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Posts Tagged ‘Finance Minister Bill English’

Solid Energy and LandCorp – debt and doom, courtesy of a “fiscally responsible” National Govt

28 December 2015 3 comments

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solid-energy-chief-executive-don-elder-and-hon-bill-english-at-mataura-9-sept-2011

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In May 2013, I first reported on National’s gutting of Solid Energy, detailing how Finance Minister Bill English and then-SOE Minister, Simon Power, had used the State Owned Enterprise as a cash-cow, to assist the government to balance it’s books;

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Solid Energy – A solid drama of facts, fibs, and fall-guys

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The story details National’s ministerial interference on Solid’s Energy’s financial affairs; under-mining (pun unintended) it’s bio-fuels programme; and extracting huge dividends, as well as taxes paid, to fill government coffers.

At the end, as Solid Energy teetered on collapse, National ministers did what National ministers do in time of crisis; they blamed others for the crisis;

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Prime Minister criticises Solid Energy

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Solid Energy was in debt. But not to “diversify” as Key claimed. The Prime Minister lied.

The debt was due in large part to Ministerial demands that Solid Energy borrow BIG, and pass those borrowings onto the government. This was a piece of accounting trickery, so National could claim, hand-on-heart, that it was not borrowing billions more. In actuality, the SOEs were doing the borrowing, and then passing the cash on to it’s shareholder, the government. This was borrowing-by-proxy by the government.

That is how desperate National was to claw back as much lost revenue due to the Global Financial Crisis/Recession, and unaffordable two tax cuts (2009, 2010) which they had promised during their 2008 election campaign and which has cost government an estimated $4.5 billion annually.

In 2009, English instructed all SOEs to increase their debt. This Statement of  Corporate Intent is clear in National’s expectations;

I would like all SOEs to increase their gearing from current levels, to a level more consistent with a BBB flat credit rating. In this regard, I have been advised by officials that Solid Energy may have the capacity to sustain a 40% gearing ratio.

I urge the Solid Energy Board to give serious consideration to this proposal, and to release all surplus capital to the shareholder as special dividends. “

Not only was National instructing SOEs (including Solid Energy) to borrow more (and then pass the cash on to the Government’s Consolidated Fund), it was also openly raiding their bank accounts by demanding “all surplus capital to the shareholder as special dividends“.

Furthermore,  not only were English and Power expecting higher profits diverted from SOEs, they  demanded two dividends per year instead of just one;

“I would also like to standardise and simplify the dividend policy for all SOEs, to ensure that a larger and more consistent share of profits is returned to the Crown as shareholder.

In this regard, I propose that the Solid Energy Board give serious consideration to adopting a dividend policy equal to 65% of operating cash flows (including net interest paid) from 1 July 2009.

Related to dividend policy, I wish to outline an expectation that all SOEs pay two dividends per year, an interim and a final dividend.”

On  18 August 2009, Bill English met with Solid Energy’s then-Chairperson, John Palmer. After that meeting, Solid Energy increased its gearing (borrowing/debt) from around 25% to 35%, and changed the way it  accounted for mine rehabilitation costs.

This was a cash-grab on an unprecedented scale, and one that went largely un-noticed by media, Parliamentary Opposition, and the public.

On 13 March 2013, soon after Solid Energy’s massive $389 million debt became public, English was forced to concede that  National has mishandled governance of Solid Energy;

“The decisions about how much debt to incur was made by the board.

In Solid Energy’s case it turned out that a company operating in the world coal market, which is now so volatile, would have been better off with no debt – in retrospect that’s easy to see, at the time it wasn’t.”

However, in claiming that “decisions about how much debt to incur was made by the board“, the Finance Minister lied.

Solid Energy had been directed to increase it’s debt by Ministers English and Power – not by the SOE’s Board. The Treasury document above are a paper-trail evidencing National’s determination to increase it’s revenue at any costs (literally).

Both Key and English have consistently lied on this issue.

More recently, on Radio NZ’s Morning Report, on Friday 14 August, Guyon Espiner interviewed Finance Minister, Bill English, on Solid Energy’s corporate demise.

At one point, under persistent questioning by ‘Checkpoint‘ host, Guyon Espiner, English admitted National’s role in Solid Energy’s financial woes;

Espiner: But I’ll tell you what you also did, and you’ll remember this well in 2009, you looked at the balance sheets of SOEs and you decided that many of them could carry more debt and in fact you presided over a massive expansion in Solid Energy’s debt and in formal letters your government encouraged them to significantly increase their debt. That was a mistake wasn’t it?

English: Well, at the time it was valued, well actually that time, was valued about $3 billion and they took debt up to $300 million. It was a… As it turned out it was the pressure that put on the cash flow, well, the issues it raised, that got the government and, ah, the officials differing with the Board and that’s all on the record.

