Labour says New Zealand lacks capital for investment. Maybe. But since there is plenty of capital in the world, the real question is what is stopping that capital from coming to New Zealand.
Part of the answer is that New Zealand has made it too hard for investors to enter the market. Another is that constant policy flip-flops from one government to the next scare them away.
So, if you are concerned about New Zealand’s lack of capital, improve the investment climate and create policy stability. Establishing a government fund only treats symptoms, not causes.
Labour promises to back “the next Xero or Rocket Lab,” but that is just another way of saying bureaucrats shall pick winners. Sadly, this never works.
While private investors risk their own money and watch investments like hawks, government investors play with other people’s money. We have seen how badly this ends, from the Provincial Growth Fund to KiwiBuild’s centrally planned targets.
On top of this, there is the risk of what economists call “crowding out.” This happens when a large government fund squeezes out private investors and distorts market incentives. Competitors face an uneven playing field when the state co-invests with favoured firms.
Next up, the fund is supposed to have a “dual mandate”: financial returns and vague “social returns.” But what does this even mean?
The definition will become whatever the government wants. If the fund loses money, it will claim social success. If it fails socially, it will claim commercial discipline. In practice, it will likely fail on both counts and still claim it is doing a vital job.
Finally, those Crown assets supposed to go into the Future Fund have an opportunity cost. Every dollar of dividends diverted is one not used to reduce debt or maintain services. And that is before we even ask whether government should own all these assets in the first place.
So, if you want more investment, do not start a new government fund. Instead, cut red tape. Open New Zealand to foreign capital. Stop threatening capital gains taxes.
If New Zealand gets these policy settings right, private capital will build the future without government picking it or taxpayers carrying the risk.
And without a so-called Future Fund.
So, if you are concerned about New Zealand’s lack of capital, improve the investment climate and create policy stability. Establishing a government fund only treats symptoms, not causes.
Labour promises to back “the next Xero or Rocket Lab,” but that is just another way of saying bureaucrats shall pick winners. Sadly, this never works.
While private investors risk their own money and watch investments like hawks, government investors play with other people’s money. We have seen how badly this ends, from the Provincial Growth Fund to KiwiBuild’s centrally planned targets.
On top of this, there is the risk of what economists call “crowding out.” This happens when a large government fund squeezes out private investors and distorts market incentives. Competitors face an uneven playing field when the state co-invests with favoured firms.
Next up, the fund is supposed to have a “dual mandate”: financial returns and vague “social returns.” But what does this even mean?
The definition will become whatever the government wants. If the fund loses money, it will claim social success. If it fails socially, it will claim commercial discipline. In practice, it will likely fail on both counts and still claim it is doing a vital job.
Finally, those Crown assets supposed to go into the Future Fund have an opportunity cost. Every dollar of dividends diverted is one not used to reduce debt or maintain services. And that is before we even ask whether government should own all these assets in the first place.
So, if you want more investment, do not start a new government fund. Instead, cut red tape. Open New Zealand to foreign capital. Stop threatening capital gains taxes.
If New Zealand gets these policy settings right, private capital will build the future without government picking it or taxpayers carrying the risk.
And without a so-called Future Fund.
You can hear more on this topic from Dr Oliver Hartwich on The Platform here and from Dr Eric Crampton on RNZ here.
Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative think tank. This article was first published HERE.
4 comments:
Wow. So sell NZ to foreigners. Who cares Kiwis don't have savings to fund their own investments. So embarrassing. No wonder National is a joke and Willis is a flounder. Being advised by these guys. But its a reflection on dummy Luxon and his student debater finance side-kick Willis that they listen to it.
I often enjoy your commentary Robert but I don't trust any NZ Government to manage this well. An example is Milford Sound where the companies that invested in the infrastructure down there are likely to be forced out and contract handed to Ngai Tahu. This is what the future looks like and this Future Fund will be investments in their cronies paid for by the taxpayer.
Oh the Labour hierarchy will manage the money well, but not until it filters into their offshore bank accounts!
Then it will be 3 year, 4 star, usa holidays for everyone.
Luxon was taunting Hipkins in the house about his $66b covid spend.
Taunting doesn't do kiwi battlers any good Chria.
Find out where taxpayers money went / is; then give their money back to them!
Unless you're aiming to be remembered as just another thieving Helen/Jacinda / Nicola.
Yes Anonymous, you are right of course. Labour stupidly presented their proposed new fund as more of a corporate welfare fund than an investment fund. In that sense, first they incorrrectly related their fund to Singapore's sovereign wealth fund, which is not about corporate welfare. Second, Singapore's fund sources its money from its own citizens' private super savings. Labour stupidly provided no such funding mechanism. Third, Singapore citizens directly own the assets in their wealth fund - its their savings that are invested on their behalf. Labour stupidly touted its Future Fund as being fully publicly owned & managed. Why? Because Labour fundamentally doesn't trust NZ'ers with their own money.
Between Labour not trusting NZers and wanting our money fully under the control of politicians and bureaucrats - and National and its NZ Initiative advisers (with support from the dim-witted Platform) wanting us carved up by foreign investors whose beds we make in the morning and cook for them as they holiday in NZ - my view is our two main parties are both not worth supporting or voting for.
Our stagnation is squarely the fault of both National & Labour. The first is in bed with the Initiative. The second is unreformed and still in bed with unionists and socialists.
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