - at least ownership would have stayed in NZ and future dividend flows would have been realistic - not driven by greed

It is not up to the govt. of the day to run NZ super, so in spite of what you think they'should of' [sic] done, they couldn't.

I would say that the media exposure Colin Craig has had to the public in the last year would easily double his vote to above the 5% level.

"My own business practice has always been to retain cash cows and divest myself of assets that have small returns. It works very well long term - surely the government should be thinking long term."

That's a really confused statement by Craig.

Of course his business wants to retain cash cows - but this is the government, not a business.

The government needs to generate money from partial asset sales to pay down NZ's rampant debt.

And if it's good for the Crown to own cash cows, why not nationalise Fonterra and Fletcher Building and Telecom too?

You must be kidding yourself to think that Government is not a business. Using your examples, it is not essential for NZ inc to use Fonterra and Fletcher building.

However Electricity and Telecommunications are some of lifes essentials, which under private ownership charge unabated; as politicians have shown they are too weak to regulate prices to where they should be.

Telecom being an example; with no reinvestment, hinders the development of society.

Fletchers being another example, where NZ building costs some 30% more expensive than Aussie; yet our labour is cheaper. Allow monopoly suppliers to charge what they like, and you end up stalling the economy.

Unless you want to become a slave, which will be a byproduct of wealth concentrated in a few hands, I suggest to change your thinking.

Fonterra is not available to be nationalised. Fonterra is privately owned by its farmer shareholders. To sell it would require a 75% vote from owners. That aint gonna happen!

Furthermore, Fonterra's dividend is only a small fraction of its total pay-out. I would not buy Fonterra shares as an investment.

Craig is not working in an ideological vacuum. If he was he could put the true Conservative position out there.

The National Party has betrayed conservatives with the party's weak submission to left wing arguments on government ownership of business.

It is not for Craig, an under-resourced political minnow to right this wrong. The blame for the lack of a true conservative plan on privatisation is mainly National's.

Selling an asset returning 13.2% in order to repay debt costing 4%, this National government must have rocks in their heads.
Bring Colin Craig in as soon as possible.

Thanks Steve - or should I say David Cunliffe.

Consider that the government owes nearly $80 billion (http://www.treasury.govt.nz/government/financialstatements/yearend/jun13/010.htm).

That's a very large amount to be paying 4% interest on (or what ever the interest rate rises to in future).

There is a very good reason that a stock returns 13.2% during good years - it is because it is a risky investment. Unless your business model is to invest in risky investments it therefore makes sense to sell the investment, accidentally acquired, when it is at a high.

I would suggest that governments have no business investing the funds entrusted to them by citizens in risky investments. If citizens wish to invest then the should be able to do so of their own accord - not under threat of imprisonment.

Spot on - unless the Government is running a Taxpayer hedge fund, of course, which it isn't.

The financially illiterate commentariat always points to some kind of value loss to the Government from partially privatising SOEs, which is absurd.

They point to a miserable flow of dividends and ignore billions in cash up front; they believe government can arbitrage value out of going long stocks and short its own debt, argh.

You must have a fundamental misunderstanding of basic mathematics, not to work out that if an investment is generating a higher return than the cost of borrowing, it provides positive cashflow to the government/taxpayer.

Sure, theirs risks in any form of business, but way less risk for key infrastructure; like electricity generation. key being the operative word!

Your making an assumption that those rate differentials stay that way. It may not be very long before its completely the other way around.

Currently interest rates are all artificially low, very low.

Adjusted for inflation over 11 years since 2002, the original $885m the govt invested would now be worth $1.179b, compared to the $1.322b worth of Air NZ shares the Government currently holds (up until yesterday)

That's a 12% increase over 11 years - about 1% per year. It's certainly gone up faster than that lately, but that was from a low base because it previously went way down.

In the last year Air NZ has paid dividends of 3 and 5 cents. A total of 8c or 5% against a share price of $1.65.

The Power companies and air NZ are being half sold off to appease Christine Lagarde and the IMF, and suggest that English and the Nats are fiscally responsible. NZ Post and TV1 might actually have been more usefully sold but would return little and lose votes.
The real criticism should be for the late 1980s and Richardson sales that should have been used in part for a social dividend and been sold as a public issue. But Roger Kerr didn't favour wide distribution of sales to the public, because in my view the Rountable in their arrogance thought it better NZ be nothing than a mid sized farm, so they were left trading in real estate which means were hardly capitalists.