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Speaker 1: Kyoda. I'm Chelsea Daniels and this is the Front Page,

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Speaker 1: a daily podcast presented by the New Zealand Herald. National

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Speaker 1: has kicked off twenty twenty five by driving headfirst into

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Speaker 1: plans for economic growth, and it wasn't long until act

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Speaker 1: through in their two cents. Party leader David Seymour made

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Speaker 1: privatization a key focus of his State of the Nation speech,

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Speaker 1: and while Prime Minister Christopher Luxon said he doesn't want

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Speaker 1: to sell anything off this term, he's suggested it could

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Speaker 1: be campaigned on in next year's election. It's a road

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Speaker 1: that New Zealand has gone down before, selling everything off,

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Speaker 1: from banks to energy companies in the eighties and nineties,

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Speaker 1: and only a few state owned enterprises remain. So what

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Speaker 1: could be on the shopping block and would anyone actually

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Speaker 1: want to buy them? Today? On the front Page, we

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Speaker 1: put those questions to Greg Smith, head of Retail are

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Speaker 1: Devon Funds Management. Greg, the words privatization and assets sales

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Speaker 1: are used interchangeably, I guess, But is there actually a

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Speaker 1: difference between the two. How would you define them?

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Speaker 2: Look effectively the same thing? But yeah, what we're talking

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Speaker 2: about potentially here, privatization is sales and assets by the government.

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Speaker 2: And look, I think it's an interesting point perhaps every

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Speaker 2: to start. So I suppose the philosophical point of view,

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Speaker 2: I think probably fundamentially government is not really a good

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Speaker 2: owner of businesses that were sort of talking about, and

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Speaker 2: that ones are potentially up for privatization. And yeah, I

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Speaker 2: think it is a bit of a win win situation

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Speaker 2: when the government engages in assets sales and privatization. If

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Speaker 2: it's done right. Yeah, for the most part, the private

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Speaker 2: sector is the best owner of many of these assets.

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Speaker 1: But that's the kicker, isn't it. If it's done right,

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Speaker 1: didn't we have to buy back the likes of Air

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Speaker 1: New Zealand.

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Speaker 2: Yeah, that's right. And it hasn't worked perfectly all the time.

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Speaker 2: And obviously in New Zealand COVID hit so that was

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Speaker 2: a fairly sort of extraordinary circumstance. And if you go

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Speaker 2: a bit further back as well, yeah, there's been other

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Speaker 2: examples where it hasn't perhaps worked out particularly well. Look

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Speaker 2: at the eighties and nineties, it was very much a

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Speaker 2: mixed bag. There was a transfer of value from taxpayers,

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Speaker 2: while a select few did quite well. You think of

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Speaker 2: the government printing office that was sold to rank in

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Speaker 2: the late eighties. Then there was Telecom New Zealand in

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Speaker 2: nineteen ninety and then there was also Transrail which was

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Speaker 2: sold and inadibly listed and effectively failed. So they weren't

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Speaker 2: great examples, but you think in more recent times the

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Speaker 2: mixed ownership model can and does work when it's done right.

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Speaker 2: It's proved to be highly successful. When you look at

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Speaker 2: the gentiles there really are a shining example. You've got

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Speaker 2: wonderful assets that New Zealand investors have been able to

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Speaker 2: invest in directly. I mean, what government's actually done quite

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Speaker 2: well as well. If you think about those it's been

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Speaker 2: run arguably more properly than they would otherwise, and their

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Speaker 2: dividends flying back to the government accordingly.

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Speaker 1: Well, looking at what the government actually currently owns, it

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Speaker 1: doesn't seem like there's a lot left. Sir John Key

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Speaker 1: himself said as much, literally saying there's nothing to sell

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Speaker 1: when he was on it with Hosking recently. Is he right?

