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TPPA : Will you make the TPPA process transparent? Labour Leadership Q&A #3

Posted by on September 11th, 2013

14 Questions for 2014

Virtual Hustings Meeting – Question 3

TPPA : Will you make the TPPA process transparent?

Explanatory Note: From September 10th to 14th 2013 as part of the official selection process for a new leader the New Zealand Labour Party is holding a “Virtual Hustings Meeting” hosted by Red Alert and organised by Scoop Amplifier. Over 7 days questions were solicited from eligible voters in the election. The questions and answers are now being posted as a set of 14 posts at the Red Alert Labour Party Blog starting yesterday (Tuesday 10th September), till Friday 13th September. At Red Alert all-comers are welcome to discuss the answers in the comment section of the blog. The three candidates are expected to participate in these discussions at times over the five days till Saturday 14th September.


Question : What are your views on the Trans Pacific Partnership Agreement? Will you make the TPPA process transparent?

Submitted by : Cushla Dillon, Auckland



Answer from Grant Robertson

The TPPA is more than a normal trade agreement and needs to be treated as such, with caution.

I am a supporter of trade agreements that gain our exporters access to markets that will mean they can create jobs here in New Zealand. But we have to ensure that our rights to make laws, regulate and protect our people and environment is upheld.

In the case of the TPPA we must set clear bottom lines. No change to the PHARMAC model, protection of IP and copyright law, and ensuring our sovereign right to regulate and make policy is supported.

We do need more transparency in the way we deal with trade. I would set up an independent trade advisory group with representation from across the community to ensure there is public participation and understanding of our approach to trade agreements. We must be at the table for these sorts of negotiations, but it is vital that it is a Labour Government at the table.


Answer from David Cunliffe

I am concerned about the TPPA. We cannot trade-away our ability to set government regulation. I am worried that John Key and his Government will continue to keep us all in the dark about the text and its implications and I fear they will then present us with the final text some time near the end of this year and insist that we accept it otherwise we will harm our trading relationships.

This will leave us with little or no opportunity to consult with our communities about its potential implications.

We must protect Pharmac, ensure intellectual property provisions are suitable for New Zealand business, and we must not accept limits on our sovereign right to regulate. Any agreement must be in New Zealand’s best interest.


Answer from Shane Jones

A very challenging issue. It is vitally important we retain the capacity for our Parliament to regulate for public good.

It is essential that this deal does not hobble our technical industries through punitive patents. Ultimately however I do not want to see our Trade partners in a club without us.


Ten ideas for the Government

Posted by on June 26th, 2012

Yesterday the Government released a list of ten “ambitious targets”, and despite ballooning debt, declining exports and slow job growth, there were no new ideas.

In question time today, Bill English confirmed they have no targets for making superannuation affordable, no targets for wage growth, no targets to grow the economy and no targets to reduce overseas debt.

It is just the latest laundry list of vague ideas with no meaningful milestones or policies to achieve real outcomes. It is simply a stunt designed to take the attention off the unpopular asset sales plan and the Government’s botched attempt to increase class sizes.

This list exposes National for once again tinkering around the edges instead of making the tough decisions needed to create a long-term, prosperous future for New Zealand.

While the Government is wishing for rainbows at the end of every street, it has little credibility when it is not dealing with the big issues we are facing as a country.

Here is an example of 10 key issues that National is not addressing:

·         Job creation

·         Economic growth

·         Reducing overseas debt

·         Securing superannuation for the future

·         Reforming our tax system

·         Investing in research and development

·         Supporting our exporters

·         Cleaning up the environment

·         Being tougher on foreign ownership of our land

·         Giving Kiwis a reason to stay in New Zealand

Those are just my first ideas at some “ambitious targets” the Government isn’t trying to address. I’m sure the erudite readers of this blog will have plenty of ideas of their own, please leave them in the comments. I’d love to hear them!

Economic development ideas

Posted by on April 29th, 2012

During the recess I have been working to fill out some ideas around economic development.

These personal views build on caucus discussions and our 2011 manifesto, and take on board feedback from party and business circles as I have been listening and engaging over the last few months.

This oped, published in the Herald on Friday, argues for lifting sustainable economic growth through a more ‘can do’, positive partnership with between government and business. It argues for a clear and credible strategy that integrates economy-wide, sector-driven and regional initiaitives. It warns of the dangers of the kind of one-off ‘deals’ with indvidual corporates now so typical of National.

