Northern Gateway toll road - politics over reason

I've had a fair few years experience of consulting in the transport sector, and one of the most basic tenets of establishing fully electronic free flow tolling systems is enforcement.  So the news that the New Zealand Transport Agency is finally going to get around to recovering fines for recividist toll violators on the Northern Gateway toll road made me laugh at how a state body can so egregiously ignore collecting money for the use of a service, when the incentives are so badly wrong.

The Northern Gateway toll road north of Auckland is a political creation though.

You see the Clark Administration had decided to take the ever so brave and bold step to allow tolls to be introduced on new roads, with authorisation by Order in Council.  The Land Transport Management Act, which included a wide range of measures including the politicisation of land transport funding priorities and removal of a common approach for economic appraisal of state funding of all modes, included the provision on tolling.

This created two imperatives.

Firstly there was the question of what would be the first agency to apply to toll a road.  The choice was between local government in the form of territorial authorities (and two councils at the time had toll road proposals in the pipeline) and the then Transit New Zealand, which of course was a central government Crown entity responsible for the state highway network.

Transit was determined that it should be in charge, being a central government body and Transit Chief Executive Dr. Robin Dunlop found just the project.  It was then called ALPURT B2, and is the road we all know as the Northern Gateway today.  It fitted the bill from an engineer's perspective in that it was the northern motorway extension that should have been built after the Albany to Orewa section, but which was delayed for RMA reasons.  This delay meant that it could now, suddenly, be treated as a stand alone project.

From a tolling perspective, practically speaking, it seemed to fit well.   It is a bypass of an existing slower and longer state highway, so conceptually users would pay to save time and fuel by using the new road.   

From Transit's institutional perspective it provided a "ready to go" project that could be tolled, especially since there were no others anywhere near "as good" for tolling.  In New Zealand, most road projects are neither big enough nor involve stretches of motorway without interchanges for tolling to be practical without it diverting large numbers of users onto other routes.

Transit not only wanted to have the first toll road, it wanted to be responsible for all future toll roads, because of the need to establish a whole range of functions and activities it hadn't undertaken before - in particular customer service and billing.

Transit, in full collusion with its "arms length funding agency" Transfund, subsequently Land Transport New Zealand (LTNZ), proceeded to blank out the history around this project.

ALPURT B2 as a highway project was originally costed at under NZ$100 million in 1999, but estimates of costs of big highway projects were not good a decade or so ago, and the massive increase in spending on roads undertaken by the last Labour government (especially after 2002 when the Greens were no longer necessary) had inflated construction costs.   Costs started heading towards $200 million.  The benefit/cost ratio of ALPURT B2 was good, over $3 for every $1 spent on it, but with cost increases that was being whittled away.   This was a good thing for Transit, LTNZ and the government because it enabled the impression to be given that ALPURT B2 would not be funded from fuel taxes and road user charges in the National Land Transport Programme like other roads.   With the RMA issues around the project getting settled, the issue of funding approval was going to come up.

This suited Ministers, because they had wanted the focus of the National Land Transport Programme to be on commuter motorway projects in central Auckland, such as Grafton Gully, the Spaghetti Junction improvements, Mt. Roskill extension of SH20, Upper Harbour Motorway and so on (don't talk about tolling motorways in metropolitan Auckland because that will cost votes, and means traffic stays on untolled roads).  

So whilst money was being dripfed into completing the investigation and design work for ALPURT B2, it was all set up so that the project would be deferred.  Bear in mind that it was still a high value project from an economic point of view.  Now, with the Land Transport Management Act passed Transit felt "obliged" to consider it for tolling, and so the project began to morph.

Transit decided that if it was going to charge motorists a toll to use a highway, it better not be any sort of highway, but be the best highway they had ever been on.  The original design for ALPURT B2 was to have inclines and curves that were not all to 100 km/h standard, because the geography of the area it went through would make it prohibitively expensive.  The biggest issue being what to do at Johnson's Hill.  The original plan was to have the road climb up it and go through a cutting.   That was seen as being inferior to trucks which would have to slow down excessively (especially if they are paying a toll) so Transit went about to pursue its other engineering goal - build a tunnel in Auckland.

