Risk and political capital

If any incumbent government could be said to have an Achilles heel when opinion polls say it is hitting 53.3% support among decided voters, then the National Party's could be said to be the controversial matter of partial asset sales.

This is only peripherally related a proper understanding of the policy itself: the greater part of the risk comes from New Zealanders' collective memory of consequences associated with state asset sales in this country.

To that extent the reaction is instinctive and emotional rather than rational and considered.

Nonetheless, the Government evidently recognises the potential for disquiet surrounding the policy - especially among the broad swathe of middle New Zealand - and the announcement of an investment fund to ring-fence proceeds from any such sale can partly be considered an initiative to protect its bank of political capital.

To reiterate, National's policy, should it win the election on November 26, involves the partial sale of up to 49% of state energy companies Mighty River Power, Meridian, Genesis and Solid Energy. It would also sell down its share in national carrier Air New Zealand while retaining the controlling interest.

New Zealanders would be given priority to take shareholding in the companies.

Shares in the five state-owned companies would be offered over three to five years, with a likely initial cap set for non-government shareholders at 10% to reduce the potential influence of singular outside entities.

It was expected that, including the Government's retained 51% shareholding, the companies would remain 85%-90% New Zealand owned, with 34%-39% of the shares being taken up by "mum and dad" investors, and the remaining by offshore interests.

To counter criticism that funds from the partial sale would be frittered away through the consolidated fund, and to make good on its promise that proceeds from the sale of the assets would indeed be channelled back into alternative public "assets", the Government has announced the formation of the Future Investment Fund.

This is expected to hold a $5 billion to $7 billion dividend from the sales. Possible targets for funding could be new or upgraded hospitals, rail and public transport, public sector information and communications technology and infrastructure recovery from natural disasters.

For the moment, however, the only specific beneficiary of the fund is to be education with a sum of $1 billion earmarked for New Zealand schools.

Such a strategy should go some distance to displacing from the public consciousness previous perceptions of state asset sales - for example, Telecom and New Zealand Rail in the 1980s.

The trajectory of these was such that offshore owners gained large dividends over many years at the expense of reinvestment in the asset.

In the end, the Labour government bought back rail (and Air New Zealand), threatened as it was by near-terminal under investment. But it may not entirely dispel fears since it appears there is no mechanism the Government is prepared to employ to prevent the shares initially purchased by Kiwi "mums and dads" being bought by overseas investors over time.

There only need to be a couple of particularly cold winters in National's next term in office (assuming it wins the election), accompanied by the transfer of utility shares offshore and rocketing electricity prices, for there to be a backlash.

For the moment, however, National's poll cushion suggests the policy will not unduly trouble it come election day.

If National's enduring lead gives it the stomach to embrace this risky project, the Labour Party has come up with its own potentially "dangerous" policies on the basis it has little to lose: a capital gains tax and a rise in the entitlement age for national superannuation, from 65 to 67 phased in over a number of years.

There are solid arguments for these initiatives, but it is unlikely that either would have found their way into the mix had the distance between the two parties not been so cavernous.

With little political capital to lose, Labour is in the perfect position to pitch policies that are almost inevitable over the long term yet which all parties have assiduously avoided for fear of the resultant political fallout.


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