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The Year of Bribes, Promises, Accusations and Confusion.

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 As we come up to the time of electioneering on a national scale, we will get diverging opinions on the state of the nation and how its ills can be cured. We will be told we are deeply indebted, the economy is in a downward spiral and the only thing to do is:

• sell public assets

• keep public assets.

• spend more to keep the economy growing

• save

• lower tax rates

• increase tax rates

• increase GST

• lower GST

• have no earthquake levy because families are already under pressure

• have a one off earthquake levy

So many mixed messages it’s hard to determine what is right, wrong, reasonable or unreasonable. Bearing in mind the old adage that ‘figures can lie and liars can figure’ we can be assured that politicians will fit the evidence to suit their message.

I am not an economist and the mixed messages of the political statements we are hearing make little sense.

The National Debt

What we should be told by, maybe a brave politician, a neutral journalist, or economist is that New Zealand Inc is not deeply in debt. Our public debt is small in comparison with other western countries and it is the private debt which is the problem. I have found some old figures which suggest that our private debt is $80 billion and the public debt only $8 billion.

If so why the jungle drums sounding the alarm? Why the mixed message? What is clear is that the major policy difference this far out from the election is to sell or not to sell public assets to solve the problem of excessive debt.

How does selling assets help?

So my first question is why would selling public assets solve the private debt problem? It seems to me that reducing our public debt by selling our assets to the private sector is illogical. If the private debt is the problem then why sell public assets to the private sector? Will not businesses, private citizens have to borrow to buy a stake in Kiwi Rail, Meridian, Mighty River Power, Genesis and Solid Energy?

Increasing the Private Debt

Will that not increase the problematic private debt? It seems counter intuitive to me. We have been promised that the ‘mums and dads’ of New Zealand will have an opportunity to invest in these public entities. Don’t we already own them? Why would we want to buy them from ourselves? That scenario also supposes that we will not have to borrow to buy so we don’t add to that problematic private debt. If the government is really worried about our debt, then those interested in buying a stake in our assets will surely have to have enough cash on hand to buy, otherwise borrowing to buy will only add to the government’s dilemma. So going down the food chain of ordinary New Zealanders who may want to buy shares in government owned companies, let us look at the probability.

Who Can Afford to Buy?

Possibly those high earners who received the greatest benefit from the tax cuts may have enough ready cash available but the majority are not in that privileged position. The rest of us have increasingly high mortgages to pay, cut backs on pre-school education, increasing school fees, less access to public health care, increasing costs to food, electricity, gas, petrol, road user charges or simply paying for a bit of fun with the family. How can the family investor find additional funds to buy back what we already own? To compound the burden on middle and low income families there are promises of reductions in family support and Kiwisaver.

Borrow to Buy?

So where will the available extra cash come from? We will have to borrow it? We are also told there is an explosion of people being referred by WINZ to Budget Services. So what about those at the bottom of the food chain? Those on benefits, those on the minimum wage, those who cannot find jobs, those disadvantaged already in Christchurch as they struggle to survive not knowing if they will have a job next week? These people would never have a chance to own part of our companies nor therefore receive capital gain when they are further onsold.

Buying While We Save!

We are also being urged to save while we are being offered the opportunity to buy a stake in a public asset at the same time as coping with higher costs of living. If all New Zealanders are to have an equal opportunity to buy shares in our own companies, many of us would therefore have to borrow.

Who Benefits?

Otherwise this is not of equal benefit to all the citizens of New Zealand as promised by the Government. It will only be of benefit to the few. It doesn’t make sense to have ‘ordinary mums and dads’ as the government deigns to call us, borrowing to buy public assets which will increase the debt profile which the government is so worried about.

It is a rort which will benefit very few of us. Go figure. I can’t.