What is "fair" tax?

There's been quite a lot of commentary about whether the "rich" are paying their "fair share" of tax, with an inferred moral and philosophical position that what is "fair" is "a lot" and is not just tax on income from employment or businesses, or tax on consumer goods, but tax on property acquired after both earning income and paying tax on the purchase of that property.  This is the concept of a "wealth tax", so let's consider both what this actually means, and whether a different conception of what "fairness" is might see the debate going in a different way.

Let's say you have land, or shares in a business, or an expensive asset (motor vehicle, boat, aeroplane, art work), and a socialist government (which is what it would be) decides you should pay it some proportion of whatever value it deems appropriate, in tax.  This is likely to follow you having already paid the following taxes:

• Income tax on your employment, or dividends from a business, interest from investments.  After all, to acquire an asset, you need to acquire income to get it.  Yes some people inherit wealth, some people are gifted wealth, but many earn it from employers or their own business.  Government already taxes that, and if you are wealthy the marginal rate of tax on most of that is 39%, so if you earned say $1 million, $370,000 in income tax is already paid on it.
• GST on your purchase. Yes this doesn't apply to land and buildings, unless you actually build something, or refurbish it. It also doesn't apply to buying shares in a business, but it does apply to cars, boats, aeroplanes, art works, jewellery and the like. 15% of the price is added on and taken by the government assuming it is bought through a business beyond a certain threshold. It doesn't apply to private sales of course.

So after paying tax to earn money, paying tax to buy the asset, the money-grabbing socialists want MORE, and of course if your cashflow is poor (you may have retired), then you will need to liquidate assets to pay a tax on wealth.  Yet who asks the question, why should you pay tax on owning property?

What does "fair" even mean?

From the socialist mindset, which is that of David Parker, the Greens and Te Pati Maori, and indeed appears to be that of multiple journalists, it's only fair if the state gets to take a share of everything you earn and own, including any increase in value in assets you may happen to own.  However, this idea of fairness is rooted in several concepts:

1. There is something immoral about owning property and it increasing in value without being forced to share that with the state (and enable politicians to spend that money).
2. People only obtain a lot of property because the state enabled them to do so, and so (despite them already having paid other taxes in the process of earning income and buying goods and services) the owners of such property should keep "rewarding" the state (and by extension "the community") for letting them succeed.
3. The actual amount of taxes confiscated from people should bear no relationship to the extent to which they avail themselves of what the taxes are spent on.
4. The state can spend your money better than you can, and in ways that are virtuous and benevolent to society, whereas you only spend money to benefit yourself and your family, and what you value.  Your values as a taxpayer are subordinate to the altruistic values of politicians who know how to spend your money to be kind.

This is largely nonsense. There is nothing immoral about owning anything and having its value rise without other people sharing in it, any different from it being somehow moral to own property and see its value fall, and require other people to help you out because of your losses.  Of course the socialist wealth tax advocates are never too keen on people getting big tax breaks or subsidies if their wealth collapses due to bad investment or simply the market for their assets evaporating.  

There is a kernel of an argument that a stable government with rule-of-law and property rights enables people to thrive, but the amount of state that does that is a fraction of its current size. The GST paid by the consumption of wealthy people could pay for all of that (indeed Roger Douglas proposed in the 1990s that GST could not only pay for the core functions of the state, but the welfare functions as well).  However, even if this is extended further, is it really a rational argument that the wealthier you are, the more the state has done to enable it (except for those who own businesses granted effective statutory monopolies through regulation or import tariffs/controls), and even if you pay more and more in income tax (even if it was a flat tax, a high income generates more tax than a lower one), it can never be enough?

The third point should be the centre of fairness. Treasury estimates around half of all taxpayers are net receipients of taxpayer funds through the welfare and tax credit system.  Why is that fair?  Let's assume those taxpayers occasionally consume the health system, many have children that consume taxpayer funded education and some will have taxpayer subsidised housing. An argument can be made for public goods to be funded collectively, but there are precious few of these. Why should people who have generated considerable income and acquired assets legally be expected to pay for the costs of services other people consume, many many times over themselves?  What is the fairness in being forced to pay for someone else's private goods and services? If taxes are to exist at all, they should only exist to pay for public goods.

The fourth point is clearly nonsense, the state is not a more moral actor than you are, and on average it isn't either.  This is a philosophical point of difference. Statists and socialists think governments are better placed to spend money (because it can "help" people) than you are, whereas libertarians and free-market liberals are sceptical of this. After all, a government may raise salaries for teachers, but this typically rewards both the best and the worst ones, which is a distinction that a government supported by teachers' unions does not recognise.

The real truth about tax is that it is theft and it isn't "fair" at all, it is at best a necessary evil to fund a substantial state, and the amount people pay is based on no moral basis whatsoever. Unless you believe people who have a lot of money have got it through immoral ends or are beneficiaries of a large state (regardless of how this has little evidence), then tax is simply a means to an end - the end being politicians spending money on what gets them re-elected.  The only way to make tax fairer is to have it lower and flatter, and simpler, so people get to keep more of what is theirs, and those who want you to spend it on other things, have to persuade you to give them your money

Be wary of anyone wanting to make tax "fairer" because the bottom-line is that they just think that they (or people they support) are better placed to spend your money than you are.  Oh and the spin-merchants of so-called "wealthy" people who say they "want" to pay more tax (but wont actually do it unless others are forced to) are a bizarre breed who actually think politicians and bureaucrats can spend their money better than they can, for benevolent purposes.  

The horrors of water privatisation are largely imaginary hysterics in the heads of leftwing politicians

What has been the biggest farce of the attempt to entrench an anti-privatisation clause in Three Waters legislation? 

The attempt by the Greens to entrench their policies in Parliament is not necessarily surprising for a party that regards private property, enterprise and individuals with scepticism, but state property, state enterprise and public servants with benign intent.  Eugenie Sage is hardly the sharpest knife in the kitchen from the Green caucus either.

Jacinda Ardern's claim to be ignorant of the proposal is also farcical. On the one hand is seems difficult to believe that one of the country's most centralising governments doesn't have a handle on the detail of policy of one of its most controversial proposals. On the other hand, if she doesn't then why not?

What virtually NO-one in the media has asked (certainly not RNZ), is why the fear of privatising water? 

You see it is precisely because of hysteria about water privatisation that New Zealand's fresh and waste water infrastructure was not substantively reformed (outside Auckland with Watercare Services) in the 1990s, and that hysteria was largely fuelled by the likes of the Greens in the form of the Alliance. The Alliance, along with the then "Water Pressure Group" (led by the completely loopy, and now late, Penny Bright) that painted a picture of doom and gloom from supplying water with user fees, in a commercial structure, that saw Auckland being the beginning and end of water reform.

It is thanks to muddled-headed Marxists like Eugenie Sage that water remained the most unreformed infrastructure sector, leaving it in the idealised world of "local democracy", "local empowerment" and of course largely staying far away from people paying for what they use, but rather taxing everyone so the biggest users of water (typically businesses) get subsidised by the smallest users (typically people living on their own). That's socialism for you.

Yet what does privatisation of water look like?  DIA's own report called "Transforming the system for delivering three waters services - The case for change and summary of proposals - June 2021" has a handy chart depicting the relative performance of ten English water companies, with government owned water companies in Northern Ireland and Scotland, and New Zealand council owned water providers. 

All of the private water companies outperform the others across a range of measures regarding customer service, and the conclusion of the report is:

• New Zealand has a long way to go, to catch up with the performance of more mature systems overseas

• We are at a starting position similar to Scottish Water, before the Scottish reforms. In the last two decades, Scottish Water has been able to close the performance gap and is now among the top-performing water services providers in the United Kingdom.

In other words, not only are private water companies in England performing better than the New Zealand council owned examples, but they have been outperforming Scottish Water - which has been the pin-up case study for the Ardern Government.

So let's be very clear.

Privatisation of water is not something to be scared of, in fact had it happened 30 years ago (not that it was even on the agenda) then there wouldn't be an infrastructure deficit in the billions for water.  Rates would be lower, yes you'd be paying a bill for water, but if it had followed the English model, there would be a water sector regulator capping the rate at which water prices could be increased, and ensuring that the natural monopoly water and sewerage companies had to meet key service standards.

Even the Government's own report acknowledges that it is PRIVATE water companies that perform well.

So what's actually wrong with private companies providing water infrastructure and services?

Why wont any Opposition MPs say there are benefits from letting the private sector take over?

Why do hysterical leftwing lightweights dominate this narrative and why do journalists never challenge it? (I mean it can't be because two of the major broadcasters are state owned can it?)

