COMMENT

There was a funny little juxtaposition this morning on the breakfast show.

Firstly there was the financial performance of Fonterra through the third quarter. The dairy giant is a funny old beast. It’s a little bit co-op and a little bit publically traded company. It certainly is massive. Revenue is at 15 billion dollars.

The farmgate price is holding up despite the price of milk coming down, which it always does in Winter as the Northern Hemisphere milk floods the market, so farmers are relatively happy. They know they’ll make less but they also know the company is resetting. But there’s also the unit-holders.

So looking at the share price this is a 7 and a half billion dollar company and that price is heading downward. But that’s not their biggest problem.

Problem is though they’ve got some poorly performing assets so there’s some more restructuring to come. And then there’s their debt. Basically around 7 and a half billion dollars. That’s a lot of money. That’s a lot of debt. You know this situation makes me grumpy when I think about the Dutchman and how much he was paid to oversee this pickle.

Now the other thing about the debt is that it’s roughly the same as their capital valuation. So it’s like having a 100 per cent mortgage and I’m sure many of us know how sweaty that makes you and the tightrope you have to walk.

But the other story about debt this morning was the government’s new debt range. For a while now we’ve been aiming at a debt ratio of 20 per cent of GDP.  Now the Finance Minister has said they’ll aim for a range of 15 to 25 per cent.

But compare the two. There’s the government on 20 to 25 per cent. And then there’s private company, market led Fonterra rocking a 100 per cent debt level. Makes the government seem very prudent really. How many of you have a debt level of 25 per cent? Not many I’d say.

Of course critics say that it means this government will now be doing the socialist three step. Tax more, Spend more, Borrow more. A guaranteed path to hell in a hand cart. That may very well be the case. But it’s not the ability to borrow more that’s the worry, it’s what they’ll borrow for. Many economists say debt is not an enemy. How many of you have used leverage to improve your position?

If they borrow more to fix some hospitals and roads and power generation how can we complain? If they borrow more to pay benefits and fund virtue signalling projects then the complaint will come thick and fast.

But here’s another thing. It may never happen. The range comes into effect in 2021.

Grant Robertson’s little shimmy means that it’s not until the next electoral term that it will be OK to raise our borrowings by about 15 billion. This is not about this year and it’s not about next year but it is about the year after that. So if they decide to borrow more they’ll be able to tell you about it through the next election. Basically it’s going be an election bribe fund.  And if they lose the election let’s see what National will do. I’m betting the opposition wouldn’t repeal it.  Who turns down a 15 billion nest egg the country can afford?