New Zealand to sell stake in 2nd power company as country eyes budget surplus

WELLINGTON, New Zealand – New Zealand will sell a minority stake in a second power company this year as part of a plan to balance its books.

The government on Thursday announced it plans to list state-owned Meridian Energy on the stock market by the end of the year.

Last week, the government raised 1.7 billion New Zealand dollars ($1.4 billion) by selling a 49 per cent stake in Mighty River Power in an initial public offering.

The sale of shares in Meridian is likely to raise significantly more than that, although the government hasn’t released estimates.

The announcement came as the government delivered its annual budget. Also in the budget were measures aimed at addressing the country’s heated housing market and larger cost estimates for the 2011 Christchurch earthquake.

The budget indicated that after several years of deficits, New Zealand is on track to return to a surplus in its financial year beginning July 2014.

In the aftermath of the global financial crisis, New Zealand has benefited from the relative economic strength of its two largest export markets, Australia and China. Following two years of relatively austere budgets, this year’s budget contained new spending of about NZ$900 million.

It also contained a significant tax cut. Wage earners and businesses will be required to pay lower levies toward the country’s accident compensation scheme, which reimburses people for costs incurred by injuries. Over the next few years, the levies will be reduced by 40 per cent from 2012 levels.

Finance Minister Bill English said the estimated cost of the 2011 earthquake in Christchurch had risen to 40 billion New Zealand dollars ($33 billion) and that the cost to the government had risen by NZ$2 billion to NZ$15 billion. Much of the remaining cost has been borne by insurers.

The earthquake killed 185 people, destroyed hundreds of office buildings and thousands of homes. English said rebuilding Christchurch remains a “massive undertaking.”

The sale of the minority stake in Meridian Energy is the second and likely largest of three initial public offerings planned by the government. Meridian employs 800 people and last year made a profit of NZ$75 million on revenue of NZ$477 million.

New Zealand’s house prices dipped only a little after the global financial crisis and have since risen to new all-time highs, a trend that has worried economists. The market has been driven by demand in the largest city, Auckland, as well as Christchurch, where housing remains in short supply after the quake.

To address rising prices, the government announced it has signed an agreement giving the Reserve Bank of New Zealand more powers.

The central bank will now be able to limit the share of riskier new mortgages that banks make to people without much equity in their homes. It will also be able to impose a minimum level of deposit that homeowners would need before getting a loan — perhaps 5 per cent or 10 per cent.

It is now up to the Reserve Bank to decide if and when it will implement the measures.

The government also announced new measures that will allow it to speed up the consent process for new housing developments in high-demand areas such as Auckland.

Projections show the government will incur a budget deficit equivalent to about 3 per cent of the economy in the current financial year. That will decrease to about 1 per cent of GDP in the year beginning July before returning to a razor-thin surplus of 75 million New Zealand dollars ($62 million) in the year beginning July 2014.

The economy has been growing at an annual rate of about 2.5 per cent.

The Treasury Department on Thursday said that rate is expected to increase to 3 per cent in the year ending March 2015 and will average 2.5 per cent over the five years ending March 2017. The Treasury predicts that rebuilding in Christchurch will give “significant impetus” to growth over the coming years, and that the unemployment rate will fall from 6.2 per cent to 5.2 per cent by 2017.

The Treasury estimated that a drought in the North Island this year, the most widespread in New Zealand in at least 30 years, shaved about 0.7 percentage point off GDP growth.

English said the high value of the New Zealand dollar, which has hurt exporters, remains a headwind for the economy.