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Monday, October 31, 2011

Selling off our SOE's

The present New Zealand government (Nov 2011)  is proposing to sell off shares in our SOE's (State Owned Enterprises).  These include power companies and the State Airline. They propose to keep 51% of the shares in the hands of the government and to give Kiwis the first chance to buy the  shares that are 'on offer'.  At present, the dividends from these companies go into the government coffers and reduce the amount of tax the citizens of New Zealand have to pay.  Reportedy, one of the power companies that they are proposing to sell off is earning a 20% dividend on  the government investment.  Their proposal to sell off part of our SOE's is a little like a trucking company selling off  a profit making-truck to get money to pave the parking lot.  Not a great business move.  I have a problem or two with this proposal.

My first problem is I can't see how these shares can be sold to us.  We already own them.  They have been paid for by generations of Kiwis through their taxes.  It's like taking empty bottles from the back of a convenience store and selling them back to the owner.  Since we already own these shares collectively, surly they could only be sold to a non Kiwi.  Then the proceeds should be divided up and sent to each of us - every man, woman and child of us.  How silly would that be.  Far better that we, the people of New Zealand, keep the ownership of the shares and use the dividends to defray taxes.  The present government doesn't own the shares except in-so-far as each member of parliament owns exactly the same amount of these companies as every other Kiwi.

Tax Increase
Of course, if we sell off the shares and reduce the amount of dividends going into the government coffers, taxes will have to increase.  Yes, the government will have some extra cash to do it's work  from the proceeds of the sale but when this money has been used up taxes will increase.  

Taxes will increase for all Kiwis but at least more well off Kiwis who had the spare cash to buy the shares will have some dividends to make up for the extra taxes.  Less well off Kiwis will simply pay more.  In effect we are taking money from the less well off and putting it in the pockets of the more well off.  A typical money-go-round.  The one saving grace of this whole sorry event is that we will get back a third of the dividends in taxes from the Kiwis who have bought the shares.  A very cute system.  We the people of New Zealand will no longer  own a large part of  our SOE's but we still  get a third of the dividends to defray taxes.  That is, unless the better off Kiwis have some system to avoid paying taxes.  Surly they wouldn't do that!!!!

Final Ownership
Eventually, when the owners of these shares need money or when the shares have increased in value, the owners of these shares will sell them.  In fact all we need is another economic crisis (think PIIGS*) to make people desperate to get a little ready cash in their hands.  I don't know how you read the economic climate in the world today but I suspect we have only begun to see a series  of crashes, each one more serious than the previous one.  Who will  buy these shares.  Who has lots of ready cash from selling cheap goods to the rest of the world.  They won't necessarily buy the shares directly.  There are plenty of people who are willing to be a front company or a front company for a front company etc. etc. for a share of the profits.  The shares will go overseas and we become, to a greater and greater extent, tenants in our own country.  

* Portugal, Ireland, Italy Greece and Spain

Banks are lining up to reap the benefits of selling these shares.  One estimate I have heard is that they will end up keeping 1% of the value of the companies they sell.  Do we really want this money flowing off shore to Australia (most of our banks are owned in Australia) 

These banks will likely buy and retain some of the shares.  More money in dividends flowing into Australia.  

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