Espiner: Yes, so why did you, because you took their gearing ratio from about 14% in 09 up to 35% in 2010, 41% in 2012. So you presided, in fact, encouraged Solid Energy to take on the debt that they have eventually drowned in.

English: Well we worked with the Board over , over making sure the Crown was actually getting something out of the business. Um, certainly, in retrospect the debt levels got too high [garbled].

Espiner: So do you take the blame for that? Because, you failed there. You encouraged them to take on more debt and they’ve drowned in it.

English: Ahh, between us and the company, yes, we’re responsible for that.

There we have it. Under Espiner’s persistant questioning and quoting of facts, English had no place to hide; no one else to blame; and no lies he could resort to.

English had admitted that his government had gutted Solid Energy, and used it as a proxy for borrowing.

Then, under further questioning, English made one of the more bizarre assertions ever made by a politician (incest, chem-trails, and  moonlanding hoaxes notwithstanding);

Espiner: What about the dividend programme? You stripped more than $160 million in dividends out of this company over four years. Was that a good thing to do, given the state of the company, and couldn’t if they’d reinvested that money in the company been in some sort of position to keep the thing afloat?

English: Ah, no, precisely the opposite. And this has been the case with SOEs for years. If you leave the cash in there, generally, ah, they waste it. And, ah, in fact, one of the interactions here was we required a dividend because it was a company that was making money –

Espiner: Well hang on. Sorry to interrupt you but that’s an extraordinary statement to make, ‘You leave the cash in there and they waste it’?

National, of course, never wastes money. They never waste money on subsidising Rio Tinto; subsidising SkyCity; subsidising Charter Schools; subsidising Hollywood corporations like Warner Bros; subsidising Saudi businessmen to the tune of $11.5 million. Nor does National waste money on two tax cuts which were utterly unaffordable, being funded by  heavy overseas borrowing.

Espiner quite rightly mocked English’s ludicrous justification for government looting of Solid Energy;

Espiner: So it was better for you to take the money out, put it in the Consolidated Fund, let the company take on more debt, and they’ve eventually blown up.

This is the party that many New Zealanders believe is a “fiscally responsible manager of our economy”?!

Unfortunately, National’s mis-management does not end there.

The latest SOE to disclose financial difficulties is Landcorp;

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Landcorp in 'pretty tight situation' – English

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Landcorp’s current liabilities amount to $359 million, whilst it’s assets amount to $1.846 billion, according to the company’s half-yearly statement.

What is not mentioned anywhere is that, according to a document from Treasury’s Crown Company Monitoring Advisory Unit (CCMAU), the National Government sent a letter to Landcorp’s Board  making similar demands for higher dividends that it made to Solid Energy;

Firstly, as the CCMAU chart below shows, National’s expectations were that Landcorp increase its “gearing” (borrowed funds against a company’s equity) from 11% to 20% – a near doubling;

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CCMAU - SOE gearing and dividend expectations - national government

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Note also that National demanded 75% of Landcorp’s net operating profit as a dividend; two dividend payments per year;  and  as much as  100% of operating cash flow.

In a 2009 letter to Landcorp, Ministers Bill English and Simon Power demanded the following from the SOE’s Board;

“I am minded to increase the gearing of all SOEs from current levels, to a level more consistent with a BBB flat credit rating. In this regard, I have been advised by officials that Landcorp may have the capacity to sustain a 20% gearing ratio. I urge the Landcorp Board to give serious consideration to this proposal, and to release all surplus capital to the shareholder as special dividends.

I am also minded to standardise and simplify the dividend policy for all SOEs, to ensure that a larger and more reliable share of profits is returned to the Crown, as shareholder. In this regard, I propose that the Landcorp Board gives serious consideration to adopting a dividend policy equal to 100% of operating cash flows (including net interest paid) from 1 July 2009.

Related to dividend policy, I wish to outline an expectation that all SOEs pay two dividends per year, an interim and a final dividend.”

In the same letter, English and Powers  outlined revising “the land sale moratorium imposed on Landcorp as part of the Protected Land Agreement (PLA)“.

The letter to Solid Energy followed the same pattern;

I would like all SOEs to increase their gearing from current levels, to a level more consistent with a BBB flat credit rating. In this regard, I have been advised by officials that Solid Energy may have the capacity to sustain a 40% gearing ratio. I urge the Solid Energy Board to give serious consideration to this proposal, and to release all surplus capital to the shareholder as special dividends. I note that Solid Energy currently has a gearing target of 35%, including the company’s rehabilitation liability as if it were debt.

Given that the nature of the rehabilitation liability is significantly different from debt, I am sceptical that this is an appropriate treatment. I have asked my officials to engage with you on this issue.

I would also like to standardise and simplify the dividend policy for all SOEs, to ensure that a larger and more consistent share of profits is returned to the Crown as shareholder.

In this regard, I propose that the Solid Energy Board give serious consideration to adopting a dividend policy equal to 65% of operating cash flows (including net interest paid) from 1 July 2009.