This speech, delivered today to a meeting hosted by the New Lynn Women’s Branch of the NZLP, goes back to first principles. It argues that, post GFC, the “invisible hand” of neoliberal economics has failed, that New Zealand cannot cut or sell our way out of a hole, and that Labour must therefore present a clear alternative economic approach to the current government based on our own enduring values.

Hope you enjoy them.

NZTE Focussed; Joyce Not.

Posted by on March 1st, 2012

NZTE has just presented a stellar annual report to the Commerce Select Committee. The new CEO Peter Chrisp and Chair John Mayson deserve credit.

Costs are down, focus is up, strategy is sharper. Performance measures are more rigorous.

NZTE’s emerging success gives the lie, however, to Bill English’s comment that there is nothing to be done about economic growth “it is what it is”.

And NZTE’s focussed success contrasts with the haphazard approach taken by Economic Development Minister Joyce’s to doing shady deals with individual corporates.

None of media (Canwest); Casinos (SkyCity) international film giants (Warner Bros) feature within NZTE’s strategy for target clients.

So if they are not prioirities for the experts, why is their Minister treating them so?

Likewise on FDI, NZTE is focussed on high-spillover investment that adds value to NZ, NOT selling farmland or assets that already exist. So why are National politicians doing the opposite?

Why The Downgrades Matter

Posted by on October 3rd, 2011

The public does not need to take our word for it that the current government’s economic policies are not working.  There is now even more objective evidence in the form of two important credit rating downgrades delivered on “Black Friday”.

I have written an op-ed for the Herald on why the “Ratings Ref” yellow carded NZ.  Standard and Poors and Fitch agree on what is fundamentally wrong.  They say:

  • First “very high external imbalances, accompanied by high household and agriculture sector debt” (S&P). These are mainly house and farm mortgages borrowed through the banks from foreign lenders to fuel our property obsession.
    • That’s not a new problem and it has levelled off a bit with the recession. But it is at historically high levels and makes New Zealand “an outlier among peers” according to Fitch.
  • Second, “dependence on commodity income” says S&P.  Despite record milk prices we are still not paying our way in the world.  The current account deficit is a long term issue. But it will worsen to 6.9% of GDP while the Net International Investment Deficit (NIID) will grow from 78% to 85% over the next five years.
  • Third “emerging fiscal pressures associated with (our) aging population” (S&P), including health and superannuation.  Suspending the NZ Super Fund pre funding hasn’t helped.

The reaction from Bill English on Q & A yesterday was uttlerly inadequate.  He maintains the government will keep on doing what it is doing.  As if that has done any good so far  – $37 billion extra debt, 47,000 more unemployed and 3.6% lower GDP now than when they were elected.

Here is the Government’s spin, and some perspective on it:

  • We have worked hard to control government spending and succeeded”.  The problem is that some $37 billion of debt has been added since the National Government took office – some $18 billion in this year alone.  While nobody blames any government for earthquakes – and the ratings agencies recognise that both sides of the political spectrum are exercising fiscal restraint, this is not enough to avoid a downgrade.   The agencies’ arenot swayed by the prospect of liquidating $5 billion of SOE assets.
  • We are better placed than some other countries”.   Being “better placed” than Iceland, Greece or Portugal is cold comfort.  Nor is it sufficient, in the face of paralysis in the US and chaos in Europe, to take refuge in Chinese and Australian expansion.  The risks of a slowdown in both economies are significant, and s the ratings agencies demand New Zealand  takes responsibility for its own future.
  • “We are still on track for surplus in 2014-15.  So she’ll be right”.   As if.  The precise timing of short term fiscal balance is not the issue that has worried the ratings agencies.  The long term deterioration driven by poor savings performance, weak exports and the mountain of real estate debt is.  Clutching at such irrelevant straws only highlights the absence of better ideas. 

Proof of the bankruptcy of National’s ideas is in this sobering fact:  only one quarter of OECD countries have been downgraded by Fitch in the last three years.  The last time this happened to NZ was in 1998.  It is nonsense to say we are riding the waves better than most.  To the contrary New Zealand is highly exposed, and saddled with a government that has no plan.

