Answer of the week

Question Time this week got a bit boisterous but it also included some gems, amongst which was this:

Katrina Shanks: What reports has he seen on New Zealand’s economic programme and the Government’s approach to turning round the economy?

Hon BILL ENGLISH: I recently read a report from the Australian Financial Review that says: “What immediately stands out is Wellington’s grown-up and stable Government,”. It also says that New Zealand’s bad luck is about to take a turn for the better, and it will reap the benefits of disciplined policy making. The Australian Financial Review, which is not noted for being a cheerleader for New Zealand, notes that New Zealand did not have a mining boom to shield it from the global financial crisis. But it acknowledges that we did have a devastating earthquake in Christchurch and a drought this year. It notes: “John Key’s National Government also had to deal with the legacy of nearly a decade of a back-sliding and big-spending Labour Government.”

It’s not just people like me with a blue bias who realise the nine years of damage inflicted by Labour is among the problems this government has to fix and that its disciplined policy making is making a positive difference.

As easy as 1,2,3

The Opposition wanted a snap debate ont he Dunne debacle yesterday and got it.

But Bill English showed that countering their arguments was as easy as one, two three: 1. Ask Winston Peters for the emails; 2. Table Phil Goff’s emails and phone records from the period during which he received leaks from MFat; 3. Table David Shearer’s bank account.

The demolition of the opposition case was continued by Gerry Brownlee, Steven Joyce, Louise Upston and Jonathan Coleman.

OECD doesn’t back LabourGreen CGT

New Zealand’s economic policies have been endorsed by the OECD.

The Organisation for Economic Co-operation and Development has confirmed New Zealand’s macroeconomic policies strike the right balance between supporting the recovery and ensuring sustainable medium-term growth, Finance Minister Bill English says.

In its Economic Survey of New Zealand for 2013, the OECD also notes the economy is gaining momentum, with post-earthquake reconstruction in Canterbury, and business investment and household spending gathering pace.

“The OECD confirms the Government’s economic plan is on the right track,” Mr English says. “In particular, it notes our work in improving productivity to support long-term growth, it confirms the banking system is in good shape and well supervised, and it supports our focus on getting back to surplus and reducing debt.

“It concludes that reducing government debt will establish a favourable starting position for confronting longer-term cost pressures from an ageing population. It will also tend to raise national saving rates and reduce New Zealand’s external vulnerabilities.

“This is a welcome endorsement of the Government’s economic programme from the OECD, coming just a few weeks after the International Monetary Fund also confirmed we have struck an appropriate balance with our programme.”

Mr English agrees with the OECD’s assessment that New Zealand’s high private debt levels, large external imbalances and an over-valued exchange rate are among the main risks to growth.

“That’s why the Government is taking a number of steps, such as through the Business Growth Agenda and the internationally-focused growth package in the Budget, to help businesses and exporters become more competitive and to sell more to the world.

“While the OECD’s modelling predicts relatively small growth impacts from achieving some of the specific Business Growth targets, taken as a package evidence suggests they could make a material difference to productivity and incomes,” Mr English says.

The OECD notes that New Zealand policymakers are increasingly attuned to social equity and welfare issues.

It says welfare reforms are attempting to reduce long-run benefit dependency by emphasising education and training for at-risk youth, placing more conditions on beneficiaries and requiring stronger accountability from public and private providers.

“I’m pleased with the OECD’s positive assessment of the main elements of the youth package within our welfare reforms, and other recent changes to increase educational achievement and reduce youth unemployment.

“We will carefully monitor progress to ensure we further improve the participation of young people in education and training.”

One area the OECD report differs from the government’s policies is a Capital Gains Tax.

Mr English says the Government does not agree with the OECD about the need for a comprehensive capital gains tax applying to all assets, including the family home.

“Two comprehensive, expert reviews of New Zealand’s tax system – the 2001 Tax Review and the 2009 Tax Working Group – did not recommend a widespread capital gains tax of the sort the OECD recommends.

“The Government significantly tightened the tax rules around property investment in Budget 2010, which is expected to raise an additional $3 billion in tax revenue over four years.

Labour and the Green Party policy is for a CPT and they’ve seized on the OECD report as vindication of their stance.

However, that conveniently overlooks the report’s recommendation that a CTG covers the family home and replaces other taxes.

The LabourGreen version would exclude the family home and those parties wouldn’t reduce other taxes.

