The government’s plan to sell shares in four state-owned power companies and the national airline is proving unpopular. With opposition to foreign ownership growing, and memories of mishandled privatisations during the 1980s and 90s still fresh in the public’s mind, the National-led administration risks alienating coalition partners and voters alike.
New Zealand lives and dies by selling ‘stuff’ to the world. With a population of just 4.4 million, its domestic market is tiny and its reliance on exports, which account for a third of the country’s GDP, is massive. For much of the 20th century, that meant being Britain’s ‘offshore farm’. These days, it’s all about peddling protein to the growing middle classes in the Asia-Pacific region, which have provided a seawall in recent years, protecting New Zealanders from the worst waves of the global recession. Yet, as crucial as selling goods is to the country’s future, that’s exactly what is plaguing the centre-right National-led government early in its second term.
National is preparing to sell up to 49 percent of four state-owned power companies and a minority share of Air New Zealand, in which the government currently has a 73 percent stake. It argues that the sales will retain government control while paying down debt, boosting government spending, improving the companies’ performance and transparency at the same time as pumping fresh blood into the country’s anaemic capital markets. But the plan is the least popular policy of an otherwise well-liked government – recent polls show that two-thirds of voters are opposed.
Finance Minister Bill English had a reminder of just how much heat there is on the issue in late February when what he thought was a refreshingly “honest answer” to journalists’ questions provoked a storm. Announcing pre-budget figures, English said that the NZD6 billion his government expects to pocket from the partial sales, according to official figures, was “not our best guess – it’s just a guess”. Cue critical headlines, declarations of shock and mocking from opposition MPs and, ultimately, a correction from Prime Minister John Key. With the floating of shares likely to take several years to roll out, it’s hard to imagine there aren’t more scoldings to come.
The problem for National is that its policy bundles together several political weaknesses into one unpopular, easy-to-attack package. Indeed, before the year was out of short trousers, it was threatening to derail the government.
National won a second term last November with 47.2 percent of the vote – the second best result ever for the party and the best for any party since 1973. Yet, the nature of New Zealand’s multi-member proportional electoral system means it has just a four-seat majority and depends on a coalition combining the Maori party (three seats), free marketeers ACT (one) and the centrist United Future (one). Just weeks into the new term, the Maori party threatened to walk out, angered that a requirement for these state-owned companies to act in a manner consistent with the 1840 Treaty of Waitangi could be lost in the sales. The treaty is New Zealand’s founding document, signed between indigenous Maori and the British Crown.
The spat is politically useful for the Maori party, which wants to maximise its leverage within government while also placating supporters, who almost universally oppose the sales. But it’s a nightmare for National. On the one hand, it needs the Maori party’s votes (losing the party would reduce its majority to a single seat); on the other, ‘middle New Zealand’ is suspicious – at times openly hostile – to Maori ambitions and the so-called ‘grievance industry’.
Even without the race relations element, recent history has cast a shadow over National’s attempts to sell what it likes to call “mixed ownership”. This insipid language is needed because the words “asset sales” recall the privatisation of everything from the nation’s railways to its largest telecommunications company by consecutive governments in the 1980s and 90s; sales most voters now view as a mistake. What’s more, it reinforces two political narratives about the John Key-led government, oft pushed by its opponents, but which it has thus far successfully rebutted.
First, there is the view that Prime Minister Key is more sympathetic to his friends in big business than to the average voter; the former senior foreign exchange dealer for Merrill Lynch is estimated to be worth over NZD50 million. On February 19, Green Party co-leader Metiria Turei showed she now thinks this is a weak spot, saying, “The National government has shown that it is more beholden to the profits of some hand-picked companies than the interests of the New Zealand people… It’s what you get with a dealer for a prime minister.” The affable and analytical Key has been National’s greatest asset since taking over in 2006, with historically high approval ratings. But some commentators and polls suggest his popularity has peaked and that he’ll face greater voter scepticism this term.
Second, critics have long questioned whether Key is committed to a particular growth plan or is too poll-driven. With so much political capital being spent on a policy that generates a one-off return, while sacrificing hundreds of millions in dividends and profits in the next four years alone, the question often asked is, “Is that it?”
Perhaps the greatest political danger, however, is that the asset sales are set to begin just as opposition to foreign ownership is peaking. The bankrupt Crafar Farms in North Island – 16 farms covering 7,900 hectares – are currently on the market and have become the hottest of political hot potatoes. What looked to be a winning bid for the farmland by Chinese company Shanghai Pengxin is being challenged in the court, and ministers’ approval of the bid has infuriated New Zealanders concerned that too much productive land is falling into foreign hands.
Given that Key has publicly fretted that he’d “hate to see New Zealanders as tenants in their own country”, and that the Labour opposition has promised to ban rural land sales to “absentee investors”, it’s a tough time to be selling anything, let alone the government’s most profitable assets. Sensitive to the nationalistic mood, the government is promising “widespread and substantial New Zealand share ownership”, limiting individual shareholdings to 10 percent and giving first preference to New Zealand pension schemes, iwi (Maori kinship groups) and “mum and dad” investors. However, its own Treasury has undermined that message somewhat, saying “significant participation by foreign investors will be essential to achieving the government’s overall objectives”.
So, a country reliant on selling ‘stuff’ to the world now faces the question of whether it’s selling too much. The government, however, is determined to push ahead. Its challenge this year is to convince voters that its policy to sell down doesn’t amount to a sell-out.
