Prime Minister John Key says people shouldn't "jump to conclusions" the Government's plan to get the country back into surplus is in tatters following the drought and a possible bailout for Solid Energy.
Speaking on Firstline this morning, Mr Key said there were "a million factors" influencing the economy, and that some companies are prospering because of the drought.
"The surplus or deficit is the difference between two very big numbers," says Mr Key. "We spend literally $70-odd billion a year, and our revenue is a very large number as well, pretty much similar to that. So obviously the difference between the two is, when you're talking about less than $1 billion, it's a very fine balancing point, and there are lots of component parts that make that up.
"But I wouldn't jump to conclusions that because of the drought, we won't make the surplus – it's the Government's intention to try and make the surplus – not come hell or high water – but it's our intention to get there if we can."
Finance Minister Bill English has said the drought could cost the country as much as $2 billion, but Mr Key says not all of that would be borne by the Government.
"You've got to remember that we a) don't know how much the drought will cost; b) some of that cost is borne by the Government, but clearly not all of it – just the tax revenue component. And other businesses are doing better, believe it or not, because of the drought, and then other businesses in different sectors of the economy are actually doing quite well."
- VIDEO: John Key on Firstline
One business that isn't doing well at all is Solid Energy. Last month it revealed it had debts of almost $400 million, despite a self-valuation two years ago in the billions.
The state-owned coal mining company made a number of failed investments – with borrowed money – and badly overestimated the direction coal prices would take on the world market.
Mr Key denied the Government was responsible for the company's woes, despite encouraging the board to take on debt in 2009 and expecting it to pay a dividend.
Former State-Owned Assets minister Simon Power wrote to the company in May 2009, saying he was "disappointed" with Solid Energy's predictions that its finances – and its dividends – would decline, and told the company to "increase its gearing". In 2010 it asked the Government to inject $27 billion over a number of years, a request the Government declined.
"Yes, Simon Power did write to them and say, 'Look, you might want to consider the gearing of your balance sheet, and how much debt you actually have,'" says Mr Key.
"That's partly because we were cash-strapped, so there was a very limited amount of cash we could put in… But actually the chairman of the company wrote back to Simon Power and said, 'Look, those responsibilities… are the matter for the company and the board alone.' So any decisions that are made are those made by the management and board of the company."
Banks that loaned money to the company need to be aware they may need to take a hit.
"At the end of the day, there's no Government guarantee from the Government to Solid Energy. They've made commercial lending arrangements with Solid Energy, and they have to assess those on the merits of the company… If you're a banker, you make money in the good times, and when you make loans that are successful and repaid – but you can't just say, 'I don't suffer any losses if something goes wrong.'"
Mr Key isn't ruling out a taxpayer bailout, however.
"There are circumstances that now have to be considered, and that is how can the company potentially be saved, what aspects of it are saved, what does that mean in terms of staff, what does that mean in terms of the future of the company? All of those issues are being worked through.
"If you look at the coal business at various times in New Zealand's history, it has made money. It's been a significant employer, and there is a substantial resource. So on balance, of course I'd like to see that company prosper and grow. I think it's eminently possible, and certainly we're trying to work towards a positive outcome, there's no question about that."
3 News
source: newshub archive