Labour lost the argument over this in parliament on Wednesday:

Hon David Parker: Why does he continue to refuse to adopt a capital gains tax excluding the family home when it is clear it would reduce inequality, it is clear it would take the pressure off house prices, and it is clear some people would pay their fair share of tax, and, at the same time, it would improve the economy?

Hon BILL ENGLISH: If a capital gains tax had all those magical powers, then you would not see a whole lot of developed country economies on their knees because of excessive housing markets. We have not implemented it, for a couple of reasons. One is that we believe the other tax measures we have taken, which are collecting $3 billion in tax revenue over 4 years, are more effective, and, secondly, we believe that changing the planning laws to allow more supply of houses will have a much bigger impact on fixing wealth inequality than a capital gains tax.

Rt Hon John Key: Has he seen any reports about a period of time between 1999 and 2008 when there was a substantial increase in the housing market in New Zealand and when there was a major amount of work done, to extent that half of the work of the Department of the Prime Minister and Cabinet was about the housing market, and, by the way, was there a recommendation for a capital gains tax that was adopted in that period of time?

Hon BILL ENGLISH: It is funny you should mention that. Some of the things the last Labour Government did were sensible. In 2001 it commissioned a tax review—a comprehensive review of New Zealand’s tax system. That review concluded that a capital gains tax that exempted the family home would not be effective. Faced with the fastest-rising housing market in New Zealand’s history through the mid-2000s, the previous Labour Government, in which most of the Opposition’s current front bench served, did not implement a capital gains tax. . . 

Hon David Parker: Is the truth of the matter not that Mr English and his colleagues stopped the Savings Working Group and others looking at a capital gains tax by putting it out of their ambit, and is it not the reality that National’s refusal to introduce a capital gains tax is because it does not suit the vested interests of its backers?

Hon BILL ENGLISH: Well, with, I think, 47 percent of New Zealanders voting for the National Government in the last election, we are very pleased to represent a very broad range of backers—in fact, a much broader range of New Zealanders than the Opposition Labour Party, which claims to represent everybody. No, the reason we have not implemented a capital gains tax is that when you exempt most of the housing market, it becomes a tax purely on successful, profitable businesses, and that would be bad for growth. We are addressing the problem of rising house prices by addressing the real issue of the lack of supply, particularly in Auckland.

How typical – LabourGreen have a policy which wouldn’t address Auckland’s housing affordability and would be a tax on successful, profitable businesses which would be bad for growth.

Offsetting Behaviour also argues against a CGT:

 

 

 

 

 

Govt books better than forecast

More good news on the economic front – the government books are better than forecast:

A stronger economy is underpinning tax revenue and, combined with responsible control over spending, kept the OBEGAL deficit below $4 billion in the 10 months to 30 April, Finance Minister Bill English says.

The $3.99 billion deficit is $664 million smaller than in the latest forecasts finalised before the Budget.

“A number of indicators confirm that New Zealanders can look to the future with some well-earned confidence and optimism,” Mr English says. “The economy is growing more strongly, new jobs are being created, unemployment is coming down and business and consumer confidence have picked up.

“The Government is supporting these positive trends with a common-sense economic programme focused on giving businesses the confidence to invest, grow and create new jobs. The plan is working and the benefits are starting to show through in the Government’s finances, as we remain on track to surplus in 2014/15.”

Post Budget commentary was almost all positive and several commentators finally admitted that the Key-English prescription is working.

In particular, in the 10 months to 30 April, core Crown tax revenue was $3.1 billion higher than in the corresponding period the previous year. This was due mainly to increases in source deductions and other individuals’ tax, and we are also seeing benefits from the Government’s tax package in 2010 broadening the tax base.

At the same time, the Government is keeping control of its spending, with core Crown spending slightly below forecast at $57.8 billion. Net core Crown debt at $60 billion – or 28.7 per cent of GDP – was $441 million below forecast as at 30 April.

“It’s important that we cap and then start reducing this debt by sticking to sound fiscal and economic management,” Mr English says. “That will allow us to meet our second fiscal target of reducing net debt to no more than 20 per cent of GDP by 2020.”

A broader tax base and better control of government spending are both showing benefits.

This isn’t just good for the books, it’s good for the economy and that is good for people.

Less money taken from taxpayers and less wasted on unnecessary initiatives leaves more for those who make it and those who need it.

