Winston’s plan for Kiwibank

You may have missed it since it was announced last night and is already off the front page of stuff, but Winston  Peters has announced some interesting plans for Kiwibank.

The main points are

  1. A partial float of Kiwibank where only New Zealanders are allowed to own shares
  2. Using Kiwibank for all of the government’s business.

The argument underlying these two points is profits leaving the country are bad.  This argument is probably one of my pet hates as there is nothing stopping you buying shares in the company that owns the asset to bring the profits back into the country. In addition one has to worry about efficiency when you guarantee Kiwibank a gigantic customer. What incentive does Kiwibank have to be competitive with respect to the government contract if they ahve no chance of losing it?? Presumably if the government thought Kiwibank would give it the best price/quality contract they would already be doing their business through Kiwibank.

I’ll leave Matt to comment on the BERL report he mentions as Macro is mostly gibberish to me. However if Winston Peters agrees with it, that raises some serious red flags for me!

Agnitio

  • Just look up BERL on the blog and I’m sure you’ll find my opinion somewhere 😛

  • I alredy know what you think of BERL, I just didn’t want to speak on your behalf:)

  • “I alredy know what you think of BERL”

    I respect BERL as a hard working consultancy organisation. I think that BERL and myself have different normative value judgments – which is fine.

    However, I think we also believe the world works in a different ways – something that can be worked through in order to increase societies set of knowledge

  • Maybe he feels that the strategic importance of the government coffers is too important to leave to foreigners? Perhaps only NZers should be entrusted with the responsibility of caring for the nation’s money.

  • StephenR

    “Maybe he feels that the strategic importance of the government coffers is too important to leave to foreigners? Perhaps only NZers should be entrusted with the responsibility of caring for the nation’s money.”

    Or maybe the coffers are too important to restrict the bank managers based on the location of the bank’s head office! Gah!

  • “Maybe he feels that the strategic importance of the government coffers is too important to leave to foreigners? Perhaps only NZers should be entrusted with the responsibility of caring for the nation’s money.”

    Define the “strategic” and the “responsibility” elements more objectively – then we can figure it out 😉

  • Based upon the events surrounding AIAL, I think “strategic” means “political”:)

  • Miguel Sanchez

    “The argument underlying these two points is profits leaving the country are bad. This argument is probably one of my pet hates as there is nothing stopping you buying shares in the company that owns the asset to bring the profits back into the country.”

    I was thinking about that the other day – I worked out that buying back the flow of bank profits heading offshore would only cost about $35 billion. Now, how much is sitting in the Cullen Fund right now… ?

  • “I was thinking about that the other day – I worked out that buying back the flow of bank profits heading offshore would only cost about $35 billion. Now, how much is sitting in the Cullen Fund right now… ?”

    I would prefer that the Cullen Fund buys assets that most suit its risk/return profile. If we can buy assets overseas that give New Zealand a better return than the assets that are located here then why the hell not 😉

  • Because if the profit was generated here it should stay here, foreign ownership is a drain on our economy, or something like that:P

  • “Because if the profit was generated here it should stay here”

    So in that case we must feel guilty about taking “profit that is generated overseas” – hmmmm

  • What’s wrong with having double standards? 🙂

  • It just isn’t the economists way 😛

  • felldownagain

    It’s a pet hate of mine too. If an overseas investor purchased the shares and we assume a dividend yield of 8% its going to be around 13 years before the profit outflow turns cash flow negative for New Zealanders.

    In the meantime the (assumed) New Zealand seller of the equity has reinvested the sale proceeds and with compounding and a multiplier effect the economny is almost certainly better off.

    And the irksome implication is that when dividends are paid offshore they dissappear into some sort of black hole and permanent shrinkage to our national wealth occurs. The amount of New Zealand currency does not change. If we send NZD offshore it is deposited in a foreign Bank where it is not a natural currency hedge for its assets and for that reason it eventually that cash finds its way back to the natural holders of Kiwi currency – New Zealand Banks where it is then reinvested in bonds or loans to consumers or business.

    What am I missing?

  • with respect to a New Zealander selling shares to a foreigner you can look at it on a much more basic level. Shares are the right to recieve dividands and thus you will only sell your shares for price that leaves you just as well off as if you kept the shares. In techinical terms the share price reflects the present value of the expected future dividends.

    The question which bothers me is if the NZ shreholder is just as well off, why do we care? The short answer is that we shouldn’t.

  • What we really need is autarky….

  • “What we really need is autarky”

    Given our savings record, then people would learn what high interest rates are 🙂

  • That would be an interesting experiment.

    There would be a huge outcry against businesses closing down and people being laid off.

    But we shouldn’t borrow from abroad….

    Mind you, it would solve a good part of the greenhouse gas/carbon emissions problem. No output = no by-product = happiness all round.

  • “No output = no by-product = happiness all round.”

    Very true – I would miss the internet though

  • It would simplify playing online games since everyone would be on the same time zone:)