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.

Fair Fuel UK? How to make UK fuel duty a little fairer

A nationwide campaign comes to London today, called National Fair Fuel Day, demanding that the UK government act on fuel taxes. Finally, the road transport sector and motoring lobby have cottoned onto the fact that some in the media have ignored – the high price of fuel is substantially due to government taxation. 

Some have argued that it is all about oil company gouging. Oil companies being the bogey of the left and easily pilloried. Yet whilst demand and supply do greatly influence price fluctuations, oil companies can't be blamed for much of the price of fuel in the UK.  It isn't hard to compare prices between countries, and notice that once currency fluctuations are taken into account, most of the real difference is tax.

Today, the average price of standard unleaded petrol in the UK is around £1.38 per litre, for diesel it is £1.45. However of those prices, around £0.58 is fuel duty. For the petrol there is also £0.23 in VAT (£0.24 for diesel) (on top of the retail price and fuel duty). So of the total price, the majority is tax. 

In the UK, this situation came about because of the two previous governments. John Major’s government introduced a fuel duty escalator, which increased fuel duty by inflation + 3%, which was then increased to inflation + 5%. When Gordon Brown became Chancellor of the Exchequer he raised it to inflation + 6%. So in short, it was a way to pillage the pockets of motorists, given that most revenue from fuel duty comes from road use. 

Unlike the US or New Zealand, none of the UK fuel tax is hypothecated for transport purposes. The reason being that the UK Treasury has a phobic opposition to government restricting the use of any tax revenues for any specific purpose. The history behind this being that the last time fuel tax was hypothecated was in the 1930s, and revenue was far in excess of spending on roads (which suggested the tax should have been lowered or more spending should have been made on roads). However, even compared to road spending, the fuel tax is grossly excessive.

About £10 billion is spent in the UK every year on maintaining and upgrading all roads, yet £26 billion is collected in fuel duty and £6 billion from vehicle excise duty. As these taxes wouldn’t be collected if people didn’t own or use motor vehicles, it is fair to link that revenue to that expenditure, although the left/environmental movement likes to think of it differently. 

So what should the rate of fuel duty be? Let’s reject the Treasury approach to this, and say that a dedicated roads fund could be set up which would be funded from revenue from road users. If the current level of spending is maintained it would be £6 billion from vehicle excise duty and £4 billion from fuel , or rather only 12.5% of current fuel duty. Given that there is significant deferred maintenance on road networks (and assuming this funding can replace council tax contributions to road maintenance), let’s boost that slightly by rounding it up to 8p a litre that could be hypothecated for road spending. Yes, in theory fuel duty could be only £0.08 if it was all spent on roads, with vehicle excise duty and it was used to fully fund local roads and given a small boost to maintenance.  Yes, the UK government is profiteering from the use of its own roads on a grand scale, that would make most entrepreneurs blush.  However, it's the government, so the left don't get so worked up about that, because tax is "good" because governments "spend it on everyone".

Of course cutting fuel duty by 50p devastate public finances unless there were equivalent spending cuts to match.  Not something I'm unafraid of at all, but let's proceed down a train of thought to do something a little different.

 A £0.50 cut in fuel duty would also correspond to another £0.10 off in VAT, so a £0.60 cut in fuel would nearly halve prices. That would be a major shot in the arm for the competitiveness of transport intensive industries, transport operators and motorists, but of course would dreadfully upset environmentalists, public transport operators and would increase congestion. Environmentalists would argue it would increase climate change. 

Let me be controversial and assume that this is correct, and accept that road users should pay for the "cost" of carbon emissions. The Stern Report claimed that the cost of climate change is around £0.14 per litre.  However, even if I add that to the road spending, fuel duty still drops by £0.36 with a £0.07 cut in VAT.

Another claim from environmentalists will be the cost of real pollution, the noxious kind that actually does affect people's health in cities. Well that’s been calculated too, and is around half of the cost of infrastructure maintenance, indicating a tax level of around £0.16 per litre. It is a cost that is declining as cleaner burning vehicles are renewing the fleet.  Again, it still means that fuel duty would drop by £0.20 with a £0.04 cut in VAT.

At that point I’d make an argument that there is a long run lack of investment in British highways, only part of which can be recovered in the short term by private investment (simply due to public sector crowd out in planning), so that an extra £0.04 a litre should be retained to be transferred at a rate of £0.01 a litre every year to the roads fund, to address 15 years of underspending.