Tunnels on state highways in New Zealand are rare, the geology makes them expensive to build compared to say Sydney, so they have never been good value unless absolutely necessary.  Transit had never built one in its institutional history, the last new road tunnel built having been the Terrace Tunnel in Wellington completed in 1978 by the Ministry of Works, which was justified because there was no other way to bypass central Wellington without building an eyesore along the waterfront.  

Transit saw the future as having many more tunnels.  There was already pressure to change the Victoria Park Viaduct widening project into a tunnel (which is exactly what happened), and the extension of SH20 to Waterview was also expected to have tunnels (and will).  So tunnel construction and operation in Auckland was something Transit was keen to get started, along with tolls.  See the focus of an engineering based government agency?

So it was decided that tunnels would be built.  Another "innovation" was to build a four lane viaduct  over the Waiwera River, even though the highway would have to narrow to two lanes directly to the north (and there was no prospects of funds to widen that in the near future).  It was also decided to build a viaduct over Nukumea Stream to smooth RMA negotiations.

Certainly a series of government decisions caused the costs of the road to blow out.  One early one was Labour's decision to remove the cost/benefit funding threshold which once encouraged Transit to ensure project costs were contained to get project approval.  The funding threshold was abolished, as the Clark government wanted a whole host of major projects approved.  A philosophy National has continued.

In engineering, projects can be "gold-plated" by including elements that are not essential, but which raise the cost.   Here, Transit was "green-plating" by arguing that the tunnel was less environmentally destructive than a cutting.   The additional cost? $85 million.  The Ministerial Advisory Group on Roading Costs in 2006 found "the Board papers (including resolutions) are silent on whether Land Transport NZ viewed the changes as justified. This does not appear to have been a rigorous review for what was a costly change to the project." No there wasn't.  However, cost effectiveness was already declared to be less important under Labour than it had been before, and this was about building a flash toll road "the first fully electronic toll road" in Transit promotional literature.

By now (2006) the cost of this road had skyrocketed to $359 million.  Bear in mind it was $82 million in 1997, had gone to $138 million in 2001, $218 million in 2004 and by 2006 had been green-plated to $359 million, including several million of costs of toll equipment on site.

Never mind, tolls will pay for it right?  Well no.  Prices can't be set at any level.  There is a revenue maximising level above which too many motorists will choose to use the parallel untolled route, and below which you're not really encouraging too many more to use it.   So when that was modelled, it came that at best, half of the cost of the road could be recovered from tolls.  The other half would come from a normal funding grant, paid for by fuel taxes and road user charges, in other words from all road users.  Yes, ALPURT B2, sorry, Northern Gateway toll road, is subsidised.

Now a fair argument can be made that everyone using the toll road also pays either fuel taxes or road user charges whilst on the road, a secondary argument is that those using the current road also benefit from the new one because of less delays, so this subsidy is not necessarily a big deal.   The state highway network at the time was self funding from revenue collected from users.

It was agreed that Treasury would raise some public debt to pay for the tolled component, to be repaid by the toll (after collection costs are paid).  That is what the toll is paying for.

However, that's not all.  Whilst the cost of building ALPURT also includes the cost of installing electronic tolling equipment, that isn't enough to implement tolls.   It also needs a transaction processing centre, customer contact centre, with accounts payable, receivable etc.  It also needs to connect to the motor vehicle registry to correlate images of number plates to vehicle owners for billing and enforcement purposes.

Now you might think that this all sounds perfect to be outsourced, besides the provision of access to the motor vehicle registry.  No.  Transit and LTNZ decided this would be a separate, bigger project, called the Toll Systems Project.  That would be over $60 million more, just to collect the tolls.

The philosophy behind this was empire building.  The idea was presented that this was the first of "a series" of toll roads (none of which Transit was very transparent about), and that a single back office billing operation would be the "most efficient solution".  However, there were a few flies in the ointment on that idea.