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Speaker 2: Look, I think there are a few options here, and

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Speaker 2: then you know, let's just sort of stick with the

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Speaker 2: most recent examples. You know, they still own significant stakes

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Speaker 2: in the gentailers, so yeah, they could sell that down

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Speaker 2: fur there's at portocol if you like. And you know

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Speaker 2: the reason for the government having or retaining a stake

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Speaker 2: in the airsets suppose it's a matter of from their

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Speaker 2: point of maybe national security or national interest or having

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Speaker 2: a strategic stake, but a lot of that can be

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Speaker 2: achieved or protection of that or ring fence if you like,

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Speaker 2: through not owning a stake. You think of legislation, You

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Speaker 2: think of regulation. Look at look at Auckland Airport. Yeah,

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Speaker 2: that's actually regulated. You've got on set which is in

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Speaker 2: private hands, but it's effectively being protected to that extent.

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Speaker 2: Now there are other assets, I think, which are also

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Speaker 2: crying out the capital, so it's not it's not too

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Speaker 2: narrow field. You look at transpower crying out for investment.

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Speaker 2: They of course manage and operate our electricity transmission system.

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Speaker 2: So I think that that would be a very well

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Speaker 2: received areset. You know, think got to think as well

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Speaker 2: that you know, the world is a wash with capital

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Speaker 2: crying out the high quality infrastructure assets. We saw that

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Speaker 2: with the sail down and the gentailers, and I think

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Speaker 2: we would see that the game with something along the

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Speaker 2: lines of transfer. Of course, EWI Bank is another often

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Speaker 2: kicked around and mentioned you know that that is a

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Speaker 2: gain an asset that could quite possibly sort of become privatized.

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Speaker 2: And it's also stepping back, you know, when we're talking

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Speaker 2: about the banking sety, we're quite unique in a way

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Speaker 2: in terms of, you know, we have big banks operating

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Speaker 2: here in the country, but we don't have any private

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Speaker 2: ownership as such. Obviously their own big banks own by

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Speaker 2: Australian companies effectively and New Zealanders invest into those companies.

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Speaker 2: But you could also see a scenario where the government,

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Speaker 2: the government hands out or grants a banking license to

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Speaker 2: these banks to also sort of force a sale back

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Speaker 2: to New Zealanders of the New Zealand operations of those banks.

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Speaker 2: So I think that's something as well that could be

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Speaker 2: looked at some point. I think that'll be amazingly well received.

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Speaker 2: We've also got the rest you mentioned in New Zealand

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Speaker 2: and we could look at sell down of the rest

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Speaker 2: of that. And I suppose you know, the other thing

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Speaker 2: that we can ever take away from being what's being

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Speaker 2: done globally and just across the Tasman when you look

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Speaker 2: at the public private model that's been highly successful. When

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Speaker 2: you think of likes of toll roads, they need investment,

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Speaker 2: So does it really make sense for it to sit

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Speaker 2: in public hands and they get underinvested, they perhaps don't

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Speaker 2: get run as well as they could have. You think

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Speaker 2: toll roads, you look at those in Australia, you look

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Speaker 2: at those in Europe, and these assets aren't being given away.

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Speaker 2: You know, they typically come with say a twenty year

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Speaker 2: at least or something like that, and they operate to

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Speaker 2: get has twenty years to exact what it can from

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Speaker 2: the asset and run it in the optimal fashion. And

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Speaker 2: so that can work quite well as well. And then

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Speaker 2: if we step down from sort of the national level,

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Speaker 2: I think there's also lots of high quality local government

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Speaker 2: assets which could in some cases address creaking council balance sheets.

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Speaker 2: You think boorts, airports and the likes. So I'll actually

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Speaker 2: argue that that there's quite a few things we could

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Speaker 2: look at in terms of this privatization journey, starting with

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Speaker 2: the gent tailors, but there's a variety of other assets

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Speaker 2: we're talking about here as well.

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Speaker 1: What are the benefits of actually selling off what we've

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Speaker 1: got left?