Indeed, given the rail sector pays a small portion into this, it could be argued that tax could be recycled into paying for rail subsidies (although surely it would be simpler and fairer to enable rail operators to claim back the duty).

So what to do? Yes the government makes a fortune from road users, it collects over three times what it spends on roads. However, it also faces a massive budget deficit to cut, so in the meantime, here are my steps to remedy this, over time:

1. No more increases in fuel duty. 

2. Set up a hypothecated highway fund to which all vehicle excise duty and 8p of fuel duty goes into. Establish an independent board to determine how to allocate those funds to the Highways Agency, local authorities and the Welsh, Scottish and Northern Ireland administrations, based on receiving bids for maintenance and capital expenditure. Have those funds allocated on transparent criteria based on cost/benefit analysis. 

3. Calculate and explicitly state that a proportion of fuel duty is to reflect climate change and pollution costs, if that is deemed necessary.  Regularly recalculate these to reflect changes in the vehicle fleet.

4. Explicitly identify the remainder of fuel duty as “surplus”, with the aim of policy to reduce that downwards by 1p a litre every year until the budget is in surplus (estimated 2016/2017), with another 1p shifted into the roads fund for additional capital works. 

5. Once the budget is in surplus, cut fuel duty by the remainder, so that all that remains is the road fund component, plus the externality charge.

Whilst I'd much rather slash fuel duty by 16p overnight, and then argue over the rest regarding externalities, these gentle steps would put some transparency around fuel duty and cease the endless increases just to pay for general government expenditure. If all the roads were privately owned, or run as a business, they wouldn’t be paid for by fuel duty, but from user charges. However, unless and until that sort of radical reform is implemented, the second best option is to treat fuel duty as being linked to road use and road spending.  It would stop penalising the road transport sector and treating it as a cash cow.

Putin's shadow is up to Russians to resist

For all of the news about the rigged Russian Presidential election, it is probably a fair assumption that he still commands considerable support.  Middle class Russians in major cities may be disenchanted, but elsewhere the strong hand and steadiness of Putin gets much respect.  

After all, Russia has no tradition of vibrant liberal competitive politics, it has a tradition of revolution, authoritarianism, corruption and subservience.

There was a chance for Russia to have joined the Western world's prosperity, modernity and traditions of individual rights and freedoms, when the Tsar was overthrown by a liberal democratic revolution.  However, it was Lenin and the Bolsheviks who overthrew the liberal revolution, and so set in a chain of events that saw tens of millions slaughtered.   Think of those killed by Lenin, Stalin and his successors, the murderous regimes installed in Mongolia, most of eastern Europe, North Korea,  Ethiopia, or how about the pact with Nazi Germany, that allowed Hitler to conquer Western Europe and which no doubt delayed the end of the war and the Holocaust.

70 odd years of Marxism-Leninism has brutalised Russians, it has made them cynical of politics, as it became a tool for personal advancement, for corruption.  It was a path for sociopaths and psychopaths to have fruitful careers.  The state was an instrument of fear, that nationalised lives, brains, property and ideas.  Those with ambition, entrepreneurship, innovation and creativity either had to surrender it to the "good of the working class", or to be ironed flat, to surrender themselves, their creations and their ideas.  For under "really existing socialism", individuals were to be categorised, classified and to worship those who used their hands, not their heads, who followed orders and did manual labour, not creating inventions and innovation.  The rivers of blood, echoes of screams, corpses, tears and bones arising from that system left those remaining a different people from those of western Europe in some ways.  Brutalised and hardened, cynical and saddened.  

Mikhail Gorbachev set them free to complain, to know the truth and talk the truth about the system, the economy, but retained the system that kept them in chains, and which was already corrupted beyond repair.   He faced a coup by gangsters wanting to turn the clock back and was saved by Boris Yeltsin, who then embarked on reforms on a grand scale.

The privatisations of the 1990s were well intentioned, but easily hijacked as a people who had never owned shares were offered easy money by entrepreneurs and gangsters as they hoovered up former state monopolies.  The oligarchs were born, meanwhile the institutions of state that mattered remained corrupted.  The underpaid police, the courts, the prisons and a justice system with literally no history of objective justice, of appeals, of challenging evidence of checks and balances.  

It was ripe to be bought, to be undermined before it even started.  Property rights weren't even embryonic, they were stagnant and subject to whim.  

