The Bill English Trick
We need to find new ways to invest in ourselves – not new ways to asset strip our existing holdings.
2012 was a simpler time. It was the year I came to New Zealand. The country was only just recovering from the horrors of the Christchurch Earthquake sequence. Wellington’s Courtney Place was a great place to be at night. Bill English was in his pomp. His masterplan – reduce debt, sell stuff, deliver a smaller government. The centrepiece of that plan was the Future Investment Fund.
At its heart it was simple. Hock off a bunch of assets, and ‘recycle’ the assets into schools, hospitals, and roads. This was stuff the government was going to build anyway – so using the funding from those sales instead of the government’s own money reduced Crown borrowing. $4.7bn of funding was created by the partial sale of the electricity generators and Air New Zealand.
The fund did not exist formally – it was not incorporated into the Treasury accounts. It was impossible to follow the money from asset sales to new asset purchases. It was incredibly unclear how much of the sales proceeds were displacing existing spending or were actually additional. Between 2012 and 2016, nearly all capital expenditure from the government was funded from this source.
It was a trick. A sleight of hand. Long-term, revenue-generating assets were sold to pay for the day-to-day investment needs of the country. It would be equivalent to selling the family bach that you rent out for cash, to pay for fixing your own roof, and then pretending that you were better off. You (and we) weren’t.
One of the key authors of a Treasury Paper that helped create the Future Investment Fund was Cameron Burrows, who is now Chief of Staff to the Prime Minister. The Senior Ministerial Advisor to Bill English at the time of the Fund was Matt Burgess, who is now Chief Advisor to the PM. It’s therefore no surprise that the Luxon government has returned to this policy in its time of need.
On Friday, the government announced that it was seeking to sell its interests in Chorus – the company responsible for much of the high-speed internet infrastructure in New Zealand. The sale could generate at least $643 million. According to Infrastructure Minister Chris Bishop, “If such a sale gains approval and goes ahead, the proceeds would return to the Crown and the cash would be made available for capital allocations – that’s hospitals, schools, and roads”. Does this sound familiar?
Apparently, this doesn’t break the promise that National made in opposition not to sell state assets, when the now PM said, “There will be no asset sales. It’s not something we’re focused on or not interested in”. The reason? “Debt securities and equities don’t really fit New Zealanders’ idea of an asset” according to the Minister of Finance. That must be news to anyone who owns shares, investment bonds, or, say, government debt. They are the definition of an asset.
But I don’t write this article to poke fun at history repeating itself, nor to express frustration that National is up to its old tricks. I write because of what it says about New Zealand. We are a country that is desperately short of investment, both public and private. Infrastructure Commission research indicates that over the last 20 years, New Zealand spent an average of 5.8% of gross domestic product (GDP) on infrastructure. The $17.5 billion in projected spend for 2025 equates to around 4.1% of GDP. It’s even less in the future. We have a huge public sector infrastructure gap and nothing to fill it.
Yet here we are, on the verge of repeating the same trick delivered by the National Government in 2012. Funding existing investments out of recycled assets. Actively disinvesting in New Zealand. The Prime Minister has said that “National will campaign on asset sales next year, saying an election win in 2026 would be the mandate he needed to push ahead with asset sales next term”. Expect more assets to be sold, with tax cuts, spending cuts, and self-reliance increasingly the policy prescription. It didn’t work last time, but this time it’ll work. Honest.
Since partial privatisation, electricity pricing has risen steeply, while investment has fallen from pre-privatisation levels. Is it cheaper to fly to provincial centres in New Zealand now that Air New Zealand has been privatised? Is more privatisation likely to lead to higher levels of investment in our assets? No – the experience of privatised water boards in the UK shows you that.
New Zealand needs to start investing in itself. According to MBIE “As at 31 March 2024, 72.4 per cent of KiwiSaver money was invested in stock in overseas businesses”. Australian retirement funds invest in Australia – around 50% of their funds. That means around A$2.1trn is being invested in Australia today – around 85% of their annual GDP figure. In New Zealand, the equivalent figure would be around 8%.
We need to find new ways to invest in ourselves – not new ways to asset strip our existing holdings. We have significant investment needs in New Zealand, and if we choose not to invest in ourselves, then we are expecting overseas investors to fill that hole – and take with them the dividends from that investment. We need to find new ways to protect the existing assets we have – so that they are managed with our long-term interests in mind – not short-term political needs.
It’s time for the government to think differently about its role in the economy. It’s not 2012 anymore, and the state can have a valuable role in helping to bring about that change, and its role in helping create the finance for that investment. In ways that marry long-term goals for our economy with investment opportunities for actors such as Iwi, Kiwisaver funds, for New Zealanders.
In 1974 Singaporean State Fund Temasek was formed with assets worth $354m. It’s now worth S$434bn. The Norwegian State Pension Fund, build to manage the value of petroleum sold from the North Sea, now owns almost 1.5 per cent of all the shares in the world’s listed companies, and is now worth over US$340,000 per Norwegian citizen. Let’s not fall for the Bill English Trick again. Let’s choose instead to invest.
Thanks Craig. I enjoy your analysis. I ask myself daily now - why do we keep leaning on the old behaviours and dictates of sell, sell, sell (privatise, privatise, privatise) when we have evidence both from within and outside of Aotearoa that it does not work, for the vast majority of people or the country and eventually the sovereignty of the country. I used to laugh at the Homer Simpson cartoon where he used to keep touching a button that gave him an electric shock - and he was too dense to learn the lesson - it feels like these cretins in charge of our economy are similarly devoid of brain cells and learning. AND I am mad that these cretins are cunning enough to suppress voting from the left come next election. Indeed they have many of us in survival mode that voting is so low on the priority list, it might bloody work.
Politically inconvenient as it might be, we need to look at the opportunities that come from New Zealand being a sovereign currency issuer.
One of the starting points has to be the complete redefinition of 'fiscal responsibility' in the Public Finance Act. The current concept of 'fiscal responsibility' in the Public Finance Act is part of the 'iron cage of regulation' (as Geoff Bertram describes it) that limits government action to the continuation of neoliberalism.
How about these propositions as a starter:
a) Overt monetary financing (direct financing of public expenditure by the central bank) is a useful tool provided its use respects the real limits of the economy. These limits include, but are not limited to, the availability of labour, material resources, and available technology.
b) Overt monetary financing must be paired with appropriate policies to ensure inflation and other macroeconomic indicators remain within desired limits, and to guide the behaviour of the economy (via a mix of taxation, targeted spending, incomes policies and supply side measures).
Along with the proposition in the Green's fiscal strategy that we need to talk about investment and not fixate on public debt.