Three Waters Reform: The left opposed water reform in the 90s, why trust them now?

You might have noticed the childlike cartoons the Government has chosen to communicate to you about one of the most radical infrastructure policy reforms proposed for over twenty years – the Three Waters Reforms. Those cartoons might have put you off, but they shouldn’t. For all of the fluff government is involved in, one of the most important activities it unfortunately is responsible for is the supply of reticulated water and the collection of wastewater and stormwater. Forget Covid19, because if the water systems fail you really ARE in for a public health crisis. Millions of people worldwide don’t have access to clean drinking water and don’t have safe sewage collection and disposal, and it costs lives. This is important, too important to have those who use and pay for it talked down to like primary school children, and too important for you to ignore.  Bear with me, this is complicated...

What’s the problem?

The current system of managing water infrastructure is, in many parts of the country, a failure. Who could miss the regular reports out of Wellington, the capital, which has systematically failed to put enough ratepayers’ money into the water and sewage systems? Stories of drinking water from Hawke’s Bay to Otago being infected or tainted. So the case for reform is overwhelming. The Government’s own papers indicate 40,000 people lived under temporary or permanent “boil water” notices for their reticulated supply in the year 2018-2019. Four people died and over a third of the population in Havelock North became ill because Hastings District Council didn’t effectively manage the town’s water supply. An earlier study indicated 35,000 people get ill annually because of the quality of drinking water.

The Government’s own report estimates there is at least a $120 billion gap in capital spending on water infrastructure. Another stat is it is estimated that 21% of water is lost in reticulation – 1 in 5 litres of water that Councils collect to reticulate to homes and businesses is wasted in the distribution. That is frankly outrageous.  Local authorities are often reminding us all to look after the environment and not to waste water, but their own ineptitude results in enormous waste.  It is notable that there are limited statistics about the state of stormwater infrastructure, because local authorities just don't know. If your home or business has ever flooded due to rainfall, then you might care, because stormwater infrastructure is what helps protect your property.

Why has this happened?

The Government claims the problem is a matter of:

· Lack of economies of scale: 67 local authority entities supply water infrastructure (there are small private operations as well) without the capacity and capability to address issues. Career paths for those in the sector are limited with multiple small entities and small scale capital spending generates insufficient competition in the contracting sector to put price pressure on those costs. It claims water entities need customer bases in the high hundreds of thousands to be viable.  There is definitely merit in this.

· Unaffordability of needed investment: Under the current approach, the money ratepayers would need to be forced to spend to remedy historic underspending is enormous. Government estimates increases of 300-1500% in spending are needed over the next thirty years compared to current levels. This is quite credible, indicating a desperate need for both new capital and for ways to obtain efficiencies to reduce these costs over time.  However, it would be dishonest to pretend that those who use water shouldn't pay for this, albeit over many years. 

· Poor incentives and lack of effective oversight:  This is where the Government lays bear what’s REALLY wrong. It is that the model of “democratic control” of the provision of water services, and the “power of general competence” of local government in overseeing that control is a failure.  It is worth remembering that "democratic control" is a touchstone of leftwing political philosophy.  

To quote from the Government’s own report:

Local authority service providers operate in a political environment, in which investment decisions are made by elected representatives who have a duty to consider broader community interests (for example, other investment priorities and affordability of rates increases) and a constrained financial environment, in which the main funding and financing  mechanisms are via ratepayers and council borrowing. These factors combine to limit the level of three waters investment.

In short, local politicians prefer spending rates money on other stuff and prefer not to raise rates to pay for water infrastructure. It talks of misaligned incentives, which is surely a euphemism for politicians care most about being elected, second most about getting attention for shiny stuff they made ratepayers pay for, third most about other stuff they can get credit for in three years. How many local politicians campaign on fixing the pipes, especially when such work can literally take years to complete, is largely only visible as a disruption and the end result is… continuity of what you had before?

These failures are a legacy of opposition to water reform in the 1990s

Electricity, gas, telecommunications, aviation, ports, road transport, public transport, all were subject to significant reforms in the 1980s or 1990s, but water was largely left alone. With the sole exception of Auckland, with the creation of Watercare Services in 1991, all other water provision was left in the hands of territorial authorities. Water is a legacy of the Muldoon era and beyond, with the exception of some local authorities consolidating and in some cases implementing water metering, not a lot happened.

Some Aucklanders might remember the Water Pressure Group, led by the late, conspiracy theorist, Penny Bright.  One of the cause célèbre of the hard left was opposition to the commercialisation of water in Auckland seen in the creation of Watercare Services, which supplies water and wastewater (not stormwater) services in the city. The New Labour Party, later the Alliance (when it included the Greens) were loudly opposed to what they saw as the bogey of privatisation (which never happened).  As the Alliance was on the ascendancy, after the 1993 General Election, National pursued little in reform of the water sector, and as Labour went back to the left under Helen Clark, the idea of reforming water was parked.  After MMP, there was no majority for any serious reforms in the sector, and from 1999-2008 the Clark Government proceeded, with support from the Alliance and the Greens (who had now left the Alliance) to pass the Local Government Act 2002 to grant local government a "power of general competence".  In short, the left trusted local government to get on with the job. Of course the Key/English Government from 2008 until 2017 did nothing either to reverse it.

The power of general competence and community empowerment have been a failure

The implementation of the power of general competence was to usher in a new era.  Then Local Government Minister Sandra Lee said "It is both a reaffirmation of the place that local government has within our democracy, and of the rights of local people in their communities to exercise controls over their aspirations, their decisions, and the democracy that affects them."   

So communities were "empowered" which of course is code for empowering local politicians. Sandra Lee even made it clear that water privatisation was to be prevented. "We are not going to agree to allow councils to sell what is not a commodity--the access to clean water--but a fundamental human right."  I'm not sure how the people who died in Havelock North had their "fundamental human right" protected, and how asserting that right works if the Council has let the local infrastructure fall into disrepair.  Indeed then Associate Local Government Minister Judith Tizard later claimed credit for having including "cultural wellbeing" in the objectives of local government.  Not much culture if you're sick because the Council supplied water is contaminated.

Backed wholeheartedly by the Greens, the reforms were to usher in a new era of “local democratic accountability” with more powers to deliver what “the community wants”. Indeed, it is the heart of the mantra of the economic left that justice is achieved by more “democratic control” of resources. Well we’ve seen how democratic control of water has been going, and the results are in – it's been a failure.

 What needs to be fixed?

Users, in many cases, don’t pay for what they use. With the cost of water infrastructure for many hidden in rates bill, there are no incentives to manage water use, and those who need water face rationing alongside those who waste the resource. Furthermore, those who benefit from stormwater infrastructure don't necessarily pay rates reflecting the protection of property value they obtain from it (nor do insurance costs reflect that adequately).

Local authorities get paid rates regardless of how much water is used or wasted. So they have poor incentives to stop wasting 21% of the water collected and distributed, to plug leaks so that they can sell the water they collect. 

Local authorities aren't required to spend money on water infrastructure so they may levy water rates, or pay for water from general rates, but they have a "power of general competence" and they are accountable to you every three years at the ballot box.  They spend money how they like, and your power to change that is tiny.

Politicians are no better able to decide how best to spend money on water infrastructure than they are on electricity (which they don’t) or telecommunications (which they don’t) or on farms. Bear in mind local politicians are primarily responsible for housing shortages because they are the controllers of permission to build housing and to allow land to be used for housing. Expect them to make similar quality decisions around provision of essential infrastructure.

Imagine if your local power company spent the money raised from your power bill on a convention centre. The reason that, by and large, electricity and telecommunications infrastructure work is because you pay for its use and the providers spend the money on maintaining and providing the service. It’s capitalism working, because those companies borrow money based on future earnings and invest in the network to continue providing reliable service.

Given that the Ardern Government is the most leftwing government in New Zealand in nearly 40 years, you might think that with reality confronting ideology, they might actually think that this is a failure due to their own philosophy not working empirically. You see if the Douglas/Richardson reforms had NOT progressed, you’d be seeing the same malinvestment in electricity (which was beset with blackouts in the 70s and 80s before reforms), and telecommunications (which famously, before the mobile phone era, saw it take weeks to get a phone line installed).

What is proposed?

It’s curious that the Government has relied somewhat on Scotland as a source of advice for how to implement water, especially when its own report indicated much better performance in England (see above)– which DID famously reform water by privatising the lot in the 1980s. It notes that privatisation of water in England  improved productivity by 2.1% per annum over 24 years (64% all up) after adjusting for quality of service improvements. Achieving a net saving of 64% in cost over such a period has to be tempting.

