Latest / Best of Business / Brad Olsen: Infometrics Principal Economist on the ongoing debate about asset sales

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Brad Olsen: Infometrics Principal Economist on the ongoing debate about asset sales · Best of Business

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  Speaker 1: You're listening to a podcast from News Talks B Follow
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  Speaker 2: Treasury is nudging the government to look at potentially selling
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  Speaker 2: off some state assets that are underperforming or are no
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  Speaker 2: longer fit for purpose. To discuss this further, we are
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  Speaker 2: joined by Brad Olson, the CEO of in for Metrics. Brad,
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  Speaker 2: could they have you back on the show?
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  Speaker 3: Good afternoon, team Brad.
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  Speaker 4: Are we currently borrowing more money from overseas to run
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  Speaker 4: the basics of this country? So are we basically going
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  Speaker 4: in debt just to stay to tread water?
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  Speaker 5: Yeah, Unfortunately, we are having to borrow for sort of
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  Speaker 5: just the daily costs, which of course means that future
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  Speaker 5: generations have got to pay that back, but they don't
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  Speaker 5: get any of the benefit because it's paying for payments
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  Speaker 5: that are going out one time only sort of right
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  Speaker 5: the second So that doesn't make a huge amount of sense.
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  Speaker 5: It's a tough one economically, but on the current forecast,
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  Speaker 5: that's going to continue out until the end of the decade,
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  Speaker 5: So it is challenging. When you're in deficit, you have
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  Speaker 5: to pay for all of that sort of gap in debt,
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  Speaker 5: and I think the point that the Treasury has come
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  Speaker 5: out with with their investment statement is saying, look, let's
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  Speaker 5: actually have a bit more of a conversation around like
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  Speaker 5: why does the government own certain stuff at various points
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  Speaker 5: over time. It's bought things, it's acquired things, it's held
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  Speaker 5: on to things. But why should we own a TV station?
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  Speaker 5: Should we own farms? Should we own electricity companies? Maybe
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  Speaker 5: the default answer that should be maybe not instead of
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  Speaker 5: definitely yes.
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  Speaker 4: So if you look at those assets though, say TV
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  Speaker 4: and Z New Zealand posts, key we bank Land Corps
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  Speaker 4: seems like quite a good one, but they are they
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  Speaker 4: difference makers if we sold there. I mean, how much
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  Speaker 4: is TV and Z worth?
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  Speaker 3: Well? All up?
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  Speaker 5: The government or Treasury reckons that the government owns about
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  Speaker 5: ninety nine billion dollars worth of assets that are sort
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  Speaker 5: of more commercial in nature, so they're not your vital
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  Speaker 5: infrastructure like roads and similar I think that's about three
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  Speaker 5: hundred and forty odd billion that you get with hospital skills,
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  Speaker 5: roads all that. Talking about doing anything with them, there's
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  Speaker 5: a couple I think there's nearly two hundred billion worth
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  Speaker 5: of commercial investments, so you know, the like acc Fund,
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  Speaker 5: the super Fund. Again, no one's discussing getting rid of them.
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  Speaker 5: You might always change exactly what they want to do
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  Speaker 5: with their money and what the government requires of those
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  Speaker 5: managers to fund or to look to increase those investments.
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  Speaker 5: But it's the ninety nine billion dollars worth of assets
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  Speaker 5: that the effectively their companies of different descriptions, that you go, well,
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  Speaker 5: why is the government going to be better at deciding
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  Speaker 5: on how these assets play out than the private sector,
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  Speaker 5: especially when some of them are you know, they're not
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  Speaker 5: fully owned by the government either, and so there's other influences,
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  Speaker 5: other investors that sort of want a certain return. And
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  Speaker 5: I think, look, the point here is more not necessarily
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  Speaker 5: just to sort of, as some people put it, you know,
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  Speaker 5: you sell the family looms and then you know, you
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  Speaker 5: just sort of spend.