It was from this disorganisation, the emergence of the oligarchic state and an economy that had its archaic heart decimated by truth and the end of subsidies, that a non-descript former KGB bureaucrat emerged to become Yeltsin's choice as successor.

Putin dreamt of being a spy as a child.  He joined the KGB, went to East Germany to train agents of foreigners, but as he did his work, it was being undermined.  Perestroika saw funding and interest in his work decrease, and then when Gorbachev insisted on letting East Germany go, he saw his position shifted back to the USSR.  In short, Putin saw what he had worked for eroded, he saw rapprochement and friendship emerge with those he had been taught were enemies, and he took the traditional Russian view that is suspicious of the outside world.  

So he threatened, bullied and killed journalists who questioned him, who questioned his state and his party.  He ran elections where pre-selected opponents from the fascist and communist parties he sympathised with ran flimsy campaigns, and the real opponents were excluded.

For some time Russians were complacent, because it coincided with rises in oil and gas prices, and a flood of foreign exchange as a result.  The new money saw the state flushed with booty, able to spend on jobs, welfare and pay rises for the military and the wider state.

Yet the good times were not for all, and entrepreneurs, intellectuals, creative Russians, those not connected to the state or oligarchs, those affected by corruption, by the random whims of the state, and those not enamoured by the mindless hedonistic wild west of Russia's energy fuelled wealth, were less than happy.  Those with the education and the means leave, for they see little future in a society dominated by an authoritarian corrupt gangster state.  The unpredictable, unreliable, corruption fuelled state couldn't be relied upon to respond to assault, theft, rape or murder, when it was owned by those who committed those crimes, and would commit them itself for the state or for themselves.   That's ignoring the nasty under currents of racism, anti-semitism, sexism and overall bigotry that ran through the society.

So now some have spoken up, some are being brave, some are wanting something different.  However, it isn't enough, for now.  Much money in Russia depends on having a state willing to use force or to be absent when it fits its interests, and the state keeps many in employment.   Many Russians like having a strong man in charge, they have known little else except for 10-15 years of "chaos", unemployment and what has been portrayed as "weakness" and "humiliation".  For over a decade young Russians have been taught about the glory of the Soviet Union, with absolutely no contrition or reflection on what happened in that era.

Putin will last a few years, but it will be Russians themselves who will need to throw off him and his regime, and demand change - and to do so, they need to stand together and fight for it.  If they don't, Putin will continue to preside over a shrinking country, with shrivelling population, a military that bites and barks, but which is increasingly ignored by all beyond its immediate former satellites which it can bully (like Georgia and Ukraine), and be left behind.  Despite Putin's clear schadenfreude over the global financial crisis, he has nothing to gloat about.  Indeed, the very cynicism that saw the Soviet house of cards collapse ultimately will do the same to his system, with the one component present that the USSR didn't have - the internet and other communications technology means he has not got control of growing parts of the media.   

The game continues...

North Korea plays its usual game

The news that the DPRK had decided to freeze its uranium enrichment operation in exchange for food aid from the USA is not surprising.

For it is part of the pattern of behaviour that the regime has followed since the end of the Cold War.  It goes like this:

-  Have talks with the USA;

-  Agree to "be good" in exchange for money, aid.  "Being good" could be to allow nuclear inspections, allow family reunion visits, stop missile testing.

-  Receive the aid, be it anything from food, to technical expertise, to assistance in building a light water nuclear reactor;

-  Avoid being totally transparent about nuclear inspections, or stopping testing, and blame the US for not providing all that it promised;

-  Allow all statements from the US that the DPRK has not met promises to be rebuffed with vituperous invective;

-  US cuts aid and support;

-  DPRK starts being "bad" openly, saying it is for self defence.  e.g. send off a missile over Japan, test a nuclear weapon,  shell an island, threaten to create a "sea of fire";

-  A few years of stalemate;

-  DPRK uses back-channels to seek face-saving agreement to get given a bribe to stop being bad;

-  Have talks with the USA... Insist there not be talks with South Korea (the "south Korean puppet clique") or Japan or include Russia or China, because you want to be treated as an "equal". 

This time the reason for capitulation is two fold.

Firstly, Kim Jong Un has barely been in power 2-3 months, and needs to keep the army and the party nomenklatura happy.   His power is entirely dependent on satisfying those in the military who enjoy a comfortable lifestyle due to black market trading in arms, drugs and counterfeit currency printing.