1.  It was after the 2005 election, and Labour had already surrendered to NZ First the only other viable tolling project in the country - Tauranga Harbour Link.  Without the number of transactions from that project, Northern Gateway would be an orphan.  Transit had identified no other major tolling projects likely to proceed in the next few years, with the Weiti Crossing project of the then Rodney District not looking viable and talk of Auckland congestion charging simply political suicide for now.  In short, the case for a single large bespoke billing system for lots of toll transactions had become nonsense.

2.  Given the lack of transactions, it wouldn't be viable to pay for the Toll Systems Project from toll revenue.  In other words, the Northern Gateway toll would not be able to charge enough to pay for the capital costs of the back office systems required to bill the toll.  The operating costs could be recovered, but the capital costs of tolling would have to be born by all other road users through fuel taxes and road user charges, despite there being no discernible benefits to them from doing so.

3. Land Transport New Zealand already long had a billing activity in house, used for paying road user charges, handling fuel tax refunds and motor vehicle and driver licencing transactions.  It saw advantages in taking on this function as well.

So what was decided by Transit and Land Transport New Zealand (which Labour subsequently merged, because it didn't believe in the accountability implied in separating a funder from a bidder for funds), was that the Toll Systems Project would proceed, regardless of the fact that only one toll road would open within the next five years or so, ignoring that the tolls on that road would not be able to contribute one cent towards the capital costs of the billing system.

So all road users in New Zealand have paid for a toll billing system run by the New Zealand government in house, for one toll road that will be, in part obsolete, by the time the next toll road comes about.

Therefore, it is hardly a surprise that the tolling system itself isn't incentivised to pursue debtors who ignore fines.  The fines themselves are not revenue for the toll system, but Crown revenue. Yet pursuing fines does mean that toll revenue increases because the incentive to evade tolls reduces considerably.   Curiously, NZTA's own reporting on tolling claims there is an "industry standard" of 10% evasion of electronic free flow tolling worldwide.  A fascinating figure, but it's wrong although it makes 4.3% look awfully good.  5% is average from my experience, so the performance at the moment is rather average.

Even today in 2012, the next toll road is likely to be Tauranga's Eastern Link motorway, with Wellington's Transmission Gully after that (and unlikely to open before 2020).  By then the infrastructure and systems behind the Tolling back office will be long obsolete.   In short, the Toll Systems Project was an abject waste of money.

A better solution would have been to cut ones losses and simply outsource the entire billing function for the Northern Gateway toll road, because it is not a big road, it only has around 14,000 trips a day on average.   Sydney's much maligned Cross City Tunnel manages around 30,000 vehicles a day, Melbourne's Eastlink manages 190,000 a day, Brisbane's Clem7 around 25,000 a day, Sydney's Harbour Bridge and Tunnel manage over 250,000 a day.  In other words, by global standards the Northern Gateway toll road is low volume, which makes a bespoke collection system even more absurd.  What's a bet that Vodafone, Contact Energy or Sky TV could have done it for them.   However, that would be an anathema to the Clark administration's opposition to anything that smells of "privatisation".  So instead we have what might be the only customer service and billing operation set up that hasn't been paid for by the people paying the bills!

Indeed, it is hard to avoid the possible conclusion that it wasn't worth building as a toll road at all.  

However, it is done now, and a better option all up would be to sell it and the toll system with it, on the basis that someone else might be able to make a better go of operating it.   A utility company, for example, can do billing and chase debts far more effectively than a government agency.  Besides, as a privately owned highway it would still have a parallel state owned route through Orewa and Waiwera.  (Before some on the left get agitated, France is covered in privately owned motorways and almost all of the toll motorways in Australia are privately owned).

The bigger lesson is what a debacle can ensue when something as simple as a road project gets mired in politics and the institutional incentives of bureaucracies.   In this case we had:

- Politicians wanting to prioritise lower value roads over this one, but still wanting it built;

- Politicians wanting to allow tolls, but expecting a toll project to emerge to prove they were right in allowing tolls (but not the toll project in the electorate of the coalition partner);

- Central government bureaucrats wanting to take charge of running tolls and keen to find whatever project would be practical, ready to build (even if not exactly economically viable) for tolls, before a local authority did so (Tauranga);

- Bureaucrats wanting to build a tunnel and a really high quality road (because they are engineers who get excited about these things), so those paying the toll would be "wowed" by the road and it enabled them to silence the concerns of those objecting to the road because of environmental impacts, regardless of the cost;

-  Bureaucrats wanting to take charge of running a single national toll system because it enabled them to wider their remit and authority into customer service and billing, regardless of the fact that the billing itself couldn't pay for it;

-  Bureaucrats already running a kind of billing/customer service system wanting to widen their remit and secure more money to expand their operation;

- Politicians uninterested in pushing for outsourcing or private investment, bureaucrats not incentivised to push for it either.

