1. THE PUBLIC FINANCE DEBATES: “The New Zealand Government should sell 100% of its SOE stake, not 49%” Proponent: Paul Dyer

2. 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

3. Growth of the Crown Balance Sheet 200320082012 Property, Plant & Equipment 52.7103.3108.6 Securities, Shares, Deposits and Derivative Gains 21.343.162.8 Other25.954.468.9 TOTAL ASSETS99.9200.8240.3 % GDP74%110%116% The VUW-GEN Public Finance Debates October 24, 2012 Source: Budget 2012 and FY2012 Financial Statements

4. NZ’s equity investment with the world is essentially balanced As at March, $bn20112012 Equity Assets6661 Liabilities6266 Net4-5 Debt Assets117111 Liabilities254252 Net-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

5. 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.

6. Studies of operating efficiency, public vs private ownership IssueNumber of studies Private performed better No clear winner SOE performed better Comparing efficiency of private/privatised firms with SOEs 5232155 When comparing firms within the same industry 311885 Comparing performance before and after privatisation 211470 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.

7. How large are the gains? Measure% ChangeSignificance (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% 0.96 1.48 -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