Secondly, 15 April 2012 will be the 100th anniversary of Kim Il Sung's birth, and the masses need gifts to prove the state remains "generous".  In addition, Kim Jong Il promised that in 2012 the DPRK would be a wealthy country.  Some food aid will help with this.

So whilst some in the media see it as a breakthrough, it remains business as usual - the USA facilitating the continuity of a totalitarian regime.

Air NZ Airpoints greatly devalued UPDATED

Whilst I usually write about global or NZ politics and bigger issues, this one is more personal to me, and is relevant to all those who fly Air NZ frequently, especially on either long haul trips or premium fares.  

If you've never flown long haul in business class, you shouldn't read this, as you wont understand how much of a hell hole economy class is in comparison.

Air NZ has decided to abolish airpoints upgrades.  In other words, from the end of May 2012, you will no longer be able to request an upgrade using airpoints for a fixed value.  To me, this was one of the greatest benefits of sticking to the programme, even though I live in the UK.

Loyalty programmes are seen across the retail world today, but the first common incarnation of them was with frequent flyer programmes.  They came about as airlines saw an advantage in giving their customers something back if they flew regularly, particularly as the most regular customers tended to be business travellers on more expensive fares. 

The easiest way to do this at the time was to give points or miles according to how far someone flew.  A trip from Auckland to London would provide much more "benefit" to the traveller than a trip from Auckland to Whakatane.   Given that travel in premium cabins generates far more revenue than in economy, especially discount economy, airlines would provide additional points for travel in the front, but may half or even quarter the return from travel in the cheapest seats.

The return for the airline was loyalty, because the frequent traveller could use the points to buy free flights for oneself and family, or to upgrade on leisure trips.  The value being that the high value fares would remain with that airline because those "perks" were worth it.  It has become commonplace for business travellers to pick airlines as much because of loyalty programmes as with standards of service or price (up to a point).

Air NZ saw a flaw in this from its point of view a few years ago in that miles (or km) flown did not reflect revenue it gained from travellers.  A cheap fare to London would earn much more in miles than a person paying the same for a few full fare domestic flights, so it shifted to Airpoints dollars.  This meant Airpoints Dollars earned reflected amounts that more closely related to fares spent in each class for different trips.   From the customer's point of view, it meant Airpoints dollars could be treated as currency and used to buy a ticket with the points as if they were money. 

Another layer was built on top of this by setting up status grades.  For Air NZ it meant that beyond a certain threshold of points earning in a year you could get Silver, Gold or Gold Elite status.  They represented rising layers of priority for service, but most importantly Gold and Gold Elite offered the ability to use Business Class check in and luggage allowance, regardless of class of travel, and access to all Business Class/Koru lounges regardless of class of travel, for ALL Star Alliance airlines (barring the odd exception).  In short, it meant that if you travelled enough especially in premium cabins, you could be treated as a Business Class customer at the airport no matter what class you book in - a major benefit.  In addition, you got priority when booking flights and requesting upgrades.

Upgrades have varied importance in difference airline markets.  Airlines obviously want people to pay to travel in premium economy and business class, because they would go out of business if people always upgraded.  However, the value of allowing upgrades for unsold seats was that it secured strong loyalty.  

Whilst some airlines, notably in the US, offer upgrades quite freely to their customers based on status (and as a result don't have particularly good premium cabins), Air NZ has never as a rule automatically upgraded customers as a right (occasionally it happens for operational reasons).  To get an upgrade on Airpoints you had to request it spending Airpoints dollars or use one of the two maximum "recognition" upgrade vouchers provided to customers with status.  The Airpoints dollars could either be spent on a standby upgrade (which would mean that it would not be confirmed until and unless it was clear the seats wouldn't be sold) or a confirmed upgrade (costing much more and requiring the traveller to not be in a discount fare category).  

Those with the highest status had the highest chance for an upgrade, which was understandable as these were people who spent the most on the airline, or its partners (which credited it with revenue) so were the ones who are the most HVCs (High Value Customers).  Those with plain old Jade status would only get an upgrade if there were seats remaining after Gold Elite, Gold and Silver travellers had had their upgrade requests allocated.  However, if you didn't spent Airpoints Dollars or a voucher on an upgrade, you wouldn't get one (unless circumstances were exceptional).