Not one of these decisions was seen as creating consequences for the other, but the result has been well over $100 million wasted because of it, on one road project. 

Consider this, if the road was privately owned would there even be an issue of people not paying the toll and getting away with it on the scale currently seen?

Finally, the National government, to be fair, had nothing to do with any of this, because it was all over bar the ribbon cutting when the 2008 election happened.  This was a Clark Administration special.   However, it is rather poor form for the Nats to not contain things now. I have three simple recommendations:

1.  Put the Transport Registry Centre of NZTA up for sale (with the toll system) keeping data management of the driving and motor vehicle licensing databases in-house and separate.
2.   Require NZTA to outsource provision of tolling services for any future toll roads by competitive tender;
3.   Put the Northern Gateway Toll Road up for sale (or even lease for 50 years). 

France's Presidential election wont save the French from themselves

Politically France is more of an enigma than many will think. It could be said to be the cradle of democratic socialism in the Western world. With a ridiculously generous welfare state (unemployment benefit is paid at 70% of the salary of the previous job), spending over 28% of GDP on welfare, a relatively interventionist industrial policy and retention of state owned companies operating major services, it is seen by many on the left as a model. 

France of course has also long been at the vanguard of support for closer European integration. Its unalloyed support for the European Union would suggest that the people of France regard it as critical to their economic future. Yet the truth would appear to be a bit more subtle than that. Whilst the Common Agricultural Policy gives France 10 billion Euro a year in subsidies for its farmers (and indeed it was creation of this policy that was critical to France delaying the UK’s entry into the EEC – because France wanted Europe to pay for its own ruinous subsidy scheme), French voters clearly have mixed feelings about the EU. The main selling point of the EU to them has been a fortress Europe mentality. EU laws to set minimum employment standards, to regulate competition and to keep out imports and foreign competition are what they want. Compare that to the UK which has seen the European project as one about lowering borders between countries and liberalising markets.

Indeed it is this clash of ideologies that is at the heart of the European project battles. Guess which view took hold in Greece, Spain, Italy and Portugal. Late last year France briefly looked like it might fall victim to the sovereign debt crisis, but austerity measures were introduced that bear little resemblance to those elsewhere. It almost entirely involved raising taxes, and French voters hardly blinked. Indeed, the socialism ingrained in French popular thinking has been seen in the popularity of the socialist candidate for President, Francois Hollande, who has sought to bribe voters with more welfare, earlier retirement, more subsidised jobs all paid for by higher taxes (top rate of 75%!) and the tooth fairy of future sovereign debt default paid for by German taxpayers. The reality evasion has been delusional, but he has been ahead. Until now. 

Whenever anyone blames the US for a lack of political sophistication, they should pause for a second. For what else can explain the sudden rise of Nicolas Sarkozy in the opinion polls, as he switched tack so profoundly and cynically it would destroy a similar politician elsewhere. An objective view of Sarkozy is that he has been, by and large, a status quo President. He did undertake some modest reforms around pensions, but by and large has made little effort to reform the French socialist state. His largest profile has been in supporting the revolution in Libya, in banning the niqab and his partnership with Angela Merkel in dragging out the Eurozone crisis. However, he found new life in campaigning as if he wasn’t President, but a new candidate. 

His new policies include:

 - Withdrawing France from the Schengen agreement (which means France has no controlled land borders) if other members did not adequately control illegal immigration; 

- Saying there are “too many foreigners” in France, demanding immigration be cut from 180,000 a year to 100,000 (which of course France can’t control whilst it is in Schengen); 

- Demanding a “Buy European Act” requiring EU governments to buy EU goods and services, and if not agreed he’d establish a “buy French Act”; 

- Opposition to halal meals at schools or swimming pools having separate hours for men and women to meet demands of Muslim users; 

- Demanding all kosher and halal food be labeled so consumers can avoid it if they wish.

