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Mixed ownership funds could transform economy

More detail needed on Future Investment Fund projects

The mixed ownership model offers the Government an opportunity to transform many areas of New Zealand’s economic infrastructure, says Deloitte energy and infrastructure leader Paul Callow.

In delivering a predicted “zero Budget” today, Finance Minister Bill English didn’t detail any significant plans for how to spend the expected $5 billion to $7 billion windfall from partial sell-downs of SOEs.

The proceeds from partial sales of electricity companies Mighty River Power, Meridian and Genesis, coal miners Solid Energy, and the Government’s stake in Air New Zealand will be lodged in the Future Investment Fund for projects which meet yet-to-be-defined criteria.

Budget 2012 allocated $559 million for the fund from the first floats, to be used for various investments in schools, health and tertiary education, although nearly half went towards the turnaround in KiwiRail, to fulfil commitments the Government had already made.

“Tagging the proceeds in this way doesn’t really fool anyone: money is money and the fact that the Government has just sold a stake in an SOE simply means it has more to spend or needs to borrow less,” Mr Callow says.

“The important thing about the fund is the opportunity it presents to do something different and send a strong message about the Government’s economic priorities and what it plans to do to achieve them.”

While the Government’s explanation of why it is undertaking the mixed ownership model has been handled poorly to date, the proof of the pudding will depend very much on what Government does with the proceeds, Mr Callow says.

To date it has announced it will set aside $400 million for investment in irrigation schemes, along with some vague recent comments about building and modernising schools and unspecified major hospital redevelopments.

“This lack of detail is a shame as the licence to innovate which the fund can bring has the potential to transform many areas of our economic infrastructure. Social housing, for example, could benefit enormously from a government-backed lease-to-buy model for tenants who the private sector won’t fund.”

Employing a similar model to that used for the ultra-fast broadband roll-out will enable the Government to recover its investment and recycle the cash into other projects. This is an innovative approach to funding infrastructure projects which have a major potential economic pay-off but which would otherwise not be built.

“The really exciting aspect of these investments is that the fund can be self-perpetuating and grow over time, eventually becoming a progressively greater source of investment for economic growth.

“With a little bit of imagination between now and Budget 2013, the Government could use the initial proceeds of mixed ownership to set the scene for a whole new way of thinking about investment in economic infrastructure in New Zealand.”

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