Right direction

Finance Minister Bill English compares the economy to a supertanker.

You can’t tack and change direction quickly as you might in a small yacht. But small changes over time van make a big difference and those differences are beginning to show we’re moving in the right direction.

 

 

 

 

 

 

 

Wacky, extreme, unusual

Question of the day:

Hon Steven Joyce: Has he considered getting a really big colour photocopier and printing off enough money to pay off New Zealand’s international liabilities, on behalf of all New Zealanders, sometime next week?

Mr SPEAKER: I do not think that is a helpful question, but if the Minister wishes to answer it the Minister can.

Hon BILL ENGLISH: We have been advised to consider it, but I understand that the whole supply of them has been bought up by the Green Party, in anticipation of its opportunity.

I wonder where the advice came from?

It certainly wasn’t the Prime Minister who considers LabourGreen policies wacky, extreme and unusual.

That’s a view with which a majority of voters have sympathy:

When asked who they would trust more to run the economy, 55 percent of respondents preferred a National-led government with John Key and Bill English.

A Labour-Greens government with Mr Shearer and Dr Norman had the support of 37 percent of respondents.

Eighteen percent of Labour voters trusted National more, as did 19 percent of Green voters.

Nearly a fifth of their own supporters trust National more – that’s hardly a ringing endorsement of their own policies.

A tale of two countries

Is Australia still the lucky country? When it comes to Budgets, Luke Malpass says it’s not.

In 2008, Australia had a mining boom, rising wages and no debt. Its government had delivered consistent surpluses, tax cuts and targeted cash payments to targeted voter groups. Growth was assumed and household wealth doubled during the Howard years. It even avoided recession.

In contrast, New Zealand was lurching into debt, had a collapsed non- bank finance sector, a tradeables sector that had been squeezed for several years, a real recession in advance of the global recession, and a structural deficit. . .

But last week, our Finance Minister Bill English announced New Zealand is on track back to surplus while Australian Treasurer Wayne Swan  announced an A$19.4 billion deficit, with several years of deficits to follow.

Budgets are ultimately about choices. The Australian Government chose to run it close to the wind, increasing spending by as much as the most optimistic revenue forecasts would allow.

New Zealand made a very different and far more difficult set of choices. In 2008 the issues were obvious: productivity growth was poor, taxes too high – particularly at a relatively modest level of income – and the tax system had little internal integrity.

Government was chomping its way through far too much of the national pie, crowding out private sector activity.

One important thing the New Zealand Government has done is tamp down expectations of spending increases, concentrating on core activities and not using government as a vehicle to give handouts to partisan coalitions of voter groups. As part of this strategy, the Government is reducing both its spending and revenue to GDP ratios. It has reaffirmed its commitment to getting core government spending down from 35 per cent of GDP in 2008-09 to 31 per cent in 2014-15. The rate of spending increase has slowed to less than CPI and population growth. . .

This hasn’t just been an economic success, it’s been a political one.

The government has managed to reduce costs while maintaining services and has managed to convince most people of the necessity for doing that.

. . . New Zealand’s books look in better shape than Australia’s, not least because of New Zealand’s public accounting system. It is more difficult to fudge the figures and render the accounts opaque than is the case in Australia, where payments can be brought forward and/or shifted backwards to create fiscal illusion in any given year.

We have Roger Douglas, Ruth Richardson and the ‘failed’ policies of the 80s and 90s to thank for that.

New Zealand’s Budget is commendable and, compared with Australia’s, it looks extremely positive. In the long run, nations can only excel and grow living standards by being competitive and living within their means. The current situation in Europe attests to that.

With all the advantages in the world, the Aussies have not managed it, and face some very difficult decisions in coming years. In contrast, from a pretty poor position New Zealand is getting its fiscal house in order.

And getting its fiscal house is putting New Zealand on a far stronger foundation than many other countries.

Social housing must do better

Finance Minister Bill English didn’t mince his words when giving his view on state houses:

. . . Governments had been “grossly irresponsible” over Housing Corporation not knowing much about its houses or the tenants.

He said the nationalised housing industry “is a disgrace”. . .

Housing Corp was a poor performer and about a third of its housing stock was the wrong size, in poor condition and in the wrong place. That stock was worth about $5 billion and it was $5 b being wasted.

