Luxon stumbles into toxic privatisation debate

The Kākā by Bernard Hickey

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Luxon stumbles into toxic privatisation debate

ACT’s Seymour sets political agenda, framing National again as enabler of extreme policies & pursuer of secret agenda; More privatisation deepens risk of more greedflation & dividend surges offshore

Bernard Hickey

Jan 28, 2025

288

Transcript

**Luxon** has once again let National’s junior coalition partner, ACT, set the political agenda, dragging him and National into another politically draining debate. Photo: Lynn Grieveson / The Kākā

Long stories short, the top six things in our political economy around housing, climate and poverty on Wednesday, January 29 are:

PM Christopher Luxon has either allowed himself or has been forced into a politically unpopular debate ahead of next year’s election about privatising state houses, parts of the health sector, power companies and polytechs;
Luxon and Finance Minister Nicola Willis have begun framing the issue as ‘there is no alternative’ (TINA) to asset sales to raise funds for public hospitals, schools and roads, by (unnecessarily) cordoning off taxes on capital income or the issuing of debt to fund capital spending;
Luxon tried to distance himself from the more extreme suggestions by ACT Leader David Seymour, but was again snookered into appearing to have a new secret agenda to sell assets to reduce debt;
Given Winston Peters remains implacably opposed to big asset sales, any election victory for National in 2026 would depend on National and ACT collectively getting a much higher vote than they currently have, or had at the last election;
New polls show privatisation remains unpopular, especially in the wake of the great inflation spike of 2022-24, some of which was caused by former state-owned companies using their market power to increase prices;
One danger of further privatisations is it creates more opportunities for competitors and/or overseas buyers of state-run monopolies to strengthen their market power and increase the scale of the current account deficit through higher dividend outflows.

(There is more detail, analysis and links to documents below the paywall fold and in the Dawn Chorus podcast above for paying subscribers. If we get over 100 likes from paying subscribers we’ll open it up for public reading, listening and sharing.)

Luxon stumbles into toxic privatisation debate

PM Christopher Luxon began 2025’s first day of Parliament yesterday by carrying on where left off in 2024, letting National’s junior coalition partner set the political agenda and dragging him and National into another politically draining debate. This time it’s about privatisation and has again allowed Labour and the Greens to portray National as going back to the 1990-1999 future of extreme budget-cutting and asset sales. It also adds to the Opposition’s framing that National has been captured by ACT and is either enabling a divisive and extreme agenda, or is enacting its own secret agenda.

Luxon was working overseas from 1993 to 2011 and missed out on seeing the intense political debates, backlashes, state-funded bailouts, price inflation, service deterioration and monopoly creations that came out of the sales of BNZ, Kiwirail, Postbank, Air New Zealand, Government Print, Telecom, NZ Steel, Shipping Corp, DFC, Rural Bank and stakes in Auckland and Wellington Airports. It’s clear he has also underestimated the electoral bitterness that resulted from the 2013 part-privatisation of Mighty River Power (now Mercury), Meridian Energy and Genesis Energy in defiance of a referendum that said most voters opposed it.

A legacy of bailouts, under-investment, inflation & monopoly power

All of the privatisations led to private ownership of monopolies or cartels that skimped on investment and inflated prices for consumers to generate profits, cash returns and dividends, often for overseas shareholders. Some were quickly run badly and into the ground through asset stripping, gearing up their balance sheets with debt and using run-to-failure as a management practice to ‘sweat’ assets and avoid capital expenditure.

Over time, these privatised assets1 ended up costing taxpayers and consumers much more than was gained from the sales, with these results including:

BNZ having to be bailed out by the Government and then sold to National Australia Bank, both reducing competition in banking and creating a pipeline of dividends to Australia that has pumped up our current account deficit to over 5% of GDP on average;
Postbank being sold to ANZ, reducing competition and increasing dividend outflows, and eventually forcing the creation of Kiwibank to re-apply competitive pressures;
The sale of State Insurance, which has eventually been pulled into the IAG insurance group, which controls more than 60% of some insurance markets and was mostly responsible over the last 15 years for insurance prices rising 94.4%, when the CPI rose 43.9%;
The sales of Rural Bank and DFC adding to the market power of the remaining big four Australian banks;
Air New Zealand having to be bought back once and bailed out twice by taxpayers after failed expansion strategies and more expensive capital costs, with consumers now paying again as Air New Zealand exercises market power, especially on regional routes and Trans-Tasman routes;
The then-Labour Government being forced to intervene in various ways to break up Telecom and help competitors to stop the taxpayer-built network using its monopoly power to under-invest in and overcharge for mobile and landline services;
The then-Labour Government having to buy back NZ Rail from a series of asset-stripping and under-investing owners, which both Labour and National Governments have had to make billions in catch-up investments for at least two decades;
The part-privatisation of airports leading to greater-than-inflation price rises in areas such as parking and retailing where they have used their monopoly positions and a lack of regulation; and,
The part-privatisation of electricity generator-retailers leading to two decades of under-investment in renewable generation, the squeezing out of independent competitors and now greater-than-inflation price increases that gutted manufacturing last winter and promises to be a major source of cost-of-living inflation for households and businesses alike in the coming decade.