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  Speaker 3: It on the day to day.
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  Speaker 5: It's more, if we want more investments into certain areas,
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  Speaker 5: which apparently is a country we do. We know we've
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  Speaker 5: got an infrastructure deficit, the government better to recycle out
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  Speaker 5: some of the assets that they're not currently getting the
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  Speaker 5: best performance from or don't think are the best things
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  Speaker 5: to hold, and instead use that money to invest in
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  Speaker 5: other things that they do think are more important, like
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  Speaker 5: over time, you do it just you're spending an investment
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  Speaker 5: as a household. I think that's healthy for the government
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  Speaker 5: to consider too.
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  Speaker 4: Now I think most people agree that, you know, private
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  Speaker 4: ownership is more efficient than government ownership. But then that
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  Speaker 4: brings in the profit over public good part of it.
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  Speaker 4: So what are the risks around that of selling these
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  Speaker 4: assets or parts of these assets.
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  Speaker 5: Yeah, there's difficult elements, and I think you know, people
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  Speaker 5: are always concerned when they start to see some of
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  Speaker 5: those big profit numbers. But again that's the risk that
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  Speaker 5: investors are taking around, you know, putting their money in
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  Speaker 5: at some times they might not be making as bigger returns.
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  Speaker 5: But importantly, remember that there's still a profit you know,
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  Speaker 5: expectation from a number of New Zealand companies that are
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  Speaker 5: still owned by the government, like in New Zealand TV
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  Speaker 5: and Z all of those they are expected to turn
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  Speaker 5: a profit. They're expected to make money. So the sort
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  Speaker 5: of idea that you know, government owns shouldn't be making
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  Speaker 5: money is actually completely wrong. It's deliberately set up to
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  Speaker 5: do that. And instead you then go, well, how do
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  Speaker 5: you sort of potentially make sure that there are some
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  Speaker 5: elements of maybe not control, but regulation around what comes through.
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  Speaker 5: There's still regulation, for example, around different elements of how
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  Speaker 5: the media works and what things can or can't be
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  Speaker 5: published and everything else, so you don't lose control of
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  Speaker 5: that as a government, but you just don't sort of
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  Speaker 5: have to then be playing in the ad revenue space
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  Speaker 5: or anything else.
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  Speaker 3: So look, there's a whole raft of these.
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  Speaker 5: I guess the sort of challenge in the question is
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  Speaker 5: if you sort of were to get a bunch of
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  Speaker 5: New Zealanders to write out a bunch of assets that
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  Speaker 5: they think the government should hold and what the government
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  Speaker 5: does hold, how many people are writing down what we've
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  Speaker 5: currently got, and how many people have got other stuff
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  Speaker 5: that they think is more important that would be better
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  Speaker 5: to swap in an outfull You might well have the
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  Speaker 5: same value of investments at the end, but it might
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  Speaker 5: be in different areas, sort of more social areas where
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  Speaker 5: normally the private market might not provide that sort of stuff,
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  Speaker 5: be it you know, health care, BAEd, infrastructure or otherwise.
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  Speaker 4: We're talking to Infometric CEO Brad Olsen. Now, energy sector
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  Speaker 4: is the one that everyone brings up. So the current
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  Speaker 4: price of electricity in New Zealand, how much is partial
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  Speaker 4: asset sales responsible for that price increased.
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  Speaker 3: Well, I don't think.
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  Speaker 5: I don't think a huge huge amount, because again, government
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  Speaker 5: retains you know, a fear whack of those those companies.
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  Speaker 5: They can you know, exert control. And I guess the point, right,
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  Speaker 5: if you're the government and you own an electricity company,
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  Speaker 5: but you're at the same time saying, well, the electricity
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  Speaker 5: companies are not doing good for the people of New Zealand.