 In short, he is seeking to take votes from ultra-nationalist candidate Marine Le Pen, who believes in strong state ownership of strategic businesses, radical protectionism, withdrawal from the Euro, boosts for subsidies for French business and agriculture, a looser EU, withdrawal from the Schengen area, a moratorium on immigration, withdrawal from NATO and a closer relationship with Russia. The result, he is now ahead in the polls. Let’s be clear, he can’t implement most of what he said without effectively withdrawing France from key EU provisions on freedom of movement and open markets. So if he is re-elected, he wont actually do most of this. France wont leave the Schengen area and France wont be able to introduce a “buy European” law, because it will be opposed by Germany and the UK. However the support gained for a “fortress France” suggests that even French voters are not too warm to the EU. 

What is most striking though is how French voters are not as cynical as one would have hoped. Sarkozy could have held these positions for years and could have done something about it. He didn’t, and now he is remodeling himself to be the nationalist “with reason”. Presuming it will be him up against Francois Hollande, it is clear neither has any solutions to confront France with its decades of reality evasion. For France’s economy remains anaemic, its best and brightest leave because of taxation.

Its much vaunted manufacturing sector is, in fact, no bigger as a proportion of GDP than manufacturing in the UK (the difference is UK manufacturing largely involves rather smaller firms, with a few exceptions, whereas France relies on larger firms with high profiles). Meanwhile, public debt in France is creeping ever higher above 85% of GDP, and France has not had a budget surplus for over 30 years. For all of the Airbuses (which are propped up by the EU and have a significant part of their componently manufactured in other countries), TGVs, Renaults, nuclear power plants and armaments, there are precious few service industries that export and few IT startups. 

France may provide final assembly for nearly half of the world’s jetliners, make some trains and cars, weapons and satellites, but in all but one of those markets, it faces serious competition in export markets. Meanwhile, its own media is gagged by laws on privacy that make it difficult to take on politicians, despite the extraordinarily lavish lifestyle and corrupt practices that appear to be the norm at the top. France’s socialism does have a semblance of the totalitarian personal aggrandisement of Marxist-Leninist regimes. 

Ultimately, when France faces reality it will probably be overwhelmed by a belief that it is capitalism and free markets that have brought the country down. It will seek to demand the EU save it, somehow, by shaming the Germans into thinking they owe France because of the war. It will dabble with the idiocy of economic nationalism, and find it sliding further into stagnation. France wont abandon the EU, because no politician has the courage to take on the lobby of the largest group of corporate welfare parasites in the EU – French farmers. A group French taxpayers can’t afford to prop up on their own. The question French voters ought to be answering is this. Do they vote to hurry along this inevitable confrontation with the unsustainability of French socialism, by voting for Mr. Hollande? Or do they keep it decaying at a steady pace with Mr. Sarkozy? 

In either case France's future looks like Greece does now.  I suspect by then that Germans will be rather fed up being made to feel guilty for a war that none of them remember, and which they have long expressed penance over.   They also wont think their own taxes should go to pay for a country that has stubbornly resisted restructuring, true austerity and liberalisation for far too long.

Not everyone on public transport would have driven

I saw a press release from the government's uber agency on land transport (set up by the Clark Administration to get rid of the funder-provider split that saw decisions split between government agencies, making them difficult to control directly) New Zealand Transport Agency that seemed otherwise innocuous.

It is about a series of bus lanes opening in Christchurch on the main highway south of the city (curiously it links to a website that hasn't been updated since 2010 -  Christchurch has changed since then, and there is no map of the lanes actually opening - well done).  I'm not particularly objecting to the bus lanes, they may well make sense here.  What caught my eye was this absurd statement:

"A full bus equates to 40 fewer cars on Christchurch roads"

Pardon me, but this is unadulterated bullshit, whatever way you look at it.