Being framed and then trying to frame privatisation as TINA

Having chosen to be captured and pushed into a corner over the Treaty Principles Bill, Luxon and National were again trailing along after Seymour over privatisation in Parliament yesterday. Luxon tried to reset the national debate last week with a series of speeches detailing his ‘going for growth’ pivot, but the first day of Parliament was dominated by the privatisation debate.

Luxon was forced to deny he wanted to do large scale sales of state housing, but admitted more state asset sales would be part of next year’s election debate. He and Willis argued there was no alternative to ‘asset recycling’. Labour and the Greens said the comments showed a return to 1990s-style National policies and the emergence of a secret privatisation agenda. Here’s the detail and quotes:

Politics news: Asset sales are on the agenda. So, what could be sold?ACT is pushing to sell state assets, but Winston Peters says he’s spent his career fighting privatisation. The PM says he’s “open to the debate”. Stuff’s Glenn McConnell

Seymour said there was an ongoing negotiation within the coalition about how many state houses should be sold. He said the Government could sell all of them.
“What about 60,000 homes? The Government doesn’t need to own a home to house someone,” he said.
Luxon said there would be no “wholesale sales” of state houses, but he expected there would be “right sizing”.
“We’re agnostic about whether it’s community housing providers or [Kāinga Ora], whoever is the best deliverer we want to buy the outcome,” Luxon said.
A poll from Talbot Mills, released to Stuff, showed just 12% of people supported a privatised ferry service. A majority, 65%, said the Government should retain ownership.
Seymour claims the Government could make $570 billion through asset sales. It owns about dozen state owned enterprises, including KiwiRail, Transpower, NZ Post, TVNZ, Landcord and Kordia. It then has shares in more than two dozen other companies. Stuff’s Glenn McConnell

Politics news: Luxon hints National will campaign on asset sales next election RNZ’s Jo Moir

Asked if he planned to campaign on it next year, Luxon said "we'd take it to the election and it would be part of our programme that we'd want to talk about and be upfront with New Zealanders about".
Luxon said he was very open to the idea of asset recycling and "the best use of capital and that's something we should always be attune to, but as I've committed to, we're not going to have any asset sales this term".
Labour leader Chris Hipkins has accused the coalition of grabbing a "typical right-wing government playbook" when it comes to privatisation.
“They run down public services by denying them funding, then they say they're broken, and then they try and hock them off," he told reporters.
"They're clearly doing that in the health system, I think the prime minister should rule out right now privatising hospitals and other forms of publicly provided healthcare.
"If he's not willing to do that then he should be upfront with New Zealanders that privatisation and user-pays for health is back on the agenda, as it was when we had a national government as right-wing as this one in the 1990s."
The Green Party said it was now clear the government was pursuing a privatisation agenda, and co-leader Chloe Swarbrick warned asset sales usually meant higher costs for ordinary people.
“Slowly the mask is slipping off. I mean, we're starting to see where the real agenda of this government is.
"Back in October of last year when I asked the prime minister directly about intentions to privatise, you had laughs from the government benches ... making fun of me and pointing out that I was a conspiracy theorist or something, yet here it goes, this is the agenda of this government: to privatise." Swarbrick via RNZ’s Jo Moir

Scoops, news, deep-dives & reports in brief elsewhere

On housing

Scoop: Kāinga Ora taking new hard line, tenants ousted in rent arrears cases worth over $72,000. Tenants among growing number being taken to the Tenancy Tribunal after the public housing landlord implemented a harder line last year. Stuff’s Marty Sharpe

Survey: Locked out: Young Kiwis harder hit by housing crisis than nearly anywhere in world NZ Herald-$$$’s Derek Cheng

Survey: One in two think New Zealand’s housing is on the wrong track, with renters significantly less happy with their housing situation than homeowners. Ipsos NZ release and full report.