That is, of course, the right answer.

It isn’t proposing that, because you see, the Ardern Government is in many ways, continuity Alliance,

It is proposing:

· A water regulator to set standards for water quality, with powers to direct water providers to act to meet its directives;

· Consolidating 67 entities into 4;

· The new entities will be owned by local government

· Two boards will govern the new entities. A professional independent board, akin to boards supplying other infrastructure (a semi corporate board) and a regional representative board, which is to be split 50/50 between local government and Iwi.

· The Regional Representative Board will appoint members to the independent selection panel to select the Board, which will then select the board. In effect local authorities and Iwi will indirectly appoint the board.

· Setting of charges must be done transparently, with no changes to how people are charged in “the initial years”. The new entities will have powers to borrow.

· Protections against privatisation, mostly by local government and Iwi having to have a 75% majority in favour of it.

· The entities be statutorily required to uphold “the principles” of Te Tiriti, with the board needing to have competence in Te Tiriti, Tikanga, Matauranga and Te Ao Maori;

· The entities must direct water users funds towards the capacity and capabilities of mana whenua to support delivery of water services

· To throw taxpayers’ money at the entities to lure in local government to agree.

So it is resisting commercialising the delivery of water, preferring to largely aggregate water into entities similar to what governs water in some parts of the country already. They will be, in effect, very large Non-Commercial Council Controlled Organisations with co-governance with Iwi.

What other options were considered?

Well not commercialisation or privatisation.

The report indicates that three other options were considered:

· Local government led reform: This of course would be consistent with the Government’s philosophy, but has no merit because there are few incentives to make it work.

· A National Water Fund, akin to how land transport funding operates. Except there are no fees charged for water use nationally, and it wouldn’t really fix anything other than enable consumers in places which have well managed water systems to subsidise those in areas that don’t.

· Regulatory reform only, in other words introducing a regulator without structural reform. This would not achieve efficiencies and achieve only limited accountability.

So privatisation wasn’t considered, but the Government should be transparent as to why – which is ideology and politics. Why wasn’t commercialisation considered, by creating genuine arms-length council owned water companies, similar to Watercare services? Why not vest those companies in shares held by ratepayers (noting that it is property owners that primarily benefit from stormwater infrastructure, which protects their property from damage) or even just citizens and permanent residents as consumers? After all, the success in England in holding companies to account for quality of service, levels of investment and addressing systemic underinvestment is considerable. Why does the Ardern Government acknowledge that success then steer down another path? It seems like it is purely ideological.

What's good about the proposals?

Large entities will be able to be more professional, achieve significant capacity building and attain economies of scale. There is no doubt that there are far too many local water entities. Having borrowing powers and the ability to levy charges on consumers is also critical, but these powers largely exist now within local government.  Regulatory oversight ought to result in better outcomes than just leaving it to local government and iwi to manage, and more money will ease the pain, but that's transferring a burden from ratepayers and water consumers to general taxpayers, with no sense of the distributional impacts of that.  

What's wrong about the proposals?

The new entities wont be companies, wont be required to make a return on capital or to pay tax, meaning it will be less transparent as to whether they are operating as efficiently as they could be, or maximising the utility of their assets. As a much larger version of the current model, there isn’t so much incentive to treat those who consume water and use wastewater and stormwater services as customers. Having a customer, provider relationship more directly would provide much more input into consumer preferences than by having an advisory board.  What's fundamentally wrong with considering water similar to electricity?

Local government will still own the entities, although this ownership effectively diluted because governance is now shared with iwi, who own none of the infrastructure, nor are accountable to ratepayers.

There are probably too few entities proposed and Watercare Services, which has fewer problems compared to many other water entities, will be required to be decommercialised and merged with Northland water provision, which may mean Aucklanders cross subsidising water infrastructure in Northland. There is no need to dis-establish Watercare Services and no options given as to the number or geography of the proposed entities. Local authorities that are successful ought not to be forced to be subsumed by entities of those that are not, noting that the three waters are NOT an integrated network like energy, telecommunications and roads. There is little need for disjointed networks to be managed together, except to achieve economies of scale and professional capacity for competency.

Governance remains highly political. With local government half responsible for appointing the panel that then selects the board, the incentives are there to offer positions to those they know and trust, in short local authority nepotism. With four entities, headquartered and dominated by Auckland, Hamilton, Wellington and Christchurch, expect the local authorities of those cities to take charge.

The introduction of iwi governance is a vast increase in power for iwi over core infrastructure that has no precedent in other industries, and which assumes that Maori as both consumers or voters is insufficient in protecting and promoting their interests, although it might certainly promote iwi interests. The iwi role will be to share oversight with local government, which already has a growing mandatory iwi co-governance role in any case. Iwi have the same incentives as local government in appointing people to select a board to govern water. The outcomes expected from this are extremely vague such as enabling mana whenua to express kaitiakitanga, but what will this achieve in terms of outcomes such as water quality, quality of investment and accountability? Embedding Te Mana o Te Wai is harmless enough, but this is hardly unique, because Te Mana o Te Wai is universal to humanity. More fundamentally, the Government is effectively proposing a transfer of 50% of the power around the water sector to iwi, with neither the responsibility of ownership, or accountability to consumers or the owners of that infrastructure. It is a significant uplift from current obligations around consultation with Iwi, to hand over an equal share of governance, with no indication of outcomes or what it means for other sectors such as electricity, gas or telecommunications. It is a form of privatisation of governance, to iwi. I

Now there IS a valuable point in “iwi/Māori have roles within the current three waters service delivery system that will need to be acknowledged. They are suppliers and/or recipients of water services (particularly to rural marae, papakāinga, and rural communities).” As suppliers, they should be subject to the same oversight as other suppliers, but as recipients they are little different from anyone else. They receive a mix of good and poor service, but it is unclear why their role as consumers is more special than anyone else. Sure, water is a taonga, but it is to all humanity. It’s ludicrous to claim that it is more special to iwi than it is to any other.

However, this is more fundamentally about the Government’s interest in what is, in effect, creeping constitutional reform, by redefining the Te Tiriti partnership of Crown and Iwi, into one that goes beyond meaningful consultation and engagement, to sharing powers over assets that do not belong to iwi (the three Waters are about infrastructure, not lakes, rivers and streams after all). There IS a role for consulting iwi about the use of property they own or control, but to privatise half of the control over ratepayer owned infrastructure, to iwi deserves to be justified in terms of outcomes, when the reforms themselves are based on addressing serious problems with the status quo. Should this really be used as an opportunity to facilitate more iwi control?

What should happen?

Reforms are badly needed, primarily because many local authorities have proven themselves utterly inept in managing and funding water infrastructure. However, the Government is proposing to consolidate existing water entities, including successful ones, into four entities which largely resemble Council Controlled Organisations and share governance with iwi. Yes, having professional large water utility entities will be a step forward, but continuing to have significant local authority governance, which has proven to fail, and using the reforms to implement iwi co-governance, with no sense as to what improvements to outcomes this could deliver, is missing an opportunity.

Government should be bold, it should transfer the water assets of local government into a handful of specialist water companies, and issue shares in them all to all property owners connected to their networks and float the companies on the share market (and as a sop to fear over foreign takeover, you could even cap foreign ownership at 49%). Let the water companies meter or flat fee property owners for their services, and force councils to drop rates proportionately and NOT increase them by more than inflation. Given their quasi-monopoly status, central government should oversee the water companies in terms of drinking water quality, but by having popular share ownership concerns over water companies gouging consumers can be ameliorated.  If the Government did this, I'd accept the value of an independent regulator, to monitor and report on performance.

 It’s time to take the three waters out of the hands of politicians and put it in the hands of consumers as shareholders, and run it like a business. You have no more reason to trust this Labour Government with water reform than you would Jim Anderton, who opposed competition and privatisation of telecommunications, electricity, aviation etc etc.

We've seen the results of having a utility sector entirely at the behest of democratic accountability to the community under local government. It's been a failure.  The water sector needs reforming, it needs bold moves resembling what happened and succeeded in England in the 1980s. Shame the Government is willfully ignorant and unwilling to even consider that model as an option.

The Government claims significant benefits from their reforms, over thirty years. This may well be credible, but is based on many assumptions around efficiency savings seen in Scotland with consolidation, and that these efficiencies wont be lost in a strange new co-governance model.  However, since the Government didn't even look at the option of following England  - even without privatising the companies - we wont know if it chose the best option, as the options analysis has clearly been politically cauterised, by people whose political ideology has so demonstrably failed in this instance.

