26 September 2000 Media Statement

Mallard offers McCully briefing in govt accounting 101

Acting Finance Minister Trevor Mallard today poured cold water on Murray McCully's claims that the government plans to 'milk cash' from state owned enterprises for a social spend up.

Trevor Mallard said it is painfully obvious that Murray McCully is ignorant of both basic accounting principles and his own party's practice when they were in government. "McCully has shown himself up for not understanding the difference between capital investment and operational spending. However, I am happy to give him a special private briefing on basic government accounting.

"The Government made it very clear in the Budget Economic and Fiscal Update that we will consider reviewing of the capital structure of SOEs to align with commercial best practice. We also made it clear that any resulting capital would mean the Government would have to borrow less to build new schools, hospitals and prisons.

"This is not a sudden decision in response to any particular circumstances. Nor is it a shift in policy from previous governments. Indeed, former Finance Minister Bill English at one point guessed up to $1 billion could be pulled from SOEs," said Trevor Mallard.

"McCully's claim that the Government is seeking $180 million from TVNZ is a figment of his imagination. We are looking at a wide variety of options for the future shape of TVNZ and BCL and no decisions have been made yet."

Trevor Mallard said McCully's recent comments are the real mystery given the hundreds of millions of dollars that previous governments received from SOE special dividends over the past ten years. (refer attached table)

"Dividends are a mechanism whereby the capital structure of SOEs can be aligned with commercial best practice. The Government would be at fault if it did not investigate the payment of special dividends from time to time. Just last year, the previous government required the payment of a special dividend by TVNZ," said Trevor Mallard.

Trevor Mallard said reviews of capital structures are part of the Government's objective to run an efficient SOE sector. Appropriate capital structures allow SOEs to achieve their business needs, while ensuring their balance sheets are in line with good commercial practices. "For Mr McCully to call this interference simply shows up his ignorance in the way that both public and private sector companies use debt. To suggest that the government could use any released capital to fund social spending shows a complete lack of accounting knowledge. A change in capital structure will only affect capital provisions.

"During a review, it's up to the Board of each SOE to assess its capital structure, given the capital requirements of the business and appropriate gearing akin to industry norms. This is happening at the moment in relation to a number of SOEs and no specific proposals have been presented to the Government, " said Trevor Mallard.

ENDS

25/09/2000

SPECIAL DIVIDENDS
The following table lists special dividends from various State-Owned Enterprises over the last ten years.

State- Owned Enterprise
----------------90/91 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99
New Zealand Post ::::::::: ::::::::: ::::::::: ::::::::: 42::: 40::: 85::: ::::::::: :::::::::
ECNZ-------------::::::::: ::::::::: ::::::::: 116::: 600::: 1173:: 158::: ::::::::: 2524
Meridian Energy ---::::::::: ::::::::: ::::::::: ::::::::: ::::::::: ::::::::: ::::::::: ::::::::: 81
Landcorp-------- ::::::::: ::::::::: ::::::::: 15::: 13::: ::::::::: ::::::::: :::::::::
Contact Energy--- ::::::::: ::::::::: ::::::::: ::::::::: ::::::::: 150::: ::::::::: ::::::::: :::::::::
TVNZ------------- ::::::::: ::::::::: ::::::::: ::::::::: ::::::::: 20::: ::::::::: ::::::::: 70

The numbers from the above table are in $ millions and were primarily sourced from annual reports. The list of special dividends is not exhaustive for example the Met Service has paid small special dividends over the period, and an additional $30 million was paid by TVNZ in 1999/00. However, the table is illustrative of past transactions.

In addition, Crown-owned companies have paid special dividends. For example, Housing New Zealand paid special dividends of $600 million in 1995/96 and $300 million in 199/98, and Auckland Airport paid $135 million in 1998/99.

As well as special dividends arising from capital structure reviews, special dividends can arise for a numbers of other reasons including the return of proceeds from an asset sale by an SOE, like the special dividend from Meridian Energy resulting from the sale of Cobb Power station. Other reasons for special dividends include the reconfiguration and establishment of new SOEs from existing SOEs, like the split of ECNZ to form Transpower in 1994/95, Contact Energy in 1995/96, and the three new SOEs in 1998/99. In these circumstances, the special dividends form part of a larger series of transactions whereby the Crown reinvests in the new SOEs being established.

ENDS

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