Even if we assume that a full bus really is a full bus (people seated and standing), it might at best have 70 or so passengers.  The only way it could mean 40 fewer cars on the roads is if everyone on that bus would have driven a car or ridden in a car with someone on that bus.

That assumption is quite ludicrous.  

If a bus doesn't operate, there are two broad options for the user.  Travel by another means or don't travel at all (which can include changes in destination).  To assume all bus users would drive, or ride a car driven by someone on the bus is nonsense.   

Yes, some would.  

However, some would catch a ride with someone who is already driving.   That isn't adding a car to the road.

Some may bike, some may walk. Both of those options are environmentally preferable to the bus.

Some will decide not to travel at all, and may undertake the trip purpose elsewhere.  In the longer term, it may mean people relocate to a place closer to work, or choose a different job.  Not all trips occur regardless.   It is false to presume all bus trips are commutes.

In other words, to grossly simplify transport mode and trip choice options as being "catch public transport or drive a car" is to exaggerate the importance of public transport.  It is one option.  It can attract people from driving, but many users are those for whom driving isn't a reasonable alternative in any case.

If people are attracted from cars to buses, then all well and good.  Given the bus companies and their passengers are getting allocated a third of the road "for free", you'd hope it does work.    However, let's not pretend buses are full of otherwise drivers.  

Of course in Auckland it's even more ludicrous, because there it is trains that in part attract people from buses - but that is an uncomfortable fact the railevangelists would prefer to sideline - that many of the people riding public transport are not people who would otherwise hop in their own cars and jam up the roads, but people who wouldn't travel otherwise (and are getting a heavily subsidised trip for the privilege).

Nick Smith might be about to do some good

Yes, I am flabbergasted, but there is every potential Nick Smith might do something positive in his career for less government and more freedom.

In fact he'll demonstrate that as Minister of Local Government he will achieve more in that department than Rodney Hide.  According to the Dominion Post, he has announced the Government is looking to curb council powers by revoking the "power of general competence" introduced by then Alliance Minister of Local Government, Sandra Lee, in the first term of the Clark Administration.

The report states that "he will pare back the scope of local government functions so they will only have control of essential local services such as waste, water, roads, libraries and consents".   

If so, it will remove the power of councils to get involved in any area of public policy they wish.  You see Labour, the Alliance and the Greens supported the current wide ranging powers on the philosophical basis that councils should only be controlled by voters - that if voters elected councillors that wanted to make ratepayers pay for a street race, a wind wand, a tv station, a restaurant, a housing block, a tourism promotion in Japan or a farm, they could.  

It is a classic example of basic statism - that government should be absolutely unlimited, except for democracy. That government can buy any business, set up any activity, spend money on anything.  The only limit being the motives of the elected councillors.  The idea being the councillors represent the "will of the people" and they wont want to do anything that wastes money, because they face the penalty of being - voted out.

Now the truth is that this is little check at all on local government.  For a start, losing your council position is small penalty for wasting millions of dollars of other people's money, for putting people out of business, for being part of decisions to borrow millions that future ratepayers have to pay for or for eroding people's property rights.  It's like a company director being able to make stupid decisions for three years before shareholders can vote him down.  Imagine being able to be incompetent for three years before losing your job.

Secondly, elections are not a constraint when councillors can spend the money of all ratepayers to support vocal rent-seekers in the form of council workers, preferred businesses, non-governmental organisations or other ginger groups.  The rights of all citizens of a city or district can easily be surrendered by bribing vocal minorities with other people's money.   The cost to individual ratepayers of a single decision may be a few dollars a month, which they wont get too upset about in themselves, but which can easily curry the favour of lobbyists.

Finally, local government elections have never been a great representative of endorsement by citizens, because turnout, even in postal elections has been low, particularly in larger metropolitan centres.  Whilst rural districts can get turnout of 60-70%, urban ones can be as low as 30%.   Many people find councils mind-numbingly tedious, and activist councillors take advantage of that.  It helps that only property owners are legally liable for rates, but everyone who is on the electoral roll can vote in council elections - a majority of whom are not liable for rates.  As landlords can't simply raise rents automatically when rates rise, it means representation without taxation.  Indeed, Sandra Lee also abolished the vote for property owners in a district who are non-resident.  So you can be forced to pay rates, but have no right to vote for those who decide on how to set them.

