Christmas delivers more indigestible goodies

Santa’s bag of goodies is already over-flowing with goodies that can only lead to pre-Christmas intellectual indigestion.

Here’s a quick run-down of the week so far:

• Government reveals poor performance of its 45 companies and commercial entities

• Government reveals issues for constitutional review

• Government further tightens rules on foreign land ownership

• Retirement Commission urges changes to pension entitlement

• Law Commission wants independent assessments of MPs’ perks

• Deloitte reveals parlous state of the wine industry

• NZIER examines business impact of Fonterra

Most have significant implications or valuable information. But the doozy is the Crown Ownership Monitoring Unit’s 100-page report on state-owned enterprises, Crown research institutes, managed investment funds and some partly-owned airports.

Also included are the likes of NZX-listed Air New Zealand, KiwiRail and New Zealand Post.

The most damning conclusion is also the easiest to find (page 21):

We have compared the dividend performance of a portfolio of Crown-owned companies (the seven largest SOEs plus Air NZ) with a portfolio of NZX companies (the top eight companies by market cap).

The aggregate equity of the two groups is approximately the same (around $20 billion). Over the last three years the average dividend yield for the NZX group was 4.5%. The comparable figure for the Crown group was 2%.

The report goes on to note the gap is worth more than $500 million.

A further part of the report compares the performance of four state-run funds: NZ Super, ACC, Government Super (GSF) and EQC:

…only ACC has consistently outperformed its passive benchmark. It has achieved this with lower investment management expenses than the other funds.

Different sets of rules
The Government Super Fund, not to be confused with NZ Super, by the way, cannot cover its projected liabilities – superannuation payments for public servants – and this is unlikely to change, such is the small size of its asset base.

The dilemma over this fund – which earns less than its annual payouts – is no different to the political denial over of the future of New Zealand Superannuation (the scheme not the fund).

It is a case of the appetite for entitlements being larger than the meal that provides them.

The main political parties say they do not support the Retirement Commission’s proposal to change the age of entitlement from 65 to 67 over a period of 13 years from 2020 (yes, those dates are real).

This is political myopia of an extreme kind and is no doubt to deflect media attempts to resuscitate Winston Peters, most of whose voting base will have passed on by the time the proposals would be implemented (23 years from now).

The Greens and Labour say they welcome the debate. Prime Minister John Key has ruled it out during his term, which is likely to be extended at least until 2014.

The Retirement Commission also smoked out another rort: pensioners marrying much younger partners, giving them access to a Gold Card and a pension as long as they don’t work.

The lessons from these two reports are the same: Running a private enterprise with liabilities that exceed its assets is a crime, except when it is the government.

Shareholders withdraw support from a company that falls behind in its dividends. Taxpayers cannot.

Debt clouds over Dubai
A year ago, this column and many others were full of news about Dubai’s demise, thanks to its debt binge.

Attention has since moved to Europe and the plight of Ireland, among others. Yet over the past 12 months little has changed in the Arab world’s one-time showcase.

The reality is that Dubai World, just one of many government-owned companies, has only recently made a deal to repay $US25 billion to its creditors and hopes of renewed economic growth remain just a glimmer.

Some estimates, including the IMF, put the total government-related debt as high as $US110 billion, largely unsupported by any serious revenue.

The Wall Street Journal quotes a London investor, David Serra, of Algebris investments, as saying:

“If Dubai really wants to make it and be Singapore, they’re going to have to think about taxes, and they’re going to have to think laterally.”

A Guardian correspondent says life’s still swinging on the beaches and in the nightclubs, but the economy is not.

There’s talk its successful airline, Emirates, will have to be sold, along with DP World and other prize assets such as Barney’s (the New York retailer), Cirque du Soleil and the cruise ship QE2.

In any case, Dubai is now under thumb of its fellow emirate, Abu Dhabi, much as Ireland will be at the mercy European bankers.

Did you hear about the Irish banker?
The spectre of another Irish famine is the only outcome from this week’s budget, which cut €6 billion from the government’s finances.

The sum is enormous: The Irish Independent calculates every household will be the equivalent of $NZ13,300 worse off by 2012.

My suggestion last week of a Down Under bailout was only partly tongue in cheek. In his analysis, Milford Asset Management’s Brian Gaynor blames “inadequate oversight” of and “reckless lending” by Ireland’s three banks.

They were acting, he suggests, in a similar manner to the finance companies that collapsed in New Zealand. His conclusion is that countries should have tighter control over their financial institutions.

But look at it another way: New Zealand’s banks survived because they were not New Zealand owned or controlled. The finance companies were and, of course, so were BNZ and DFC in earlier days.

If Ireland’s banks had been owned by outsiders, would the property bubble have formed as quickly and bust as spectacularly? Probably not. Crony and related party lending – another major cause of the collapses in both countries – would also have been minimised.

The Ireland bailout project will continue. The EU’s effort so far looks rather like what happened to the Weimar Republic in the 1920s when war reparations proved too high a burden.

Global Hall of Shame
Thanks to the Guardian, we know the countries who will support China and boycott the presentation tomorrow in Norway of the Nobel Peace Prize to jailed dissident Liu Xiabo, who also won't be attending.

They are: Pakistan, Iran, Russia, Kazakhstan, Colombia, Tunisia, Saudia Arabia, Serbia, Iraq, Vietnam, Afghanistan, Venezuela, the Philippines, Egypt, Ukraine, Cuba and Morocco.

Two others, Algeria and Sri Lanka, have not responded to the invitation, sent out to Oslo’s diplomatic community, which comprises 65 countries (New Zealand has a consulate general office there but does not normally attend).

Last year, every one of the diplomats attended President Barack Obama’s prize-giving. And the last winner who couldn't attend: pacifist Carl von Ossietzky, who was forbidden by the Nazis in 1935.