For a frequent traveller, the ability to spend Airpoints dollars on upgrades on Air NZ long haul flights was highly valued.  It meant that if given the choice between flying economy class on Singapore Airlines or Air NZ, Air NZ would win because there was a chance of spending Airpoints dollars to request an upgrade, whilst earning more Airpoints dollars than if one flew on Singapore Airlines.   Same in comparing Air NZ with Qantas in premium economy (and soon Cathay and Malaysian both of which will offer premium economy).

It meant that frequent long haul travellers in business class could avoid the hell of flying long haul economy if they had status and points to burn, and it kept those travellers loyal to Air NZ on those long haul business class flights.  It also meant premium economy gained a lot more value than it had before, as a "tolerable" compromise class which was worthwhile if there was a chance of upgrading to business from it. 

Air NZ in recent years has tweaked the programme to effectively seriously cut the ability of those paying discount fares to gain status points and Airpoints Dollars in any great volume.  Around 15% of Airpoints members have status, meaning most of those who are members don't fly much.  Those who do fly much (and I have had Gold Elite, Gold or Silver status continuously with Air NZ for 16 years now - currently Gold), the programme has some value.

So what has been announced in the last 24 hours has virtually destroyed that.

Airpoints upgrades are being abolished, in favour of an auction scheme for upgrades.  Instead of simply requesting an upgrade for a fixed value of Airpoints dollars, a traveller will have to make a bid using Airpoints dollars or cash.  It means that frequent flyers with status may be trounced by infrequent flyers with money.  It means that instead of paying for a ticket and simply requesting an upgrade, you have to think about participating in an auction for an upgrade.   

Frankly, I'd rather just request my upgrade and if I get it, lose a fixed sum, if not, just stay put than have all the fun of an auction.

It's simple Air NZ (and as a state owned carrier I can give a damn), the people who request airpoints upgrades are high value customers whose loyalty you ought to want to keep because they generate much of your revenue.   You've now told them that their loyalty, reflected in airpoints dollars, is actually worth precious little because they are being treated like everyone else.  

So loyalty will float off to Qantas/BA/Cathay in OneWorld or Emirates.

The commercial decision to do this appears transparent - airpoints upgrades were clearly too cheap, even though the means to earn airpoints had dropped dramatically.  The airline wants more airpoints burned, but in doing so it has meant that those who earn the most, don't get any recognition for their status.  It also wants money from people bidding on upgrades, but then it would have got that anyway from those people without the airpoints dollars to do it.

The alternatives are clear:

-  Refocus earning airpoints dollars as simply being a percentage of the price of the ticket.  This will mean those who pay the most earn the greatest redemption, providing a modest incentive to pay more.

-  Tighten up the process for assessing standby upgrades to reflect fares paid as well as status.  This also means loyalty is rewarded and it also provides an incentive to pay more.

-   Restrict airpoints upgrades to those with status only.  That also incentivises status and means people will strive for status to get preferential access to upgrades.

However, no.  Air NZ has decided to devalue something that many high value customers regard as worthwhile.

Rumour has it that Qantas sees this as a magic opportunity to offer Gold and Platinum status matches for Air NZ Golds and Gold Elites willing to make the switch.  Given Qantas and Jetstar can rival Air NZ on the Tasman, on most routes to Asia and Europe and the main trunk domestic routes, this could be costly for the airline.

It has the comfort of monopolies on most of its routes, but on the routes I use the most, it has plenty of competition (London-LA, London-Hong Kong-Auckland), including airlines now introducing premium economy.

If you're an airpoints member, then you ought to notice you've just lost some value from your account. If you're not, and you wonder why I'm worked up about it, then just consider me eccentric and a travel snob - because I am.

UPDATED:  Since I wrote this, two things have changed.  First, Air NZ has since announced that it is RETAINING Airpoints Upgrades of fixed value for its Gold Elites.  However, it appears that they will only be confirmed on checkin, when previously they could be confirmed up to one-year in advance.  It appears they will come AFTER OneUp upgrade bids, which means Gold Elites don't exactly get priority, but rather the crumbs.

Secondly, Air NZ's communications to its status Airpoints members have indicated that their OneUp upgrade bids will actually be higher value than those without status.  Silver Airpoints members will have a "premium value" layered on top of their bids, but it is unclear what this means (1%, 10%?).  Gold Airpoints members will have a premium value of "three times that of Silver", but again what does that mean?  Gold Elite is more again.

