Estimates Debate — Vote State-Owned Enterprises

We have already had a taste of what Mr Swain is going to discuss, since he brought up his issues in the previous vote. It is interesting to see that the Minister, Trevor Mallard, is once again not able to take the chair, but I note that Minister Cunliffe will be all ears, listening to some of the issues the Opposition is going to bring up. In the area of State-owned enterprises, there has been a subject of great debate over the last few weeks, because, of course, the Minister announced a major change to State-owned enterprise policy. He asked State-owned enterprises to spread their wings and expand their operations. The Opposition was a little concerned by this, not least because we had a concern that there was an opportunity for crowding out private sector investment, but also we wondered about the expertise that some State-owned enterprises have. We raised some concerns, but that coincided with research released by Victoria University, which also stated that those board members surveyed had concerns about the skills they had around the board table, and also concerns about some of the appointments that had been made, more relating to political affiliation as opposed to skills.

So I would like to hear the Minister in the chair explain how this new regime will work, why he thinks the present board members around the table have the skills to take State-owned enterprises into this new realm, and also how it will make any difference. Because in the last couple of weeks we have had quite a high-ranking ex - Labour Cabinet Minister say publicly that he does not think it will make any difference to the way State-owned enterprises are doing their business at all. He pointed out that State-owned enterprises have always had some flexibility and some ability to make commercial decisions and get into other areas, without having this new announcement.

I would also like the Minister to explain why he thinks it is OK that New Zealanders should feel confident that State-owned enterprise decisions are going to be good ones, because Minister Mallard has said that he and Michael Cullen have the final sign-off. I would like to hear the Minister explain why he thinks those Ministers have the financial ability and business nous to make sometimes complex business decisions that traditionally have been made by those boards.

I would also like him to explain the theory behind this new change. Because in all the advice from officials, concerns have been expressed. The Ministry of Economic Development has expressed concerns. Treasury certainly did. The Crown Company Monitoring Advisory Unit expressed concerns about pushing State-owned enterprises into these new additional areas of commercialism.

I would also like the Minister to talk about why he thinks this will contribute to economic transformation. Because, when one ignores the big issues such as tax, accident compensation, the Resource Management Act, employment law, and trade policy, why does he think expanding the area of State-owned enterprise work is going to make any difference to kicking New Zealand’s economy along? Yes, there have been some successes, but also there have ultimately been some failures, or, as Treasury euphemistically put it, non-successes. I would like to hear about that theory underpinning this strategy, when all officials pointed to concerns and clearly were unsure about what the spill-over benefits would be.

I am concerned that State-owned enterprises are starting to be treated as extensions of the Government’s social agenda. Is that OK when one is talking about firms that basically look after over $2 billion worth of assets? If one has $2 billion worth of assets I do not think it is OK to use as one of the reasons for expanding State-owned enterprise areas that it is to make them more exciting and less boring places to work. When one is overseeing $2 billion worth of assets I do not think there is a business, or a businessman or businesswoman, in the country, who would see that as being a good excuse to expand State-owned enterprise risks and investments.

So in terms of the State-owned enterprises plan I hope the Minister will get on his feet and explain more about how this will contribute to the grand plan of economic transformation. Because it is not clear from what has been said—if anything, the more the Minister gets interviewed on this, the more murky the thinking appears to become. What kinds of projects are they going to get into? How will New Zealand’s economy fare better with expansion of projects from learning media, etc.? I would like to hear from the Minister on that.

After a little bit of a false start I am very keen to take part in this debate. I have just changed my opening words, as I thought they could have been a little better. I thought it was very interesting that the National member Katherine Rich, who has just resumed her seat, talked about State-owned enterprises but actually left out the most critical issue for National, which is whether it will sell any. Of course, the big problem National members have is that deep, deep down they do want to flog off State assets but they cannot bring themselves to say it, because if they say it they will not be elected. That is the huge dilemma the National Party has. So National members went into the last election with a whole pile of waffle around this area. In fact, when they were pushed, they could never get anybody to identify which State-owned enterprises they were prepared to sell off.

In fact, the leader himself said: “Well, there are many State-owned enterprises we could privatise.”, but when we asked him which one, he said: “Well, not that particular one, maybe another one.” It goes back a couple of years, but he has made many, many statements on State-owned enterprises. For example, in 2004, when pushed, he said: “If it were up to me, I would sell Kiwibank.” Then as it got close to the election and people started to wonder whether Kiwibank would be sold—and a lot of the people who banked with Kiwibank wanted to know the answer to that question—we heard John Key say: “Well, in fact, we wouldn’t sell it within our first term.”

The CHAIRPERSON (H V Ross Robertson): 2006-07.

Yes, Mr Chairperson. So the question is, as we look forward in terms of this debate, what is National’s policy on State-owned enterprises? For example, would there be any changes if the National Party were in power? Would we be having a different kind of estimates debate now? I think it was disappointing the previous speaker did not raise that issue at all.

