A recent announcement prompted reflexive jump scares recalling the late 80s. Duncan Greive argues that this time can be different.

The Spinoff’s Juggernaut podcast has prompted a wave of reminiscing about the fourth Labour government. The era sits bright in the minds of today’s politicians less for its actions – the efficacy of which remains highly contested – than for how much of historical consequence was accomplished. As the NZ Herald’s deputy political editor Thomas Coughlan put it, contemporary MPs are “subtly lusting after Roger and co’s zeal for ambitious and lasting reform”.

The way the Lange government’s legacy remains in the eye of the beholder is exemplified by the sale of some enormous state-owned businesses. Telecom, Post Bank, Air NZ and State Insurance are among a number of multi-billion-dollar titans of the private sector, sold off for a fraction of their present valuation in the late 80s and early 90s (the National government continued what Labour started). 

To many on the left, that represents the family silver, sold for a song: companies which could have been retained to provide positive service to New Zealand, along with reliable dividends for years to come. There has been talk in recent months of rolling the government’s business interests into something resembling Singapore’s behemoth investment vehicle Temasek – critics of the late 80s sales would point to these companies as perfectly cast to be the heart of our own state-owned holding company.

For those on the right, that’s a highly implausible alternate history. They view those companies as inherently broken under public ownership – taking weeks to install a phone line or chronically loss-making. They view the sales as helping New Zealanders get access to reliable and reasonably priced phone and internet connections, and stable, well-capitalised banking and insurance, without having to rely on the government becoming good at operating complex businesses.

The long hangover from the 80s

That backdrop is crucial to understanding the gut response to news last week that the government is open to selling a stake in Kiwibank. Minister for state-owned enterprises Paul Goldsmith told the NZ Herald’s Jenée Tibshraeny “the government is prepared to consider ways to better capitalise Kiwibank to compete more effectively with the country’s four largest banks”.

It prompted a predictable reaction from some on the left, with former Ardern staffer Clint Smith typifying the response in saying “the cheapest source of new capital for Kiwibank is the government”. In some respects this can be viewed as tantamount to an immune response to memories of the 80s asset sales, especially the fact they were bundled with so many policies which have become both hard to budge politically and viewed as the origins of so many of our contemporary issues.

Yet government ownership of commercial businesses is inherently complex. Even being in commercial business at all can be viewed as slightly aberrant – it’s typically either a historical accident or an attempt to solve complex market-based issues. It is almost never an uncontroversial participant – the sectors in which it is a major player are among those in which the private sector competition is most aggrieved at what they view as anything from anti-competitive behaviour to improper use of market power.

The energy sector is one of the most obvious examples. When the John Key government sold stakes in Meridian, Mercury and Genesis a decade ago, it prompted protests in the streets. Yet now those companies are far more profitable and valuable than they were at the time. 

Is this evidence of the private sector’s influence leading them to strategically under-invest in generation to keep electricity prices high? You can make the argument – but as majority owner, the government has far more influence than any other shareholder. It likes high prices – they lead to profits which are now a substantial contributor to government income, even if they lead to a market in which companies like Electric Kiwi refuse to take on new customers.

As it goes for the energy companies, so it goes for Air New Zealand. The airline is a national icon, but its decisions around its regional service have drawn howls of protest, and its pricing has produced strong profits (Covid aside) but is seen as highly expensive by many.

Another example is TVNZ. The media giant is wholly state-owned, but this has prompted persistent critiques from multiple private sector players that it has abused its position to stifle competition. Even so, that still hasn’t prevented it from lately forecasting huge losses – ultimately implying that a once hugely valuable asset is now worth significantly less. While Telecom sold Yellow for over $2bn just before Google overwhelmed its business model, government ownership of TVNZ was no protection against the advances of Netflix and YouTube.

Is Kiwibank different?

Kiwibank’s origin story is quite apart from that of TVNZ or the electricity gentailers. It was founded much more recently, driven by the late Jim Anderton’s desire to have a meaningful state-owned alternative to the big four Australian-owned banks, which were perceived as making excessive profits at the expense of local customers. 

It has achieved what it set out to do, providing meaningful competition in home loans, innovating across schemes like co-own and delivering a healthy dividend back to the government, rather than piping it to Australian shareholders.

Yet a bank can only grow as large as its capital base, thanks to rules constraining how much it can lend against the cash it holds. This limits its ability to truly compete on a level playing field with the Aussie banks, which collectively have over $50bn in capital, while Kiwibank has less than $3bn. The Commerce Commission agrees – in April it wrote that the government “should consider what is necessary to make it [Kiwibank] a disruptive competitor, including how to provide it with access to more capital,” as reported by Interest’s Gareth Vaughan.

While some might view the idea of selling part of Kiwibank as a betrayal of Anderton’s ambitions, there are two compelling reasons to view this idea through a different lens. Firstly, the main name touted as a potential investor is actually a different branch of the state itself. The NZ Super Fund is a Michael Cullen-era Labour party initiative which has achieved extraordinary returns, and is part of the reason that we’re still able to afford what are relatively generous superannuation payments.

It has previously been a part-owner of Kiwibank, but exited that status in 2022 – the fund’s then-CEO Matt Whineray said at the time, “we sought the flexibility to introduce private sector capital and governance capabilities into the business”. Then-finance minister Grant Robertson was not interested in that proposal, viewing it as opening the door to full privatisation. Which, admittedly and understandably an operation like the Super Fund wanted left on the table.

This points to a challenge for proponents of a sale – there is no easy way to ensure that even moving into another state-owned enterprise will guarantee it won’t be sold in future. Yet it might be worth the risk. Our superannuation obligations grow larger by the year. The Super Fund remains the best vehicle we have to keep the proportion funded by tax as low as possible. 

If not Kiwibank, then what?

As it grows ever larger, the Super Fund is in a bind – in part because our local stock market is in such a miserable state. Local listings at scale are extremely rare, and it’s dominated by a basket of stable utilities, including the energy companies, without which it would be in even deeper trouble. Many of our most desirable growth companies are either privately held offshore (TradeMe), listed in the US (RocketLab) or in Australia (Xero). 

Competition from ever-growing Kiwisaver schemes (which ultimately have the same ambition) means there are not a lot of significant New Zealand businesses for the Super Fund to invest into. And while it will always need to reserve the right to exit, it’s as easy to imagine Kiwibank becoming a reliably profitable cornerstone of its holdings for decades to come. 

This isn’t the only option on the table – the Act Party has proposed following the energy companies model and listing 49% of state-owned enterprises (including Kiwibank) on the NZX. This would achieve potential gains in terms of bringing some private sector perspective to the bank’s approach, but if the government were to simply retain the sale proceeds it would do little to step-change Kiwibank’s ability to compete.

To put it another way, there are tradeoffs everywhere you look. Is it preferable for the Super Fund to take our money and invest it offshore? For Kiwibank to remain unable to compete with big banks in commercial lending or a bigger chunk of the mortgage market? Or is the risk of it becoming just another foreign-owned bank that cannot restrain competition too high? 

There is no uncomplicated answer. But for Kiwibank to really achieve what Jim Anderton dreamed of, it might just be that we need to take a risk and see what it can really grow into.