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% Source: Budget 2012 and FY2012 Financial Statements The VUW-GEN Public Finance Debates October 24, 2012 NZ’s equity investment with the world is essentially balanced As at March, $bn 2011 2012 Equity Assets Liabilities Net 66 62 4 61 66 -5 Debt Assets Liabilities Net 117 254 -136 111 252 -140 -132 -68% -146 -72% NIIP % GDP Source: Statistics NZ, Balance of Payments, Table 11 The VUW-GEN Public Finance Debates October 24, 2012 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? Mary M. Shirley and Patrick Walsh, “Public vs Private Ownership: The Current State of the Debate”, World Bank Research Paper 2420, Mar 2001. The VUW-GEN Public Finance Debates October 24, 2012 Studies of operating efficiency, public vs private ownership Issue Number Private of performed studies 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 Mary M. Shirley and Patrick Walsh, “Public vs Private Ownership: The Current State of the Debate”, World Bank Research Paper 2420, Mar 2001. The VUW-GEN Public Finance Debates October 24, 2012 How large are the gains? Measure % Change Significance (Z scores) +47% 3.15 *** 3.16 *** 3.92*** Profitability Income/Sales 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% 0.96 1.48 -1.62 Dividends Divs / Sales +224% 4.63 *** 4.37 *** 4.98 *** William Megginson and Jeffry Netter, “From State to Market: A survey of Empirical Studies of Privatisation””, J. Economic Literature, June 2001 The VUW-GEN Public Finance Debates October 24, 2012