Why would anyone trust them to get this right now?  

Local authorities are currently consulting on whether communities support the Three Waters Reforms, and many oppose it, not least because local government never likes losing power and influence.  You should let them know that you oppose the proposals, but not because it takes powers away from local communities (whatever that is), but because it puts power in the hands of people who are NOT primarily interested in delivering efficient, high quality services to consumers.

So tell your territorial authority AND tell your local MP what you think of these reforms.  Be grateful also that electricity and telecommunications aren't being run by your local authority.  Imagine the blackouts.

Water - the last utility of the Soviet era

You could hardly not notice the growing list of scandals seen in local authority supplied water, sewer or stormwater services in recent times and wonder what has gone wrong.  From lead in water supplied by Dunedin City Council in a number of small towns, to the Havelock North water supply contamination and the breakdown of multiple parts of Wellington's water networks.  Imagine if a private water bottler had been caught with the contamination of supply seen by some local authority systems, the howls of outrage from politicians would be palpable, but it isn't quite that way - you see water in New Zealand is perhaps the last bastion of what socialists call the "democratic control of the means of production, distribution and exchange" of the key utility networks.

Unlike electricity, gas, telecommunications, ports, airports, railways and even roads, water (outside Auckland) in New Zealand was shielded from any serious economic reform during the 1980s and the 1990s. That was a time, which seems so long ago now, when there was widespread commercialisation and in some cases privatisation of utility networks, and either liberalisation of market entry or the application of independent oversight and regulation of the management and supply of the services concerned.

Before then, local electricity distribution was led by local authorities, which managed them much like water and the results were underinvestment in power line networks in some places, gold plating in others, and frequent power cuts as parts of the networks failed.  Now these networks are either privatised or run by local trusts, but all subject to regulatory oversight around capital spending and how much they can charge consumers for maintenance and renewal of their assets. 

You see local authority issues with infrastructure don't mean all infrastructure, because they actually have little struggle at all with the infrastructure they are not responsible for owning, managing or funding.  Electricity, gas and telecommunications networks all grow, expand and get maintained with little recourse to ratepayers or indeed the "democratic control" that the left is so keen on.  Now that isn't to mean that there isn't some government intervention, such as the vast spending on fibre optic networks funded by central government but undertaken by private enterprise, but this is not the model by which water networks are funded or managed in New Zealand - you see water remains the last bastion of the Soviet style era of socialist management of a utility.

If you want to take a nostalgic trip back to the era of Rob Muldoon, the era that the late Jim Anderton and his Alliance Party, and indeed at one point Winston Peters, pined for, you need only look at how the "three waters" (supply, waste and stormwater) are supplied and managed in New Zealand today.  Indeed, it is a case study in exactly how the principles of democratic socialist economics work in practice.  You can see the vestiges of this thinking in Green Party policy today, which says "Ensure Council Controlled Organisations are only used where this has benefits over direct service provision by local authorities".  

Leftwing opposition to reform of water is long standing.  It is almost laughable today to recall when former Green MP (and still Wellington Regional Councillor) Sue Kedgley regarded reforms to the Local Government Act allowing local authorities to choose to contract private companies to provide water infrastructure for contract periods of longer than 15 years as  "the potential to be hugely harmful to the public".   She much prefers a democratically controlled water supply that sees lead enter it, with the ultimate penalty being... you might not get re-elected as a city councillor.

However, it is the late (conspiratorially minded) Penny Bright, who founded the wittily named "Water Pressure Group" in Auckland that for many many years was the squealer that regarded any private sector involvement in the water sector as beyond the pale.  She regarded water as "a basic human right", albeit one that she thought was best delivered by a bunch of politicians re-elected every three years directing a bureaucracy.  She was passionate about her beliefs, but wrong.

The problem with water is the problem that was seen with telecommunications when it was run by the Post Office, or electricity when it was run by the Municipal Electricity Department of Wellington City Council (or whatever council) et al, which is that political control of the funding and of the taxation needed to maintain and renew a complex utility was extremely poor at being accountable to those who "own" the infrastructure and consume its services, because there is little link between what you pay, where that money is spent and how much is spent on the water networks.  The NZ Post Office once thought it was a great idea to install "triple twisted copper cable" for telephone lines in the Wellington suburb of Khandallah, despite it not being the international standard for phone lines, because some engineers thought it would improve its robustness - at the same time upwards of 50% of coin operated public phone boxes did not work (there were no mobile phones then).  Bureaucratic service delivery agencies don't get driven by customer needs, but their own internal imperatives and those of their political masters, which understandably are pulled in many different directions - but customer service (being a monopoly, funded from taxes) isn't upper most (unless of course, in a few cases, it is to help a Councillor or his mates out).

Local politicians almost never campaign for election on issues like renewing water infrastructure, but they sure like big shiny showoff things like convention centres, sports stadiums and "visions".  After all, why campaign on something that involves digging streets up and nobody really notices, when you can get your name put on a park or a building instead?  Imagine if the issue of installing more mobile phone capacity were up to local government and it were paid for by rates, would it ever get done?  Water supply pipes, wastewater pipes, stormwater pipes, none of them matter much to most people most of the time, until their service stops or their property is flooded - so they are easy for politicians to defer spending on. 

There is one exception in New Zealand, which is Auckland.  Watercare Services was set up in 1991 as an example of how to commercialise water delivery (albeit not stormwater), and it is from this that the leftwing backlash against water reform arose.  Opposition to commercialisation, opposition to people paying for the water they use was central to this.  The idea that it is somehow fairer for the single pensioner who uses barely enough water for a few cups of tea and a shower a day to cross subsidise the water used by a family of four was not an argument worth having with the organised, almost hysterical, opposition to reform.  So Watercare Services was not replicated elsewhere, albeit that local government reforms did allow local authorities to do so if they wished - but rare is the local politician willing to relinquish control.  It's notable that Auckland doesn't seem to have the issues with supply or wastewater of other cities, although stormwater remains a major issue (and is outside Watercare's remit).

So water, as it remains, has all of the symptoms of a centrally planned, "democratically accountable", bureaucratically delivered service.  It's funding for capital is entirely dependent on local politicians choosing to allocate rates money to it or to borrow to pay for large investment, and so it has to plan from year to year based on how councillors manage their priorities - whether it be convention centres, minimising rates increases or getting elected.  It is only when water infrastructure gets critical (i.e. pipes bursting, supply running out or being poisoned) that political attention is given, and that is frankly too late. Water in New Zealand is socialism in action, and it demonstrates that it is profoundly difficult to get politicians to focus on long-term priorities that are not seen as trendy (note that some are extremely eager to make interventions under the auspices of trying to stop climate change, even though the impact of those interventions is infinitesimal, it's much more about being seen to do the right thing).

Ironically, the recently elected Labour Government has decided to reform water in a way that a previous Labour Government refused to do so for roads - by encouraging local government to take water out of its control altogether and putting it into a handful of centrally government controlled organisations.  Yes it is arguably nationalisation, but it is a transfer from barely capable local control to something else.   It is almost admitting that local democratic control of a critical utility has failed as a delivery model, and that having arms-length professional organisations (let's call them State Owned Enterprises maybe?) that charge consumers for the services they provide, recover capital costs from consumers over the lifetime of those assets and seek to optimise costs and service delivery (with regulatory oversight) is a much better model - i.e. the model that many politicians on the left would have called "neo-liberal" and a precursor to that nastiest of words "privatisation".

However, NZ has had decades of water being supplied "not for profit" and with "democratic control", maybe it's about time it was left to professionals, with the political role being to set up the legal framework to ensure that water is run as a business like other utilities.  The Government's proposals are encouraging, although I would be much more draconian and just take it off of councils and legally require them to cease charging water rates or cut general rates that fund water, and then establish a mix of metered or uniform charges for water consumers.

Of course the UK privatised water many years ago, and hasn't looked back. Some stats on that experience (source: Statement of Professor Chris Binnie, former President of the Chartered Institution of Water and Environmental Management (not uncritical of the water privatisation process):

• Drinking water quality measured at tap increased from a 99% pass rate to 99.96%
• Properties at risk of low water pressure reduced from 2% to 0.001%
• Properties subject to unplanned water supply interruptions of 12 or more hours reduced from 0.4% to 0.003%
• Leakage dropped from 4,980ml/d to 3,306ml/d by 2000, but is still too high (3,183ml/d) in 2018
• Residential water meter use raised from zero to 55%, with a target of 80% by 2040.
• Per capita water consumption dropped from 155 l/h/d to 141 l/h/d (with more households, each household using less water)
• Household properties at risk of internal sewer flooding reduced from 32,000 to 3,000.
• Non-compliance with the EU Bathing Water Directive (regarding dumping of wastewater at sea) reduced from 16% to 1%
• Failures to respond within 10 working days to complaints dropped from nearly one third to 0.4% failure within five working days.
  