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Speaker 2: Though?

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Speaker 1: Why not just hold on to them?

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Speaker 2: I just think we fundamentally the government or public, the

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Speaker 2: public sector is not a natural owner of these assets.

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Speaker 2: And you can see a great example of how these

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Speaker 2: assets can perform or underperform when in the hands of

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Speaker 2: public sector versus private is Port of Taroinger versus of Auckland.

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Speaker 2: Port of Taroger has gone from strength to strength as

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Speaker 2: a listed company become the largest port in New Zealand.

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Speaker 2: What's Vulkland has had mishap after mishap, after some strategic implosion,

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Speaker 2: and it's been a bit of a disaster. So I think, yeah,

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Speaker 2: right there, you've got a case. If you're looking for

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Speaker 2: a case of for private ownership and against public ownership,

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Speaker 2: I think that very very much stands as one. And

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Speaker 2: so we're not talking about giving away these assets and

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Speaker 2: losing control, and that can be done and via regulation,

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Speaker 2: via legislation often of courses we've seen the government or

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Speaker 2: local government perhaps in some cases would hold a staken

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Speaker 2: in these assets and can sort of work gether. But yeah,

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Speaker 2: the mixed ownership model works. It's highly successful. It's been

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Speaker 2: proven so locally is an extent with the gent tailors,

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Speaker 2: but also internationally as well. And yeah, the government can

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Speaker 2: sort of then use the funds obviously from these cell

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Speaker 2: downs to invest in other areas and also to address debtlage.

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Speaker 2: You look at the governments space of an infrastructure deficit

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Speaker 2: of two hundred billion. You know, the other way that

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Speaker 2: this is going to be addressed is not politically palatile.

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Speaker 2: I suppose you look at talking high taxes, talkings or

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Speaker 2: raising rates and the like. So I think, yeah, it

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Speaker 2: really is a win win putting these assets more in

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Speaker 2: the hand of the private sector it's a natural owner,

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Speaker 2: and then also enabling the government to sort of get

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Speaker 2: on and invest in areas it's probably more comfortable with doing.

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Speaker 2: The other point about all this is when you move

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Speaker 2: from sort of a public to a private ownership model,

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Speaker 2: it really gives New Zealanders the opportunity to invest in

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Speaker 2: some great assets. At the moment. You know, we have

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Speaker 2: a lot of key we investors having to invest in

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Speaker 2: infrastructure assets in Australia because they can't do so here.

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Speaker 2: So I think that's you know, that's really important as well.

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Speaker 2: We're a very patriotic, but yeah, sometimes the extraal scope

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Speaker 2: of what we can invest in New Zealand is very limited.

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Speaker 2: So like a natural home for a lot of these

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Speaker 2: assets that we're talking about when they're privatized and when

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Speaker 2: they find their way into the stock exchange, it would

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Speaker 2: be key we save with funds. So I think it's

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Speaker 2: a really great story around in a bit of a

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Speaker 2: win win.

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Speaker 3: Ownership protects the dignity of everyone, especially those who can

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Speaker 3: least afford it. Privatization, mister speaker, means that if you

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Speaker 3: can't afford it, you don't get it. It literally means

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Speaker 3: that people who cannot afford their medicine die.

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Speaker 1: Is there anything that we probably shouldn't privatize? I'm thinking

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Speaker 1: probably the big one is healthcare. One example that people

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Speaker 1: usually bring up of courses America, and that's for obvious reasons.

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Speaker 1: How realistic is it that any New Zealand government could

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Speaker 1: privatize parts of our health system? And do you think

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Speaker 1: investors would even want to snap it up?

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Speaker 2: Well, I think we have seen offshore that privatization of

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Speaker 2: health air sets and that actually worked quite well. Again,

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Speaker 2: you you get more invested. Obviously, it's a critical service.