Related to dividend policy, I wish to outline an expectation that all SOEs pay two dividends per year, an interim and a final dividend.

Almost identical letters. Except for the 20% gearing ratio, which differed from Solid Energy’s more onerous 40%, the demands placed on Landcorp were the same; high gearing (borrowing); higher dividends; and all surplus cash to be paid over to the Crown.

National was looting every SOE of every spare dollar.

The questions now demanding  answers;

  • How many other SOEs have been left in a similar parlous state to Solid Energy and Landcorp?
  • How much damage has been caused to SOEs due to unreasonable dividend and cash demands made to their Boards?
  • How much longer are New Zealanders willing to maintain the fiction that National is a “prudent fiscal manager of the economy”?

And the last question;

  • Which SOE will be next to disclose a dire financial state?

For Bill English and John Key, a whole bunch of chickens have suddenly come home to roost.

Some very, very expensive chickens.

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References

Radio NZ: Prime Minister criticises Solid Energy

Green Party: Asset sales bring in less than cost of National’s tax cuts to top 10%

Treasury: Solid Energy Information Release March 2013 (Document 1875419)

Treasury: Solid Energy Information Release March 2013 (Document 1732352)

TV3 News: Solid Energy was allowed to increase debt

Radio NZ: Morning Report – English defends Govt’s record over Solid Energy (alt. link)

TV3 News: Landcorp in ‘pretty tight situation’ – English

New Zealand Farming Landcorp Farming Limited: Half year report for the six months ended 31 December 2014

Additional

Radio NZ: When is an asset sale not an asset sale?

Previous related blogposts

The real cause for Solid Energy mass redundancies?

Dirty Dealings with Solid Energy

That was Then, This is Now #18 (Solid Energy)

Dear Leader Key blames everyone else for Solid Energy’s financial crisis

Dear Leader Key blames everyone else for Solid Energy’s financial crisis (Part Rua)

Mediaworks, Solid Energy, and National Standards

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National’s blatant lies on Housing NZ dividends – The truth uncovered!

18 September 2015 18 comments

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cold and damp houses - newspaper magazine front pages

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Recent statements by Minister for Social Housing, Paula Bennett,  Minister Responsible for Housing New Zealand, Bill English,  Building and Housing Minister, Nick Smith, and Prime Minister John Key, have been shown to be deceptively misleading – and in many instances, outright lies.

Their public utterances have been revealed  to be untrue after this blogger discovered a statement from Housing NZ, buried deep within one of their Annual Reports.

#1 – Nick Smith

On 25 April 2014, Building and Housing Minister, Nick Smith, was indignant when he rejected a claim by the Labour Party that National was planning to siphon off  Christchurch earthquake insurance payouts to Housing NZ as government dividends.

As Radio NZ reported;

Papers obtained by Labour under the Official Information Act reveal plans to delay maintenance and redirect Canterbury quake insurance payouts to meet the Government’s demands for increased returns from state housing.

Labour’s housing spokesperson Phil Twyford says Housing New Zealand has agreed to pay higher dividends to the Government by using some of its $320 million insurance payment and putting off repairs and maintenance.

Mr Twyford says the Government is robbing Housing New Zealand in Canterbury to fund dividends going into the Crown account. He says Housing Minister Nick Smith needs to explain why money that should have gone into the rebuild has gone into Government coffers instead.

But Housing Minister Nick Smith says it’s not a case of earmarking any particular income towards the dividend, but it’s not true to say it will come from the insurance payout.

He says insurance proceeds are going towards capital expenditure, including 2000 new houses, which will be under construction by the end of 2015.

Dr Smith says Housing New Zealand has always been expected to return a dividend to the Crown, including under the previous Labour-led Government. This comes from normal operating revenue, including rent and rent subsidies from the Government.

Housing New Zealand’s latest statement of intent shows $308 million in insurance money earmarked for capital expenditure this financial year.

#2 – Bill English

Barely five months later, Housing NZ announced a dividend of $118 million to be paid to the government for financial year – the largest since 2009-10;

Housing New Zealand returned a $108 million dividend in the past financial year, the third largest ever paid.

At the time the responsible minister, Bill English said the higher dividend would allow the Government to help more people with serious housing needs.

Green Party co-leader James Shaw said the idea the Government was continuing to make money off State housing when children were getting sick from living in those houses was unacceptable.

He said the Crown must rule out taking a dividend until all Housing New Zealand stock was up to standard.

“Given that Housing New Zealand homes are actually killing their residents, I think it makes no sense for there to be any dividend at all.

“Everything that they get should be ploughed back into making sure that their homes are safe.”

Minister Responsible for Housing New Zealand, Bill English justified the massive  dividend with the extraordinary statement;

“Housing New Zealand has sufficient cash to invest in new houses and at the level that we’ve specified, and to do its maintenance programmes. So really the dividend is about just a bit of pressure on them to be efficient.”

