The ACT Party is proposing to list 49% of the shares in a range of state-owned companies, including Kiwibank's parent company, on the share market.
The proposal comes in ACT's alternative budget, released on Thursday ahead of the October 14 election.
The sales would come via an extension of the The Mixed Ownership Model, which saw sell-downs of power gentaliers Genesis, Mighty River Power and Meridian Energy, plus Air New Zealand under the last National-led government in 2013-14.
"The Mixed Ownership Model has significantly increased the profitability and performance of New Zealand’s electricity companies. ACT proposes to extend this successful model to more SOEs. In particular, we would list 49% of the shares in AsureQuality, New Zealand Post, KiwiRail (and the Railways Corporation), Transpower, Kordia, and Kiwi Group Holdings (i.e., Kiwibank and its subsidiaries)," ACT's alternative budget says.
The ACT alternative budget document refers to Kiwi Group Holdings. However another company, Kiwi Group Capital, was established in November 2022 to acquire and oversee the Crown’s investment in Kiwi Group Holdings, the owner of Kiwibank and mortgage and insurer advisers The New Zealand Home Loan Company. In March Kiwi Group Capital amalgamated with Kiwi Group Holdings, the previous 100% shareholder of Kiwibank. Kiwi Group Capital is chaired by David McLean, the former Westpac NZ CEO.
"A programme of limited asset sales makes good economic sense. At present, these firms in aggregate fail to cover their cost of capital: The Government is effectively borrowing money on taxpayers’ behalf to fund its investments in these firms, and the returns being earnt from those investments are not sufficient to justify their risk."
"Continuing to hold these assets on the Government’s balance sheet without significantly increasing their profitability is a waste of resources. By selling a good chunk of the firms, we would subject them to commercial accountability, improving their long-run profitability. The Government would also realise a large amount of money from the sales, allowing us to pay down a portion of the COVID-19 debt. Furthermore, it would deepen New Zealand’s capital markets, making them a more attractive destination for investment, and could improve the service received by customers," ACT says.
Current polling suggests ACT could be part of a National-led government after the election. National's not campaigning on any asset sell-downs. Its leader, Christopher Luxon, was CEO of Air New Zealand when the Government sold down its stake in the national carrier.
'Not that much of a hurdle'
In a recent episode of interest.co.nz's Of Interest podcast, I asked Kiwibank CEO Steve Jurkovich about the potential for a partial sell-down of the bank under a new government. Jurkovich said he'd heard no suggestion from either National or Treasury that it could be on the cards. However, he didn't think a move to a Mixed Ownership Model "would be that much of a hurdle for us," if it was to ever happen.
"Would that be a massive change for what we're trying to achieve and our purpose? I don't think so," Jurkovich said.
Jurkovich did say, however, that a requirement for Kiwibank to pay a sizeable dividend would be a significant change for the bank, if it was made. Kiwibank's June-year general disclosure statement shows it paid $14 million in annual ordinary dividends, equivalent to $1.86 cents per share. Its net profit after tax was a record $175 million.
Retained earnings are Kiwibank's key means of increasing its regulatory capital. Under Reserve Bank rules, Kiwibank's required to have a total capital ratio, expressed as a percentage of risk weighted exposures, of at least 16% by 2028. As of June 30 the bank was at 14.3%. The minimum requirement now is 10.5% being the basic 8% minimum plus a 2.5% buffer.
"We've been really clear that when there's a regulatory requirement for extra capital, we need to cut our cloth to suit that so we can grow at certain levels. We need to create enough retained earnings to do so. If you change that plan and want more dividends, then what you're probably signalling is a bit of a departure from wanting a bigger Kiwibank that's having more impact. So I think it's a pretty big, fundamental change. And ultimately, of course, if you grow Kiwibank then the New Zealand Crown has a more valuable asset," Jurkovich said.
"Dividend policies can change but we certainly haven't had that signalled to us," he added, noting a change would be a board decision.
In August 2022 the Government took full and direct ownership of Kiwi Group Holdings, buying out shareholders NZ Post, the NZ Super Fund and ACC in a deal that valued Kiwi Group Holdings at about $2.1 billion. Kiwi Group Capital has subsequently sunk $225 million into Kiwibank to bolster capital and help fund the bank's growth. This money came from the $310 million sale of Kiwi Wealth to Fisher Funds last year.
ACT also says the Mixed Ownership Model (MOM) has protections built in to protect New Zealand’s interests.