Sure there is plenty to criticise (e.g. Thames Water remains slow in addressing leaks, but it has reasonable incentives to address it, because it can't charge consumers for water leaking from its system and it is generally more costly to provide more capacity for storage than to fix leaks), but it is notable that the water problems are as much about an ideological resistance to reform as they are due to the failings of a system that is not well set up to incentivise investment, supply of services to consumers and deliver long term outcomes.

It looks like New Zealand (except Auckland) is coming to an end of its Soviet-style/Muldoonist era in water management, thanks to a left-wing Labour Government acting to implement reforms that are not far removed from what the Lange/Palmer/Moore Labour Government or the Bolger/Shipley National Governments might have done. It's also telling that the much vaunted "power of general competence" that the first term of the Clark Government granted local government has proven to not be competent in managing the three waters in so many cases.  

Perhaps there are other compentences that local government should be freed from as well?

Greece votes for a dream, and it is only that

The news that Greece looks like getting a far-left government let by the soft communist Syriza Party has excited some commentators, but what is perhaps most deceptive is the claim that it is a "rejection of austerity", as if the choices to Greek people were like a menu.

In fact, the choices are far more stark, because what Greek politics is and has been ever since it joined the Euro (indeed one could say ever since it joined the European Economic Community), is an exercise is mass deception and reality evasion.

The troubles of the Greek economy are not due to "the Germans", nor are they due to "the bankers", they are due to the peculiar, though not unique, mismatch between the part of Greek society that wants money from the state (and protection for their businesses or jobs), and the part that doesn't trust the state at all, to the point that it egregiously evades taxation on a grand scale.

This mismatch used to be managed by stealthily stealing from most ordinary Greek people through continual devaluation of the drachma. 

Then it was covered by structural adjustment transfers from the EEC/EU, as Greece gained money to build transport, energy and civic infrastructure, and of course the ongoing subsidies for its agricultural sector.   When it joined the Euro, the Greek government gained access to easy borrowing in a hard currency at low interest rates, so it ran further deficits.  The OECD describes Greece's economy as thus:

In Greece, economic difficulties go deeper than the direct effects of the recent crisis and fiscal consolidation is urgent. Difficulties have been brewing for years, so when the crisis came, Greece was significantly more exposed than others. Besides the severity of its fiscal problems, Greece has, over the past several years, gradually but persistently lost international cost competitiveness, resulting in widening current account deficits, a deteriorating international investment position, and a poor record of inward foreign direct investment. 

Greece has a highly regulated protected economy, with a bloated state sector. 

Syriza wants to protect the economy even further, increase the state sector even further, cut taxes and thinks that banks in other countries, supported by taxpayers in northern European Eurozone states, will help Greece out.

There are, in effect, two paths.

Either a renegotiation of existing loans to be written off or extended is achieved, and Syriza quietly folds its promises on state sector pay, free electricity (indeed any further giveaways), and Greece remains in stasis.  or

Greece defaults on debts and leaves the Euro.

In the former scenario, it looks like at best Greece might get some easing of terms of debt repayment, but the idea that it will get half of its debt written off again, is unlikely, given the previous deal saw private Greek government bondholders accept a 50% write down of debt.  There is little real chance the Greek government could get anything from the private sector, so any further loans will be government to government.  

If Greece gets the sort of deal Syriza hopes for, it will set a precedent that Spanish, Italian, Portuguese and even French and Belgian governments will want to replicate.  At that point, you would have to wonder how much tolerance voters in Germany, the Netherlands, Finland would have for propping up their profligate southern neighbours (let alone the former communist bloc countries that went through much more radical and painful structural reforms than Greece should be facing). 

The real risk is that voters in those countries eject governments that agree to bail out other governments with their money.  After all, who wants to be seen to be bailing out Italy?  German guilt over the war can't be stretched that far.   It threatens unravelling the Euro and even the entire EU project, as parties like Syriza effectively want a fortress Europe that looks closer to the former COMECON than a customs union.

The latter scenario has seemed less likely, but I'm not so sure.  A deal gets offered to Greece that extends the terms for existing loans, in the hope that Greece engages in reforms, but ultimately Greece will run out of money.  At that point, it faces either not paying its pensions or public sector workers, or issuing a new currency, and then the Greek economy finally collapses under the weight of its fundamental contradiction.  A western European standard of living cannot be sustained with an economy that is akin to a wealthy developing country, 

The only solution to this is to reduce the costs of doing business, address the corruption within the regulatory/subsidy/state contract/tax system, remove protection for existing businesses (and jobs) and to cut the role of the state, while enabling the state to be more effective in carrying out its core responsibilities.

However, the outgoing Greek government only made modest progress on this, and Syriza is philosophically opposed to making life easier for the private sector.  Syriza believes in the state owning larger businesses and licensing/protecting smaller businesses.  It believes in a generous welfare state and public sector, and wants lower taxes on everyone except the "rich", who of course have either already left or have at least set up their accounts in a way that they are away from the hands of the taxman.

Even if Syriza does get a deal that avoids a default, it will only delay the next crisis.  An anti-business, anti-free enterprise party will continue to strangle Greece just like similar policies have done for many years.  

What's bizarre is that Greece's northern neighbours have faced much more serious levels of reform and restructuring in the past twenty years than it needs to, but they did it.  Bulgaria and Albania are both much poorer than Greece on a per capita GDP basis, but have economies in much better shape. 

The tragedy is that too many Greeks have voted for a dream that they too can convince taxpayers in other countries to buy them a standard of living they don't earn themselves, and that they can convince banks and other private investors to risk their money with a government that is unwilling to pay them back.  It is a dream, and it is about to become a nightmare. 

What I wrote before about Greece, two years ago, remains true.  

What went wrong with Greece

Greek voters have rational choices, but they reject them

Greece's tragedy should be a lesson to all

Greece for dummies. Austerity = living within your means

Greek crisis is a taste of things to come

Greece is collapse under the weight of its own contradictions

Greece's socialism catching up

ISIS has "progressive potential"

not only that it is a "valid and an authentic expression of their emancipatory, anti-imperialist aspirations.”

Did this come from another group of Islamist men seeking to cheer on their murderous comrades in their proud courageous rampage through villages of non-believers, as they behead men, women and children?

No, it came from the British left, an organisation called Left Unity which has the backing of George Galloway and Ken Livingstone, both well known as firebrands who have sympathised with authoritarians of many colours.  Guido Fawkes has this coverage of the event.

Yes - now just think about the contradictions.

When ISIS governs it would mean:

- Strict orthodox Islamist theocracy, where other faiths and atheism would not only be banned, but their practice would be punishable by death;

- All freedom of speech that was critical of the caliphate or Islam, or deemed to be blasphemous under ISIS's strict reading of the Koran, would be forbidden, and harshly punished;

- Women would be in no positions of authority, and be expected to be submissive breeding stock.  Intended to produce children, raise them and be completely submissive to their fathers, then husbands;

- Much if not most books, magazines, music, films, television, audio programmes, paintings, photographs and other media known in most cultures would be prohibited and destroyed;

- And of course, being gay/lesbian/bisexual etc would be totally forbidden, and any expression of such behaviour would be punishable by death.

By what stretch of the imagination of any, so-called, liberal leftwing campaigner, is this emancipatory, without the sort of Orwellian contortions that are used in Pyongyang to talk of its regime being free and democratic?

Forgotten posts from the past: The lovers of violence on the NZ left

For a while I have read Maia's blog, partly out of curiosity and an attempt to understand the thought processes of someone on the left who, I tended to think, generally had a good heart. I've come to the conclusion that she is living in a world of naive delusion.

Some of those arrested on firearms charges in the Ureweras include her friends. However, like the rest of the so-called peace loving left, she refuses to condemn the evidence presented in the Dominion Post on its content. She wont say that it is wrong to advocate assassinating John Key or President Bush, or wrong to murder people for political ends, or wrong to vandalise power stations.

Maia rightfully is appalled by much violence, specifically rape. I don't disagree. However, why do so many on the left hold within them the anger and the moral belief that initiating force is justified against peaceful people? How can they look themselves in the face and condemn some violence, but not others?

Is it that, fundamentally, their politics are all about initiating violence against others to create the "just world" they seek?