“There are going to have to be changes so we can stop wasting it, and we are going to learn a lot from Christchurch.”

Christchurch had “a half-clean sheet” to restart social housing.

“It is actually pretty shocking the wastefulness and politicisation and the crappy conditions that we make vulnerable people live in. So yes, we are pretty motivated about it because of the benefits for the tenants and the economy and for the Government’s books.

“It’s been a revelation to me that we run this huge asset base with all these vulnerable people and Government hasn’t known about its own tenants, it hasn’t known much about its own housing stock, it’s just been grossly irresponsible.

“We want to get Presbyterian Support, Ngai Tahu, Salvation Army, Housing Foundation involved in supplying these houses and put pressure on our own organisation, which has a record of poor performance.” . . .

The usual suspects are labelling this privatisation.

It doesn’t matter what you call it and who owns the houses, they will still be publicly funded and it wouldn’t be difficult for charitable organisations to do better than Housing Corp.

Tackling poverty

The left are criticising the Budget for not tackling poverty.

But they are wrong as Finance Minister Bill English pointed out:.

“It is widely acknowledged that paid employment is the best way to lift vulnerable families out of poverty,” Mr English says. “The Government will invest a further $188.6 million over four years for the next stage of welfare reforms, to help more New Zealanders into work. . .

Helping people help themselves by moving from welfare to work is one of the most effective, long term solutions to poverty.

More spending not better spending

Finance Minister Bill English started his Budget speech with the good news:

. . . The Government’s plan has not involved radical change. We’ve done what we said we would do, and we’ve taken people with us.

And that plan – using sound and proven economic policies – is working, as international bodies like the IMF have recognised.

New Zealanders can look to the future with well-earned confidence and optimism.

The New Zealand economy grew 3 per cent last year, which is almost the same as Australia, and higher than almost every other developed country.

Wages are growing, cost of living increases have been modest and interest rates are at 50-year lows.

There are 50,000 more jobs in the economy than two years ago, although unemployment does remain too high and attracting new investment that creates jobs is a particular focus for the Government.

The fiscal outlook has improved markedly as a result of the Government’s sound management and we are on track to post a surplus in 2014/15.

These are real achievements that are benefitting New Zealanders and their families.

Budget 2013 is about building momentum in this programme.

Then came the warning:

But there is a risk that all the gains we are now making could be lost in the future, by going back to policies that have failed in the past.

We know what these are – high and wasteful government spending, more costs and more taxes on households and businesses, and more state control of the economy that chills private sector investment and destroys jobs and growth.

New Zealanders were conditioned in the 2000s to believe that Budgets should be about the novelty of new, expensive spending programmes that held out promises of economic and social transformation, arranged by the Government.

Those promises were illusory. There was no sustainable revenue stream to pay for the increased spending, and there was nothing genuinely transformational to show for it.

In contrast, this Government believes that Budgets are about careful stewardship of public money, and investing wisely in programmes to improve people’s lives and help grow the economy.

In the end, it is the effective use of public money, not the amount of it, that makes a positive difference to the lives of New Zealanders and their families. . .

When it comes to spending, more isn’t necessarily better.

On the contrary, it can be wasteful, inefficient and ineffective.

Under Labour, government spending increased by 50% in the middle of the last decade and they were still forecasting a decade of deficits.

National has been a much more careful steward of public money, cutting costs while maintaining services and is still on track back to surplus.

With spending, size doesn’t matter, effectiveness does.

Spending well not up

Finance Minister Bill English’s fifth Budget is characterised by spending well rather than spending up.

Budget 2013 has freed up a further $1.5 billion by redirecting spending to where it delivers the best results, Finance Minister Bill English says.

This takes the total amount of reprioritised government spending since Budget 2009 to $14.9 billion.

“At a time when the Government’s finances are constrained, reprioritising spending allows significant additional funding for new or proven initiatives that get better results for New Zealanders,” Mr English says.

“It’s about spending well, not spending up.”

In total, Budget 2013 includes new spending initiatives worth $5.1 billion in the current year and over the next four years, paid for by a combination of new spending and $1.5 billion in reprioritisation and new revenue initiatives. Those savings and revenue initiatives include:

• Tax and revenue changes that net an extra $313 million over four years.
• Reprioritisation of $641 million to new spending initiatives within Budget votes.
• Reprioritisation of $252 million of savings from across budget votes into significant new spending initiatives in areas like health, education, welfare reform, and science and innovation.
• $303 million from existing contingencies.