"In particular, no non-government shareholder can control more than 10% of the shares in a MOM company. Where Treaty of Waitangi concerns precluded the sale of particular pieces of land, we would retain them in Crown ownership and provide long-term leases to the SOE. The sale price of these SOEs is assumed to equal their commercial valuations. This is likely to be an overestimate for some SOEs and an underestimate for others. We have also assumed the sale process would take three years, starting in full-year 2024," ACT says.
Meanwhile, ACT’s Alternative Budget proposes the sale of 100% of LandCorp, or Pāmu, "likely in chunks, rather than wholesale," with proceeds used to fund conservation on privately owned land.
*This article was first published in our email for paying subscribers. See here for more details and how to subscribe.
96 Comments
It's a bit of a silly exercise, because you can poll on a bunch of things
- would you like a better education system
- how about amazing public transport for all
- would you like to see the rate of crime lowered
- care for an ice cream
And guarantee a majority for most of them. But if you listed the prices and consequences, things change somewhat. Unless the sub option is "yes, but someone else can pay for it".
Still yes, because what's stopping another local banking competitor rising up in lieu of Kiwibank? Or for local investors to buy Kiwibank if it is sold? Then, we already have TSB. We clearly don't need state ownership of a bank to "challenge the Aussie Banking Cartel" as you put it. Not to mention that the Asusie banks are actually in competititon with each other, and most Kiwis still seem to prefer banking with an Australian-owned bank despite the freedom and opportunity to bank with Kiwibank or TSB.
Yes, assuming by sell you mean down to 51%. Because 51% maintains govt control which appears to be something they want. And frankly, they'll grow to challenge the 'Aussie Banking Cartel' much more quickly with private capital involved to identify efficiencies and areas of competitive advantage.
TBH I'd sell it completely because there's no reason for the govt to be directly involved in banking but I'll compromise with down to 51% because there's 5m+ NZers not just me :)
Currently Kiwibank's service is a joke. I recently got a credit card and did my due diligence by comparing them all. Kiwibank's offering was piss poor compared to the Aussies. Sorry, but how is pricing higher than the market improving competition?
We opened a joint account for our house. My partner is ideologically inclined to go with govt bank so we did it with Kiwibank. Most frustrating and time consuming process I have ever been through in attempting to access banking products.
How is offering more expensive, lower quality services improving competition?
That's a terrible question because it's mega loaded with a contentious claim.
A better poll might be whether the overwhelming number of people that don't want to sell Kiwibank, actually use Kiwibank as their primary bank.
Because we don't want to sell it, yet also don't want to support it.
"The Mixed Ownership Model has significantly increased the profitability and performance of New Zealand’s electricity companies. ACT proposes to extend this successful model to more SOEs. In particular, we would list 49% of the shares in AsureQuality, New Zealand Post, KiwiRail (and the Railways Corporation), Transpower, Kordia, and Kiwi Group Holdings (i.e., Kiwibank and its subsidiaries)," ACT's alternative budget says.
And where does that significantly increased profitability come from? From you and me, ffs. Electricity is a human right in the modern world, and should be supplied at no more than the cost of production. Same goes for internet access.
As for KiwiBank, what we need is for everyone to have an account directly with the Reserve Bank, using central bank digital currency, and a state advances corporation to supply housing loans. Then by all means sell KiwiBank: we'll have no need of it.
Absolutely selling the 49% of the gentailers has left us worse off, with fewer options for the energy supply we need to reduce greenhouse gas emissions rapidly.
Doing the same to NZ Rail will screw over the only realistic long term land transport system that we need to reduce greenhouse gas emissions.
ACT are just climate change deniers.
I didnt think they were gaslighting anybody - recognising that kiwibank sale could reduce debt and fund other investments (infrastructure for example) isnt gaslighting
and the bank could actually grow faster to be a real player in NZ rather than remain just a minnow - especially if some of the proceeds of a sale were reinvested in the bank
I think you should be ruled out for your comment lol.
1) Govt will maintain 51% ownership. So control remains with NZ govt which is the benefit of ownership you're claiming will be lost.
2) If it's anything like other asset sales, NZ citizens and their superfunds will pick up a significant portion of the shares.
Re: "recognising that kiwibank sale could reduce debt and fund other investments (infrastructure for example) isnt gaslighting"
What it does demonstrate is a abysmal ignorance by ACT of what it means to be a sovereign currency issuing country.
Public debt in NZ$ is a non issue.
Read the article again.
Government wants Kiwibank to grow so is letting them retain 'profits'.
