Why John Key needs to ignore the focus groups and part-privatise Kiwibank

Bernard Hickey says John Key should ignore the focus groups and part-privatise Kiwibank

John Key continues to smile and wave when it comes to tough policy decisions.

Over the weekend he essentially shut down debate on the idea of even a partial privatization of Kiwibank.

He said Kiwibank would not be privatized or even partly sold “under his leadership”. 

By saying this he reversed the position floated by both Bill English and himself after the budget. They rightly said then the government couldn’t continue to afford to fund Kiwibank’s growth and that a partial float was one option to come up with the new capital.

But obviously the focus groups and the dip in the polls after this partial privatization idea was floated was more than enough to unnerve the Prime Minister.

This exchange found on Youtube above might explain why. It’s a video clip from a pre-election debate hosted by John Campbell.

This is what John Key said almost two years ago now.

John Maynard Keynes said ‘When the Facts Change, I change my mind’

The facts have certainly changed since John Key promised never to sell Kiwibank in two important ways.

Freezing his policy in time is a bad idea and I’ll explain why.

Firstly Kiwibank has grown very quickly and was a major lender into the property market during the last two years. It now needs significant new capital to keep growing to keep the pressure on the big banks.

To give you an idea of how much extra lending it has done, Kiwibank has lent an extra NZ$3.8 billion since the Global Financial Crisis began. That is much more than the big banks. It’s four times more than the biggest bank ANZ National and twice as much as each of BNZ, Westpac and ASB. Kiwibank singlehandedly helped the housing market from slumping further than it did in late 2008 and early 2009.

But ominously, Kiwibank’s growth has stalled because it has run out of fresh capital. It’s lending in the March has almost halved and it’s now growing slower than a couple of the other big banks.

That has two consequences. Firstly it kicks one of the legs of support out from the housing market and the economy, which is really a housing market with bits tacked on.

Secondly it removes pressure from the big banks.

In the 7 years since Kiwibank was launched I reckon the big banks made at least NZ$8 billion less in profit than they could have, at least partly because of the extra competition from Kiwibank.

The other fact that has changed since John Key’s statement is the global financial crisis has now morphed into a global sovereign debt crisis, which means the government can’t afford to fund Kiwibank’s growth.

John Key’s decision not to part-privatise Kiwibank is condemning it to a cul de sac of slow growth that leaves many businesses and homeowners without access to fresh lending. It also allows the big Australian banks to make profits without the same pressure from Kiwibank as before. And it means New Zealand’s capital markets remain starved of fresh listings that New Zealanders need to come back into the stock market.

This is one of the ironies of John Key’s stance. He is changing the tax laws to reduce some of the incentives for investing in property. He wants New Zealanders to save more and to invest more in our stock markets. Yet he won’t allow some of the obvious obvious candidates for flotations onto the market. Strong leaders will change their views when the circumstances change.

Strong leaders don’t worry about poll results or focus groups. Strong leaders do the right thing for the long term.

John Key is showing himself as a leader who smiles and waves, but does little to challenge his followers or truly reform the economy.

I’d like to see less of the smiling and more of the assassin from the man some have described as the Smiling Assassin.

John Key and Bill English need to either stump up the capital to help Kiwibank grow or to partially privatise it. Smiling and waving and hoping the problem will go away is no solution.

Your view? I welcome your thoughts below.