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Bill English talks about Govt assistance of AMI - Source: Close Up -
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"Privatising the profits and socialising the losses" was the catch cry from the left this week, following revelations the cost of the failure of South Canterbury Finance had blown out by a whopping $300 million.
That had Labour calling for the Finance Minister's head for his handling of it.
It's a familiar line, employed a lot in the US during the global financial crisis when a number of big financial institutions were bailed out by the taxpayer to the tune of billions - only to rise from the ashes and begin paying their executives exorbitant bonuses once again, as if nothing had happened.
But no one in parliament was bandying that line about when the Finance Minister announced the government stood ready to provide a backstop of up to a billion dollars for AMI Insurance.
To the casually observing taxpayer, a billion dollars is a billion dollars and that sort of sum is no doubt galling if you're one of the many New Zealanders struggling to cope with the rising cost of everyday necessities.
But as much as it might look like the government riding to the rescue of another corporate giant, AMI is not another South Canterbury.
AMI policy holders - who effectively own the company because it's a mutual - can at worst be accused of seeking cheaper insurance premiums. They weren't investing recklessly.
Because they are the owners of the company there are no fat cat businessmen or wealthy investors to vilify.
Whether the managers and executives acted irresponsibly in their handling of the company is a question that will, in time, need to be addressed.
Too big to fail?
That aside, there is another phrase, popular during the financial crisis, that IS applicable to AMI and that is "too big to fail".
The government, to my mind, had precious little choice here.
It simply could not leave the insurer of 85,000 quake-stricken Cantabrians to fail, the domino effect would have been devastating.
The rebuild would have become even more arduous.
The social problems associated with a disaster of this scale would only have been exacerbated if those who thought they'd protected themselves and their assets suddenly found themselves cast adrift.
None of that makes the situation any more palatable or any less disappointing.
The upcoming Budget, which was already looking unquestionably bleak when the government revealed the ever-growing black hole in its books on Tuesday, looks even bleaker now.
If the rescue package is triggered, the government's plans to return to surplus by the 2015/2016 financial year will almost certainly be delayed.
Those that lost money in any of the failed finance companies prior to the deposit guarantee scheme and felt aggrieved that South Canterbury Finance investors were bailed out, will inevitably feel even more put out.
Attention is now turning to what sort of commercial alternative there might be to AMI tapping the government's support package.
We know Tower has approached AMI and its managing director Rob Flanagan believes every insurer will be looking very closely at AMI.
He believes it's a good business that's simply had some extraordinarily bad luck.
AMI's chief executive John Balmforth was still sounding hopeful on AMP Business on Friday that the company won't see an exodus of customers, that it won't have to accept the government bailout, won't have to sell the business and that the mutual model has a future.
That sounds like a truly optimistic outlook to me.
Optimism?
Even though there have been glimmers of hope in the economic data this week, I feel like the bar has been raised on the cause for optimism after so many false dawns on the arrival of the recovery.
Optimism isn't something I'm expecting to find much of in next month's Budget.
As I watched the Finance Minister field questions this week on South Canterbury, the blowout in the deficit and then on AMI - I caught myself thinking what a thoroughly unenviable job he has right now.
He never seems to be the bearer of good news.
When he arrives to deliver his Budget next month he'll be a bit like the grim reaper - everyone will be hoping like hell he hasn't come for them and their department's cash.
Read more of Nadine Chalmers-Ross's opinions here and share your thoughts on the messageboard below.
Add a Comment:
Post new commentnztifosi said on 2011-06-03 @ 17:26 NZDT: Report abusive post
Just when my family was making headway financially the government chose to cut tax and put GST up. At the same time funding to the school I work at was cut resulting in an hours cut for me. Result? We are now worse off than ever before! And now we are supposed to spend, save, donate to Canterbury and every other charity as if the current situation were the working man's fault. It is the speculaters and the financiers along with the government who got us into this mess! -now they can get us out!
deltics said on 2011-05-19 @ 12:38 NZDT: Report abusive post
Saving isn't what NZ needs right now, it needs to pay off it's debt AND increase spending. Money paid into KiwiSaver doesn't reduce our current debts and doesn't circulate around or stimulate the economy! So it actually makes a lot of sense for the government to reduce the incentives to pay into KiwiSaver whilst emphasising the need to be more prudent in our spending (paying down debt) without closing our purse strings too tightly in the process.
ceejaygee said on 2011-05-15 @ 12:33 NZDT: Report abusive post
i currently pay 4% into kiwi saver i would like to pay 6% unfortunately there is no provision for that hopefully the govt have thought about that. as to the tax credit cut not a clever idea, maybe they could make it totally tax free then we could really save for our retirement then they could cut the tax credit altogether
Danthetaxpayer said on 2011-05-14 @ 19:10 NZDT: Report abusive post
I would also like to ask how is it retirement savings are even a priority when we fail so badly as a country to take care of our children? Children who are meant to be our future taxpayers helping to fund future NZ Super? Children who are often neglected, illiterate & who struggle to get the medical assistance they need due to health care shortages and whose families often have to fundraise? Why are these things not a priority?
Danthetaxpayer said on 2011-05-14 @ 19:07 NZDT: Report abusive post
I'm confused: how is it saving when most of the 1.67 odd million people with Kiwisaver are probably receiving some kind of government assistance. Assistance is for hardship and to meet basic needs - food, clothing, shelter only. If they have enough spare to put into Kiwisaver which then gets matched by more taxpayer funds earned by the hard work of others, then isn't this the horse before the cart? Further, how can it truly be savings when we are borrowing $300 million each week?