Auckland councils have a laugh

$22 billion! The draft Auckland transport plan seeks that amount over 10 years. $2.2 billion per annum, divide it by 1.4 million Aucklanders means $1,571 dollars per man woman and child,

Stuff rightly points out it is "little more than a wishlist", it is hardly a plan. It is like listing what you want if you win the lottery, except Auckland councils want to make you pay for it, whether by rates, fuel tax or general taxation.

Current road taxes are adequate to maintain and make regular improvements to the road network, but any serious major improvements ought to be put through the "toll" test. If it can't be funded through tolls (and road taxes collected from the road), then it probably isn't worth doing.

I've suggested before that a good pilot for private investment of Auckland roads would be to sell the Northern Motorway from Spaghetti Junction to Constellation Drive, allow the owner to toll it which could fund duplicating the congested Victoria Park Viaduct, strengthening the Bridge and a second crossing IF it is viable. Oh and the proceeds from the sale could be allocated to Auckland motorists.

However, in the big picture there is a demand for all sorts of passenger rail network extensions, when none of them could generate enough revenue to cover operating costs. There is ample evidence from the Sydney and Brisbane airport railway lines that an airport railway line does not make sense.

What is most apparent is that this is driven by the public transport obsessed ARC, which has bought into the failed cargo cult ideology that building public transport relieves congestion. You can see it from this statement:

"A rail tunnel under the CDB, for example, would result in more than 200,000 people being within 30 minutes travel of Queen Street"

I'd say far more than that are within 30 minutes travel of Queen Street already. Those people own their own vehicles, and their fuel tax more than pays the cost of the infrastructure they use, and pays to subsidise the public transport they don't use. These magic people are car commuters.

If ever there was a reason for Rodney Hide to throw away any nonsense of a single Auckland council, it is this - a big Auckland council will demand massive cheques from taxpayers for grandiose projects. The question needs to be asked - Is there a role of local government in transport?

Worthless asset - Part 2 - what can be done with Kiwirail?

I like railways and I am an economic rationalist. I find it a little sad when a railway line closes, as if its purpose, hauling goods or people, is no longer needed, like a piece of economic history, and that for a long term it served a useful purpose to many people as an artery. However, I also resist vehemently, the idea that people should be forced to subsidise the freight movements or passenger movements of others. Some like railways and don't apply economics to it, like the Greens. Some apply economics, and want the railway shut down.

Some blogs are suggesting that Kiwirail be shut down, which was what Pacific National, past owner of the Tasmanian rail network threatened, until the Tasmanian state government agreed to take over the network. I can understand this view. However, it is NOT a lost cause. Governments have bailed out the railways twice before in my lifetime, now it should be about accepting the massive right down in value on the government's books before trimming it back to what can be profitable.

I've written many times about this already, so I don't want to add too much:
- Subsidising rail freight is subsidising rail freight's customers, which is coal, timber, dairy and shippers of containerised freight. If anyone should be paying for rail it should be them. A subsidy to rail is "picking winners" in those industries.
- A presentation by NZISCR on the future of rail freight, originally linked to by Frogblog. That presentation dismisses many myths about rail;
- Why the Greens are wrong to worship the religion of rail;
- History of previous rail bailouts and Labour's spending of taxpayers' money on railways;
- Consultant's reports to The Treasury on why rail freight in New Zealand is not on a scale or distances that compare favourably to profitable railways in Australia or the USA. Part One and Part Two.

And after that, where IS rail viable.

In summary, I am optimistic about rail transport in New Zealand, if not for the value of the renationalised "asset". Why?

1. The Auckland-Wellington-rail ferry-Picton-Christchurch-Dunedin route has sufficient traffic to be profitable in the long term. It can carry containerised traffic by the train load efficiently. Similar traffic profitably runs from the Port of Tauranga to the main trunk.
   
2. As long as good quality coal comes out of the West Coast and can be sold, it is profitable to send it by train to Lyttelton. Meanwhile, the TranzAlpine tourist train is also profitable on that same route.
3. Fonterra's milk traffic from Oringi to Longburn, and Hawera to New Plymouth is profitable.
4. It may be profitable to keep hauling logs out of the Kaingaroa forest, and rail wood products from Kawerau to the Port of Tauranga, and from Kinleith similarly.

Beyond that it needs to be on a case by case basis, and the likelihood is most other rail freight can only profitably run as long as the rolling stock and track can be maintained in a serviceable condition and the revenue from running trains makes a profit on top of that. When trains need replacing or track/bridges on some lines, it will simply be a case of giving up.

