Kyoda. I'm Chelsea Daniels and this is the Front Page, a daily podcast presented by the New Zealand Herald. National has kicked off twenty twenty five by driving headfirst into plans for economic growth, and it wasn't long until act through in their two cents. Party leader David Seymour made privatization a key focus of his State of the Nation speech, and while Prime Minister Christopher Luxon said he doesn't want to sell anything off this term, he's suggested it could
be campaigned on in next year's election. It's a road that New Zealand has gone down before, selling everything off, from banks to energy companies in the eighties and nineties, and only a few state owned enterprises remain. So what could be on the shopping block and would anyone actually want to buy them? Today? On the front Page, we put those questions to Greg Smith, head of Retail are
Devon Funds Management. Greg, the words privatization and assets sales are used interchangeably, I guess, But is there actually a difference between the two. How would you define them?
Look effectively the same thing? But yeah, what we're talking about potentially here, privatization is sales and assets by the government. And look, I think it's an interesting point perhaps every to start. So I suppose the philosophical point of view, I think probably fundamentially government is not really a good owner of businesses that were sort of talking about, and that ones are potentially up for privatization. And yeah, I think it is a bit of a win win situation
when the government engages in assets sales and privatization. If it's done right. Yeah, for the most part, the private sector is the best owner of many of these assets.
But that's the kicker, isn't it. If it's done right, didn't we have to buy back the likes of Air New Zealand.
Yeah, that's right. And it hasn't worked perfectly all the time. And obviously in New Zealand COVID hit so that was a fairly sort of extraordinary circumstance. And if you go a bit further back as well, yeah, there's been other examples where it hasn't perhaps worked out particularly well. Look at the eighties and nineties, it was very much a mixed bag. There was a transfer of value from taxpayers,
while a select few did quite well. You think of the government printing office that was sold to rank in the late eighties. Then there was Telecom New Zealand in nineteen ninety and then there was also Transrail which was sold and inadibly listed and effectively failed. So they weren't great examples, but you think in more recent times the mixed ownership model can and does work when it's done right. It's proved to be highly successful. When you look at
the gentiles there really are a shining example. You've got wonderful assets that New Zealand investors have been able to invest in directly. I mean, what government's actually done quite well as well. If you think about those it's been run arguably more properly than they would otherwise, and their dividends flying back to the government accordingly.
Well, looking at what the government actually currently owns, it doesn't seem like there's a lot left. Sir John Key himself said as much, literally saying there's nothing to sell when he was on it with Hosking recently. Is he right?
Look, I think there are a few options here, and then you know, let's just sort of stick with the most recent examples. You know, they still own significant stakes in the gentailers, so yeah, they could sell that down
fur there's at portocol if you like. And you know the reason for the government having or retaining a stake in the airsets suppose it's a matter of from their point of maybe national security or national interest or having a strategic stake, but a lot of that can be achieved or protection of that or ring fence if you like, through not owning a stake. You think of legislation, You think of regulation. Look at look at Auckland Airport. Yeah,
that's actually regulated. You've got on set which is in private hands, but it's effectively being protected to that extent. Now there are other assets, I think, which are also crying out the capital, so it's not it's not too narrow field. You look at transpower crying out for investment. They of course manage and operate our electricity transmission system. So I think that that would be a very well
received areset. You know, think got to think as well that you know, the world is a wash with capital crying out the high quality infrastructure assets. We saw that with the sail down and the gentailers, and I think we would see that the game with something along the lines of transfer. Of course, EWI Bank is another often kicked around and mentioned you know that that is a gain an asset that could quite possibly sort of become privatized.
And it's also stepping back, you know, when we're talking about the banking sety, we're quite unique in a way in terms of, you know, we have big banks operating here in the country, but we don't have any private ownership as such. Obviously their own big banks own by Australian companies effectively and New Zealanders invest into those companies.
But you could also see a scenario where the government, the government hands out or grants a banking license to these banks to also sort of force a sale back to New Zealanders of the New Zealand operations of those banks. So I think that's something as well that could be looked at some point. I think that'll be amazingly well received. We've also got the rest you mentioned in New Zealand and we could look at sell down of the rest
of that. And I suppose you know, the other thing that we can ever take away from being what's being done globally and just across the Tasman when you look at the public private model that's been highly successful. When you think of likes of toll roads, they need investment, So does it really make sense for it to sit in public hands and they get underinvested, they perhaps don't
get run as well as they could have. You think toll roads, you look at those in Australia, you look at those in Europe, and these assets aren't being given away. You know, they typically come with say a twenty year at least or something like that, and they operate to get has twenty years to exact what it can from the asset and run it in the optimal fashion. And
so that can work quite well as well. And then if we step down from sort of the national level, I think there's also lots of high quality local government assets which could in some cases address creaking council balance sheets. You think boorts, airports and the likes. So I'll actually argue that that there's quite a few things we could look at in terms of this privatization journey, starting with the gent tailors, but there's a variety of other assets we're talking about here as well.
What are the benefits of actually selling off what we've got left?
