Does National have a mandate to sell assets?

by Fiona Rae / 17 March, 2012
That's what it used to be called, says Jane Clifton, but most people don't favour asset sales.

The grand tradition is for politicians to be pilloried for failing to live up to their election promises. But just to mix things up a bit, we’ve now decided to penalise them for doing exactly what they promised. Actually, it’s even more fun than that. The new Opposition mantra is that the Government doesn’t have a mandate for a promise that it expressly made conditional on being re-elected. Which is what we used to call a mandate.

The more closely you examine the debate over the partial float of electricity companies, the more perverse it gets. This policy was the headline issue of the election campaign. Despite the sales’ unpopularity, National was unequivocal that if re-elected it would raise capital for the companies by floating up to 49% of them to private investors. (It said “mum and dad” investors, actually, but we all know that the parental component of gross fixed capital formation is somewhat puny. We all understood that big investors like hedge funds would become the primary minority stakeholders in the end. It also said “mixed ownership model” rather than “asset sales”, but most people understood it to mean “selling the family silver”, or near as dammit.)

This policy helped drive a flurry of extra votes to the Greens and, late in the piece, to New Zealand First. But National still won. From that, one would ordinarily infer that it had a mandate to do what it had promised to do. But because opinion polls continue to show that most people don’t favour asset sales – they regard them, indeed, as a sort of modern re-enactment of The Wreck of the Hesperuswe’re now having daily mandate semantics in Parliament. Does the re-election of a Government really freight the moral authority for it to implement its promises? Or does a subsequent opinion poll trump that mandate?

As John Key pointed out, the Greens insisted on the anti-smacking bill, even though opinion polls found a majority opposed it. When does single-issue public opinion constitute a moral imperative, and when is it just a darned nuisance?

Pausing only to move to another pinhead because this one is getting pretty crowded, we should admit that when people vote for a party, few agree with absolutely everything it promises to do. And although many people vote against a party because a single issue hoses them off, that doesn’t imply 100% sign-up to whatever party they do vote for.

And then there’s the question of what people understand about a Government’s intentions. Many – possibly most – people think the plan is to sell the electricity companies, full stop. The issue is now hopelessly bound up with the furore over land sales to foreigners, to the point where the broader ownership question has become more than a policy debate. It’s a full-blown emotional Buzzy Bee/All Blacks/Hobbit/Kiwibank/cuddly kakapo love-fest. Voters are saying, “We want to keep our stuff!”

This is eating into National’s support – electorally perilous for it, given the resurgence of NZ First and the disintegration of Act. At least last term it could cry economic emergency. Perversely, the signs of consumer confidence we’ve seen this year – new mortgages and new car sales suddenly surging to a several-year peak – will dampen voter sentiment when it comes to being offered unpalatable fiscal medicine. Increased consumer spending and borrowing are hardly the darling buds of sustainable economic growth, but they may make voters feel less economically imperilled, and that limits the Government’s options.

The real question for National is not last election’s mandate, but next election’s. Unless it can sell the benefits of these floats – and it has done a lousy job so far – it should really consider how to get away with breaking this particular election promise. But the Cabinet still seems gung-ho about the prospects, and not without reason. Despite the lukewarm Treasury calculations of the relative merits of selling, there could be considerable benefits – if you can put aside the ideological considerations, which, of course, National can.

The companies are returning a dividend to the Crown of under 3%, and the cost that the Government would have to undertake to borrow in lieu of the floats is 4%. The Opposition has been using a figure of 18.5% return, but that was artificially fattened up by – wait for it – the sale of some assets. The companies have in recent years sold big assets in Australia and Tekapo worth hundreds of millions of dollars (including under the previous anti-asset-sale Labour Government), which has made the returns look massive. In reality, unless they keep selling off bits of themselves at a fast clip – not what voters are after – the underlying earnings profile for the Crown is forecast to be only around 2.9%. With borrowings costing barely above that rate, there’s not that much in it, considering the massive unpopularity the sales have courted.

But what can’t yet be factored in is the improvement in overall earnings of the companies if/when they are freed and capitalised to do more business overseas, where they have globally sought-after expertise, and are already in key projects making a 20% return. If these floats succeed, they will almost certainly put more value on the Crown’s balance sheet over time, even with its lower shareholding, than doing nothing. If nothing happens, well, we just get 2.9% less 4% per annum – but a warm feeling of ownership in our bosom.

The Government’s wider problem is that all the news around it now is bad news. The public sector cuts have opened a cyber-superhighway to the Opposition, which is able to brandish daily leaked plans in the House, blindsiding ministers. Alas, we’re not just cutting down on policy advisors, human resources wallahs and the like, but cutting down on frontline staff in social services agencies and – holy of holies – the police’s support staff. After years of political cant about “more bobbies on the beat!”, and crowing about the lower crime stats, anything that has officers doing more two-fingered typing in the backroom is a recipe for political punishment.

Unluckily for National, leaked plans for big cuts to our foreign affairs presence in Cairo coincided with reports of our consul heroically negotiating at gunpoint for a New Zealand woman’s custody rights in Algeria.

The Opposition is in clover portraying the future of our representation abroad. In a spot of bother overseas? “Phone 0800 MFat, and press 1 for lost passport, 2 for child abduction, 3 for narcotics charges, 4 for muggings, 5 for civil war, 6 for al Qaeda kidnapping … You are 1459th in the queue. Thank you for waiting, your call is important. [To you.]”

Foreign Affairs is also among departments trying to bring in effective pay cuts for its staff at the same time as the 300 redundancies. This heralds the classic state-cuts roil of unintended consequences. The best and brightest take redundancy because they’re more employable elsewhere than lesser-talented colleagues. This leaves the B-team to do all the work with fewer resources and, inevitably, they do it less well, to the point where contractors have to be brought in – and helloooo … welcome back many of the staff originally made redundant.

Over time, contracting gets right out of hand because departments find they get better results from outside than inside, and the Government has to have a witch hunt to get that bill down, too. All told, it’s about as tail-chasingly fulfilling as trying to get a mandate for your mandate.
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