Good policy too. Keeps the money in NZ rather than sending offshore and contributing to our abysmal balance of payments deficit. So, in a way, Kiwibank's low payout to the government does in fact "pay down government debt" as you suggested. (And I'[ll not re-iterate, as many here already have said it again and again, NZ Government debt really isn't a major problem. Private debt - held by non-government -... is!)
I don't really consume mainstream media. One would hope these sorts of brain farts by the government in waiting are examined and debated properly, rather than allowing these clowns a sleepwalk to power just because they're not the current government. Their policies are truly awful.
returns being earnt from those investments are not sufficient to justify their risk
This is the same sentiment for all first tier banks come new regulations. The debt does not stack up, it does not pay enough at low interest rates, especially if there are higher dividend requirements imposed. And the banks must lend less. How does a NZ bank generate more capital? Sell it publicly??? This is toying with the economy if the local banks lending capacity is constrained to publicly invested capital. What happens when there is a capital flight? People lose their homes and that same taxpayer inevitably bails the bank out anyway.
I've been harping a little about the change recently (saying 8% -> 12%) though I believe the new regulation is 10.5% -> 16% or 18% come 2028 (as suggested in this article).
Jeez,it's getting harder to vote for anyone this election...shame we can't just vote for a list of policies,then a true proportional government made up of MP's of every party
Asset sales- Yes/No
Foreign Buyer Ban removal- Yes/No
GST off fruit & Veg- Yes/No
Reinstatement of mortgage deductions- Yes/No
Brightline reduction- Yes/No
Mass immigration- Yes/No
No super whilst earning over a certain amount- Yes/No
Luxon says the voter is never wrong...
In my small opinion something like this could be approached with much more nuance. Selling Transpower makes even less sense than having a half dozen 51% government owned marketing agencies competing to put their letterhead on our power bills. The high voltage major electricity distribution spine should surely be a national asset held/managed in trust. And if we were thinking practically we'd likely want to sell down some assets to nationalise both Transpower and the local networks together into public trust. The 26 different low voltage distribution entities are arguably the largest structural barrier to true electrification.
Now chopping off Pamu managed lands is an interesting one. I don't know enough to indict them one way or the other, however I can read the cash return they produce for the public and it's not super flash!
I have it on good authority that due to huntly having a turbine stuffed (fix due mid 2024) and the gas generator near stratford blowing a turbine completely (fix due mid 2024) that wholesale electricity winter 2024 is going to be a doozy for everyone. Plan accordingly folks
I thought there were more smart people on this website. Mixed public ownership is by far the optimal model as poor Mngt/directors can't hide behind constant scrutineering of results at the broker firms and interrogation by activist shareholders/NZSA. It's by far the best way to ensure accountability and market performance. Just look at every single one of those 100% owned businesses (Ports of Auckland compared to Ports of Tauranga or How terribly run Kiwirail is etc) its classic cases of government/council can't run a business properly if their life depended on it. Mercury, Meridian, Air NZ, Genesis are far more disciplined, accountable and profitable under this model. Don't be short sighted the 51% (and still hold all voting control) is worth more over time than 100% when poor management/directors run it unprotfitably.
None of those are banks though are they. Banks are extraordinarily levered & Kiwibank has been able to grow due to it's implied Govt guarantee. No privately owned NZ bank has been able to make any head way in the local market, it doesnt matter what management want to do in banking if the credit rating isnt there.
You're missing the real issue.
The real issue is that the big banks all contributed to the "rules" that the RBNZ set for banking in NZ.
As a result these "rules" they locked out any new players that aren't both a) massive to start with and b) already operating in NZ. Ask yourself why there are no big American Banks in NZ. Or UK. Etc.
re ... "Mixed public ownership is by far the optimal model"
Prove it!
We can wait.
And .. "It's by far the best way to ensure accountability and market performance."
We can wait for you to prove that one too.
And while you're floundering around looking for evidence - you can explain why the UK's, Canada's, NZ's, etc public health systems provide far better health outcomes than the US's mainly privately owned systems. (And I'll introduce you to the fact that even in the USA they have co-ops (aka mutuals, non-profits) health care providers that do better on a cost/benefit basis than the private health care providers.
While I am not necessary disagreeing, health is a bit of a funny one because it is so expensive it must be done via insurance. And an insurance company can't exactly run a waiting list for minor issues like a public health system does. So in the US you get an MRI every time you have a headache, and as a result it costs a fortune.
