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2. State-owned Assets, Sales—Fiscal and Economic Benefits

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2. MAGGIE BARRY (National—North Shore) to the Minister of Finance: What are the fiscal and economic benefits of selling minority shareholdings in four State-owned energy companies and Air New Zealand?

Hon BILL ENGLISH (Minister of Finance) : The rationale is quite simple. The sale of Government shares would free up $5 billion to $7 billion, less than 3 percent of taxpayers’ total assets of $245 billion, to invest in priority assets like modern schools and hospitals, without having to borrow more money on volatile world markets from overseas lenders. The Government is still spending and borrowing more than it can afford, so it makes sense to reorganise the Government’s assets and redeploy capital to higher-priority areas so that we do not have to borrow more.

Maggie Barry: What other benefits will the Government’s mixed-ownership programme deliver?

Hon BILL ENGLISH: Under the mixed-ownership programme New Zealanders would have an opportunity to diversify their increasing savings away from property and from bank deposits, which are growing quite rapidly at the moment, and also the public listing of these companies will increase scrutiny of their decisions, and encourage better business disciplines, as well as deepening capital markets.

Maggie Barry: What have recent profit and dividend payments been from the four State-owned energy companies?

Hon BILL ENGLISH: Over the 6 years to 2011, ordinary dividends—that is, dividends that exclude one-off sales of Government assets by these companies—have totalled $356 million. That is a 2.4 percent annual return to the taxpayer, on the most recent commercial valuations of these companies. The Crown Ownership Monitoring Unit advises that the average cost of Crown borrowing over the last year is 4.5 percent; that is, these companies are returning ordinary dividends of 2.4 percent per annum. The average cost of Crown borrowing is 4.5 percent. Estimates of 18.5 percent returns are quite misleading because they include major revaluations and changes in accounting methodology, and also one-off large asset sales by these Government companies.

Maggie Barry: Under the mixed-ownership programme, what do comparisons of forecast loss of profits with expected savings on interest costs tell us?

Hon BILL ENGLISH: On its own, comparing lost profits with reduced interest payments tells us nothing. As any owner of an asset will tell you, it is not just what you forgo in profits that matters; it is the price received up front in the sale. If investors believed there would be strong profits from these companies, then that would be reflected in a higher sale price. If they believe the profits will be weaker, that will be reflected in a lower sale price.