An analysis commissioned by the Green Party shows the Government's planned asset sales is worsening its long-term debt position and potentially New Zealand's overall debt.
The Government plans to sell up to 49% of state-owned energy companies Genesis Energy, Meridian Energy, Mighty River Power and Solid Energy and reduce the Crown's shareholding in Air New Zealand.
Ganesh Nana, chief economist of economics consultancy BERL, was commissioned to investigate the long-term impacts of the move and says the Government can't use its poor financial position as a justification to sell assets.
The report says borrowing from New Zealanders for new infrastructure would be a better bet than funding it through selling assets that may fall into the hands of foreigners.
It argues that initial increases in the deficit from the loss of profits to the Crown from asset sales creates a permanent hole in the Government's books.
Ganesh Nana says that is because it will take time for the investment in infrastructure, such as new schools and broadband, to deliver a payback to the Government in a faster-growing economy and higher tax take.
Dr Nana says retaining full ownership of state-owned enterprises and funding new infrastructure through borrowing from New Zealanders would provide the best result for the Government's books and stop dividends from going overseas.
He believes the proceeds from the asset sales would not be used to pay off Government debt - rather they would be used to buy more assets - and the interim loss of earnings from the companies would also never be recouped.
Instead of selling down the assets, the Government could attract investment in state-owned companies with new government bonds, he says.
Greens co-leader Russel Norman says the report is bad news for the Government's books and the wider New Zealand economy.
But Prime Minister John Key disagrees that asset sales would worsen the Government's long-term debt position, saying he has received advice to contrary from the Treasury which he accepts.