The cash-grab by National had been hinted earlier, on 24 March, when Bill English signalled that maintenance on HNZ properties would be deferred;

Mr English says the lack of maintenance on state houses is concerning and that in the long run the government will need to invest the $1.2 billion dollars in state houses to get them up to scratch.

However, he says that won’t all happen this year.

When asked why Housing New Zealand had not spent as much money as it should have on maintenance, Mr English put the blame partly on the previous Labour government saying they had chosen to build new state houses rather than fix up old ones.

Yet, that quiet admission did not stop both Paula Bennett and Bill English from repeating their ‘spin’ that Housing NZ had sufficient cash for necessary maintenance of their housing stock;

Bill English  – 5 June 2015

“They’ve done a very large scale programme – insulated every house that it can, which is 48,000 houses over the last four or five years.

It’s got to deal with the same limitations of process as everybody else, it’s got to get consents, it’s got to find a workforce, but it’s not short of money to do the job.”

#3 – Paula Bennett

Paula Bennett, Minister for Social Housing – 12 June 2015

@ 4.28

“What I will say is that it’s not, um, not a money problem. So there is enough money there for us to get that stock up.”

@ 5.42

“It’s not actually about the money. The money is there to be spent on the maintenance.”

Bill English – 8 September 2015

“Housing New Zealand has sufficient cash to invest in new houses and at the level that we’ve specified, and to do its maintenance programmes.”

Bill English – 9 September 2015

@ 2.36

“The constraint on repairs isn’t cash. They have enough money to do the jobs that they need to do.”

@ 4.28

“With respect to the maintenance. Ah, yes, if any tenant lets Housing NZ azbout any, what they call urgent maintenance needs, and they got 125,000 of those notifications, ah, in the last year or two, ah, then Housing NZ has the cash to act on those…”

@ 6.11

“In fact, our main challenge there is not [a] lack of money…”

@ 6.35

“So the constraint isn’t cash, it’s a lack of houses.”

All of which was  revealed to be dishonest spin by these two Ministers, when this statement was discovered from Housing NZ’s 2013/14 Annual Report;

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housing nz annual report 2013-14 maintenance cutbacks

The responsive repairs programme, which includes work on vacant properties, is dependent on demand, which was higher than expected in 2013/14. Consequently, the budget was overspent due to higher volumes of work orders. The average cost per work order was also higher as a result of more comprehensive repairs and upgrades being carried out on vacant properties. To mitigate this overspend, we deliberately reduced the planned maintenance programme, which decreased the percentage of maintenance spend on planned activity.” – [p28]

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Perhaps English and Bennett forgot – or did not realise – that Housing NZ would disclose the true nature of their lack of funds for on-going maintenance of their increasingly dilapidated properties.

#4 – John Key

Perhaps English and Bennett both hoped that the media and public would buy their #1 deflection – that it was all a problem left over from the previous Labour government. Even our esteemed Dear Leader repeated the same spin in Parliament on 26 August this year;

“But what I can say is that this Government is proud of the fact that it is spending $300 million a year improving the mess we inherited from Labour. Its own house was never in order. It is not in order at the moment. No wonder we inherited-“

“It would be easier to take the member seriously if what Labour did when in Government was actually maintain the houses. But, in fact, not only did it not do that, it let them run down … It is a joke for the Labour Party members to come here and talk about this. They ran the housing stock down. They should hang their heads in shame—that is what they should do.”

“Where is the moral compass of an Opposition that just failed to upgrade and maintain houses? They were a mess under the Labour Government. They were a disgrace, and this Government has actually had to fix them up. It is the same old story all the time with Labour: hopeless in Government; roaring like lions in Opposition.”

“I am advised by the Minister responsible for HNZC that the previous Labour Government suspended the maintenance on those properties to build more properties. Labour let those houses run down, it let those tenants get sick, and now in Opposition it wants to pass the buck to someone else. It is a disgrace, Mr Little. It is a disgrace.”

In that one exchange, Key repeated the Blame Labour mantra four times.

During the 9 September interview on Radio NZ’s ‘Checkpoint‘ with Bill English, Guyon Espiner voiced his obvious disgust/weariness at that hoary old excuse;

“Ok, I think after seven or eight years we’ve had enough of you blaming the [previous] Labour government.”

Bennett and English did the same throughout various Radio NZ and television interviews.

At one point during the  9 September Radio NZ interview, English even  blamed tenants for the state of their run-down homes;

English: “And generally the reason a repair or an upgrade doesn’t happen is because they don’t –  is because they need to be told it’s needed, ah, they’re not in every house every week  but when, y’know as I said -“

Espiner: “So hang on, it’s the tenant’s fault, for not telling them, is it?”

Key used that blame-gaming on 26 August, in Parliament,  during his previously mentioned blame-game session;

“But also I will say that my mother took absolute pride in making sure that she kept the house clean, tidy, and ventilated.”

