How should the government fund the billions more dollars needed to improve New Zealand’s infrastructure, boost defence spending and much else?
It must be done by some combination of cutting other spending, raising taxes, borrowing, or selling assets. Raising tax rates rubs against the government’s growth objective. Borrowing is troubling because the public debt is already imprudently high.
Asset sales should be in the mix. This week, the New Zealand Initiative published my research report making this case. The report, "The People's Portfolio: A $571 Billion Question", looked at the issue from a householder’s perspective.
The New Zealand government valued Crown-owned assets at $571 billion as of June 2024—approximately $275,000 per household. This portfolio encompasses commercial entities, housing, hospitals, schools, and 40% of New Zealand's land area.
The Crown’s borrowing costs exceed its income from those assets. One way or another, the difference comes out of householders’ wages and other income.
That burden is significant. Treasury estimated in 2022 that the opportunity cost of government asset ownership was around $22 billion annually (now closer to $30 billion). Crown revenue from dividends and rents was only $2.2 billion in 2023-24. Net interest costs on associated borrowing exceeded that at $3.3 billion. For core Crown, interest payments consumed 3.7 cents of every tax dollar collected.
If households were in this situation, many would consider selling some assets to reduce their debt. The government should do the same on their behalf.
The case is made stronger by official reports identifying ongoing poor quality asset management and government procurement. Why do the problems persist despite them being well known?
There are systemic reasons why politicians and public servants typically manage assets poorly. For a start, incentives are misaligned, voters might reward bold “let’s do it” aspirations rather than boring prudent management.
This is not just an ‘in principle’ argument. Local and international empirical research confirms the benefits of private ownership subject to competition. People who doubt this should read the evidence.
Even so, doing asset sales well is a challenge. The process must be squeaky clean to attract bidders and maintain public confidence. There are valuable lessons from 1987-1999.
A professional non-partisan body could assess why the Crown should continue to own assets it does not need to own.
Its reports should inform public debate.
Dr Bryce Wilkinson -NZ Initiative