Council of Trade Unions media release
26 January 2011

Steps to privatisation will cause more problems than they solve

The plans announced by the Prime Minister to consider partial privatisation of four major state owned enterprises will do little to address debt problems and cause more problems than they solve, says CTU economist Bill Rosenberg.

In addition, the announcement of a further cut in the already slashed government operating allowance – the allowance for new spending in the 2011 Budget – is small in terms of debt levels. A reduction from $1.1 billion to $800 million saves only a week of debt payments. But it will hurt in the additional pressure it will place on government services like health and education.

Partial privatisation of the electricity SOEs Meridian, Genesis and Mighty River will mean that the wider public interests in New Zealand’s electricity system which need to balance security of supply, environmental impacts and low cost will be lost in pressure from private investors to raise company profits.

Bill Rosenberg said: “Inevitably we will see more of the bad behaviour of the private electricity companies and the commercially focussed SOEs intensify, with more price rises, reluctance to invest in new generating capacity, and reluctance to invest in a secure supply. The electricity system must be regulated because of the size of the companies in it. Competition doesn’t work in an industry with such large economies of scale. But effective regulation has proved almost impossible. The best choice would be to take back full government control of the sector and run it efficiently and with those balanced goals as objectives. That would produce a much better return to households and New Zealand’s economy.”

“If we want to provide investment opportunities to the public, Kiwi infrastructure bonds could be offered that the Government uses for development purposes. The SOEs could increase their bond offerings.”

“The partial sale would hardly dent the Government’s debt but at a significant cost to the effectiveness of New Zealand’s infrastructure. Most of the shares will end up overseas owned, increasing New Zealand’s overseas liabilities. It just moves public debt to private debt and fails to answer the credit rating agencies, whose main concern is New Zealand’s private international liabilities. New Zealand’s government debt will still be low even at its peak by international standards.”

In its submission to the Savings Working Group, the CTU puts forward several alternatives including making Kiwisaver compulsory with a compulsory employer contribution rising to 6 percent and a maximum compulsory contribution of 2 percent for workers at that point. The position of low income workers and beneficiaries also needs consideration. The submission also pointed out the effects of increasing income inequality and low incomes on saving, and the behaviour of the big four banks in reaching New Zealand’s current state of indebtedness.

ENDS

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