After all, the Greens talk often about peace and non-violence, but their approach to almost all issues is to pass a law to ban something or make it compulsory.  Their approach to foreign policy is to turn a blind eye to atrocities committed by authoritarian governments that share their socialist philosophy.

How do they reconcile claims for being non-violent, but sympathy towards those who are, and advocacy of violence against peaceful people?

Eastern Europe did it, why not Liverpool and Glasgow?

Thirty years ago Margaret Thatcher closed antiquated, heavily loss making industries, putting hundreds of thousands out of work in many towns in the North, Scotland, Wales and elsewhere. 

Today, many of those towns and cities appear to have never recovered.  It takes little for the BBC or other journalists to find groups of disgruntled people old and young, saying that Thatcher took away their jobs, their childrens' jobs and destroyed all hope.  It is like without nationalised industries, they can do nothing.  The GDP in many of those regions is between 55 and 70% state based still.

Twenty or so years ago, post-communist democratic governments across eastern Europe closed antiquated, heavily loss making industries (perpetuated under 40 years of the sorts of policies Arthur Scargill and the British trade union movement advocated), putting millions out of work in most cities across their countries.

Today those countries are transformed, with new industries, with new jobs, with thriving growing economies.  Some with per capita GDPs at the levels of the poorer western European states.  They have open competitive economies, with public sectors less than half the size of what they were when they threw off the shackles of authoritarian communist governments.

Why?

Lithuania isn't in a recession - No Right Turn is not right again

I do read the No Right Turn blog from time to time, and it demonstrate how willfully blind and deceptive some can be when the facts reported in the same story they quote from, don't fit their blinkered vision.

He said:

Lithuanians went to the polls today in the first round of parliamentary elections - and have voted resoundingly against their neoLiberal, pro-austerity government which had plunged them into a Greek-style austerity-induced recession.

He links to a BBC article about the election and says that the government "plunged them" into a recession.  The leftwing meme being simply that reforms that shrink the state sector create a recession and Greece's problems are that it is cutting spending, not that it can't borrow to sustain overspending anymore and is having to beg from other states to cover its overspending until it can balance its books.

Yet that very same article from the BBC says this about the Lithuanian economy:

Mr Kubilius came to power in 2008, just as the global financial crisis was bringing a dramatic end to an extended Lithuanian boom fuelled by cheap Scandinavian credit.

So Lithuania's recession started the same way as most of the others, cheap credit from banks with state issued fiat currencies, overborrowing and an adjustment when reality set in.

Mr Kubilius enforced a drastic austerity programme, to stave off national bankruptcy.

Presumably the leftwing view of this is that the government should simply print more money.  After all if the state can't borrow anymore, it either has to cut spending, raise taxes or print.

Meanwhile, economic output dropped by 15%, unemployment climbed and thousands of young people emigrated from the Baltic nation of 3.3 million in search of work.

Yes, a fiat currency credit fueled boom adjusting itself, and the government balancing its books.

The budget deficit has since been tamed and GDP reached growth of 5.8%.

Hold on.  Growth of 5.8%? What is this austerity induced recession?  Indeed according to Eurostat, Lithuania's unemployment rate has been dropping from a peak of 18.3% in June 2010 to 12.9% in August 2012.  

Idiot Savant need only have read the rest of the article for it to be obvious the recession in Lithuania is well and truly over, and a 5 minute search to find the Lithuanian unemployment rate.

However, that wouldn't suit the "evil neo-liberals want to destroy the state and ruin the economy and want mass unemployment, but socialists love people, want prosperity and know how to do it, if only they were allowed to spend money that doesn't exist, and could get their hands on all the money of the evil capitalists" monologue that he, and the left (becoming more and more out of touch with economic) have been preaching.

Greece is a totemic example of the failure of socialism to deliver sustainable prosperity, followed by Portugal and Italy.  Spain and Ireland are totemic examples of the failure of cheap credit created from nothing through fiat currencies and fractional reserve banking.

Maybe Idiot Savant might want to revise his tired empty thesis that the only people to blame when governments overspend, are those who loaned money to them in the first place,  because when they stop, what does he really expect should happen?

What went wrong with Greece

Aristides Hatzis is Associate Professor of Philosophy of Law & Theory of Institutions at the University of Athens, Department of Philosophy & History of Science.

He has some firm views of what went wrong in Greece, and it is not a view that fits the conspiracy theories of the Syriza party or the empty claims that Greece is a victim of financiers.

Hatzis says Greece joined the then EC (now EU) in relatively good economic health:

Seven years after embracing constitutional democracy the nine (then) members of the European Community (EC) accepted Greece as its tenth member (even before Spain and Portugal). Why? It was mostly a political decision but it was also based on decades of economic growth, despite all the setbacks and obstacles. When Greece entered the EC, the country’s public debt stood at 28 percent of GDP; the budget deficit was less than 3 percent of GDP; and the unemployment rate was 2–3 percent. But that was not the end of the story.

Greek voters voted to the left, and that changed everything:

Greece became a member of the European Community on January 1, 1981. Ten months later (October 18, 1981) the socialist party of Andreas Papandreou (PASOK) came to power with a radical statist and populist agenda, which included exiting the European Community. Of course nobody was so stupid as to fulfill such a promise. Greece, with PASOK in power, stayed in the EC but managed to change Greece’s political and economic climate in only a few years.

He continues to explain that PASOK changed the relationship between the state and the people, but even the so-called "rightwing" opposition did nothing to change that.  Recognise that pattern in other countries?

Today’s crisis in Greece is mainly the result of PASOK’s short- sighted policies, in two important respects:

(a) PASOK’s economic policies were catastrophic; they created a deadly mix of a bloated and inefficient welfare state with stifling intervention and overregulation of the private sector. (b) The political legacy of PASOK was even more devastating in the long-term, since its political success transformed Greece’s conservative party (“New Democracy”) into a poor photocopy of PASOK. From 1981 to 2009 both parties mainly offered welfare populism, cronyism, statism, nepotism, protectionism, and paternalism. And so they remain. Today’s result is the outcome of a disastrous competition between the parties to offer patronage, welfare populism, and predatory statism to their constituencies.

It wasn't as if the political classes didn't know there needed to be reforms either, but the bare minimum was done to reach a magic goal - joining the EURO.  So how did Greece expand spending on such a grand scale?  It wasn't from taxation, because tax evasion was rampant and tax collection very inefficient, but borrowing.  

He calls it  "party time":

The borrowing became much easier and cheaper after Greece 2adopted the Euro in 2002. After 2002, Greece enjoyed a long boom based on cheap and plentiful credit, because the bond markets no longer worried about high inflation or a devalued currency, which allowed it to finance large current-account deficits. That led to a crippling €350 billion public debt (half of it to foreign banks) but, more importantly, also to a negative effect that is rarely discussed:The transfers from the EU and the borrowed money went directly to finance consumption, not to saving, investment, infrastructure, modernization, or institutional development. The Greek “party time” with the money of others lasted 30 years and—I must admit it—we really enjoyed it! Average per capita income reached $31,700 in 2008, the twenty-fifth high- est in the world, higher than Italy and Spain, and 95 percent of the EU average. Private spending was 12 percent more than the European average, giving Greece the twenty-second highest hu- man development and quality of life indices in the world. 

Yes, most of the borrowing the Greek government undertook was not to build infrastructure (except for some very high profile totemic projects like the Olympics, a metro, tram lines and a new airport), nor to finance productivity improvements, but to consume.

People lied and evaded tax, but this culture was endemic.  Remember this isn't an outsider, but a Greek academic noting this:

Lying became a way of life in Greece. Still, one might argue that lying to protect what one has created is justified. But in Greece that wealth was not created, but simply borrowed. In 1980 public debt was 28 percent of GDP, but by 1990 it had reached 89 percent and in early 2010 it was more than 140 percent. The budget deficit went from less than 3 percent in 1980 to 15 percent in 2010. Government spending in 1980 was only 29 percent of GDP; thirty years later (2009) it had reached 53.1 percent. Those figures were hidden by the Greek government as late as 2010 when it admitted that it had not actually met the qualifying standard to join the Eurozone at all. The Greek government had even hired Wall Street firms, most notably Goldman Sachs, to help them fudge the numbers and deceive lenders.