If trains aren't to operate anymore, the line can be mothballed, so if anyone else wants to run services they can - at a cost. After a set number of years, if there has been no serious interest (in some cases railway enthusiasts take over the line and run tourist services, such as to Middlemarch in Central Otago, or at Waitara) then the tracks should be pulled up and the corridor reused. If people want to convert them into cycleways, so be it.

Bill English and Steven Joyce should request a report from Kiwirail describing not lines, but freight business by major customers/commodities and route. It should describe how long term the contracts are, their financial position, and any demands for new capital to keep services going, with recommendations for the short term, medium term and long term future for those services. Business like decisions need to be made. If Kiwirail wants more money to invest in profitable parts of the business, it should borrow against those projections and recover it from users.

Oh and while you're at it, think about the state highways being run as a business too, directly charging road users for the cost of using them. The state highways ARE profitable as a whole, but it would be nice if it were explicit, and they were run as a business supplying customers, instead of a bureaucracy following statutory objectives.

Worthless asset - Part 1 - Why is it worthless?

A "investment" huh? Kiwirail is virtually worthless reports Bill English in the NZ Herald.

So what DID Labour and the Greens say about the renationalisation of the railway business? How did it come to this?

Well it started when it was privately owned and Tranzrail. Michael Beard was brought on board to be CEO because the share price of the railway had been in decline for several years. In essence, the railway had been run in the 1990s by railway enthusiasts who treated it as a network business, and expanded services. Beard found that it was not that much of a network business, but a business based on commodities. In essence about transporting:
- Containers long distances between ports, or between ports and major centres (Main trunk line Auckland-Invercargill, and Hamilton-Tauranga);
- Coal from the West Coast to Lyttelton, with minor coal business from Huntly to Glenbrook and Southland to South Canterbury;
- Logs and timber products in the Bay of Plenty to pulp and paper mills, and the Port of Tauranga;
- Milk from southern Hawke's Bay to Manawatu, and within Taranaki.

There is also a handful of other bulk commodity businesses, like LPG from Kapuni, and fertiliser to Gisborne, but that is basically it. Passenger services in the South Island are also profitable (urban passenger rail is subsidised like many bus services).

Michael Beard told the government that unless it subsidised the business, he would close unprofitable lines, and was seeking rail customers to invest in rolling stock to manage the capital risk. For example, log wagons gets damaged regularly in that traffic and have a long life. He was concerned that customers would seek short term contracts that could mean the wagons are useless to TranzRail if it loses the contract to road freight. On top of that, he also recognised that if TranzRail bought new wagons, its customers knew it had little option but to discount heavily to get business from them - because unlike trucks, which have more flexibility, if a major rail freight customers gives up rail for road, the wagons are useless. A big capital risk in a small country.

So Labour panicked and started on a path of rail policy. One of the first steps was to rescue Auckland ratepayers from Auckland councils' own insanity, and stop them buying the Auckland rail network from TranzRail. The Auckland councils were willing to spend over $120 million buying the network. Dr Cullen decided to override them and spend $81 million instead. The Treasury valuation at the time was that it was really worth no more than $20 million. From then we have the story of pouring money into Auckland's commuter rail network, but the bigger story was also bubbling along.

At the time TranzRail was seeking to bail out of the business, so after some extensive discussion, Toll Holdings was interested in buying the company. So a Heads of Agreement was signed with Toll that it would buy TranzRail (a private transaction), the government would buy the whole rail network for $1 and spend $200 million upgrading the track. Toll would have to pay track access charges to run trains on the line, and if it failed to keep up minimum levels of service, others could provide services. Toll promised to invest $100 million on new rolling stock.

The Greens fully supported this policy

In essence, Dr Cullen relieved Toll of the risk of the infrastructure, subsidised an upgrade of it, in exchange for Toll paying to use the network to cover ongoing maintenance. The only problem was that Toll didn't keep its end of the bargain.

Toll said it couldn't afford the track access charges required by OnTrack - the Crown company that took over the tracks. The Greens said the government should offer discounts (subsidies) on condition Toll carry more freight. So Toll kept paying less than the full amount, and ran trains, until ultimately it became clear it wanted out, and we all know what happened next.

Dr Cullen bought the lot - and bought it well above market price, when it really is worth very little. The claims that it was an "investment" are fatuous.

Kiwirail's locomotive fleet is aging and many will need replacing in the next few years if services are to continue. Much of the track is also facing renewal, as are some bridges. As rail is a long term investment (locomotives and wagons last a long time), it is only worth doing this if there is enough traffic to cover not only operating costs, but renewals and a return on capital. Otherwise, it is destroying wealth.

Indeed, when the railway was still state owned it used to run lines into the ground too. The Tapanui branch in Southland carried logs reasonably efficiently, but only barely covered operating costs. When a flood knocked out part of the track, it wasn't worth replacing it as there wouldn't be enough revenue to cover the cost - so it was closed.