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  Speaker 5: And that's sometimes the comments that come out from various
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  Speaker 5: politicians like, bro, you own them, do something with it,
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  Speaker 5: like either use your power or like get rid of them,
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  Speaker 5: because there's sort of no point in holding something, collecting
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  Speaker 5: the money that comes in from the profits and then
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  Speaker 5: going oh, well, the thing that I own is not
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  Speaker 5: doing the thing that I want it to make it.
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  Speaker 3: That's what ownership's for.
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  Speaker 5: And I guess that's probably the big challenge right of
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  Speaker 5: the last couple of years, is that people have gone,
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  Speaker 5: will hang on, we're owning these things, we're not clearly
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  Speaker 5: exerting the control that we think we want to. What's
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  Speaker 5: the point of that ownership again, which is why this
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  Speaker 5: conversation is going up. And I guess, look, the point
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  Speaker 5: really when you look at the likes of energy companies
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  Speaker 5: and similar is if government hasn't made bigger calls or
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  Speaker 5: sort of had more direction on what they want from
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  Speaker 5: those energy companies, then it sort of can't say that
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  Speaker 5: there's you know, that they've done anything particular to energy prices,
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  Speaker 5: because clearly the lever's been there and nothing's been pulled.
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  Speaker 5: So it does be the question, what's the point in
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  Speaker 5: having something if you're not going to use the ownership
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  Speaker 5: rights over it.
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  Speaker 2: It's very nice, you said, Brad. But the tricky part,
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  Speaker 2: correct me if I'm wrong with the when it comes
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  Speaker 2: to the gentailors and the electricity company is the untold
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  Speaker 2: hundreds and hundreds of millions various government has pumped into
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  Speaker 2: the infrastructure. Then you look at the idea of selling
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  Speaker 2: them off and all that costs sunk into that, and
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  Speaker 2: then to bring in an overseas owner to say, yep,
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  Speaker 2: we'll buy those those infrastructure assets off you thank you
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  Speaker 2: very much for your years of pumping millions into that.
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  Speaker 2: Isn't that kind of where people get a bit concerned
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  Speaker 2: is as a country, we've looked after that for a
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  Speaker 2: long time, and now they're going to put it up
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  Speaker 2: for sale.
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  Speaker 3: Yeah, to a.
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  Speaker 5: Degree it can be, although your sales price should include
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  Speaker 5: all of that.
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  Speaker 3: Sort of sunk effort to be put into it.
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  Speaker 5: But I think, I mean again, I don't think anyone's
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  Speaker 5: made the cast that it has to exclusively go to
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  Speaker 5: an overseas investor. You know, if you ask people, if
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  Speaker 5: you're starting to see this coming up from a few
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  Speaker 5: different companies in New Zealand around using key we say
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  Speaker 5: for assets to go into infrastructure. I mean, you know,
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  Speaker 5: the likes of Simplicity has talked about that recently too.
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  Speaker 5: So there's clearly options to try and sort of provide
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  Speaker 5: more of a commercial directive but also sort of you know,
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  Speaker 5: maybe not keep it fully and let's call it government ownership,
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  Speaker 5: but at least provide the option or the opportunity for
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  Speaker 5: New Zealanders to still do it. And again I guess
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  Speaker 5: the challenges right, I mean, you heard from the Finance
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  Speaker 5: Minister recently who said, look, we didn't think we were
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  Speaker 5: being a constraint on the energy companies, but the more
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  Speaker 5: and more we talk to them, the more and more
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  Speaker 5: they say, well, look, if the government's not willing to
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  Speaker 5: put money in themselves to maintain their current holdings, then
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  Speaker 5: maybe as an energy company, we won't invest quite as much.
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  Speaker 5: That was the point that was always made, and so
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  Speaker 5: government sort of said, look, we've never held back on you.
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  Speaker 5: It's just that no one's really asked the question as directly.