Labour has the policies and the political courage to make a difference and to do what is needed: capital gains tax, strong saving policy, monetary reform and strategic economic development.  It is vital that we implement them before it is too late.

Be in no doubt: what happened on Friday is a very serious development that will have repercussions for many years.  I will write further on what this means for the average Kiwi family.

Pulling the land from under us

Posted by on October 3rd, 2011

In 2011, Red Alert has done a few new things. One of them is to introduce you to some new Labour candidates who will do the occasional guest post.

This gives them the opportunity to put forward some ideas and you the opportunity to get a sense of who they are before the upcoming election.

Today’s guest poster is Julian Blanchard, the Labour party candidate for Rangitata in 2011.

Juilan Blanchard

One of things that most political parties have consensus on is that we need to export more to help our economy.

The region where I am candidate is based around agriculture products and there is potential here to do more. We have an underutilized port in Timaru and the ability to have sensible environmentally sound water storage solutions in Mid Canterbury.

Currently agriculture makes up two thirds of New Zealand’s exports so why is the National Government (the so-called party for farmers) selling the land from under us?

During the first five months of 2011, the Overseas Investment Office approved 49 deals amounting to 30,724 ha of land that are now foreign owned. Only three offers during the last 12 months have been turned down. One for the Crafar farms and the other two amounting to only 35ha of land. The National Government has said it would tighten controls, but the reverse has happened.

If we don’t own our land how can we make money from it?

For the region of Mid and South Canterbury the family farm is beginning to be a thing of the past. Corporate farms owned offshore are now common place. Timaru and Ashburton are rural towns that have done well when local farmer spend money locally. Now that money is drying up the region will begin to feel the strain.

I am pleased to see Labour will act immediately and reverse the current approach. Labour would restrict foreigners from buying more than 5ha of farmland. While we need investment here, we need also to see the manufacturing of the good to be here as well. That will create jobs for regions like Rangitata and keep our rural towns alive.

Since 2009 Julian was the Manager of the Konica Minolta Timaru and previously had his own business for nine years supplying Panasonic Business Products across New Zealand. Julian also works part time for the Port FM Music Network hosting music and sports shows on the network across the central South Island.

Julian is married to Julie Cloake and together they have a six year old son Archie.

Sir Paul Callaghan – Mapping our Future – here is a plan

Posted by on July 6th, 2011

Sir Paul Callaghan – StrategyNZ: Mapping our Future – March 2011 Mapping our Future

This is a great presentation. Watch it all. Or just skip to 7.47 to look at why we go backwards if the focus of the leader of the national party is all on tourism.

Key puts up ‘NZ For Sale’ sign

Posted by on June 13th, 2011

It’s time for John Key’s government to stop being dictated to by multi-national corporations and start putting the best interests of New Zealanders ahead of corporate profits. News that SkyCity has decided to invest in a new International Convention Centre in Auckland is great news for the economy, locally and nationally. But that doesn’t mean we should rush out and change our laws and regulations to suit the interests of SkyCity’s shareholders.

When Warner Brothers held a gun to National’s head, John Key rolled over and changed our employment laws to suit their whims. Now we’re seeing him roll over and offer to change our gambling laws to suit SkyCity. That’s not good enough. The National government should be guided by what is in the best interests of all New Zealanders, not what’s in the best interests of corporate giants.

It’s ironic that National aren’t willing to back New Zealand companies like KiwiRail, preferring to see contracts for new trains and carriages shipped offshore, but when one of the private sector big corporates clicks their fingers it seems there isn’t anything John Key won’t do to please them.

Budget FAQs #5: Growth Hockey Stick

Posted by on May 19th, 2011

The New Zealand economy has failed to fire under National.  As a result successive rosy Treasury forecasts have been revised downwards.  The starkest example is between last year’s May Budget and December Half Year Update.  

  2010 GDP Track Revision

Implications: The  growth upturn “hockey stick” just keeps getting pushed out into the future.  The so-called GST tax switch had no discernable positive impact on growth.  And the same rosy forecasts will be embedded in today’s Budget.  On this track record Budget 2011 growth  projections will not be worth the paper they are written on.

When the 2009 growth projections are added the picture gets even more interesting.  As this graph shows the actual GDP growth track has been so bad that it is back down to the proections made by Treasury during the darkest days of the 2008/9 global financial crisis.  

