How to make $20 billion and save $180 million
Strap yourself in. We are about to show in 600 words how the government can save $180 million a year and greatly reduce its financial risk. There are no adverse impacts and no political downside.
There are no job losses; $20 billion is knocked off government debt; and the need to sell shares in state-owned enterprises eliminated.
Besides, I’m ambivalent about the government’s part privatisation programme. All government businesses should be privatised, not just a bit of only a few.
The reason is simple: politicians suck at running them. Politicians don’t add value as shareholders – they flush it away.
It’s not that politicians are stupid. Far from it. They are clever and hardworking.
But they’re clever and hardworking at chasing votes, not shareholder wealth. Given the choice between 100,000 votes and $100 million in shareholder value, politicians will take the votes. Clearly.
Selling bits of government businesses for a bit of money won’t make much difference to the government accounts and next to none to the economy. Privatising all government businesses would shift the economy up a gear.
The government has $20 billion odd sitting in the New Zealand Superannuation Fund. It serves no public purpose. It changes the future cost of super not one bit.
The fund is properly and transparently run. It has done much better than I had ever hoped. The board and the management have done a bang-up job.
The fund’s problem is politics. The government recently directed the fund to stick 40% of its investments into New Zealand. That’s costly and reckless – but good for votes. That political interference will continue and get ever more risky and costly.
The fund has had good returns. No complaints there. It has earned $6.91 billion since its 2003 inception and paid $2.31 billion in tax. The pre-tax return is 7.65%.
The government can sell the fund for $20 billion and still collect the tax. Doing so would save $180 million and rising a year.
How? Well, the Treasury estimates the long-term nominal interest rate on government stock at 6%. The fund is only returning the government net of tax 5.1%. That negative margin is costing the taxpayer $180 million a year.
Selling the fund would only sell the after-tax return: the government would still collect the tax on the 7.65% pre-tax return.
And paying off $20 billion of debt is risk free. Running a super fund is risky.
Selling the New Zealand Super Fund would lose no jobs and would raise twice the money the government’s hotly contested part privatisation programme is supposed to raise.
The fund was always a dopey idea. It also forces New Zealanders to invest in toll roads in Australia and North America, Zurich airport and Samsung Electronics. Those investments alone total half a billion dollars.
The fund taxes New Zealanders hard to build roads in Australia, hotels at Zurich Airport and to fatten further Samsung Electronics. I suppose it could be justified if the fund was making money at no risk. But compared with paying off debt the fund is costing big money and is highly risky.
The fund does invest in New Zealand. It’s got $70 million in SkyCity Entertainment. It’s astonishing really. There’s a huge hue and cry over the government’s “conference centre for pokies” deal. Luckily for the government New Zealanders don’t know their taxes are helping to fund the pokies through the New Zealand Super Fund.
Sell the fund. That would save the tax on newspaper boys 50 times over.