“These savings are consistent with the Government’s approach across its five Budgets, which have together reprioritised almost $15 billion of spending,” Mr English says.

“New Zealanders were conditioned in the 2000s to believe that Budgets should be about the novelty of new, expensive spending programmes that held out promises of economic and social transformation. Those promises were illusory.

“There was no sustainable revenue stream to pay for the increased spending and there was nothing genuinely transformational to show for it.

“Governments should be judged on what they achieve rather than on what they spend. The value of our spending is a better measure than the amount of our spending. This Government is focused on results, and it’s paying off.   

The idea that a government should be judged on its achievements rather than its spending is a relatively new concept.

Budgets used to be focussed on spending and people waited with excitement to see what was in it for them.

The steep increases in spending from 2005 until 2008 show the cost of Labour’s pre-election lolly scramble.

National changed that, improving results rather than increasing expenditure, even going so far as to deliver a Budget with no increased spending in election year.

John Key, Bill English and their team changed that, making a virtue out of restraint and they’re getting results.

“For example, recorded crime is at a 24-year low, and we’re rolling out new technology for frontline police officers, but the baseline funding for Police is not being increased.  Instead, Police are finding more efficient and effective ways of doing their job which is generating savings they can reinvest.

“At a time when many governments overseas are undertaking radical cuts to get their books in order, we are enhancing high-quality frontline public services while maintaining support for our most vulnerable citizens. That is a real achievement.

“The Government will ensure future Budgets continue to focus on improving frontline public services to deliver better results for New Zealanders, at the same time as improving value for money from more than $70 billion of public spending every year,” Mr English says. . .

A friend who worked in Wellington in the late 80s and early 90s saw the results of spending cuts. She was back there during Labour’s last few years in government and was horrified to see the increases in spending, including steep growth in public service employees, without commensurate improvements in services and results.

National had to change that but its restraint has been restrained rather than radical – focussing on protecting people from the worst impacts of the recession, reducing expenditure, improving efficiency and maintaining services.

The LabourGreen reaction to the Budget shows that they still don’t understand the necessity for such measures, they would undo the good National has done just as the 1999-2008 Labour-led government undid the good done by those which preceded it.

They spent up, they didn’t spend well and LabourGreen would follow that bad example.

Building momentum, boosting optimism

We were at the ASB’s agribusiness conference earlier this week.

Chatham House rules applied so I can’t go into details of who spoke and what was said.

But the theme was leadership and one speaker mentioned the importance of optimism.

As an example he said how much he admired John Key’s ability to remain optimistic regardless of what was thrown at him.

Finance Minister Bill English doesn’t always appear as optimistic as the Prime Minister.

That isn’t because he’s a pessimist, he’s not. It’s more a reflection on the tough job he’s had and the knowledge that tough decisions on spending impact on people and it’s not always appropriate to put on a happy face.

However, yesterday he was able to smile as he talked about a more optimistic outlook:

Budget 2013 confirms New Zealand is on the right track, with forecasts of economic growth, more jobs, rising wages, and a return to surplus by 2014/15, Finance Minister Bill English says.

“New Zealanders can look to the future with well-earned confidence and optimism,” he says. “The New Zealand economy grew 3 per cent last year, which is almost the same as Australia, and higher than almost every other developed country.

“Wages have been increasing, cost of living increases have been modest, and interest rates are at 50-year lows.

“There are 50,000 more jobs in the economy than two years ago, although unemployment does remain too high and attracting new investment that creates jobs is a particular focus for the Government.

“The fiscal outlook has improved markedly as a result of the Government’s sound management and we are on track to surplus in 2014/15.

“These are real achievements that are benefitting New Zealanders and their families. Budget 2013 is about building momentum in this programme.”

These are achievements which most other countries will be envying.

The Government’s main priorities for this term are:

• Responsibly managing its finances.
• Building a more productive and competitive economy.
• Delivering better public services.
• Supporting the rebuilding of Christchurch.

This will carry on building momentum and boosting optimism.

I’ll vote for that.

For details on Budget initiatives see Budget at a glance.

Prescription is working

Opposition politicians and several commentators have criticised National’s economic prescription.

But the figures in Bill English’s fifth Budget showed the prescription is working.