   2009-2010 GDP Track

In other words, despite the international crisis having passed 18 months ago and NZ receiving record prices for our agricultrual commodities, our economy has performed so badly that it is back down to the track Treasury predicted during the darkest days of the crisis.   Quite simply, whatever the Govt has been doing is not working. 

In a future post we will decompose the relative impact on debt of this under-performance and otehr factors like earthquakes.

There is no coherent plan from National on how to manage debt reduction alongside needed investments in economic and export development, closing the savings gap, repairing the damage to middle New Zealand, and giving all Kiwis hope and confidence for the future.

Labour has an integrated economic strategy that will achive that withi a fully costed programme that will reduce net debt over a 10 year economic cycle.  You can see the direction we are heading in set out in a recent speech I gave to Business NZ  here.

For the wonks among you, here is the underlying data – all the Government’s own numbers.

  GDP per capita, 95/96 dollars    


Half Year Update 2009

Budget 2010

Half Year Update 2010






































































 Sources: Budget relevant documents and Statistics NZ series

Budget FAQs #4: National’s Growth Gap

Posted by on May 19th, 2011

GDP growth has been so poor that the National government’s predictions have continually been downsized.  The gap is huge – 505 underperformance in 2010 alone, achieving only 1.5% actual on 3.0% predicted.

This underperfromance is a key factor – alongside fiscally irresponsible and economically useless tax cuts – driving the awful budget deficit New Zealand now faces. 

in response to requests on my Facebook page, here are the underlying numbers.

Quarterly GDP growth

Q1 2010

Q2 2010

Q3 2010

2010 annual growth

Budget 2010 forecast (BEFU additional information, p 3)





Stats NZ actual






Average annual percentage change, real wages

Year to Q1 2011

HYEFU 2010 forecast (HYEFU additional information), p 6


Stats NZ data


Source: Parliamentary Library

The Great Broadband Sell-off

Posted by on March 18th, 2011

Yesterday’s FEC hearings on the Telco Amendment Bill were remarkable.

By the end of the day it was starkly obvious that the Bill hands a gold-plated license-to-kill to Telecom under the guise of ‘structural separation’.  No-one, not even Govt members, could deny that.

Don’t take my word for it: check out the Commerce Commission submission, or (bipartisan) Internet New Zealand’s, or Vector’s, or TelstraClear’s – all here.

The Bill seeks to lock in a “regulatory holiday” by preventing the Commerce Commission from exercising its current oversight for 10 YEARS.  NO other country in the world has done that, and it would be illegal in Europe. It may be in breach of NZ’s WTO obligations here.

Despite that Telecom had the gall to ask for longer! And to weaken the purpose clause of the Telco Act to boot! Have they lost their PR mind? Do they want to channel the ghost of abuses past?

Fair trading “equivalence of inputs” rules between the network owner (Telecom) and wholesale competitors would be watered down so much as to be unenforceable.  Arms-length trading rules currently in Telecom’s Operational Separation Undertakings become “optional”.

And so on.  It’s so patently obvious it is not even worth repeating all the examples.

No wonder Steven Joyce wanted the hearings over in indecent haste.

The result of this great leap backwards to the 1990’s will be much higher prices and less choice for consumers for a decade.  YOU will pay for this sleazy deal.

So WHY has the National Government done this?

Roger Douglas summed it up – it is a “legislative subsidy”: National is ‘selling the law”.

In plain speaking, National in the last election over-promised ultra-fast broadband to 75% of Kiwis for $1.5 billion.  But rather than being a clean subsidy there were massive strings attached, requiring a commercial return through the hopelessly conflicted Crown Fibre Holdings.    The numbers just did not add up.

Hence no rollout for 2½ years, and Steven Joyce is worried about his reputation.

But instead of fronting the problem honestly and getting the whole industry to be part of the solution while building a vibrant competitive market, National has done a side-deal with the incumbent telco that leaves everyone else worse off and the market beggared beyond belief.

That will set back innovation, chill investment and deliver less broadband at higher prices than necessary for a decade to come.

As if Kiwis aren’t facing enough price rises without paying too much for their broadband as well.

The Debt Deception

Posted by on March 8th, 2011

As this is my first blog post since the quake, can I preface my comments by acknowledging the devastating loss suffered by too many Cantabrians and their families, of ther lives and homes shattered, and our shared determination to everything necessary to support their rebuilding and renewal.

