National has always said that proceeds from the mixed ownership model of state assets would be used to fund different ones to reduce the need to borrow.
John Key’s announcement that the proceeds from the sale of a minority share in a few of the many assets owned by the state will go into a Future Investment Fund confirms that and ensures the money won’t be lost in the Consolidated Fund where it could easily be frittered away.
“A National-led Government will use the $5-$7 billion proceeds of the mixed-ownership model to set up a Future Investment Fund to buy new productive infrastructure for New Zealanders.
“The first priority will be putting $1 billion into modernising and transforming New Zealand schools over the next five years.
“The environment in which teachers teach, and kids learn, is hugely important to their future. We want New Zealand children studying in modern classrooms that meet their learning needs and let them use the most up-to-date technology.
“That’s a crucial component in lifting achievement, which in turn is vital to building a faster growing economy with more exports and more real jobs.
“As things stand now, the existing money for school building projects will be needed simply to maintain the existing school network and to help address health and safety issues like earthquake proofing and leaky buildings.
“The mixed ownership model will allow us to increase the total amount spent on school building projects each year by more than 50 per cent, without extra borrowing.
“As well as schools, the Fund will be used to pay for high quality projects like major hospital redevelopments and transport projects. More projects will be confirmed as decisions are made.
“We will be very transparent about the proceeds that go into the Future Investment Fund and very transparent about what assets it is used for.
“In this way the public can be assured that the proceeds of mixed ownership are not being lost. Far from it – the money we raise from mixed ownership is being used, in its entirety, to pay for valuable new assets that will benefit New Zealanders.
“And because we will have the money already there in a Fund, we don’t need to go out and borrow that money from overseas lenders, increase our debt, and pay higher interest payments offshore.
“That’s a win-win for New Zealanders,” Mr Key says.
The parlous state of several countries overseas as a result of excessive borrowing is a salutary lesson for anyone who thinks that’s what we should do.
Finance Minister Bill English emphasises the importance of not having to increase debt:
A National-led Government is committed to investing in modern infrastructure that helps build a faster growing economy with more exports and more real jobs, while keeping our debt low,” Mr English says.
“That’s precisely what our extension of the mixed-ownership model is all about. If re-elected, National will put the proceeds of mixed ownership – between $5 and $7 billion – into a new fund, called the Future Investment Fund.
“Through the Fund the public can be assured the proceeds of mixed ownership are not being lost. They will be used to buy new assets for New Zealanders, and to upgrade and modernise our existing assets, reducing the Government’s borrowing from foreign lenders by $5-$7 billion.
“Investing the mixed-ownership proceeds in this way will result in assets that are long-lived, are here in New Zealand and are owned by the Crown on behalf of all taxpayers.
“They will be part of a growing asset pool, with taxpayers’ assets forecast to expand from $245 billion now to $267 billion by 2016.
“We will set a high bar for projects to be paid for out of the Fund and the case for these projects will have to stack up. They will have to either improve public services or deliver substantial economic dividends for New Zealanders and can’t just involve the routine replacement of existing capital.
“Decisions on spending from the Fund will be made on a case-by-case basis, by ministers, as part of the normal Budget process.
“We intend the Fund to run for at least five years but this of course depends on how much the mixed ownership model raises. The higher the proceeds, the more new investment we can pay for without having to borrow.
“The Government has clearly laid out its plans to extend the mixed-ownership model, which Air New Zealand has operated successfully under for almost a decade.
The Labour Party are opposing the partial sale of assets but using Air New Zealand in their campaigning when this is exactly the model National is proposing.
“After the election, we intend to extend this model to four other State-owned companies – Meridian, Mighty River, Genesis and Solid Energy.
“The Government will retain at least 51 per cent of these businesses and Kiwis will be at the front of the queue for shares.
“This will provide an investment opportunity for savers looking to put their money in something other than housing or finance companies.
“A large and growing pool of New Zealand investment funds will ensure strong local demand for shares. As a result, we expect New Zealanders to own at least 85-90 per cent of these companies.
The mixed ownership model will allow New Zealand individuals and organisations including ACC, superannuation funds and Iwi to invest in New Zealand companies.
Some shares might also go to overseas interests. Those opposed to the proposed sell-down portray this as somehow sinister, I don’t think it is.
All New Zealand superannuation funds have shares in energy companies in Australia so it is highly likely that Australian superannuation funds might be interested in buying some shares in ours.
The alternative to selling minority shares in a few assets is borrowing from overseas banks, almost certainly mostly Chinese.
Selling a minority share in a few assets or increasing our indebtedness? No contest.