Though?
Why not just hold on to them?
I just think we fundamentally the government or public, the public sector is not a natural owner of these assets. And you can see a great example of how these assets can perform or underperform when in the hands of public sector versus private is Port of Taroinger versus of Auckland. Port of Taroger has gone from strength to strength as a listed company become the largest port in New Zealand. What's Vulkland has had mishap after mishap, after some strategic implosion,
and it's been a bit of a disaster. So I think, yeah, right there, you've got a case. If you're looking for a case of for private ownership and against public ownership, I think that very very much stands as one. And so we're not talking about giving away these assets and losing control, and that can be done and via regulation, via legislation often of courses we've seen the government or local government perhaps in some cases would hold a staken
in these assets and can sort of work gether. But yeah, the mixed ownership model works. It's highly successful. It's been proven so locally is an extent with the gent tailors, but also internationally as well. And yeah, the government can sort of then use the funds obviously from these cell downs to invest in other areas and also to address debtlage. You look at the governments space of an infrastructure deficit
of two hundred billion. You know, the other way that this is going to be addressed is not politically palatile. I suppose you look at talking high taxes, talkings or raising rates and the like. So I think, yeah, it really is a win win putting these assets more in the hand of the private sector it's a natural owner, and then also enabling the government to sort of get on and invest in areas it's probably more comfortable with doing.
The other point about all this is when you move from sort of a public to a private ownership model, it really gives New Zealanders the opportunity to invest in some great assets. At the moment. You know, we have a lot of key we investors having to invest in infrastructure assets in Australia because they can't do so here. So I think that's you know, that's really important as well. We're a very patriotic, but yeah, sometimes the extraal scope of what we can invest in New Zealand is very limited.
So like a natural home for a lot of these assets that we're talking about when they're privatized and when they find their way into the stock exchange, it would be key we save with funds. So I think it's a really great story around in a bit of a win win.
Ownership protects the dignity of everyone, especially those who can least afford it. Privatization, mister speaker, means that if you can't afford it, you don't get it. It literally means that people who cannot afford their medicine die.
Is there anything that we probably shouldn't privatize? I'm thinking probably the big one is healthcare. One example that people usually bring up of courses America, and that's for obvious reasons. How realistic is it that any New Zealand government could privatize parts of our health system? And do you think investors would even want to snap it up?
Well, I think we have seen offshore that privatization of health air sets and that actually worked quite well. Again, you you get more invested. Obviously, it's a critical service. And yeah, there is a spose and awareness of going
down the privatization path and what that might bring. But I mentioned you can still exact control without having for ownership stake, and it's it's also about specialism as well, I mean, you know, we have some once you get into that private reny, you have some fantastic specialists in running hospitals and running health systems openly. And perhaps you obviously we've seen with not recent governments, the you know, the the issues that have occurred in the in the
health sector. Yeah, perhaps so some of them might not have occurred in the private sex. But I do agree it is a little bit of jugging it perhaps a little bit more sensitive than privatizing other areas. I suppose, you know, defense would be another natural one matters of genuine national security. I think that is probably less palatable as well.
Yeah, because when we hand over companies or assets to private investors private companies, is there any way that we can legislate or bring in rules to make sure that these companies don't put profit over people?
I guess absolutely, And that's what the government is there for. The government is there to legislation. So you know, any any agreement can have causes and can have targets and KPIs and things like that, so certainly can be drawn
into any agreement. I mean, the government holds these assets, they hold the cards, so you know, you you may have you may well have a buyer for these assets, but you know, the celler can always put in the clauses they want and the government is no different, So we can we can ring fence the government can ring
fence protections into these matters. Of course, there is that sensitivity as you say, about profit tenally being prioritized over people, and that is obviously quite relevant when we're talking about services like hospitals and the like. Said, yeah, it's worked very very well in the in the in the gentailor sector, you've seen, Yeah, obviously you've seen. You've got a number of companies there as well, so you've got a natural competition and that's probably that's probably an aspect of it
as well. When the asset has more of a monopolistic position or or strategic position, then that may it's all the more important that the eyes are dialed and the teaser cross from the respect to securing those protections.
Long the gym.
The UK privatized the Royal Mail about a decade ago, it seems to be going, all right, what about New Zealand Post That's.
Yeah, that would certainly be up for grabs as well. Then I guess that's an interesting one as well, because you've seen with New Zealand Posts it's been it's been supported by the government for for a long long time. Yeah, it's only supposed with the advent, you know, they've got a primary competitor now in the like of freightways. That's support has probably it's not been great. It's not been great for the New Zealand Posts. You know, it's been
quite an uneconomic business. And really, you know, the way you get to become economic is having the reality a business economics thrust upon you. And yeah, with government support and you could go sort through economic textbooks and providing you know, subsidies and so on to organizations is naturally not the optimal way to ensure that an optim optimal manner. So I think with the NZ Post that government has actually started to more recently say it's got it. You know,
it's got things. I've got to be economic, and that's sort of starting. I think what you're seeing me you know, we're starting to potentially see price arisers coming through and so on. I've been kept artificially low for a long time. So again I think that would be that would actually be quite a good story as well in terms of a privatization. One, you've got a business which is not operating in an optimal bassion, but could your perhaps do more so under private ownership.