A classic bit of left-wing envy ridden denial of the democracy they claim to support so much, tinged with xenophobia (think districts where there are high numbers of holiday homes). 

Nick Smith's reforms appear promising, although I'd argue there needs to be a more fundamental question asked as to what local government is needed for, at all.

He said "Water, roads, footpaths, libraries, local regulatory services – where you go to get your building consent, resource [consent], food safety, the dog control role"  are essential services.

Well I'd say, yes - if councils just did that, it would be one step in the right direction.  Yet one must question the others.  Water, libraries (and waste collection) could be easily privatised.  Roads require more effort, but can be commercialised (and new residential streets vested in body corporates of property owners).   Given I'd do away with the RMA, the whole building/resource consent function would be abolished.  The food safety and dog control functions could ultimately be undertaken by voluntary agencies.

Regardless of all that, I'll give Nick Smith a cautious nod in support for winding back the Local Government Act, with some advice about how to restrict councils:

-  Prohibit councils from entering into any new commercial activities, and require them to transfer commercial activities into SOE type arms-length organisations (called Local Authority Trading Enterprises once), and privatise them by sale, or distribution of shares to ratepayers, within three years;

-  Prohibit councils from entering into any activities already undertaken by central government;

-  Prohibit councils from increasing rates without Ministerial approval (which can only be up to inflation);

-  Return council elections to votes only from ratepayers, including absentee ratepayers;

-  Require councils to get out of any non-core functions within three years.

Doing this would go some way to constraining the petty fascists, the do-gooding busybodies and the numerous groups and second-handers out wanting councils to give them other people's money.

However, it wouldn't slay the biggest risk councils present to individual freedom - the RMA.

So while Nick Smith might be said to have turned a corner on this issue, he wont have really addressed how councils constrain individuals, businesses, clubs and other private organisations by eroding their property rights through the RMA.  So come on Nick, it's not too late to think again.  If they can't organise events, or be entrusted to pay their staff appropriately, why should they be trusted to take away people's property rights?

(can't wait to see what John Bank thinks of this).

New Zealanders already own them

Such is the cry of the impotent leftwing cry in New Zealand politics against privatisation of state owned businesses.  It is this position, and the infantile debate about privatisation that passes for political discourse in New Zealand that demonstrates how far removed the country can actually be from the rest of the world.

The only countries in the world that decry privatisation are the likes of Venezuela, Iran and North Korea.  In the rest of the OECD it is mainstream policy and has been for some time.  However, in New Zealand the debate is at a level that I think reflect a combination of the base level of debate through television and talkback radio, and the agendas sold by some in academia and education, pushing what can best be described as the Green/Alliance leftwing legend about the reforms of the 1980s and 1990s.

The latest phrase thrown in is just banal.

"New Zealanders already own them" or "You don't have a right to sell something New Zealanders own".

Of course it is cravenly misleading political rhetoric, like the bald faced lie that opening ACC up to competition is privatisation, because some of its customers will choose a private competitor. Like the complete blanking out of history by Labour politicians who happily consented to Michael Cullen seeking to sell part of the re-nationalised Air New Zealand to its arch rival Qantas - because Qantas was keen to snuff out any chance of the knee-capped airline becoming a bigger competitor, and Cullen was too inept to see through its rhetoric. 

New Zealanders do not own SOEs by any standard definition of what ownership of property means.

If you own a shareholding in a business, whether by shares, or in partnership, or private equity stake, or even as a secured creditor, you have a wide range of rights in relation to the assets and liabilities of that business.

First and foremost is the right of alienation.  You can sell, gift or surrender that stake to whoever is willing to buy or receive it.  You are not forced to own it.  After all, if you were, you'd be forced to bear liabilities as well as receive proceeds from profits.  