Yet for entrepreneurial activity, Greece became a disaster. In 2012 it was ranked 100th out of 183 countries for ease of doing business, being the worst in the EU and the OECD and below Columbia, Rwanda, Vietnam, Zambia and Kazakhstan.  It ranked 154th for laws protecting investors and 147th for ease of employment.  The best ranking was 43rd, for closing a business.  One study indicated that 25% of Greece's GDP was "informal" or outside the law, and petty corruption cost €800 million in 2009.  42% of the state budget is on welfare benefits of some kind.  Pensions were ridiculously generous.  35 years working in the state sector allowed a man to retire at 58 on a pension.  

The "free" public health system actually saw 45% of total health spending coming informally directly from users bribing staff to do their jobs.

Greece is now facing some reality.  It is still borrowing, but this time from taxpayers in Germany in effect.  It is still overspending, but is set to break even in three years.

However, the Greek disease has been socialism, with parties outdoing each other to spend borrowed money to buy votes and evade economic reality.  Greece's economy has had to shrink, because it has been built on credit - not production.  The hard awful reality is that those who benefited from it, never have to pay it back, whereas the up and coming generation face paying for it.

Greece has had its economy destroyed not because of bankers, but because it was rotten at the core, sustained by socialist politicians and those whose support they gleaned by their bribery using borrowed money.   Since the early 1980s, more and more of the economy was built on nothing at all - sadly today, it isn't the public sector facing retrenchment and pain, but the private sector.   Increasing taxes and increasing tax collection is gutting the part of Greece's economy that is productive, and precious little is being done to gut the part that isn't/

Buying something from the government is stealing?

Yes, this is Idiot Savant's latest flash of inspiration.

He describes anyone buying shares from the government in SOEs as buying "stolen assets".

Fascinating.

For he does not think of taxes - money taken by force by government - as stolen, regardless of whether or not it is to buy any assets.

Yet he thinks of the government, having bought assets by taxes, selling them, as "stealing".

You see he calls SOEs "public assets", "owned" by everyone.  Yet you are no more able to exercise the rights of ownership over a dam, road, school or hospital owned by the state than you are a privately owned one.   

However, he regards it as "public ownership" because the public, through its elected representatives (MPs), can "exercise control".  Let's just stick with that for now.

Using the electoral system he broadly supports, National got elected on a platform of part-privatisation. It is supported by parties which have either included or consented to that part of its manifesto.

So voters effectively chose a Parliament that has, through its elected representatives, chosen to "exercise control" on behalf of the public.

It's just he doesn't like it, because he voted for the Greens.  Yet he claims to support democracy.

He says "these goods were stolen from us by the government".  Well funnily enough they were, in the form of taxes.  In which case would he support selling them and giving everyone some money in return for the sale?  Of course not.

Instead he suggests "opponents of asset sales should boycott stolen assets".  I couldn't care less if they don't buy shares, and feel free to boycott buying their goods and services.  Don't forget all of the other companies privatised before, such as Air New Zealand (still 22% private), Telecom, Bank of New Zealand, State Insurance, former THC hotels, Intercity Coachlines.

However, you should also boycott EVERYTHING sold by the state.  The shops that now own former post offices and railway stations, the ex. Air NZ planes sold offshore, any closed schools, in fact any land at all that the state once owned.  After all, selling assets is "stealing".  Presumably buying state assets is "gifting".

This amusing view of property rights concludes with a sure fire approach to send New Zealand's sharemarket, property market and currency down to Zimbabwean levels "they should support calls for those assets to be forcibly renationalised at less than the sale price. Asset-thieves should not be allowed to profit from their crime."

That's right, the Soviet Union is back.  Buying shares offered for sale by a democratically elected government is a "crime".  Some belief in elected democracy he has.  No belief in property rights at all.  No interest, care or thought of what that does to both foreigners and New Zealanders seeking to invest their savings.  From big foreign companies to retirees, students or small business people, if they buy shares they are criminals - because they don't embrace his venal Marxist view of the role of the state.  After all, people from many backgrounds and income levels will buy shares, but to him they are all kulaks, the sellouts, the class and nation traitors.

I look forward to the Greens embracing this policy for the next election, for as somewhat socialistic many New Zealanders are, the idea the state can take back property you bought from it by force with a penalty, will frighten the bejesus of most.

He can live in his solipsistic south Pacific USSR if he likes, but all the aspiring successful wealthy people he despises wont be there paying taxes, opening businesses and employing people with him.

Greece for dummies. Austerity = living within your means

So, once again, the taxpayers of prudent Eurozone countries are going to mortgage their future income and savings because the taxpayers of an imprudent lying Eurozone country are unwilling to pay for the bureaucracy and socialised services and welfare state they voted for.

The latest 130 billion Euro is 406 Euro for every resident of all of the other Eurozone countries, unless you want to remove the others in trouble (Ireland, Portugal, Spain and Italy) in which case it becomes 660 Euro. 

I've written before about the chain of events that led up to it, but here is a summary:

1. Greece joined the European Economic Community in 1981.  It proceeded to receive considerable sums of money from it through structural funds from European taxpayers to pay for new infrastructure, as well as gaining subsidies from the Common Agricultural Policy.

2. The Greek government ran continuous budget deficits since then, although for much of the time it had the drachma and so inflated/devalued its way out of trouble.  Greek politicians would buy off groups of voters by increasing the size of state employment, increasing pensions, funding specific projects and essentially running a patronage state.  By the mid 90's public debt as a proportion of GDP was greater than 90%.

3. In 2001 it finally dropped the drachma in favour of the Euro, having gained Euro membership after lying about its fiscal position.  It did this by hiding the true size of expenditure on defence and healthcare, this was not discovered until 2010.  For nine years Greek governments had paid Goldman Sachs to cover up its systematic fraud towards financial institutions.

4. Since 2001, Greece was able to borrow at very low interest rates reflecting the low inflation and relatively buoyancy of the wealthier Eurozone countries.  Year by year public debt would rise as Greek politicians continued their behaviour of bribing voters with borrowed money.  This growing state of subsidies saw little reform or restructuring as Greeks could import more freely with the higher valued Euro, but found it more difficult to export as productivity hardly improved.

5. The 2008 global financial crisis, catalysed by sub-prime mortgage lending mostly in the US, but also parts of Europ.  Greece was hit by a downturn in tourism and shipping.   This exacerbated shortfalls in tax revenue, which were in part due to systematic tax evasion over many years.   Similarly, Greece was experiencing reductions in funding from the European Commission as cohesion funds were transferred to the poorer new Member States from the former Warsaw Pact.

6. In 2010 the fraud of the Greek government was revealed, with budget deficits 2.5 times what was being reported.  Increasingly, it became more and more difficult for the Greek government to rollover its debt and to borrow to cover its persistent overspending.

7.  In February 2010, the Greek government gained a special loan of 80 billion Euro from the International Monetary Fund and European Central Bank conditional on an austerity package that froze state sector salaries, froze state sector employment growth and cut expenses.

8. In March 2010, the Greek government agreed to cut public sector bonuses, a 7% cut in public sector salaries, increased VAT and fuel tax and taxes on new cars.  The intention was to reduce the budget deficit by 4.8 billion Euro.  This was the second attempt to

9.  In April 2010 it was clear this wasn't enough, so the Greek government asked the IMF and EU to bail it out as was unable to rollover existing debts due in late May 2010.   In May it was decided to implement further austerity measures including further cuts to public sector bonuses and public sector pensions, increases in the retirement age from 61 to 65 and a wide range of tax increases, as well as consolidation of local authorities to reduce administration costs.  110 Billion Euro in loans were agreed as part of this deal with the IMF and other Eurozone countries.

10. In 2011, it was clear the deficit cutting targets were not going to met, so further austerity measures were introduced.  Higher income taxes and VAT were introduced, along with a promise to privatise 50 billion Euros worth of state assets.  Yet in August it was revealed that spending was continuing to increase overall, while tax revenue continued to decline.  In October, the EU promised Greece another 100 billion Euro loan conditional on it meeting austerity targets.  The Greek Prime Minister sought a referendum on the deal, causing panic among lenders fearing default.  He resigned and was replaced with a technocrat (former Governor of the Bank of Greece Lucas Papademos) to negotiate a package before elections in April 2012.

11. The latest deal has been struck, including a cut in state sector employment of 150,000 by 2015, cuts in state pensions, cuts in defence and health spending, liberalising various sectors of the economy by abolishing statutory monopolies, and 15 billion Euro of privatisation by 2015 (the 50 billion had not been achieved.

In the deal just agreed, lenders are expected to write off 53.5% of the debt they loaned.  The Occupy activists might pause for thought that this represents a massive transfer from the financial institutions they hate to Greek public servants, recipients of public services and welfare recipients.  In one swoop, market signals (i.e. a debtor unable to pay) effectively saw market players take the risk and give up on recovering their money from a feckless borrower.   

