THE PUBLIC FINANCE DEBATES:

“The New Zealand Government should sell 100% of its SOE stake, not 49%”

Proponent:

Paul Dyer

Outline

1. The NZ debate to date.

2. Why public vs private ownership matters.

3. How have NZ SOEs actually been

operating, and will anything change?

The VUW-GEN Public Finance Debates October 24, 2012

Growth of the Crown Balance Sheet

2003 2008 2012

Property, Plant & Equipment

52.7 103.3 108.6

Securities, Shares, Deposits and Derivative Gains

21.3 43.1 62.8

Other 25.9 54.4 68.9

TOTAL ASSETS 99.9 200.8 240.3

% GDP 74% 110% 116%

The VUW-GEN Public Finance Debates October 24, 2012

Source: Budget 2012 and FY2012 Financial Statements

NZ’s equity investment with the world is essentially

balancedAs at March, $bn 2011 2012EquityAssets 66 61Liabilities 62 66Net 4 -5

DebtAssets 117 111Liabilities 254 252Net -136 -140

NIIP -132 -146% GDP -68% -72%

The VUW-GEN Public Finance Debates October 24, 2012

Source: Statistics NZ, Balance of Payments, Table 11

Public v private ownership turns

on three questions:• Does competition matter more than

ownership?

• Are SOEs subject to welfare reducing

interventions?

• Are SOE governance problems intractable?

The VUW-GEN Public Finance Debates October 24, 2012

Mary M. Shirley and Patrick Walsh, “Public vs Private Ownership: The Current State of the Debate”, World Bank Research Paper 2420, Mar 2001.

Studies of operating efficiency, public vs private ownership

Issue Number of studies

Private performed better

No clear winner

SOE performed better

Comparing efficiency of private/privatised firms with SOEs

52 32 15 5

When comparing firms within the same industry

31 18 8 5

Comparing performance before and after privatisation

21 14 7 0

The VUW-GEN Public Finance Debates October 24, 2012

Mary M. Shirley and Patrick Walsh, “Public vs Private Ownership: The Current State of the Debate”, World Bank Research Paper 2420, Mar 2001.

How large are the gains?Measure % Change Significance

(Z scores)

Profitability Income/Sales +47% 3.15 ***3.16 ***3.92***

Efficiency Real sales / employee

+20% 3.66 ***4.79 ***4.87 ***

Investment Capex / Sales +36% 2.35 **2.28 **

0.80

Output Real Sales +83% 4.77 ***5.19 ***7.30 ***

Employment Total employees +1.2% 0.961.48-1.62

Dividends Divs / Sales +224% 4.63 ***4.37 ***4.98 ***

The VUW-GEN Public Finance Debates October 24, 2012

William Megginson and Jeffry Netter, “From State to Market: A survey of Empirical Studies of Privatisation””, J. Economic Literature, June 2001