Secondly, ownership bears the ability to gain dividends from profits and capital gains from appreciation of the assets. Conversely, it also means you bear liabilities (in the form of your assets being devalued and shareholding able to be surrendered to creditors, or rendered worthless through the market).  Ownership is dynamic.  Like owning a home, or a painting or a car, what you own can make you money, or can lose you money, but ultimately you gain or lose value according to how it is managed, used and ultimately the market for buying it.

New Zealanders do not have either of these rights in relation to SOEs.  There must be a few environmentalists who'd rather not own a coal mining business, but they can't sell out of the state shareholding in Solid Energy.  As New Zealanders individually can't sell out of SOEs, only the state can, it is absurd to claim that the state has "no right" to do so, when in fact the elected government is led by a political party that campaigned on that platform.

The government does have the right to sell any asset it holds, and indeed it has a democratic mandate to engage in its small SOE part privatisation programme.  To reject this is to claim the state should never sell anything again, and to reject the mandate of the electorate.

New Zealanders don't get dividends from SOEs.  The state does.  New Zealanders don't get a dividend cheque to spend on their mortgage, their kids' education or their businesses.  Those on the left will argue that they do get the "fruit" of government spending, but government spending is distinctly unequal among New Zealanders.  It tends to cluster around rent-seeking groups, such as employees in the state sector, businesses that receive subsidies, the state education and health sector, state housing and welfare recipients.  Is that what people want their dividends spent on?   Of course if the state was going to spend that anyway, it is arguable taxes would increase, although again, taxes aren't equal either.  If everyone had equal shares, they would get equal dividends, but the benefits (and costs) of the state are not equally distributed.

So to claim New Zealanders "own" SOEs is a complete fallacy.  They can't sell or give away their ownership, even if they wanted to.  They can't gain the fruits of ownership.  Yet they do bear the costs.  Loss making SOEs may get additional funds from the state.  Kiwirail being the obvious example.  Those who pay the greatest tax bear the greatest loss.

This "public ownership" is effectively meaningless.  It is, legally, Crown ownership.  The government owns SOEs and it is up to the Minister of Finance to exercise the rights of ownership.  The state owning something doesn't mean you own it.  It spends the proceeds on what it wants, and if it loses money, it takes it from your taxes.

Yet have you noticed how opponents to privatisation get awfully wound up about selling businesses, but the state taking your money through taxes and buying them, that;s another story.

In the past decade New Zealand taxpayers have been forced to buy an airline and a railway, but nobody who says there is "no right to sell" argues it about buying.  Apparently the state has every right to borrow or tax to make people buy a business, or invest in an existing one (take Kiwibank).  

What does that mean?  Well if you follow it to the logical conclusion, it means the state can buy up anything it likes, but never sell it.  Ultimately it means nationalising the entire private sector and all private property.

The real debate that should be had is whether it is appropriate for the state to own businesses at all.  It gets diverted because those wanting to debate are wanting to scaremonger.

It's why the Greens, Hone Harawira and others on the left raise their racist bogeyman of "foreigners" when it comes to privatisation.   The very people who cry racist whenever they find an unequal outcome between two groups they subjectively define by ethnicity, raise hackles of what is nothing more than pure nationalist hatred regarding foreign nationals or companies owning businesses in New Zealand.  The implication being that foreigners "rip people off", New Zealanders don't.  That foreigners will "take their money and run", New Zealanders never spend their money on luxuries, foreign travel or invest overseas.  Foreigners "don't understand us", because New Zealand state owned businesses have always been a roaring success and delivered just what everyone wanted.

If you want to know one reason why Air New Zealand did not get fast approval for Singapore Airlines to lift its shareholding from 25% to 49% by the last Labour government, the word "xenophobia" might explain something.

So no kiwis, you don't own SOEs - a collective of politicians exercise ownership rights over them, spend the profits arising from them, and collect from you when things are going bad for them.  You have no more right to say they can't be sold than you have to say the state shouldn't buy a car, a plot of land, or a new locomotive for Kiwirail.

The late Roger Kerr wrote extensively about privatisation, it would be a start if some journalists in New Zealand actually took some time to read some of it, such as the review of the actual performance of privatised state businesses and their history.  It would also be nice if some of them asked the politicians who oppose privatisation whether they also oppose the state buying businesses on behalf of taxpayers.