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  Speaker 5: So the next couple of years idea expect that you
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  Speaker 5: might well see the government either need to pony up
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  Speaker 5: more investment to put more into the energy sector to
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  Speaker 5: help things out. That's sort of the challenge. If we've
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  Speaker 5: got pretty limited amounts of money anyway, is there a
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  Speaker 5: decision that New Zealanders are okay with putting that level
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  Speaker 5: of investment.
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  Speaker 3: In, Because if it is, that's.
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  Speaker 5: The compromise that you've got, and it's a very very
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  Speaker 5: delicate balance.
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  Speaker 4: Now going to Keywi Bank speaking of delicate balances, and
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  Speaker 4: I would say sort of a catch twenty two situation.
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  Speaker 4: So the idea of key Wei Bank is compete with
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  Speaker 4: the Aussie banks and so not so much money is
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  Speaker 4: going overseas because we feel like we might have sold
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  Speaker 4: off bn Z and such back in the day for
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  Speaker 4: a bargain and then get got absolutely rinsed on that.
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  Speaker 4: But for key We Bank to compete, then we need
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  Speaker 4: to bring sort of sell off a large percentage of
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  Speaker 4: it and then it becomes the same thing as the
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  Speaker 4: Aussie banks. So do you think that that is a
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  Speaker 4: solvable problem? And do you think there's enough money in
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  Speaker 4: New Zealand for if you you know, you owning New Zealanders,
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  Speaker 4: we're allowed to buy into Kiwi Bank, do you think
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  Speaker 4: that is a possibility to make a competitive bank in
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  Speaker 4: those in that regard?
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  Speaker 3: Look, I think that one's tricky.
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  Speaker 5: One of my greatest challenges just conceptually with that one
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  Speaker 5: is that if you're going to own a bank as
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  Speaker 5: a government, but you're not going to use that bank
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  Speaker 5: to do your own banking, If you're not going to.
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  Speaker 3: Back you the thing you own, why should anyone else
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  Speaker 3: like that? It becomes a real challenge.
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  Speaker 5: And so again, if it's not making you know, the
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  Speaker 5: difference that it was intended to, if it's not providing
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  Speaker 5: that sort of you know, huge difference that people expecting
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  Speaker 5: when it was set up, you do I think have
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  Speaker 5: to ask do we keep doing the same thing and
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  Speaker 5: not getting what we want? Or do we need to
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  Speaker 5: change tech either by yep, changing the investment levels or whatever,
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  Speaker 5: but sometimes by saying is is this still you know
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  Speaker 5: the top priority for what we're doing with our money?
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  Speaker 5: Are we better to let other people own it? And
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  Speaker 5: I mean, like there's a lot of talk of the
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  Speaker 5: likes of the profits and there going offshore. I mean
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  Speaker 5: there's a little bit of there's elements of that all
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  Speaker 5: the time and different investments that we make. But at
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  Speaker 5: the same time, there's also the advantage of well, the
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  Speaker 5: banks still provide a pretty important service when it comes
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  Speaker 5: to mortgages and otherwise there's still a lot of people
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  Speaker 5: that are employed to hear domestically buy those operations. And
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  Speaker 5: a lot of the time those higher profits are also
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  Speaker 5: over time at least have been funding those higher capital
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  Speaker 5: buffers that the banks have been required to hold by
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  Speaker 5: the Reserve banking case things go wrong. So yes, some
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  Speaker 5: big numbers and we saw some more I think out today,
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  Speaker 5: But that also means that if things went in the
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  Speaker 5: wrong direction, you hope it never does. You hope the
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  Speaker 5: regulations there, but if it ever does, there's still protections
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  Speaker 5: in place because of those higher numbers that have been
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  Speaker 5: coming through. So Catch twenty two in multiple different ways.
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  Speaker 3: On the banking front.
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  Speaker 2: Yeah, Bread, always fantastic to get your thoughts and analysis.
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  Speaker 2: Thanks so much for coming back on the program. Thank
• 11:00
  Speaker 2: you having me feisty, love it. That is, Brad Olsen's
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  Speaker 2: CEO of Informetrics.
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