In this immediate post-quake period we are all exercising restraint – both in the quantity and tone of poitical comment.  But the debt question has in fact been brought into starker relief by the quake, so I am moved to observe the following.   

Before the quake, National would have you believe that New Zealand had a huge international debt problem, and that the solution to that was for the Government to compress spending and services to pay down this debt. 

It was always a half truth: 90% of that debt is private debt and only 10% of it is public (government) debt.

The second deception was that this high debt was “Labour’s fault”.   The facts are that in 2008 net debt (including NZ Super Fund assets) were in surplus to the tune of 4.7% of GDP.   Virtually no government in the western world saw the collapse coming in advance, but at the least the former Labour Government had the books in strong shape.

Post quake, we are all confronted by huge costs. Families have lost loved ones.  Homes and businesses destroyed will take time to rebuild and renew.  Infrastructure is hugely dislocated.  Much of the CBD will have to come down.  Hopefully there will be proper consultation and an eye to the heritage that makes Christchurch unique.

The financial costs are also huge – in Treasury’s February Indicators, around  $12 billion (later estimates put it around $15 billion),  of which some $5 will fall to the Crown because it is not covered by EQC, its reinsurers or private insurance.  Around a further $5 billion in lost Crown revenue will occur due to the reduced tax take from decimated business activity and personal earnings in Christchurch.  (I will blog further on the “growth gap” shortly).

So, to use the PM’s very round numbers – there is $10 billion for the public to find over the next four years or so. 

Some of that can legitimately be redirected from other investments – for example the “holiday highway” north of Auckland – to help fund Canterbury roading costs.

Mssrs Key and English believe the rest can be borrowed – that is, placed on the international debt pile – and say that is now acceptable becasue it is a “one off”.   They are so far dismissing suggestions of any additional support for Canterbury through the tax system.  (Raising the EQC Levy only restores its capacity to deal with future disasters, rather than this one).

Why then was the international debt pile so huge that reducing it by slashing Government spending and prolonging the recession was necessary a month ago, but borrowing the lot is no problem now?

Forgive me, but could it be that the answer is not economic but political?  Could it be that reducing government expenditure pre-quake was the price of Budget 2009 and 2010’s – largely upper income – tax cuts; and that even Canterbury’s needs have been trumped by the need to protect National’s traditional voter base from even a temporary reduction in these tax breaks?

I feel unclean even thinking that.  But the question has to be asked: why not expect the whole community to share part of the cost through the revenue system?  Even the NZ Herald agrees with that.

The Financial Elite have Gambled away our Future

Posted by on January 29th, 2011

Yesterday’s Press Editorial welcomed the PM’s announcement on the beginning of National’s privitisation programme for our country’s assets with the words “John Key was able to demonstrate…the value of his background in the financial industry”.  Excuse me?  Did the Press miss the Global Financial Crisis, where “the over-paid heroes of Wall Street and the City worshipped the gods of globalisation, financialisation and speculation”?   The quote is a teaser for the best of the five books I read over the summer break: “The Gods that Failed: How the Financial Elite Have Gambled Away our Futures” by Larry Elliott and Dan Atkinson.  The first edition of the book was subtitled: “How Blind Faith in Markets Has Cost us our Future”.  The second edition (published in 2009) has an extra chapter, which as one reviewer said could have been titled: We Told You So.  The authors of this book are economics editors, Elliott with the Guardian and Atkinson, the Mail on Sunday.

The metaphor that drives the narrative is inspired by the twelve gods of ancient Greece that lived on Mount Olympus.  Elliott & Atkinson have styled the super-financiers and the international organisations, (central banks, IMF, World Bank, WTO), the “New Olympians” and the twelve gods of the modern Mount Olympus: globalisation, communication, liberalisation, privatisation, competition, financialisation, speculation, recklessness, greed, arrogance, oligarchy & excess. 

“Greek mythology provides plenty of raw material for a book about the failings of modern financial markets.  There is the story of King Midas, who found the ability to turn all he touched into gold a curse. The tendency of markets to veer between the wild optimism of booms and the manic depression busts is akin to the life led by poor Persephone, condemned to live every six months of every year in Hades. But Pandora – a gift from the gods whose beauty belied her baleful influence on the lives of mortals – makes the best metaphor.”