The country has been on the right track and has a growth projection many other countries would envy.

Blue Budget

Today’s Budget is a blue one, literally and figuratively.

It’s got a bright blue cover and it will be one which is written with the understanding of the importance of sound financial management.

Finance Minister Bill English was looking cheerful in his pre-Budget interviews yesterday and he deserves to.

In spite of the woeful state in which Labour left the economy, and the natural and financial crisis with which the government has had to deal, National has done what it said it would.

It took the rough edges of the worst effects of the recession, reduced the cost of government while maintaining services and has on back on track to surplus in the next financial year.

Only the blinkered would believe that this would have been possible with a red or a red/green budget.

The government is launching an update of its Budget app for smartphones and tablets with interactive features that allow users to see how much tax they pay and how their tax dollars are spent.

It went live at 2pm as the Budget delivery began.

You can find it here.

IMF, S&P give NZ tick

The International Monetary Fund has confirmed that the Government’s economic plan strikes the right balance between supporting growth and limiting public debt, Finance Minister Bill English says.

In its final staff report issued this morning, the IMF endorses New Zealand’s balanced and pragmatic economic management.

“Coming out the day before the Budget, this is a strong vote of confidence in the Government’s programme over the past four years,” Mr English says.

“It follows a string of encouraging economic figures, which shows the economy growing at 3 per cent last year, an extra 50,000 jobs over the past two years, falling unemployment and healthy consumer and business confidence.”

In particular, the IMF notes the New Zealand economy appears to have strengthened in the last few months of 2012, with subdued inflation and fiscal policy that strikes the right balance between supporting growth and limiting public debt growth.

The IMF says: “The benefits of the plan are many. First, it withdraws fiscal stimulus at the right time by making room for the expected increases in private sector and earthquake-related reconstruction spending.

“Second, it has improved the macroeconomic policy mix by reducing pressure on monetary policy.

“Third, it creates fiscal space to help the country deal with aging and health care costs that are expected to increase over the long-term, and to cope with any negative shocks that may cause a sharp reduction in domestic economic activity or potential liabilities associated with the banking sector.

“Last, it could help raise national savings, reduce the current account deficit, and limit the increase in foreign liabilities.”

The IMF also notes the New Zealand banks remain sound.

However, it says New Zealand’s longstanding external liabilities remain a risk, reflecting historically low household savings rates.

“The Government has acknowledged this as New Zealand’s largest vulnerability and we have a sound, long-term plan to help turn that around,” Mr English says.

“Our economic programme includes a large number of measures aimed at improving the competitiveness of businesses. They include increasing exports and innovation, improving skills and infrastructure, deepening the capital markets and sustainably developing our natural resources.

“We are making progress in all of these areas.”

We can look across the Tasman to see what a Labor government has accomplished there. We could expect the same, or worse performance from a Labour-led one here.

By contrast National has done exactly what it said it would do – protected people from the worst effects of the global financial turmoil, maintained or enhanced public services while reducing the costs and put us on track to return to surplus in 2014/15.

The IMF report isn’t he only one which gives National’s policies a tick.

Standards and Poors have put New Zealand in its top 10 of least risky countries.

New Zealand, and Australia, have entered credit rating agency Standard & Poor’s list of the world’s top 10 least risky countries.

The list, included in S&P Capital IQ’s latest quarterly Global Sovereign Debt Credit Risk Report, has New Zealand ninth, sandwiched between Australia and Austria. The report focuses on changes in the risk profile of sovereign debt issuers, with the intention of identifying key trends and drivers of change.

New Zealand and Australia are new entrants in the top 10 least risky list replacing Britain and the Netherlands. . .

Lower risk helps takes pressure of interest rates which is good for the economy.

The IMF report is here.

The other side of the sale story

Opponents of the partial sale of a few state assets are still peddling their emotive arguments against the policy and in doing so are telling only half the story.

They’re saying we’ve lost Mighty River Power but we haven’t.

The state still owns 51% of the company; those shares are worth more now than they were before the partial float and all dividends will be taxed.

Opponents to the policy would have us believe the 49% of shares floated have gone with nothing in return.

That’s not the case. The government now has $1.7 billion to put to more productive use.