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Speaker 2: And yeah, there is a spose and awareness of going

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Speaker 2: down the privatization path and what that might bring. But

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Speaker 2: I mentioned you can still exact control without having for

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Speaker 2: ownership stake, and it's it's also about specialism as well,

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Speaker 2: I mean, you know, we have some once you get

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Speaker 2: into that private reny, you have some fantastic specialists in

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Speaker 2: running hospitals and running health systems openly. And perhaps you

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Speaker 2: obviously we've seen with not recent governments, the you know,

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Speaker 2: the the issues that have occurred in the in the

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Speaker 2: health sector. Yeah, perhaps so some of them might not

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Speaker 2: have occurred in the private sex. But I do agree

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Speaker 2: it is a little bit of jugging it perhaps a

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Speaker 2: little bit more sensitive than privatizing other areas. I suppose,

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Speaker 2: you know, defense would be another natural one matters of

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Speaker 2: genuine national security. I think that is probably less palatable

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Speaker 2: as well.

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Speaker 1: Yeah, because when we hand over companies or assets to

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Speaker 1: private investors private companies, is there any way that we

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Speaker 1: can legislate or bring in rules to make sure that

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Speaker 1: these companies don't put profit over people?

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Speaker 2: I guess absolutely, And that's what the government is there for.

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Speaker 2: The government is there to legislation. So you know, any

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Speaker 2: any agreement can have causes and can have targets and

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Speaker 2: KPIs and things like that, so certainly can be drawn

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Speaker 2: into any agreement. I mean, the government holds these assets,

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Speaker 2: they hold the cards, so you know, you you may

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Speaker 2: have you may well have a buyer for these assets,

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Speaker 2: but you know, the celler can always put in the

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Speaker 2: clauses they want and the government is no different, So

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Speaker 2: we can we can ring fence the government can ring

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Speaker 2: fence protections into these matters. Of course, there is that

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Speaker 2: sensitivity as you say, about profit tenally being prioritized over people,

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Speaker 2: and that is obviously quite relevant when we're talking about

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Speaker 2: services like hospitals and the like. Said, yeah, it's worked

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Speaker 2: very very well in the in the in the gentailor sector,

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Speaker 2: you've seen, Yeah, obviously you've seen. You've got a number

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Speaker 2: of companies there as well, so you've got a natural

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Speaker 2: competition and that's probably that's probably an aspect of it

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Speaker 2: as well. When the asset has more of a monopolistic

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Speaker 2: position or or strategic position, then that may it's all

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Speaker 2: the more important that the eyes are dialed and the

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Speaker 2: teaser cross from the respect to securing those protections.

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Speaker 4: Long the gym.

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Speaker 1: The UK privatized the Royal Mail about a decade ago,

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Speaker 1: it seems to be going, all right, what about New

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Speaker 1: Zealand Post That's.

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Speaker 2: Yeah, that would certainly be up for grabs as well.

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Speaker 2: Then I guess that's an interesting one as well, because

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Speaker 2: you've seen with New Zealand Posts it's been it's been

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Speaker 2: supported by the government for for a long long time. Yeah,

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Speaker 2: it's only supposed with the advent, you know, they've got

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Speaker 2: a primary competitor now in the like of freightways. That's

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Speaker 2: support has probably it's not been great. It's not been

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Speaker 2: great for the New Zealand Posts. You know, it's been

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Speaker 2: quite an uneconomic business. And really, you know, the way

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Speaker 2: you get to become economic is having the reality a

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Speaker 2: business economics thrust upon you. And yeah, with government support

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Speaker 2: and you could go sort through economic textbooks and providing

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Speaker 2: you know, subsidies and so on to organizations is naturally

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Speaker 2: not the optimal way to ensure that an optim optimal manner.

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Speaker 2: So I think with the NZ Post that government has

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Speaker 2: actually started to more recently say it's got it. You know,

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Speaker 2: it's got things. I've got to be economic, and that's

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Speaker 2: sort of starting. I think what you're seeing me you know,

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Speaker 2: we're starting to potentially see price arisers coming through and

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Speaker 2: so on. I've been kept artificially low for a long time.