As they said August 9 2007 was the moment the lid came off the modern version of Pandora’s box.  And the rest is history, which is why I believe this book must be read, because unless we learn the lessons of history, we condemn ourselves to repeating it.

This book is well-researched and easy to read.  It contains a chapter called ‘Last Tango on Wall Street” which has a very simple explanation of how the New Olympians (our Prime Minister’s background the Press values so highly) found ways to make money out of nothing – creating securitised financial products like “collateralised debt obligations” out of the subprime market and then hiding the risks behind AAA rated institutions.  The New Olympians made personal fortunes with bonuses they never had to repay when it all turned to custard.  And they were happy to see the taxpayers pick up the tab for their trillion dollar insanity. 

I conclude with this quote: ‘Speculators may do no harm as bubbles on a steady stream of enterprise.  But the position is serious when enterprise becomes the bubble on a whirlpool of speculation’.  That was John Maynard Keynes in 1936.  When will we ever learn?

Isn’t it Strange…

Posted by on January 27th, 2011

…How last year, John Key had the media believing National was doing a good job of pulling NZ out of recession and suddenly yesterday he has decided we are in the cart big time (he said we have the same debt profile as Portugal, Ireland, Greece and Spain)  and we need to sell off the family silver to survive. What happened over Xmas?

…That the mythical mum and dad investors are going to buy up the family silver so we are not gobbled up by foreigners. Now John, would they be the Mum and Dad investors who lost their lifesavings to financial institutions in 2008 or are they the ones who have  saved up a big nest egg over the past two years while wages have stagnated and prices keep going up? Surely, your not going to try and sell the line that it will be the KiwiSaver accounts that you gutted to make them as meaningless as possible?

…That National’s solutions to the nations problem now, look exactly the same as in the past – tax cuts that favour the wealthy, cuts to health and education and asset sales to privatise the nations wealth.

Play it again John. Didnt work then, wont work now.

Whither Hone

Posted by on January 20th, 2011

Andrew Geddis on Pundit has a good piece on the dilemma facing the Maori Party.

Another point on the question that hasn’t been focussed on is that the loss of a seat is very real for the Maori Party. If Labour or the Nats lose a seat it is (at the next election) replaced by a list seat, all other things remaining equal, whereas because the Maori Party are in permanent overhang a loss is even more important.

Last Sunday, Hone Harawira penned this opinion piece in the Sunday Star-Times, titled “crunch time for Maori grumbles”. It’s looking like the piece may well have brought about crunch time for him; or, at least, crunch time for his relationship with his Maori Party colleagues.

You can see why the piece has caused so much friction. Not only does he decry “the anti-worker, anti-beneficiary and anti-environment (and therefore anti-Maori) legislation that comes as a natural consequence of having a right-wing government”, he also slams his own colleagues: “because leaders do most of the talking for a party (and control what the rest of their MPs say as well), our public statements over the last couple of years have been rather muted, to say the least.”

His list of “suggestions” for the Party in the lead up to the election also contain a few pretty blatant swipes at his own team. They need to “speak out strongly against National’s anti-social initiatives.” They need to abandon their support for the replacement foreshore and seabed legislation – effectively admitting defeat on this core issue. They need to “most importantly, go back to the people” – because the MPs have become so comfortable in power that they’ve forgotten who they must answer to.

MartyG on PPPs

Posted by on December 2nd, 2010

I guess it’s all in a day’s work, but MartyG on The Standard misintrepeted my position on PPPs in this recent post.

1.  His opposition to PPPs appears to be as blindly ideologically based as National’s blind ideological support for them.  Labour’s policy before and since the last election has been based on providing the best value for New Zealand taxpayers, regardless of ideology. 

2.  The vital point of difference between National and Labour on this issue is that National is committed to the private sector first and foremost, while Labour is committed to providing infrastructure in the way that works best for New Zealanders.

3.  That is why Annette King, when she was Transport Minister, set up a working group to look at the effectiveness of PPPs, particularly in relation to large projects like Waterview. 