As Finance Minister Bill English said in parliament on Thursday:

There has been, I think, a misunderstanding that somehow in selling shares the Government and the taxpayer are losing an asset. In fact, we are swapping shares for cash, and by tomorrow night, the Government will have $1.7 billion in its bank account ready to invest in those projects that will be outlined in the Budget through the Future Investment Fund. Future proceeds of asset sales will also go into that fund. Parties that want to buy back the assets, or not sell them, will have to borrow the same amount of money from foreign bankers if they want to invest in the same way this Government plans to invest in infrastructure, in hospitals, in schools, and in better public services.

Jacqui Dean: What are the benefits of the Government’s share offer programme?

Hon BILL ENGLISH: There are many benefits. In the first place, the Government achieved its objective of widespread New Zealand ownership, so 86.5 percent of this company remains owned by New Zealanders. Secondly, it has provided an opportunity for New Zealand savers to invest their money in the share market, many of them for the first time. Thirdly, we have collected $1.7 billion in cash proceeds, which are available to the Government for reinvestment in public assets. And, finally, it is a significant move in reinforcing our public capital markets, where Mighty River Power will list as the fifth-biggest company on the stock exchange. A strong public capital market is one of the ingredients for higher incomes and more jobs.

That’s the other and more important half of the Mixed Ownership Model story.

It makes far better reading than more debt and less investment in other areas where there’s greater need for public money than energy companies.

MRP shares to list at $2.50

The government has announced the listing price for Mighty River Power shares:

113,000 New Zealanders will become shareholders in Mighty River Power following a successful share offer, Finance Minister Bill English and State Owned Enterprises Minister Tony Ryall say.

The final price will be $2.50 per share.

Of the shares issued, 86.5 per cent will be New Zealand owned: 26.9 per cent by New Zealand retail investors, 8.6 per cent by New Zealand institutions and with the Crown retaining a majority 51 per cent shareholding. That leaves 13.5 per cent for overseas institutions.

“This is an outstanding result and fulfils our commitment to ensuring at least 85-90 per cent New Zealand ownership of the company,” Mr English says.

“The share offer will raise $1.7 billion, which is a very good return for New Zealand taxpayers. Those proceeds will go into the Future Investment Fund, allowing the Government to control debt while continuing to invest in public assets. More details will be announced in next week’s Budget.

“The Government has achieved all of its objectives for the Mighty River Power share offer, so the company will list on Friday.

“Given the strong response to the share offer, and the price we have set, Mighty River Power will have a market capitalisation of $3.5 billion.

“And with over 110,000 New Zealand shareholders, it will have the largest share register – by some margin – of any New Zealand company on the exchange.”

Mr Ryall says that due to the strong level of demand, some scaling has been necessary.

“We have decided to apply progressive scaling, which means that larger applications are scaled more than smaller ones,” Mr Ryall says.

“That means that more than 80 per cent New Zealanders will get what they applied for.”

More details of the allocation and scaling decisions are attached.

“While most New Zealand investors will be able to work out from this announcement what their share allocation is, they will also be able to get confirmation of their individual allocation from Friday – by checking the website or calling 0800 90 30 90. We will also be emailing or writing to all applicants to confirm their allocation,” Mr Ryall says.

“The demand from institutional investors was strong, and bids from both New Zealand and offshore institutions were scaled considerably. Institutions will be advised of their allocations shortly, after which a settlement process commences.

“Mighty River Power will list on the NZX at 12.30pm this Friday.

“We are delighted to get to this stage, and look forward to a healthy aftermarket and a positive experience for New Zealand investors, particularly those who are investing in shares for the first time,” Mr Ryall says.

The price might well have been higher had it not been for the LabourGreen sabotage.

If they can cost the country millions in opposition they’ll do even more damage in government.

The NBR has the numbers:

Mighty River Power share offer – at a glance

Share Price:  $2.50
Proceeds of share offer: $1.7 billion
Total NZ ownership (incl 51% Crown):  86.5%

New Zealand retail investors
Individual New Zealand shareholders: 113,857 (provisional)
Retail investors: $943m
Proportion of shares: 26.9%
Average shareholding for New Zealand retail: $8,220
Applicants who pre-registered:  91%
Applicants without CSNs:  68%
Withdrawal after Labour/Green policy:  1,783 applicants ($25m)

New Zealand institutional investors

NZ institutions:  $300m
Proportion of shares: 8.6%

International institutions                                                                                                               
Offshore institutions: $472m
Proportion of shares: 13.5%

The 68% of applicants without a CSN are almost certainly first-time buyers. That indicates the partial float has succeeded in encouraging new investors.