I found an interesting stat the other day while researching this. The total value of government owned assets was five hundred and seventy point nine billion dollars. Could that comprises of property, plant and equipment fifty percent, financial assets forty five and other assets five percent? Now that's kind of suggests to me that there's a lot of buildings and land in the government's ownership. Is that right?
Yeah, that would be right. And again, does that make a lot of sense? I mean, when we've got a government faced with very high levels of debt, you got we've got an economy that's in the worst per capita recession in over thirty years. Yes, sitting on unproductive assets doesn't really make a lot of scent. Now is the time as much as any that we need to extract value, or the government needs to extract value from literally what it is sitting on top of So hoarding unproductive assets
doesn't make a lot of sense. But say, yeah, the same token you don't want to see give away the crown jewels. And I think we've seen that a little bit with local governments. Recently there's been assets that have been suggested to be up for sale and then they've been held on to it. I think that the Dnedian Council is probably very good example recently. So yeah, you do need to be sort of cognitant of that, but it also it needs to need also needs to be
an economic decision as well as an emotional decision. So I think probably now more than ever is the time to really have a thorough review of what the government is sitting on, whether it's the best owner of those assets, whether it could extract a more economic return by going where either full sales or going down a mixed ownership model in some instances, And yeah, now is a really important time to be doing that.
How is it possible that the Bank of New Zealand wants to close down coal mines? Yeah, it writes to them and says you can't have a card debit credit. I think why it's utterly unacceptable, utterly unacceptable, and that's what we've got to change. And we've made it very clear in our comments and I hope the bank CEOs are noticing our language, which is where you've got to finance things that kiwi's need. Their job is not politically posturing. Their job is to finance the things that kiwi's need.
I'm not sure if you've seen the debate over the last week. I Z telling a coal mining firm it'll have its banking services withdrawn over the next five years. Government ministers have intervened, including Prime Minister christpher Luxen. But in terms of that, the government's hands are kind of tied, aren't they. They can't really force a private bank to do what they want. They could have been z if the government still owned it, I suppose, but we sold
that off to the Aussies back in the nineties. So is this a timely warning for the government that selling assets won't necessarily mean in future that they get to say in what those companies end up doing.
Like you think, it's how it's sort of structured, so you're plot well, see with the benefit of hindsight is open there, but you need to be thinking about the protections you need to put in place, and that can be structured into any agreement so that it can be.
Through legislation, through regulation. Obviously you don't have the government had retained a staker, would have more of more of a say, but the begging sector is a good example. And as I sort of pointed out earlier that our biggest banks are owned by Australian companies and Australian shiholders, albeit they're also New Zealand shiolders, and it's something the government could could really look at. I mean, it has a massive ability to change the landscape as it were.
You know, these banks hold banking licenses in New Zealand. The New Zealand arms of these banks has historically been highly profitable in many years it's been their best performing businesses. So I think, you know that that's something that probably should seriously be looked at as compelling these banks to sell down, sell off part of the New Zealand operations and also allow that stakes and that to not any being perhaps held both government but also by hey we investors,
including including key We Saber schemes. So I think it's something to really look at. And then also what you talk about with prospective being z of course we do you know I had mentioned earlier that a Kiwi bank could be one option for a selldown and yeah, and maybe the government would would sort of figure that into
any into any sale. Obviously want to keep a decent stuff, but the government actually has held on to pretty key strategic stakes and a lot of assets are that they're sold in more recent times disposed in particular those Gentailers and Greg.
Given New Zealand's history with privatization, how likely is it that voters would choose asset sales if it's on the agenda next year in the election.
I think the most recent experience of it, and often what is in recent memory is more relevant, and I think a lot of voters will be thinking that the sell down of the gentailers has worked quite well. There's been dividends flying back to the government. Okay, the government has retained the stake, but these businesses have done very very well. You look at the performances generally of their share prices. The dividends have been flowing to shareholders. Since
the IPO, you've got competition in the space. It really has been a ringing endorsement of that sort of mixed ownership model. There's always an awareness of selling off the crown jewels and that I think that's always going to be a feature. So I think voters will one today. Yeah, we'll prospect to s itselves that might or might not
be on the table. You know what protections will go along with them, But I think philosophically many will be aware that the natural owner of a lot of the assets that we're talking about is not the government, and it's often more optimal to a decent chunk of ownership to reside in private hands.
Thanks for joining us, Greg, My pleasure. That's it for this episode of the Front Page. You can read more about today's stories and extensive news coverage at NZDHERLD dot co dot nz. The Front Page is produced by Ethan Sills and Richard Martin, who is also a sound engineer. I'm Chelsea Daniels. Subscribe to The Front Page on iHeartRadio or wherever you get your podcasts, and tune in tomorrow for another look behind the headlines.