4.  Labour has yet to be convinced of the value of PPPs for any particular project, but we are willing to weigh up the evidence. When considering the (de)merits of a potential PPP project we would take a range of critical factors into account.  I mentioned two in my recent speech:

“The project scale must be right and the PPP benefits must outweigh any increase in cost of capital”

5  Marty G and I should agree that this sets a high hurdle, because the Crown can always borrow at lower (sovereign) interest rates.  The offsetting benefits would have to be very clear, large enough in net terms (after deducting overheads like the cost of tolling), and not available by other means (e.g. non-PPP contracting) to clearly outweigh this cost of capital disadvantage.  

6.  It is also obviously necessary that whoever is evaluating a potential PPP for the state has to have the expertise and resources to really test the proposal and establish rigorous accountability.  I have not changed my view that setting a $25 million threshold for compulsory consideration of PPPs by all government departments, as Bill English has done, is ridiculous and bound to lead to bad decisions.

7.  Labour also has a longstanding policy that there needs to be a non-toll alternative before any toll-based transport projects could be approved.   That was reinforced recently in our tighter rules around foreign direct investment in monopoly strategic infrastructure.

8. Labour is not soft on privatisation. Our opposition to private prisons and SOE sales underlines that.  My recent speech explicitly ruled out any dilution of any Crown equity in any state asset or existing subsidiary.  That bright line test restates our strong “no sale'” policy that provides ongoing strong differentiation form National.

Labour is committed to an active and strong state sector.  It takes seriously its responsibility to adopt policies and projects that deliver sustainable value to Kiws.  Clear thinking and evidence-based policy are even more important when funds are tight, if we are going to get this economy going again.

S&P: National on negative watch (part II)

Posted by on November 23rd, 2010

Part one of this post showed that S&P placed NZ on negative watch because of the savings gap, the huge (mainly private) net international debt and our under-diversified export profile (and consequent vulnerability).  It all adds up to lenders perceiving potentially greater risks and seeking compensation through higher interest rates.

How did the Government react to the news?  Did it front the issues and explain its “plan”?  Not in your life.

Alex Tarrant at did a great job of covering John Key’s rather bizarre, meandering post-Cabinet press conference here.’s coverage if the political debate is here.

Mr Key manages to contradict himself three ways in two paragraphs:

“Nothing has changed from our point of view, in fact if anything, our position looks stronger from our point of view (really?)…

We accept that we’ve had to take the earthquake on our balance sheet, accept tax revenues have been a bit weaker this year than we had anticipated…(corporate was 22.4% below 2010 forecasts, gst 15.8% below!)”

So… nothing has changed, we are stronger, but we are weaker.  Classic.   He must have been eyeballing three different journos and guessing they wanted three different answers, so why not try to please all of them at once?

The coup de grace is his attempt to pass it all off as Ireland’s fault.  True, the Irish are in a bit of a bog, but lets assume S & P can tell the difference between the land of the long white cloud and the emerald isle. 

Back in the real world, one thing is for sure, S&P won’t be amused if Messrs Key and English try to talk their way out rather than addressing the fundamental issues: how about trying to grow savings, diversify and lift exports, and reduce private international debt?  Who knows, they could even turn it into a plan?

S&P: National on negative watch (part I)

Posted by on November 23rd, 2010

National’s counter-spin on yesterday’s placement by Standard and Poor’s of New Zealand’s sovereign credit rating on negative watch shows increasing desperation, the latest of a torrent of bad economic news.  I comment in two parts: the announcement and the counter-spin.

First the announcement’s overview:

  • “We perceive New Zealand’s projected widening external imbalances and the country’s weakened fiscal flexibility as increasing risk to the sovereign.
  • New Zealand’s vulnerability to external shocks, stemming from its open and relatively undiversified economy, also raises risks to the country’s economic recovery and credit quality.”

The S&P Report’s rationale makes the drivers even clearer:

  • widening external imbalances
  • weakened fiscal position
  • under-diversified economy
  • high external liabilities
  • a return to high current account deficits averaging 5.9% of GDP over the next three years.
  • and crucially, that “net external liabilities … predominantly reflect dependance by households on foreign capital to fund consumption and property investments”

In other words: New Zealand does not save enough, it has too much private debt, and that debt was used to fund the wrong things (property speculation not real business investment).  New Zealand’s exports are under-diversified and New Zealand will continue structural bleeding on our external accounts after the immediate recession.