However, it wont be enough.  I've said before that Greece ought to default.  Why?  Because it will finally confront banks and other lenders with the reality of lending to governments that they cannot rely on the taxpayers of other countries to rescue them.  They quite rightly should stop seeing sovereign debt as 100% safe.   It is only as safe as governments are able to force money out of the hands of their citizens and/or devalue the currency by printing it.  In Greece, the government can do neither.  The problem is that default would likely mean Greece exiting the Eurozone.

So if Greece was actually allowed to default, several things would occur.

1.  The Greek government would be unable to borrow, forcing it to cull its bloated state back out of sheer necessity.  It would have to amend its absurd constitution that prohibit making state workers redundant.  In other words, reality would be confronted full on.

2.  The Eurozone would face choices.  One is to keep Greece in, and face a significant depreciation of the Euro and increase in interest rates for all of its members (this is what the current pillaging of taxpayers in Germany is designed to avoid), another is to eject Greece meaning it may create its own near worthless fiat currency ("New Drachma") and a third would be for the Eurozone to split into two currencies.  One for the poorer economies another for the richer, effectively doing away with the purpose of the Eurozone in the first place.

3.  Greek people would vote in governments that would force them to make stark choices, such as remaining within the Eurozone or leaving.

Yet default is probably incompatible with remaining in the Euro, and I don't believe leaving the Euro will make Greece better off.  The choice is about more austerity or default.   There are no easy answers.

You see the path taken by Greek government has been, as I said before, a massive exercise in reality evasion.

Greek politicians who were in government since the 1980s and especially since 2001, are fraudsters on a grand scale.  By rights, they should be have been lynched by Greek citizens for they have destroyed the country's economy.   They took the country into the Eurozone through lies and they continued to lie for nearly a decade about the true nature of the country's finances.   Accomplices with them are Greek state officials and Goldman Sachs.  By rights there should be several of them getting prosecuted for fraud and face having their assets stripped to the bone, and to go to prison.

Even today, Greek politicians and state servants are resisting and proving next to useless to implement austerity measures. Almost no privatisations have been carried out and the unemployment in Greece is entirely from the private sector.  State sector employment has not shrunk, it simply has not grown.   They are inept to the point where it is hardly surprising so many Greeks don't bother paying taxes.   They would see it as being wasted.

However, politicians are not the only ones to blame.  The Eurozone countries, European Central Bank and European Commission were negligent in enforcing the Euro deficit rules and completely neglected to punish France or Germany for breaching them.  They all at least deserve to face some culpability in not being scrupulous about the accounts.  Eurostat did not act in response to queries from Goldman Sachs about its derivative swaps by looking after the interests of an EU Member State.  If the European Commission is expected to be a guardian of the Eurozone today, why wasn't it so when it could have flagged an issue some years ago.

Greek voters are also complicit in this reality evasion.  Many of them, particular state servants, have happily gone along with ever increasing salaries, benefits, pensions and "bonuses" extracted from future taxpayers.  Greece's public debt and deficits were no secret, just the size of the deficits were.   Greek voters would vote for the corrupt politicians who would sustain a system of patronage socialism that has bankrupted the country.  Yet whilst some took from the state, most refused to pay it.  Many Greek citizens opted out of paying taxes because they didn't think it was worth it and it was easy to evade.  How long they thought this would last is unknown, but it is fair to say few Greek voters really thought twice about stopping the gravy train.

Finally, lenders who expected the Greek government to pay up and indeed other Eurozone countries' taxpayers to do so whilst they treated Greek sovereign debt as "safe".  Lending money to governments has long been seen as "safe", yet it is only so as long as two things happen.  Firstly, the government can forcibly extract money from taxpayers to pay you back with interest.  Secondly, the government doesn't devalue your loan by printing more money.  Greece has been unable to do the first and can't do the second.  As I said above, those lenders are rightfully taking a slightly over 50% cut in their debts.  It should be more.

Margaret Thatcher said "the problem with socialism is that eventually you run out of other people's money".

That's what has happened.  The Greek government has always been spending more than it collected from its own people, so has been borrowing other people's money to cover the difference.  Now it has all come to an end.

Greece has tried decades of socialism, with a highly regulated and protected economy, financed by lenders and more recently taxpayers' from other countries, and it has failed.  

The latest bailout will fail too, because it is only starting to confront the regulatory environment that strangles the Greek economy.   The austerity measures are half about increasing taxes, which is strangling the economy as well.  Greek governments have done little to really cut spending, but done much to increase taxes.   Socialism is still the way in Greece and the EU is still embracing such an approach, negligent to the costs that higher taxes are imposing on the productive - perhaps because bureaucrats don't accept that it is the private sector that grows economies.

I do not share the view that Greece should opt out of the Euro, because all that would do is destroy the savings and contracts of the smallest businesses and least well off in the country.  Everyone else would transfer their bank accounts to foreign banks and transfer contracts to other jurisdictions.  Shifting from one flawed fiat currency to another is an easy way out that will only benefit exporters, but will decimate the average person.  

What needs to happen is clear, and it needs to be presented to Greek voters in the upcoming election.   There is a choice:

Reject socialism:  Austerity should be about cutting spending.  No more tax increases, indeed Greece needs serious tax reform to simplify taxes and lower them to levels where people will be more willing to pay.  Taxes need to be competitive with Bulgaria, its only bordering EU Member State.   Privatisation should be carried out of all enterprises that can easily face competition, others should be privatised by issuing shares.  The economy needs restructuring, with statutory monopolies and complicated licensing arrangements abolished.  It should be made far easier to set up businesses, for contracts to be agreed and enforced, for property to be transferred.  In short, Greece needs its entire business, employment, taxation and property regulatory environment gutted and reformed, as what happened in the former Warsaw Pact countries.  This requires acceptance that the welfare state as it stands is unaffordable, that health and education will be at least in part user pays and that retirement incomes are to be self funded.  It also means rooting out corruption tooth and nail, which will be much easier without subsidies and favours to be granted through officials and politicians.  There is less to be corrupt about if there is a free market and a small government that focuses on its core functions.

The alternative is bleaker.

Embrace devaluation:  Greece would default and seek to leave the Euro.  The Greek banking system would collapse as Greeks would use Euros and other currencies in foreign bank accounts for savings and transactions, and the drachma becomes the currency primarily for state workers.  The effect of this is a massive pay cut in the public sector and for contractors to the government.  The government would face embracing an inflationary printing of money to pay for its persistent deficit, resulting in further devaluation and the fleeing of skilled people and entrepreneurs, as property prices skyrocket in response to inflation and devaluation.  Exporters find themselves competitive purely on price, but it becomes increasingly difficult to obtain foreign exchange to import energy and capital goods.  Ultimately, Greece faces up to finding socialism unaffordable, but after several years of pain.

I fear the latter will happen.  Already Greek banks have seen a 25% reduction in deposits in the past year as businesses and savers forecast this scenario.

What else could happen is of course far worse.  Greece does have traditions of communist and fascist parties keen to extract themselves from the EU and the Euro and become isolated.  

Let's hope Greek voters are not tempted by that, and may actually look to their ancient past as a nation of people who embraced reason, science and reality.   They have a lot of pride.  That pride has been hurt by some in the Eurozone accusing Greeks of being lazy.  That's unfair.  Some are, some are not, as in any nation.   Greeks in response have unfortunately used Nazi slogans and symbols to depict the German government.  That is grossly vile, insensitive and unfair, especially since German taxpayers have been bankrolling the past two years.  Yet running a country from Brussels will result in such analogies being applied.  Eurozone countries cannot completely neglect democratic mandates.

The greatest pride for Greece will be to live within its means and to rebuild an economy devastated by pessimism, higher taxes and socialist economic policies.  The only way that can be done is by agreeing to a future without such state dependency for money, services or regulatory privilege.

It need only look north to the most recent EU Member States, such as Romania, which in 1989 opened up their devastated, ruined economies, people, societies, industries and environment to an outside world willing to help.   Romania then was far far worse off than Greece today, had to scrap virtually its whole industrial sector, most of its entire public sector, its law and even its culture and start again, the hard way.   Half of Europe needed rescuing, rebuilding and re-educating in how to function in the 1990s, and most have succeeded, all those that did implemented free market reforms.

The solution is capitalism.  It isn't devoid in Greek people as can be seen in the 7 million of so Greeks who live, work, own businesses and succeed in other countries.   Now if only that spirit, culture and attitude could be applied to their home country by their countryfolk, Greece would once again be a country they can all be proud of.