So, according to Key, English, and Bennett, the poor state of Housing NZ properties is due to;

  1. The previous Labour Government
  2. Tenants

Nothing to do with $664 million in dividends siphoned off by National to fund reduced tax revenue post-2009/10 tax cuts, which led to National demanding bigger and bigger dividends from SOEs such as Solid Energy; state-owned power companies, and social services such as Housing NZ.

If ever there was a clearer picture of transferring wealth from low-income New Zealanders to the top 10% of income earners and “high net worth” (ie; filthy rich) individuals – it is the financial gutting of Housing NZ.

Despite claims that Housing NZ has “the money is there to be spent on the maintenance” – the facts prove otherwise. Housing NZ’s own statement condemns two ministers and the Prime Minister as manipulative liars;

“To mitigate this overspend, we deliberately reduced the planned maintenance programme, which decreased the percentage of maintenance spend on planned activity.”

# 5 – Nick Smith (again)

Perhaps the most tragic result of National’s cash-grab was the death of two-year old Emma-Lita Bourne, who died in a grotty, damp, cold State house. The death was preventable, as the Coroner, Brandt Shortland ,reported;

The coroner’s report into the toddler’s death, which was released on Thursday, says the poor condition of the state house in the South Auckland suburb of Otara was a contributing factor to Emma-Lita’s death.

[…]

“I am of the view the condition of the house at the time being cold and damp during the winter months was a contributing factor to Emma-Lita’s health status.”

Building and Housing Minister* Nick Smith, expressed his version of human empathy with this callous observation of the little girl’s short life;

“People dying in winter of pneumonia and other illnesses is not new.”

Three lying ministers and an emotionless psychopath/automaton.

This is what we have for a government.

It also offers a third option for National’s blame-gaming spin when challenged on their failures;

 

  • The previous Labour Government
  • Tenants
  • Winter illnesses

 

No doubt National will come up with other excuses and others to point a finger at. This is, after all, the party of personal responsibility.

#6 – Memo to Mainstream Media

In the meantime,

Memo to Mainstream Media:

Next time English, Bennett, or Key claim that Housing NZ has sufficient money, after dividends are extracted, to carry out maintenance please ask them why HNZ stated in their 2013/14 Annual Report;

“To mitigate this overspend, we deliberately reduced the planned maintenance programme, which decreased the percentage of maintenance spend on planned activity.”

Because we’d really like to know.

* National has not one, but three ministers for housing portfolios. And they still can’t get it right.

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Addendum1 – Housing NZ dividends under National

HNZ Annual Report 2009-10 – $132 million   (p86)

HNZ Annual Report 2010-11 – $71 million   (p66)

HNZ Annual Report 2011-12 – $68 million   (p57)

HNZ Annual Report 2012-13 – $77 million   (p47)

HNZ Annual Report 2013-14 – $90 million –  (p37)

HNZ Annual Report 2014-15 – $108 million –  (p33)

HNZ Statement of Performance Expectations 2015/16 – $118 million – (p12)

Total: $664 million (over seven years)

Addendum2 – Housing NZ dividends under Labour

Annual Report 2001/02 – $9 million (p51)

Annual Report 2002/03 – $3 million (p55)

Annual Report 2003/04 – $176 million (p50)

Annual Report 2004/05 – $44 million (p42)

Annual Report 2005/06 – $14 million (p71)

Annual Report 2006/07 – $20 million (p54)

Annual Report 2007/08 – $13 million (p51)

Annual Report 2008/09 – $2 million (p71)

Total: $281 million (over 8 years – no figures found for ’00-’01 period)

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1-in-10health

Source: Shelter.org.uk

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References

Radio NZ: Housing NZ not cash cow – minister

Radio NZ: Housing NZ to pay Crown $118m dividend

Radio NZ: Morning Report – English defends $118M Housing NZ dividend (alt. link)

Radio NZ: Housing NZ to pay Crown $118m dividend – audio (alt. link)

Housing NZ: Annual Report 2009-10 (p86)

Radio NZ: State housing criticism valid, says English

TVNZ News: English concerned by State House deferred maintenance bill

Radio NZ: The state of state housing (alt. link)

Parliament: 2. Housing New Zealand Corporation, Minister – Confidence

Fairfax media:Damp state house played part in toddler’s death

National Party: About Personal Responsibility

Previous related blogposts

Government Minister sees history repeat – responsible for death

Housing Minister Paula Bennett continues National’s spin on rundown State Houses

Letter to the Editor – How many more children must die, Mr Key?!

National under attack – defaults to Deflection #1

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Theres always a market solution - housing nz - bill english

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This blogpost was first published on The Daily Blog on 13 September 2015.

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Housing Minister Paula Bennett continues National’s spin on rundown State Houses

Another broken promise from National…

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National Party - 2014 election - social housing policy - Housing NZ

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On 12 June, Social Housing Minister, Paula Bennet was interviewed on Radio NZ’s ‘Nine to Noon‘ programme. Kathryn Ryan asked why there were so many  thousands of State houses in desperate need on maintenance.

