Flying in the face of reason

Why should the government own a majority stake in Air NZ?

Those of us who still believe in mainstream economics have Shane Jones to thank for again highlighting the lunacy of a government minister owning 51.9 per cent of Air New Zealand.

This wasn’t Jones’ intention. NZ First is polling well below 5 per cent and a good stoush with the corporate sector always delivers it greater gains even than immigration. Add in Jones’ role as the provinces’ champion and why wouldn’t he go all-in against Air New Zealand’s withdrawal from Kaitaia, Whakata¯ne, Westport and now Kapiti?

Luckily for Jones, Air NZ played its role as corporate villain to perfection, whingeing to Finance Minister Grant Robertson about the alleged attack on its independence.

As it happens, Robertson alone is responsible for the government’s 51.9 per cent shareholding in Air NZ, so Jones can say anything he likes.

Even were Jones a shareholding minister, since when have shareholders not been allowed to comment on publicly available information about the companies in which they invest, as long as it doesn’t harm the interests of minority shareholders?

Moreover, as much as Air NZ may prefer otherwise, its majority shareholder is not currently an anonymous investment fund but a political player and its industry’s regulator. Acting in the best interests of the company includes taking that context into account.

Chairman Tony Carter and chief executive Christopher Luxon would have been better accepting Jones’ grandstanding for what it was rather than giving him further days of headlines. It is not as if they must take seriously anything he says. A $7.6b $4.4b $3.8b $2.4b brief media statement saying they had noted his point of view would have laid the matter to rest.

This whole political drama again reveals that the government and taxpayer get almost nothing from the 51-52 per cent shareholdings in the four mixed-ownership model companies (MOMs) — Meridian, Mercury, Air New Zealand and Genesis — except for future dividends they could immediately capitalise by selling the shares anyway.

As majority shareholder, the government can’t influence things it might rightly care about, such as prices, $3.9b $2.3b $2.0b $1.2b 41.3 21.4 10.6 21.6 service quality and coverage — but, as sovereign, it can, if it ever wants, intervene with legislation if necessary to influence or control all those things even in fully private industries.

The government’s holding across all four MOMs is around $9.4 billion. It is implausible that the very best home for those taxpayer funds — nearly $6000 per household — is a passive share portfolio weighted 79 per cent to the energy sector and 21 per cent to tourism. And passive it most certainly is: Robertson has again ruled out selling, and presumably buying, so much as a single share in the MOMs, or any other companies on the NZX.

In their typically excellent Investment Statement this week, Robertson’s own Treasury officials gave five plain-English reasons why the government should own things:

When the social and economic benefits of government ownership outweigh the costs

When service delivery involves specialised assets that the private sector has trouble providing on an ongoing basis

When risk cannot be efficiently transferred to the private sector through a contract

When the government has the most relevant expertise

When the government needs to be directly accountable for outcomes None applies to the MOMs.

Perhaps rivalled only by newspaper columnists, Robertson is one of the least qualified people in New Zealand to decide if he should hold his shares, pick up more at current prices or sell some to allow the government to invest in highervalue things, whether that is other financial assets, physical infrastructure or schools and hospitals.

However, the former studentunion boss and UN diplomat has another option that may also work for him politically.

The New Zealand Superannuation Fund is an active portfolio manager, with $38b in assets and an average annual rate of return of 10 per cent. Robertson trusts the fund, a Labour Party creation, and plans to further invest over $5b of taxpayers’ money with it between now and 2021.

The obvious thing for Robertson to do is also transfer his $9.4b of shares in the MOMs to the fund. It can then begin to make more rational decisions about when to sell, hold or buy, noting that it already owns shares in some of the MOMs in its own right, independent from Robertson’s majority stakes.

That would also create another layer of distance between the companies and politicians worried about their poll ratings, like Jones.

Grant Robertson is among the least qualified people in New Zealand to manage a $9.4b share portfolio