The rail network is worthless if the view is taken that it all needs to be replaced in the next few years. I don't believe it would remain worthless if a business like approach were taken, like Michael Beard had suggested (although he wasn't entirely correct).

NEXT - What to do with rail?

Tax slavery instead of wage slavery?

Frankly what's the difference? The difference is so called wage slavery is working for money for yourself. Tax slavery is working for money for other people.

Around a week ago Idiot Savant posted on how he thought people couldn't truly be free if they had to work to pay the rent, pay for food etc. They could only truly be "free" if they could decide for themselves how to spend their time, essentially, if they didn’t need to work to have enough money to live.

He believes that employment is “wage slavery” and that the government should provide a guaranteed minimum income that would allow everyone to be housed, clothed, fed and essentially maintain some sort of basic existence (which in many developing countries would be called rich). Only then, does he believe, will people be truly free because they could do what they want with their own time. You could spend your whole life in leisure, start up business, be an artist or whatsoever. Freedom?

Well he neglects to note the obvious point that the “government” does not create money out of thin air (or rather when it does it is called inflation), and has to take the money for such an income from everyone else. The person bludging (which IS what it is) on the guaranteed minimum income may be “free”, but it enslaves everyone who DOES work for an income, or earns income by any means. What happens if half the working age population decides to take a break? Those who don’t must work and pay tax sufficient for themselves, their families and those of the “free”. That is tax slavery. By what moral measure should the existence of others force you to sustain them – and Idiot Savant wants you to do so unconditionally. Because someone having to do something for a living is slavery.

It’s not. It’s reality. If everyone sat back wanting their guaranteed minimum income, everyone would starve. Short of having been gifted (such as through inheritance) or winning a substantial sum, people have to sell their services – as a combination of mind and body – for others to exchange it for money, or goods and services. It is reality. The same reality states that if a house isn't maintained, the roof may leak, or it may catch fire, or the piles may collapse. It is not "slavery" that you need to maintain assets like this to avoid certain risks.

It is reality.

Leisure is a luxury, the wealthier and more productive people have become, the more leisure they have. The answer to more leisure is not to pay people to be unproductive, but to set people free to be as innovative and productive as they wish, within the bounds of individual rights.

That, you see, is what Idiot Savant and Chris Trotter do not understand. They are stuck in the Marxist mindset that employers have their boots at employees' necks. Perhaps when either of them have established businesses, mortgaged homes, worked extensive hours for nothing to make a business work, and then hire people, can they truly judge what it is to be an employer - and stop thinking they all look and act like Montgomery Burns.

You're buying some trains!

Yes according to the Dominion Post, NZ$115 million, partly made up of new locomotives, from the centre of excellence - China. Partly 17 "new" (secondhand ex. British) carriages to replace the ones for the long distance passenger services.

No you wont get a free ride on the trains, because although you own it, the vagaries of "public" ownership of the means of distribution means you have none of the benefits of private property ownership, and all of the costs of it. Now the carriages were already committed by Dr. Cullen, and to be fair if you split out the long distance passenger business, the TranzAlpine express is a profitable service that returns enough to pay for new trains. The TranzCoastal (Picton-Christchurch is more marginal), and the Overlander (Wellington-Auckland) we all know is probably at best breaking even on operating costs (with the drop in tourism hurting it).

This isn't helped by Green MPs virtually never using the services for travelling around the country.

Of course it also means that Kiwirail's competitors are not only subsidising the infrastructure, but now the motive power behind the trains. Think truck tractor units will be subsidised? Of course not.

What I found disturbing was that a new Treasury run infrastructure unit would "develop a 20year plan ranking projects according to their economic benefit". Given the first thing that has been approved are a bunch of locomotives, I wouldn't be trusting the evaluation of economic benefit for one moment.

If this unit approves electrification of Auckland's commuter rail network then it will be transparently clear that the appraisal methodology is nonsensical.

If this unit IS going to do good, perhaps it should also appraise based on "will the government spend this money better than the taxpayer" and "does this spending crowd out the private sector in the same sector". Then the unit will spend little time saying "no" and "yes" at least 90% of the time.

Bill, it's simple. The railway should borrow money itself to invest in capital that will generate a return on investment. OnTrack should develop an open access regime so that others can operate on the railway. The roads should be commercialised, and the power companies should raise capital privately. Give Telecom back its private property rights and amend your RMA reform to focus on private property rights. There is nothing else the government can do to assist in the development of infrastructure beyond getting the hell out of the way. Cutting company tax to 20% would be a good first step