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Finance Minister Bill English - Source: ONE News -
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A leading economist is defending the Finance Minister after Bill English admitted he is just guessing on how much the controversial sale of state assets might rise for the Government's coffers.
English, in presenting his Budget proposals yesterday, said the $6 billion figure for proceeds from selling a minority stake in four energy companies and more of Air New Zealand, was purely speculative.
"It's just a guess. It's just to put some numbers in that look like they might be roughly right," he said.
"It's not our best guess, it's just a guess. It's just some numbers, and that might mean they look roughly right for forecasting purposes. That's an honest answer".
During last year's election, the National party campaigned on raising $5-7 billion from the controversial sale programme.
The new 'honest answer' has been criticised by rival political parties and some commentators but Cameron Bagrie, ANZ-National bank's chief economist, told Breakfast this morning that the Minister - and Treasury officials who calculate the numbers - is operating in an environment of extreme uncertainty.
"This is not a normal historical downturn in terms of what we've gone through. We are still facing the after effects of the global financial crisis and certainly if I was Treasury, I would be pretty cautious too".
In January, analysts valued the four energy companies at a collective worth of $13.61 billion which, assuming the Government holds 51%, means a return of over $6 billion.
Mixed messages
The Government's message on the partial privatisation plan has always been that it's to reducing its debt burden by re-investing the sale gains into new projects like schools rather than having to borrow to pay for them.
Bagrie said today that the real reason may be more than just avoiding more borrowing but instead, a simple matter of needing to find some cash in tough times.
"We've got to look at the spirit of the asset sales programme. The spirit is pretty simple. There's no money in the kitty, at all".
"The kitty is absolutely bare and the Government has a $220 billion balance sheet. There is core infrastructure, health and education capital requirements that need to be re-invested in going forward".
The Treasury is still sticking to its assertion that New Zealand can return to surplus by 2014/15 but Bagrie said today that if NZ does not "hock off" some assets then the choices are stark. Borrow more, lift taxes, cut spending or devote less money to Christchurch will be the only choices the economist said.
English said yesterday that the dividends lost as a result of the sales will be more than offset by the savings on government debt they will allow.
The forecasts are subject to considerable uncertainty, since no sales have yet occurred and their timing could change, according to economic and other factors, although the Government has included estimated impacts from asset sales for the first time because of the advanced state of the initiative.
The projections run for four years, from the year to March 2013 through to March 2016, and assume a cumulative reduction in government debt of $6.1 billion.
It estimates debt servicing cost reductions of $266 million a year, offsetting estimated lost dividends to the government of $200 million a year.
Bagrie told Breakfast that the rationale for the sales programme is more than just a fiscal decision.
"If the criteria for every piece of government spending or every government decision was that you needed to get a cash return on that investment, there would be an awful lot of government spending that would be cut straight away" he said.
- With BusinessDesk