Restraint still important

The government’s operating deficit is lower than forecast as a result of continued restraint and higher tax revenue.

The Government’s finances continue to improve with higher than forecast tax revenue contributing to the operating deficit now being lower than forecast in the Half-Year Update in December, Finance Minister Bill English says.

The operating deficit before gains and losses for the nine months to 31 March was $5 billion, or $273 million smaller than the $5.2 billion deficit forecast in December.

“The financial statements show that continued spending restraint is important as we remain on track to surplus in 2014/15, as the Budget next week will confirm,” Mr English says. “Ongoing spending control will allow the Government to build up sufficient surpluses to provide choices around repaying debt and investing more in priority public services.

Restraint on public spending has contributed to the improved financial position and it must be maintained.

This won’t be easy. People have largely accepted the need for restraint and the public service has done well on less. But the pressure to increase spending will grow as finances improve.

That pressure must be resisted.

The government has worked hard to improve the efficiency of the public service and reduce the burden of the state. The discipline which has resulted must be maintained to reduce debt and ensure the country is better prepared for the next financial upheaval than it was for this one.

We’lll pay for it

Keeping  Stock asks how much we’ll really save on power under a LabourGreen government?

Ministers Bill English and Steven Joyce gave the answer at yesterday’s National party Mainland conference: nothing, we’ll be paying more.

They’re promising households a $300 saving on power bills. Even if they can deliver on that which is most unlikely, they’re also going to impose a $500 cost through their ETS.

The best we can hope for under LabourGreen is a net $200 increase in our power bills, not any decrease.

Still on track to surplus

In spite of the uncertain global economic environment, the government remains on track back to surplus:

The Budget on 16 May will confirm the Government remains on track to surplus in 2014/15, Finance Minister Bill English said today.

It will also confirm the need for responsible fiscal and economic management beyond then so the Government can start repaying debt and investing more in priority public services.

“The Government is in the midst of a comprehensive programme to make government and the economy more effective, and to create conditions to give businesses and families more confidence to invest in our shared future – despite global economic uncertainty,” Mr English said in a speech to the Wellington Employers’ Chamber of Commerce.

Getting the Government’s own finances in better shape remains an important part of that programme.

“The Government has set a target of returning to fiscal surplus in 2014/15 and the Budget will set out updated forecasts next month.

“But I can confirm that it will show the Government remains on track to surplus in 2014/15, as a result of our careful management of the accounts.

“That is a considerable achievement – and a significant turnaround in the space of just a few years. Just two years ago, we ran an $18.4 billion deficit, half of which was the cost of contributing to the rebuild of Canterbury.

“Returning to surplus in 2014/15 will complete only the first part of our task.

“We will still have some way to go in rebuilding the fiscal buffers that have been run down in recent years. That means fiscal responsibility will be permanent,” Mr English said.

Looking beyond the return to surplus, the Government’s focus would shift toward using forecast surpluses after 2014/15 to achieve its second fiscal objective: bringing down the Government’s net debt to 20 per cent of GDP by 2020.

“This reflects what the Government considers to be prudent levels of debt in the current economic environment. . .

This is a considerable achievement given the global financial crisis and that New Zealand was already in recession when National came to power.

“In the Half-Year Update in December, net government debt was forecast to be almost 30 per cent of GDP in 2017.

“So you can see there is quite a challenge in front of us to meet the 20 per cent debt target by 2020,” Mr English said.

“It means we will need to maintain firm expenditure control beyond our return to surplus, so we can run big enough surpluses to have choices about paying down debt and investing more in priority public services.

“It is also a critical element of building a more internationally competitive economy.

“By reducing the resources the Government absorbs, we are making room for private investment while minimising upwards pressure on interest rates and the exchange rate. Budget 2013 will reflect those realities.”

The Budget will also continue to focus on macro-economic stability.

“Conventional monetary policy, predictable fiscal policy and a sound financial system are precious advantages in an unstable world. We will hold on to them,” Mr English says.

That reduction in debt is an ambitious goal and is dependent on National continuing in power.

A Labour/Green/New Zealand First/Mana coalition would take us back to higher spending, higher taxes, more bureaucracy and other policies which would sabotage the journey back to surplus and debt reduction.