Thursday, 14 November 2013

Selling The State - a Taxing Tale

A look at some issues surrounding the sale of state assets.

Recognise these?



Yup, once upon a time they were state controlled identities, and currently some are but not for long.  But that's not my issue as I feel most were required to be sold off.  Let me explain.

Back in the mid 80's the country was broke.  I won't go into the politics surrounding it, everyone has their own view.  But I'll enlighten you on a couple which should open up new meaning to the current sell off.  Back in the 80's the government was at a crossroad.  It needed money and the quick way to do that was either to borrow overseas. which wasn't likely given our debt crisis. so they hatched a plan to sell off a few state enterprises.  They decided that two key players in their sights were Telecom (as it became known) and NZ Rail.  Why??  Well the reason was twofold.  It was easier to find buyers for a solid existing performer and both infrastructures were guaranteed to make a profit for whichever buyer bought it.  But it also came with something not many knew about.  Both Telecom and NZ Rail had major infrastructure failings, namely aging hardware and antiquated systems.  By selling these two the country didn't have to borrow to modernise, leaving it up to the buyer, and with more modern systems in place and the companies returning to profit the government (and people of New Zealand) stood to gain through taxation and dividends.

It worked for Telecom very well and also to a certain extent to NZ Rail/Toll/Kiwirail.  Telecom updated all their infrastructure and continues to make huge profits (which I'll touch on later).  Kiwirail on the other hand had to be bought back by the Government as previous owners failed to capitalise on market share especially for freight and investment in new structures and machinery lagged.  Is this an omen for the current sell off or will the Power Co's succeed?  Well if we look at the Electricity supplier Transpower (SOE) there is reason to think the sales will succeed.  But there is an underlying question on these sales.  Aging infrastructure.  Are these companies being flogged off because the government can't afford to modernise generation systems?  And what about pricing after the sales?

Well here we have a real issue.  After Telecom came into being they hiked the Line Rental component of monthly telephone bills supposedly (as I recall) to help offset the private investment into modernising the new hardware and taking into account the onset of the internet.  But long ago, that course of action was completed and now (for the last 15 years at least) we find those line rental charges are still at $46 a month across the board (not sure how much companies pay).  In a time when the cellphone and charges rule daily lives why is this telephone landline network costing so much to users?  Surely there should be pressure from consumers placed on the Government to have these charges dropped to a more manageable level.  I know the government won't like this, as Telecom's profits mean more taxation collected and it's probably seen as a cash cow for them.  I seem to recall quite clearly that catchcry from Lange's Government (Roger Douglas in fact) User Pays.  Ok on average I use my landline once a day maybe, why am I paying $1.50 a call in essence?  I've touched upon this in another blog but it leads me nicely to the Powerco's sell off.

If we believe what I asserted that the government is selling these SOE's off for profit to help balance the books and to bypass maintenance issues, all good, but what of the new owners.  They (and we) will be forced to charge higher costs for electricity to pay off that maintenance bill.  That's fine, but once that bill is paid off and in conjunction with Transpower, the grid supplier, I'd like to see electricity prices drop proportionally.  But once again the government won't force that to happen unless citizens stand up and be counted.  Almost all our power is generated by Hydro, with the exception of Huntly and Wairakei.  Why does it cost the consumer in this country so much when we have ample water, ample supply and a robust and working transmission structure.  I know Transpower are in the process of updating the grid and profit from electricity consumers is fitting that bill, but once again, once completed, drop the wholesale price.

Don't worry, I'm not thinking of my own targeted outgoings.  I'm thinking about the poor solo mum who can't work because she has 3 kids to feed and educate and keep healthy and can't do any of that due to exorbitant power prices and phone rentals that suck money much needed for caring for her children and herself.  I feel strongly that Government in a sense is responsible for poverty as they are more concerned about how much tax they will generate and how much they save in regenerating infrastructure in assets this country owns (owned).

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