As the Prime Minister explained last year, there are two good reasons to partially privatise state assets. Firstly, the private sector is better at running businesses than the state, and secondly, our private sector is so rubbish at running businesses, investors desperately need state run companies to invest in. On that note, Adam Bennett at the Herald reports:
State-owned energy companies earmarked for partial sale are generating returns well in excess of the Government’s cost of owning them and outperform most similar private sector companies, says a report released just before Christmas.
Announcing his Government’s plan to proceed with the part-sales a year ago, Prime Minister John Key said the companies would “reap the benefits of sharper commercial disciplines, more transparency and greater external oversight”.
But Ernst & Young’s report shows the three companies have performed well compared to their private sector counterparts.
Over the 10-year period which Ernst & Young examined, Mighty River consistently produced a return on investment better than three-quarters of 27 companies in New Zealand, Australia and the US which were used as a benchmark.
There’s a school of thought that part-selling of these assets is one of those ‘tough decisions’ governments are supposed to make. It’s actually the path of least resistance. Given its fiscal policies and its current situation, National had three options: (1) raise taxes, (2) large spending cuts, (3) sell assets. The third option is the least damaging to Key’s approval ratings in the short to medium term – so even though it’ll be the worst outcome for the country, it’s the best solution for him personally.
I guess there is a fourth option: the government could start buying majority shares in private sector New Zealand companies – since our state owned companies outperform the private sector, the taxpayer would reap the improved dividends. Everybody wins!