Budget 2011: Fast-growing savings pool can afford SOEs

The rapid growth of KiwiSaver and other local pools of savings means the local market will easily be able to absorb selldowns of major state-owned enterprises, Tower Investments chief executive Sam Stubbs  says.

Today’s budget officially announced the government’s plans to partially privatise the four big state-owned energy companies (Mighty River Power, Meridian, Genesis and Solid Energy) and reduce its stake in Air New Zealand.

The selldown programme will raise $5 billion to $7 billion over three to five years.

Mr Stubbs said raising that amount from the local market would have been a challenge a few years ago but things have changed.

Past state asset sales have caused controversy after companies ended up foreign owned.

“This time it’s very very different,” Mr Stubbs said. “There are three huge pools of saving that weren’t there last time.

“The first is iwi, the second is KiwiSaver and the third is the New Zealand superannuation fund.”

He said thanks to KiwiSaver and the NZ Superannuation New Zealanders have about $25 billion that wasn’t available five years ago, and the amount of money in KiwiSaver is forecast to hit $25 billion by 2015.

“In the context $5 billion to $7 billion is not a lot when you match that up to potential demand.”

Mr Stubbs said the companies being lined up for part privatisation have a number of attributes that should make them popular with KiwiSaver schemes, such as their large scale and the fact power companies are relatively inflation-proof.

“On the face of it they’re very attractive assets but the devil will be in the detail.”

Mr Stubbs also played down the impact of today’s KiwiSaver changes, saying that KiwiSaver will be a bit smaller in the short term but in the long term it will actually get bigger thanks to the increased minimum contributions.

“We’ll be managing a bigger pool of money in five years time,” he said.

“This is a ringing endorsement that KiwiSaver is the de facto savings vehicle in New Zealand.

“The public can start to have confidence that while individual governments may make changes, both major parties and the Greens are committed to it.

“I think this was the last opportunity for the government to do a serious u-turn on the scheme.”