Recycling state assets is not just good economics, it is vital – Richard Prebble
Waikare Gorge Rd State Highway 2 was destroyed by Cyclone Gabrielle. Photo / NZME
THE FACTS
- The Government needs to spend billions to make infrastructure resilient to climate change.
- State-Owned Enterprises initially succeeded but have not matched private-sector performance.
- Prime Minister Christopher Luxon believes asset recycling is necessary to fund essential infrastructure.
It is estimated the Government needs to spend billions to make roads, bridges and other public assets resilient to climate change. Where is the money going to come from?
I once believed the Government should never sell assets, until I became Minister of Railways. Then I was put in charge of all 22 government trading departments.
I discovered the truth: the Government’s assets were loss-making liabilities.
The first government business was set up in 1840. By the time I became minister, none had ever made a profit or paid a dividend.
Together they took 20% of the nation’s investment capital yet produced barely 10% of its economic activity.
Many were monopolies charging outrageous prices for awful service. In my electorate it took six months to get a new telephone installed.
We changed that. I helped devise the State-Owned Enterprise (SOE) model: converting departments into companies under the Companies Act, appointing directors with business experience, removing monopolies and requiring SOEs to operate efficiently and pay dividends.
The results were spectacular. Within three years all 22 SOEs were profitable, most were paying dividends, and products improved out of sight. Telecom promised installation within 24 hours or your first month’s rental was free. Prices fell. Quality soared.
New Zealand’s SOE model has been copied around the world. But here is what politicians will never tell you: no other country has ever reproduced our initial success – and we have never repeated it ourselves.
SOEs outperform government departments (not hard to do) but they do not match private-sector performance.
The reason is simple.
A real company survives only if its prices and products remain competitive and it constantly improves.
An SOE is never allowed to fail. Its owner is a minister whose priority is votes, not performance. Boards are appointed for their political or fashionable credentials, not commercial expertise.
Politicians also back hare-brained schemes. Solid Energy persuaded the Government that coal mining could spearhead an economic revival. Hundreds of millions of dollars was lost.
Then there are the rail ferries.
We thought the Government must own businesses to provide essential, non-commercial services. The SOE Act included provisions to identify such services and to subsidise them transparently.
No SOEs identified any activity requiring a subsidy.
We were astonished. There is no social reason for the Government being involved in business. In 35 years the subsidy provision has been used only rarely.
The Government is in business because boys – and politicians – like to play with trains and planes.
What the country actually needs are products and services delivered in a competitive environment. That is what the private sector is good at.
It was the removal of government monopolies, not just the SOE structure, that produced the dramatic improvements.
Air New Zealand was always a company. When I took office as minister, it held a domestic monopoly. Airfares were high and service was poor. Only one flight in 10 was on time. The unions took turns during school holidays to go on strike.
I fired the board, gave the airline the planes it requested and gave the unions a pep talk. But 12 months later nothing had changed.
Then I let Ansett fly in competition. Overnight, service standards improved – air bridges, lounges, lower airfares – and tourism, which was once a boutique industry, became one of our biggest employers.
The same pattern continues. Currently, fares are much higher on routes where Air New Zealand holds a monopoly compared with those where it faces competition. State ownership has not delivered lower fares.
Nor have SOE dividends delivered a decent return on taxpayer investment. But this is not unique to the public sector. Amazon, a US trillion-dollar company, has never paid a dividend. Its shareholders only become rich when they sell.
If the Government never sells “assets”, taxpayers never recover their investment. Over time those assets become dogs. Fewer than half the companies that were in the top 10 on the NZX 20 years ago are still there.
When I was minister, TVNZ was a money-spinner valued – in today’s dollars – at about $5.4 billion. Today, because of technological change, television loses money. The “asset” has become a liability.
We paid down public debt not from dividends but from the billions earned through privatisation.
New Zealand now faces a structural deficit and a demographic time bomb. The Government is taking the largest share of GDP since World War II.
Higher taxes cannot be the answer.
Labour’s proposed capital gains tax on rentals would not even cover free GP visits, let alone the estimated $13b cost of gender-pay settlements, paying social workers as if they are air traffic controllers.
Climate change is coming. We must strengthen resilience.
Prime Minister Christopher Luxon understands that to fund essential infrastructure, we must recycle assets.
But does the country?
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