The logical repsonse to these problems should be;

  • strong action to close the savings deficit (if possible by building good household saving behaviour)
  • diversify and increase exports (presumably moving beyond a narrow range of bulk commodities)
  • managing the fiscal position to encourage sustainable growth, employment and healthy tax revenues without blowing the fiscal deficit.
  • ensuring monetary policy supports the direction of reform rather than acting against it.

It obviously should NOT include:

  • borrowing more for tax cuts to upper income earners that neither create powerful stimulus nor correct the underlying imbalances
  • reinforcing exisitng bulk commodity exports while reducing investment in innovation and R&D to divesify and add value to the export base
  • cutting back Kiwisaver; cancelling prefunding for the NZ Super Fund; and taking two years to set up a Savings Working Group (and even then proscribing a range of strong policy options)
  • pretending monetary settings are ideal when exporters face extreme currency volatility

Bill English and John Key declared S&P lifting their previous negative outlook as a” verdict’ on Budget 2009.

They should be straight-up enough to accept that S&P has now reversed its verdict.

After 18 months of National Government policies National can have only itself to blame.

In part II of this post we’ll check whther their rhetoric matches this reality.

Cactus Kate on FDI

Posted by on October 20th, 2010

Two good posts yesterday from Cactus Kate here, and  here, explaining why John Key’s response to NZ’s new foreign investment policy on land sales is nonsenisical.   (Acks to Les for the heads up).

” So what Key is saying is that his policy is to avoid anything that does not keep land prices as high as they are even at the moment (forgetting the peaks of two years ago) to avoid negative equity situations. Same with residential housing as well we can assume because we wouldn’t want the market to move up and down would we?

Little wonder New Zealanders keep buying more land. There is absolutely no risk attached to it when the leading politician comes out with intentions such as that. Where is Key’s worry about negative equity when it comes to SME’s? Silence.”

We need an export led economy and an ownership society.

Just ask any sharemilker wanting to work their way into owning their own farm.

Little wonder a poll running on is showing a healthy majority of support for the policy.

Unlocking Our Potential

Posted by on October 4th, 2010

The Canterbury Earthquake, terrible though it was, reminds us of the courage and resilience of New Zealanders in a crisis. 

 If only the same courage and strength could be tapped as part of our normal ‘economic development’, NZ would be able to unlock enormous untapped potential.

 That same courage was evident in many of our forebears: those who voyaged to NZ by waka or ship, and those hacked down the bush to form arable pasture (often on slopes so steep it should not have been touched, but their courage was undeniable).  

 Tapping into that same strength of character to unlock future potential is part of the task that lies before us. 

 Our world is changing.  The old solutions will not work for tomorrows problems.  The old certainties have gone.   The era of guaranteed markets in the UK for our sheep and beef has gone.   The era of free and easy credit has now gone.  

 We are told we face a ‘decade of deleveraging’.  All around us we see growing signs of despair.  

 Just as in the 70’s we were called upon to diversify our markets, in the 80’s to deregulate our economy, and in the 00’s to rebuild our torn social fabric, Labour is now called upon to rise to a new challenge in a new era. Just as Mickey Savage did in the 1930s, we are being called upon to find a better way.

 NZ is currently meandering through the aftermath of the global financial crisis.  We are beset by malaise.  We lack confidence.  We appear unable to define our own future, and even lack awareness of our own potential and character.

 So NZ falls back passively on its proximity to larger Asian growth centres, its traditional bulk agricultural base, and its relationship with its nearest neighbour Australia.

 These are undeniable strategic advantages, but if any are a substitute for owning our own future, they will ultimately undermine our national wellbeing and identity.  

 Our relationship with foreign investment has to change.  As it stands we are becoming more and more deeply indebted to foreigners.  We have been through a phase of selling state assets to cover the interest.  We are now selling our land at the rate of dozens of rugby fields a day.  But still our national debt keeps rising. 

 It was not primarily ‘the government’s’ fault.   Most of this debt is private debt.  Most of it fuelled the private binge on property consumption (it was never really ‘investment’ despite the temporary up-cycle in which much of it happened).

 That we need more foreign investment is undeniable, but it must be channelled into genuinely value-creating and productive activity and not simply transfer the ownership of existing assets to foreigners making our future income deficit worse.   

 A new conversation must begin – one that starts from the proposition that we wish to own and govern our own affairs.