In the interview, Bennett claimed that money was not a problem in Housing NZ’s maintenance programme;

@ 4.29

“What I will say is that it’s not a money problem. So there is enough money there for us to get that stock up. It is a big programme of work that is constantly ongoing…

[…]

…So it’s not a matter of neglect.”

And again @ 5.41

“Which is really my point. So we’re saying it’s not actually about the money. The money is there to be spent for maintenance.”

Bennett’s statements were a parroting of  Bill English’s previous claim, made on 5 June  on Radio NZ’s ‘Morning Report‘, who also denied  money was the core problem of run-down Housing NZ properties;

“They’ve done a very large scale programme – insulated every house that it can, which is 48,000 houses over the last four or five years.

It’s got to deal with the same limitations of process as everybody else, it’s got to get consents, it’s got to find a workforce, but it’s not short of money to do the job.”

Bennett and English have both blamed lack of tradesmen and other spurious excuses for rundown houses.

But according to Housing NZ, the reason for our run-down State housing stock is very much a matter of lack of money, as I pointed out to Kathryn Ryan in an email I sent to her during her interview with Bennett;
from: Frank Macskasy <fmacskasy@gmail.com>
to: Nine To Noon RNZ <ninetonoon@radionz.co.nz>
date: Fri, Jun 12, 2015
subject: Paula Bennet on Housing maintenance funding
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Kia ora Kathryn,Paula Bennett’s assertion that Housing NZ has plenty of funds for maintenance is at variance with this statement from Housing NZ’s 2013/14 Annual Report;

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The responsive repairs programme, which includes work on vacant properties, is dependent on demand, which was higher than expected in 2013/14. Consequently, the budget was overspent due to higher volumes of work orders. The average cost per work order was also higher as a result of more comprehensive repairs and upgrades being carried out on vacant properties. To mitigate this overspend, we deliberately reduced the planned maintenance programme, which decreased the percentage of maintenance spend on planned activity. [p28]

Furthermore, on page 36 of the 2013/14 Annual Report, Repairs and Maintenance is given as $220 million for the period.This is $1 billion less than the $1.2 billion quoted by Bill English to TVNZ’s Corin Dann on 24 March, this year.

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Either Bennett is ignorant, or she is spinning.

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Either way, not a good look.

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-Frank Macskasy

Ms Ryan read out my email, on air, subsequent to the interview.

Hopefully, the media will pick up on what is obviously a gross distortion from National’s spin doctors. By asserting that  there is no lack of money available, this shifts responsibility from  government to blaming others for lack of maintenance.

It also deflects attention from the fact that National has used Housing NZ as a cash cow by demanding dividends, in a futile attempt by Bill English to balance the government books and post a surplus (which he has also failed at spectacularly), as this ‘Dominion Post‘ editorial highlighted;

This year the Government expects to get $220m in tax and dividends from the corporation. It wants profits as well as social services. And it is also in thrall to its ideology of semi-privatisation.

Housing NZ was explicit in it’s 2013/14 Annual Report;

The responsive repairs programme, which includes work on vacant properties, is dependent on demand, which was higher than expected in 2013/14. Consequently, the budget was overspent due to higher volumes of work orders. The average cost per work order was also higher as a result of more comprehensive repairs and upgrades being carried out on vacant properties. To mitigate this overspend, we deliberately reduced the planned maintenance programme, which decreased the percentage of maintenance spend on planned activity. [p28]

It is up to the media to challenge Ministers when they make assertions that are patently untrue.

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References

Radio NZ: The state of state housing

Radio NZ: The state of state housing (audio) (alt. link)

Radio NZ: State housing criticism valid, says English

Government Minister sees history repeat – responsible for death

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This blogpost was first published on The Daily Blog on 13 June 2015.

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Government Minister sees history repeat – responsible for death

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a-country-of-opportunity

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The last few weeks have produced some curious stories from the media, relating to the current government that, at first glance, have no common thread linking them.

Closer scrutiny yields a different perspective…

1 April 2009

National implements first round of tax cuts.

According to Dear Leader Key, the 2009 tax cuts cost the government $1 billion;

“…The tax cuts we have delivered today will inject an extra $1 billion into the economy over the coming year, thereby helping to stimulate the economy during this recession. More important, over the longer term these tax cuts will reward hard work and help to encourage people to invest in their own skills, in order to earn and keep more money.”

1 October 2010

National carries out second round of tax cuts.

According to information obtained from Parliamentary Library in May 2012, and released by the Greens, the 2010 tax cuts cost the country an additional $2 billion;

The Green Party has today revealed that the National Government has so far had to borrow an additional $2 billion dollars to fund their 2010 tax cut package for upper income earners.

New information prepared for the Green Party by the Parliamentary Library show that the estimated lost tax revenues from National’s 2010 tax cut package are between $1.6–$2.2 billion. The lost revenue calculation includes company and personal income tax revenues offset by increases in GST.

