6. Hon CLAYTON COSGROVE (Labour—Waimakariri) Link to this
to the Minister of Finance
Excluding the banks and non-bank financial institutions covered by the deposit guarantee scheme, are there any other companies that might be provided with a Government guarantee while the Rt Hon John Key is Prime Minister?
Hon BILL ENGLISH (Minister of Finance) Link to this
Yes. Crown guarantees and indemnities arise in many forms. For example, the New Zealand Export Credit Office has, since 2001, offered a wide range of working capital and credit guarantees to a large number of New Zealand exporters. There are numerous other examples of Crown guarantees, such as those by Housing New Zealand Corporation, Landcorp, New Zealand Railways Corporation, the Reserve Bank, and others. I refer the member to the fiscal risks chapter of each economic and fiscal update for more information about these guarantees.
Hon Clayton Cosgrove Link to this
Does he accept Treasury’s advice, found at pages 30 and 32 of its paper entitled Crown ownership of commercial entities, that partly privatising the energy State-owned enterprises might create the perception of an “implicit Crown guarantee”?
Probably the single action that created the perception of implicit Government guarantees was the decision made by the previous Labour Government to offer a deposit guarantee to the banks. It is now taken as implicit that all our main banks have an implicit guarantee. In respect of State-owned enterprises, people will draw their own conclusions. It has not stopped a State-owned enterprise like Air New Zealand, under the mixed-ownership model, being a successful company.
Hon Clayton Cosgrove Link to this
Has he considered the possibility that an implicit Government guarantee, as described by Treasury, might incentivise risk taking by private investors who manage to get influence over a company, and that such risk could include asset stripping and a lack of reinvestment, the kinds of practices that forced the previous Government to buy back Tranz Rail and bail out Air New Zealand after they were run into the ground by private investors?
Of course that is possible, but the Government is considering whether the tests it has laid out for the mixed-ownership model can be met. Those tests focus on maintaining majority Government ownership and providing an opportunity for New Zealanders, as preferential investors, to be able to invest in some sound, long-term companies, thereby encouraging more savings by New Zealanders and strengthening our capital markets, which badly need it after 9 years of the previous Labour administration.
Peseta Sam Lotu-Iiga Link to this
How have the guarantees of banks and financial institutions reduced under this Government?
The coverage of the deposit guarantee scheme has narrowed considerably. The initial Crown scheme guaranteed 73 institutions with total deposits of $125 billion, and most of those organisations paid no fees. The current scheme, which charges commercial fees, covers just four institutions, instead of 73, and $1.7 billion of deposits, instead of $125 billion. The current scheme will cease from 31 December this year, and it is possible that at that stage we will be one of the very few developed countries that will have been able to get out of a Government guarantee of depositors.
Hon Clayton Cosgrove Link to this
Given that the National Government has already spent billions of dollars on bailing out South Canterbury Finance, MediaWorks, and now, possibly, expenditures in relation to AMI Insurance, does he think it would be prudent to refrain from partly privatising New Zealand’s energy infrastructure, eliminating the possibility that risky private sector practices could lead to future bail-outs of former State-owned enterprises?
The two issues are unrelated. The Government has been very reluctant to enter into arrangements such as the support package for AMI Insurance, and the Opposition is giving the appearance of being against it, which is something that member should try to explain to policyholders of AMI Insurance who are sitting in their wrecked houses in Christchurch.
Hon Clayton Cosgrove Link to this
Is it worth risking the failure of an energy company through privatisation, when the advice he has received from Treasury says “there is”—
Hon Dr Nick SmithHon Clayton Cosgrove Link to this
—the Minister may not like the advice, but it is there—“ little evidence to suggest that privatisation would significantly improve the financial performance of many of the SOE companies.”?
The member needs to make up his mind whether it is a big change or a small change if it goes into the mixed-ownership model. Either hardly any benefits will come from it or it will be a major disaster. The Government is doing the work now to see whether the mixed-ownership model will meet the tests. I must say, though, that my colleague Simon Power has done a good job of tidying up the grossly irresponsible stewardship of our State-owned companies by the previous Government.