It might be more to do with their medico legal system in the states. Clinicians are very risk-averse as they don't want to get sued. Therefore, over-investigating everything with the bill picked up by the insurance company. Highly inefficient.
Here in NZ we have ACC which gives the clinicians some protection if they say no to expensive testing. Not that ACC is perfect, either . . .
I agree there are things that can / should be privatised (fully even). The government shouldn't own AirNZ for example.
But for anything to do with a core service such as Kiwirail or Transpower does it really make sense? And if they are going to privatise Kiwirail then why not Waka Kotahi?
I'd go way further.
The sacred cow that is retail banking is likewise a core service.
And is way, way simpler than supplying electricity, or water. There is absolutely NO financial reason, nor practical reason, why all the retail banks couldn't be nationalised and run by a simple but tweakable algorithm. NZ Inc would be wildly better off for it.
The issue is that the extra profit required for the shareholders can only come from the pocket of the team of 5 million, then you get reduce service in the regions as it's not profitable to run XYZ. I agree it would bring benefit but wonder why we cannot achive the same thing without selling it off?
Couldn't agree with you more Thinker,.....but I guess you just need to look at the majority of posts here (in a business blog!) to realise that there is huge scepticism, if not cynicism about any belief that state assets should be partially floated on the open market.
Our problem is that collective philosophies, socialism and communism seem so credible...."team of 5 million,...keeping the family silver,....being kind to one another"...etc., etc.
. An "open market, secure private property, competition, rule of law,, etc.," sounds so darned messy and seems likely to favour a clique of already privileged.
And even "democracy" with our governors losing power on the whim of the people, and a noisy opposition who seem so disloyal to the silent majority,...is a fragile flower that just doesn't fit right with those who want a smoothly oiled "system".
So , "no" I guess is the popular view of those who like to hug their old teddy and wait for the government to provide all those nice "rights" like a warm dry home, and a nice peoples' bank it seems. I rather doubt any of these have read Orwell's "Animal Farm"
Its flawed thinking from the 1980s that we need to move past. The Singaporean government has actively invested in businesses, via it sovereign wealth fund, for years with the net result that their tax rates are MUCH lower than they otherwise would be. The GIC paid the Singaporean government $22B in 2022 for instance. Imagine what we could so in NZ with that sort of money. Tax is NOT the only source of funding for government as the neoliberals would have you believe!
I don't entirely disagree with them, that it makes the SOE more profitable. But 49% is a mistake, should be 20-25% max. Anything with backbone physical infrastructure though should remain under the states full control (Kiwirail/Transpower). I mean selling almost half of Transpower is absolutely batty IMO.
So they will sell Kiwirail but not Waka Kotahi? Selling the roads would be a lot more profitable, think of all that valuable land underneath them. And apparently they aren't being run well now, so more reason to sell them.
Typical ACT, the ideology only applies when it suits.
Roads have the biggest government subsidy of anything in the country.
Take my road for example, it sits on probably $20 million of land, has maybe 500 users a day. To get a 10% ROI each user would need to pay $10.95 per trip, and that just gets you to the end of my road and excludes maintenance. Of course no one would pay that so it is effectively uneconomic and should be sold off for another use. Or Auckland's Queen Street, the land is worth a stupid amount, but we gift it to a small number of people to drive their cars on. ACT should be all over this!
Council parking is way too cheap too. Several of my colleagues park in the limited time council parking all day and cop the odd $20 fine, roughly the same cost overall as the closest commercial parking building. Why are those of us who bike or walk subsidising car drivers?
NZTA dont own the roads they are supposed to keep them suitable for traffic and build new ones . They are a middle man between the roads and contractors maintaining the roads and a pitiful effort they make of it. But it is not helped when pollys decide to change the proportions spent on maintenance in favour of major new roads.
I have my mortgage with them, beats having the profit syphoned off to Australia, and the rates are essentially the same. Service has always been fine for me.
Would consider buying shares if it ends up being part sold - help to keep the ownership in NZ. I already have shares in Heartland, and bank with them too.
I have been with kiwibank for over a decade. As I see it, it's like buying local over imported. Their service is comparable to the others. Imagine: if KB got 20% market share then that is millions of dollars of profit that would stay in NZ.
If I want to see NZ do well why would I give my business to an overseas bank?
yes a policy based system and no politicians. Politicians are not needed for policies but cost benefits need to be provided and a pie slice diagram. Kiwibank sell down if all shares are first offered to NZ residents and then to corporations if there is insufficient uptake.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.