Cost of both tax cuts, in terms of lost revenue: $2.6 billion – $3.2 billion, per annum.

8 May 2014

Then-Minister for Housing, Nick Smith confirms in Parliament that National has been demanding multi-million dollar dividends from Housing New Zealand;

“The average dividend under the 5 years so far of this Government has been $88 million. The dividend this year is $90 million.”

The dividend payable does not include taxes paid by Housing NZ.

24 September 2014

Fonterra cuts payout to farmers for dairy milk solids  by 70 cents to $5.30/kg milk solids.

6 October 2014

Dear Leader Key reveals that the international fall in dairy prices will affect the government’ tax revenue. Key states;

It can have some impact because if that’s the final payout, the impact would be as large as $5 billion for the economy overall, and you would expect that to flow through to the tax revenue, both for the 14/15 year and the 15/16 year...”

Reported by TV3’s Brook Sabin on the same day;

“A big state-house sell-off is on the way, and up to $5 billion-worth of homes could be put on the block.

The shake-up of the Government’s housing stock will be a key focus for the next three years, with Finance Minister Bill English to lead it.

On the block is everything from a tiny 75 square metre two-bedroom state house in Auckland’s Remuera, on the market for $740,000, to a three-bedroom home in Taumarunui for just $38,000. Thousands more properties will soon hit the market.”

10 December 2014

Fonterra announced that payouts to farmers would drop from $5.30/kg of milk solids to $4.70/kg. A Fairfax report states;

The predicted payout could hurt the national economy for a couple of years, including tax revenue.

28 January

Dear Leader Key announced the sale of 1,000 to 2,000 state houses within the year, and suggested there might be further sales later.

30 April

Fonterra announces further reduction of milk solid payout to farmers from $4.70/kg milk solids to $4.50/kg of milk solids.

6 May

National announced that it’s entire stock of 370 state houses in Invercargill, and 1,250 in Tauranga, would be put on the market to be sold off.

22 May

National’s 2015 Budget included;

  • Dumping the $1,000 Kiwisaver ‘kick-start’ government contribution
  • $684 million deficit for 2014/2015
  • a new travel tax on arriving/departing airport travellers
  • extension of a telecommunications tax to fund government’s rural broadband expansion programme

31 May

A story in the NZ Herald by Lynley Bilby reported that schools throughout the country were cutting back on their activities due to funding constraints;

Financially strapped secondary schools are cutting back on classroom activities, dropping field trips, ditching science experiments and even removing courses after a crackdown on parent donation rules.

[…]

In one case a secondary school had to abandon an NCEA Level 2 biology field trip to the beach because it could not afford to hire a bus.

The science teacher had to apply to the New Zealand Qualifications Authority to alter the data collection assessment so the students would not fail.

Another school was forced to alter its science curriculum by reducing experiments to trim costs.

One school said it had done away with activities outside the school gates, including a sea kayaking standard for year 12 physical education students.

Principals reported outdoor education programmes, food, hospitality and technology courses could be affected by the funding guidelines.

[…]

The recently released Budget saw the Government fund school operational grants to the tune of $1.32 billion for the 2015/16 financial year.

But the NZSPC  [New Zealand Secondary Principals’ Council] said that was not enough to meet costs, particularly for low decile schools.

It is apparent that state funding of education  is inadequate, and schools are either having to make drastic cuts to  “classroom activities, dropping field trips, ditching science experiments and even removing courses” – or raise “voluntary donations” from parents. Those “donations” and fundraising events by parents and teachers raised more than $357 million in  2012, an increase of  $16 million from 2011.

Nearly a third of a billion dollars – that is the shortfall of full funding of education in this country.

1 June

National announced the launch of so-called “social bonds“, where;

…the Government will pay a return to investors, determined by whether or not agreed social targets have been achieved.

The Government said social bonds were about the private and public sector organisations operating together to fund and deliver services.

This year’s Budget set aside $28.8 million to fund what is essentially contracting  out some mental-health services to private investors. As Health Minister, Dr Jonathan Coleman explained in Parliament the next day;

” One of the benefits of social bonds is that they protect service providers by shifting financial risk away from the providers and on to investors who provide the funding and who are better placed to absorb risk…

[…]

…social bonds are an exciting financial instrument with the potential to revitalise social policy delivery and inject private sector funding and innovation into the sector.”

Note the term used by Dr Coleman (quoting from a Dept of Internal Affairs report); “financial instruments”. According to investopedia.com, a “financial instrument is defined as;

A real or virtual document representing a legal agreement involving some sort of monetary value. In today’s financial marketplace, financial instruments can be classified generally as equity based, representing ownership of the asset, or debt based, representing a loan made by an investor to the owner of the asset.