Having had the pleasure of being a former Minister for State Owned Enterprises, I can say that our State-owned enterprises perform particularly well relative to the private sector, even when we take out the fact that there are some monopolies within them, such as Transpower. When we look into the future, this Government has clearly said that it will not have asset sales. We are opposed to asset sales, but the same old issues need to be addressed. For example, how much should the companies retain as retained earnings for their own future work—because State-owned enterprises need to keep moving forward—and how much should be given back to the shareholder, who ultimately is the taxpayer, by way of dividend? This age-old issue is always debated. We have been engaged in a long-term hold project whereby we have been working out how to try to mimic the private sector without, obviously, the discipline of the sharemarket. In all of these things State-owned enterprises are looking forward to the future.

Of course, they have always been able to expand their business. It is only when it comes down to major issues and major capital outlay that they need to come back for a decision from the shareholder, which is no different from the operations of any other major company. The board is responsible for the governance of the company and for making sure that the company is performing, but if any major issues need to be decided, or if any major investment is required, then back to the shareholders it goes. I think that the State-owned enterprises model is a good one.

It is clear that this Labour Government is committed to State-owned enterprises. We are opposed to asset sales. We are keen to ensure that in this financial year they continue to perform strongly and well, and that there is a balance between making sure there are sufficient earnings so they can expand and how much should be returned as a dividend. We know that State-owned enterprises must be able to continue to develop, because to stand still means to go backwards, in particular in areas where there is international competition, and in energy and other areas where our State-owned enterprises compete. The decision about how much there should be in terms of retained earnings and how much should be in dividend is a matter for the Government. I congratulate the State-owned enterprises, which have been good performers over the last little while and will continue to be over the next 12 months.

I wish to recognise the contribution of the former Minister for State Owned Enterprises, the Hon Paul Swain, for whom it was my distinct pleasure to serve as Associate Minister in times gone by. The Hon Paul Swain was a prudent, careful, but visionary Minister, who should take some considerable credit for the fact that under his stewardship the average rate of return amongst the State-owned enterprise portfolio was higher than the average rate of return for the NZX50. That tells us two things: not only is the governance model for the State-owned enterprise stable appropriate, but also the public has nothing to fear from those who think, as a matter of religious conviction, that anything owned by the State must, by definition, perform inadequately. Under Mr Swain’s tenure, quite the reverse of that was proven to be the case—and it still is the case.

The reality is that the State-owned enterprises matter. They have over $10 billion in assets. They are responsible for something like 16 percent of Crown revenue, and that amounts to billions of dollars per year. And, of course, they make a contribution to essential services and essential infrastructure that New Zealand needs, not only today but for the longer term.

I wish to address a couple of the points raised by the Opposition spokesperson in her remarks. The first is that notwithstanding the Government’s willingness to see State-owned enterprises play a more transformative role in the economy, we will continue with the regime of prudent monitoring, of tight performance expectations, augmented, as the Hon Paul Swain has noted, by the long-term hold owners’ review process.

The Opposition spokesperson indicated her concern that there may be a tendency for Ministers to take important commercial decisions. I think it is worth noting that it is certainly the view of the current shareholding Ministers that when they appoint a board, they back them or sack them. Board members are the people who have the expertise, and they are the people who must judge the commerciality of decisions, in the first instance. If Ministers are deeply unhappy, then they have remedies available to them under the State-Owned Enterprises Act.

Let us consider, however, the policy advantages that State-owned enterprises have, because the reality is that the Crown is the kind of shareholder that any company and any management team would want to have. Why? Because the Crown is not in it just for the quick buck; the Crown is in it as the custodian of the public interest for the long term. Because the Crown has an eye on long-term value creation, we can make investment decisions that take a while to pay off.

Let me conclude with, I think, the best example to show the difference between the two sides of the Chamber. When the present Opposition members were in Government—and I know it is a long time ago now—they issued a directive under the State-Owned Enterprises Act to prohibit State-owned enterprises from investing offshore. The National Government said: “Thou shalt not invest!”. We lifted that directive. Meridian Energy bought Southern Hydro in Australia. National opposed that. Meridian built it up and extracted portfolio synergies between wind energy and hydro generation. Meridian sold Southern Hydro for nearly a billion dollars of profit, much of which has contributed to the Government’s ability to upgrade the transport infrastructure around this country.

Let us reflect on that example. National opposed offshore investment; it used the most draconian provision of the State-Owned Enterprises Act to prevent it. Labour gave boards the right to make those decisions, and Meridian Energy did us proud. Meridian Energy returned the capital to the Crown, and it has been used for the good of the public of New Zealand. What we want is good, tight, prudent management that delivers sustainable returns for New Zealand and invests in this country’s transformation for the future. I believe that is what this policy will deliver.