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Speaker 2: So again I think that would be that would actually

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Speaker 2: be quite a good story as well in terms of

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Speaker 2: a privatization. One, you've got a business which is not

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Speaker 2: operating in an optimal bassion, but could your perhaps do

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Speaker 2: more so under private ownership.

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Speaker 1: I found an interesting stat the other day while researching this.

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Speaker 1: The total value of government owned assets was five hundred

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Speaker 1: and seventy point nine billion dollars. Could that comprises of property,

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Speaker 1: plant and equipment fifty percent, financial assets forty five and

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Speaker 1: other assets five percent? Now that's kind of suggests to

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Speaker 1: me that there's a lot of buildings and land in

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Speaker 1: the government's ownership. Is that right?

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Speaker 2: Yeah, that would be right. And again, does that make

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Speaker 2: a lot of sense? I mean, when we've got a

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Speaker 2: government faced with very high levels of debt, you got

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Speaker 2: we've got an economy that's in the worst per capita

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Speaker 2: recession in over thirty years. Yes, sitting on unproductive assets

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Speaker 2: doesn't really make a lot of scent. Now is the

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Speaker 2: time as much as any that we need to extract value,

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Speaker 2: or the government needs to extract value from literally what

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Speaker 2: it is sitting on top of So hoarding unproductive assets

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Speaker 2: doesn't make a lot of sense. But say, yeah, the

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Speaker 2: same token you don't want to see give away the

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Speaker 2: crown jewels. And I think we've seen that a little

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Speaker 2: bit with local governments. Recently there's been assets that have

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Speaker 2: been suggested to be up for sale and then they've

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Speaker 2: been held on to it. I think that the Dnedian

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Speaker 2: Council is probably very good example recently. So yeah, you

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Speaker 2: do need to be sort of cognitant of that, but

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Speaker 2: it also it needs to need also needs to be

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Speaker 2: an economic decision as well as an emotional decision. So

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Speaker 2: I think probably now more than ever is the time

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Speaker 2: to really have a thorough review of what the government

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Speaker 2: is sitting on, whether it's the best owner of those assets,

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Speaker 2: whether it could extract a more economic return by going

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Speaker 2: where either full sales or going down a mixed ownership

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Speaker 2: model in some instances, And yeah, now is a really

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Speaker 2: important time to be doing that.

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Speaker 5: How is it possible that the Bank of New Zealand

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Speaker 5: wants to close down coal mines? Yeah, it writes to

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Speaker 5: them and says you can't have a card debit credit.

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Speaker 5: I think why it's utterly unacceptable, utterly unacceptable, and that's

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Speaker 5: what we've got to change. And we've made it very

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Speaker 5: clear in our comments and I hope the bank CEOs

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Speaker 5: are noticing our language, which is where you've got to

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Speaker 5: finance things that kiwi's need. Their job is not politically posturing.

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Speaker 5: Their job is to finance the things that kiwi's need.

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Speaker 1: I'm not sure if you've seen the debate over the

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Speaker 1: last week. I Z telling a coal mining firm it'll

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Speaker 1: have its banking services withdrawn over the next five years.

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Speaker 1: Government ministers have intervened, including Prime Minister christpher Luxen. But

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Speaker 1: in terms of that, the government's hands are kind of tied,

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Speaker 1: aren't they. They can't really force a private bank to

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Speaker 1: do what they want. They could have been z if

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Speaker 1: the government still owned it, I suppose, but we sold

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Speaker 1: that off to the Aussies back in the nineties. So

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Speaker 1: is this a timely warning for the government that selling

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Speaker 1: assets won't necessarily mean in future that they get to

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Speaker 1: say in what those companies end up doing.