My chief concern about all of this is the lack of transparency.  I have never minded throwing in an airpoints upgrade request and taking my chances, knowing full well that my chances depend, in part, on my status.  Gold Elite's first, Golds second, Silvers third, everyone else below that.  However, to engage in an auction, where anyone can bid, with cash, not knowing what status means, just cheapens the experience.

I am happy for Air NZ to introduce OneUp upgrades.  Sure, feel free to flog off upgrades to anyone, if you have any left after those with status.  However, give your status Airpoints holders first preference.   Make the leap from economy to business premier much more expensive in Airpoints dollars terms than it is now (because that doesn't reflect the fare difference), but make sure status holders feel valued.

The man's search for a tyrannical fatherland never ends

You see, George Galloway is a sycophant for the Assad regime when he visits it, then denies it when he returns.  Ask yourself why the so-called peace movement of the left is rather quiet about Syria, and seek out whether the real reason is because it prefers the fact that Assad's regime has never been Western backed, always been anti-Israeli, was allied to Saddam Hussein, provides succour for Hezbollah and Hamas, occupied Lebanon without a peep of protest from the "peace" movement and has a Russian military base just to prove how anti-Western it is:





 Christopher Hitchens tells it like it is as he also calls it the "so-called anti-war movement".
  

The deafening silence of the "peace" movement on Syria

Russia arms the Syrian government, as it has done so for 11 years (and for decades before that as the USSR) and so is profiting from the current war being waged by the Assad Ba'athist dictatorship against Syrians who oppose him.

You'd think that the so-called "peace" movement would be protesting.  That Russian embassies worldwide would face pickets, that Russian flags would be burned, led by the Westerners who did just that against US embassies and flags when the US intervened in Iraq.  

Syrians are doing so, but the "peace" activists are strangely uninspired.  Why?

A visit to the "Stop the War Coalition" (STWC) website says it all.  A big focus on backing Iran, that great harbinger of non-intervention, as if a state murdering citizens is less important.  It does have an article about Syria where it opposes Western intervention, but neglects to mention Russian intervention.  Why?  Well STWC doesn't like the West very much.  It would have preferred Muammar Gaddafi massacring Libyans from the air than NATO stopping that and assisting his overthrow.  Why?  What interests did he serve?  Wasn't he waging war against his people, like he did quietly for decades by suppressing dissent?  What is really telling is the STWC goes on about Western sales of arms to the Saudi and Bahrain dictatorships, but is silent about Russia and Iran's intervention in Syria.  You see Russia, Iran and Syrian dictatorships are ok, or at least better than Saudi and Bahrain, and indeed far better than the US, France and the UK intervening.   Its wilful blindness to what Russia and Iran does in Syria, like its wilful blindness to what Syria did in Lebanon, speaks volumes.   STWC is not anti-war, it is anti-Western, anti-liberal democracy, anti-secularism, anti-freedom and anti-capitalist.  It is a Marxist front organisation that provides succour for tyrannies, as long as they aren't Western backed.

Stop the War Coalition is actually "stop the war against those waging war against their own citizens".  Hardly surprising, given its chairman is a friend of the Orwellian cult of dead personality regime in Pyongyang.

Greenpeace?  Silent. 

Iran has sent naval ships to Syria.  Russia continues to sell arms to the Syrian dictatorship.

The arguments against Western military intervention remain compelling, and are primarily about being bogged down in a conflict where no side is an angel and there is an overwhelming risk of civil war being a sectarian battle.   Yet there is a case for blocking Russian and Iranian ships from entering Syrian waters and imposing a no-fly zone.  That, at least, will minimise malignant intervention on the side of Assad.

However, the so-called "peace movement" will likely oppose that, because to them peace within countries, particularly regimes that are not Western friendly and not the result of Western intervention, isn't that important.  It's just another leftwing group that opposes the West that gives them the freedom and wealth to function.

There are no solutions to Syria coming from the "peace" movement or the left.  The conservative right has been burned by Iraq and Afghanistan and has neither the fortitude nor the capacity to support a similar intervention in Syria.   The only way Syria will get better is if Syrians will fight for freedom, if more Syrian soldiers fight against Assad than for him and if Syrian embrace values of secularism, freedom, mutual respect and tolerance for each other.   The best way that can be encouraged is by hindering malignant intervention and by good people being mercenaries and supporting factions in Syria that allow people to defend themselves and fight for a free Syria.

Neither the "peace movement", nor the UN, nor the Arab League can be expected to support let alone do much for any of that.

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.