Government Advised Against Asset Sales

May 22, 2012 New Zealand Finance

Stop asset salesThe government should consider borrowing money from private investors in New Zealand, instead of selling state owned assets.

On May 21st the economic consultancy firm BERL released a new report, commissioned by the Green Party, detailing the potential economic effects of the government’s proposed asset sale program.

The report claimed that selling off state owned enterprises would permanently damage the financial situation of New Zealand, suggesting that it would cause a “…permanent deterioration in the external deficit and the level of external debt”.

Ganesh Nana, author of the report and economist at BERL, explained that selling assets would immediately reduce the government’s revenue streams, due to the decrease in the collections of dividend payments. He conceded that the money collected from the sale could be used for investment into infrastructure, but such a move would not improve revenue streams for several years.

It was suggested that the government should not sell shares in state assets but instead encourage New Zealand investors to lend to the government. Ganesh Nana explained claimed that New Zealand “mom and dad” investors currently have billions of dollars in term deposits in the country’s banks, and asked, “… why sell them an equity stake on assets, why not just sell them a debt instrument. Why not get some of them to lend to government.”

Photo by Simon Oosterman