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Speaker 6: Like you think, it's how it's sort of structured, so

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Speaker 6: you're plot well, see with the benefit of hindsight is

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Speaker 6: open there, but you need to be thinking about the

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Speaker 6: protections you need to put in place, and that can

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Speaker 6: be structured into any agreement so that it can be.

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Speaker 2: Through legislation, through regulation. Obviously you don't have the government

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Speaker 2: had retained a staker, would have more of more of

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Speaker 2: a say, but the begging sector is a good example.

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Speaker 2: And as I sort of pointed out earlier that our

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Speaker 2: biggest banks are owned by Australian companies and Australian shiholders,

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Speaker 2: albeit they're also New Zealand shiolders, and it's something the

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Speaker 2: government could could really look at. I mean, it has

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Speaker 2: a massive ability to change the landscape as it were.

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Speaker 2: You know, these banks hold banking licenses in New Zealand.

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Speaker 2: The New Zealand arms of these banks has historically been

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Speaker 2: highly profitable in many years it's been their best performing businesses.

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Speaker 2: So I think, you know that that's something that probably

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Speaker 2: should seriously be looked at as compelling these banks to

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Speaker 2: sell down, sell off part of the New Zealand operations

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Speaker 2: and also allow that stakes and that to not any

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Speaker 2: being perhaps held both government but also by hey we investors,

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Speaker 2: including including key We Saber schemes. So I think it's

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Speaker 2: something to really look at. And then also what you

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Speaker 2: talk about with prospective being z of course we do

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Speaker 2: you know I had mentioned earlier that a Kiwi bank

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Speaker 2: could be one option for a selldown and yeah, and

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Speaker 2: maybe the government would would sort of figure that into

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Speaker 2: any into any sale. Obviously want to keep a decent stuff,

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Speaker 2: but the government actually has held on to pretty key

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Speaker 2: strategic stakes and a lot of assets are that they're

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Speaker 2: sold in more recent times disposed in particular those Gentailers

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Speaker 2: and Greg.

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Speaker 1: Given New Zealand's history with privatization, how likely is it

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Speaker 1: that voters would choose asset sales if it's on the

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Speaker 1: agenda next year in the election.

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Speaker 2: I think the most recent experience of it, and often

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Speaker 2: what is in recent memory is more relevant, and I

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Speaker 2: think a lot of voters will be thinking that the

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Speaker 2: sell down of the gentailers has worked quite well. There's

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Speaker 2: been dividends flying back to the government. Okay, the government

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Speaker 2: has retained the stake, but these businesses have done very

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Speaker 2: very well. You look at the performances generally of their

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Speaker 2: share prices. The dividends have been flowing to shareholders. Since

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Speaker 2: the IPO, you've got competition in the space. It really

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Speaker 2: has been a ringing endorsement of that sort of mixed

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Speaker 2: ownership model. There's always an awareness of selling off the

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Speaker 2: crown jewels and that I think that's always going to

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Speaker 2: be a feature. So I think voters will one today. Yeah,

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Speaker 2: we'll prospect to s itselves that might or might not

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Speaker 2: be on the table. You know what protections will go

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Speaker 2: along with them, But I think philosophically many will be

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Speaker 2: aware that the natural owner of a lot of the

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Speaker 2: assets that we're talking about is not the government, and

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Speaker 2: it's often more optimal to a decent chunk of ownership

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Speaker 2: to reside in private hands.

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Speaker 1: Thanks for joining us, Greg, My pleasure. That's it for

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Speaker 1: this episode of the Front Page. You can read more

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Speaker 1: about today's stories and extensive news coverage at NZDHERLD dot

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Speaker 1: co dot nz. The Front Page is produced by Ethan

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Speaker 1: Sills and Richard Martin, who is also a sound engineer.

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Speaker 1: I'm Chelsea Daniels. Subscribe to The Front Page on iHeartRadio

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Speaker 1: or wherever you get your podcasts, and tune in tomorrow

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Speaker 1: for another look behind the headlines.