[…]

Financial instruments can be thought of as easily tradeable packages of capital, each having their own unique characteristics and structure. The wide array of financial instruments in today’s marketplace allows for the efficient flow of capital amongst the world’s investors.

In effect, funding for mental health services is being transferred from the State – the traditional source – to private investors. Plainly put – National is seeking investment funding for mental health services.

These so-called “social bonds” appear to be a continuation of privatisation-by-stealth.

Interestingly, the right-wing think-tank, ‘New Zealand Initiative‘ (formerly the Business Roundtable and NZ Institute) published a report in March advocating the use of  social  bonds, and calling for the government to implement them. Three months later, National did precisely that.

As the government’s tax revenue was slashed by between $2.6 billion – $3.2 billion, per annum, after the 2009 and 2010 tax cuts, National’s tax-take and expenditure was further put under pressure by the 2007/08 Global Financial Crisis; the resulting Great Recession; rising unemployment; tumbling dairy pay-outs; and the Christchurch re-build.

National’s much heralded prediction of a  $372 million Budget surplus this year collapsed into a massive $684 million deficit – a turn-around of nearly a billion dollars.

A billion dollars – the cost of the 2009 tax cuts.

But added to the fiscal deficit is another deficit; the hidden social costs which New Zealanders are slowly, belatedly, waking up to.

Community organisations are winding back, or closing down completely;

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womens-refuge-cuts-may-lead-to-waiting-lists

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nz-herald-govt-funding-cuts-reduce-rape-crisis-support-hours-government-funding-cuts

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Relationships Aortearoa - funding cuts - Anne Tolley - budget 2015

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State assets such as housing and schools are suffering a lack of maintenance, the likes of which we have seen only in Third World nations. The recent case of Northland College in Kaikohe revealed a badly run-down facility that was so delapidated that police  asked to use them for training simulations because they represented the closest thing available to a “ghetto environment”, according to school principal, Jim Luders.

Luders’ description of his school is hard to believe in 21st century New Zealand;

“The conditions are appalling. They’re unsafe. There’s water leaks, mould, asbestos in parts. It’s without doubt the worst school stock in New Zealand.

I would challenge any school to send in photos that are worse.”

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Northland College students stuck with 'worst classrooms in New Zealand'

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Back in 2008, an ERO report highlighted the poor state of Northland College. Seven years later, the problem remains unchanged.

New Zealand’s State housing does not fare better. TVNZ’s Corin Dann wrote this piece on 24 March, which should have raised alarm bells throughout the nation (it did not);

The Finance Minister is signalling a deferred maintenance bill for the country’s state houses of $1.2 billion will have to be met by the government in future.

Community housing providers looking to buy state houses off the government say they believe Housing New Zealand has failed to carry around $1.2 billion in maintenance on state houses.

[…]

Mr English says the lack of maintenance on state houses is concerning and that in the long run the government will need to invest the $1.2 billion dollars in state houses to get them up to scratch.

[…]

When asked why Housing New Zealand had not spent as much money as it should have on maintenance, Mr English put the blame partly on the previous Labour government saying they had chosen to build new state houses rather than fix up old ones.

However, when pressed he conceded that “looking back everyone could have performed better”.

$1.2 billion dollars. Half the cost of the 2010 tax cuts.

Which, in part, explained why the Salvation Army assessed National’s offer to buy some State houses – and promptly ran a mile. As the SA’s spokesperson, Major Campbell Roberts stated, with crystal clarity;

“We would be faced with significant maintenance issues, houses which have got the wrong tenants … we would also need to do extensive development.

We would be putting so much resource into this that we could not actually put resource into anything else.

We can’t guarantee that we would be able to improve things for the state tenants, which is exactly what we would want to do by taking [the properties] over at this stage, on our own.”

Community Housing Aotearoa director, Scott Figenshow, was even more to the point;

“Our members are very concerned about the families they work with, and are only interested if they can do a better job than Housing New Zealand. At the moment the sums simply don’t stack up.

Last month the Government confirmed $1.2 billion of deferred maintenance on the state housing stock. Why would a provider want to purchase a liability?” 

Figenshow suggested, instead, that Government reinvest the $220 million it was forecast to receive in tax and dividends from Housing NZ, back into much needed maintenance and upgrades.

For two year old Emma-Lita Bourne, tenant of a State house in Otara, South Auckland, the situation is academic. She died last August living in an environment that was clearly not conducive for human health and well-being;

Two-year-old Emma-Lita Bourne died in Auckland’s Starship Hospital in August last year following a brain haemorrhage.

She had been taken to hospital with a fever, which turned out to be a form of pneumonia.

In his findings, released on Thursday, coroner Brandt Shortland said pneumonia played a part in Emma-Lita’s death and the Housing New Zealand home in Otara where her family lived may have been to blame for her ill-health.

Other children in the family also became sick while the family was living there, with one suffering from rheumatic fever.

[…]

In May 2014, Emma-Lita’s family had been fast-tracked up the waiting list to be transferred to a better state house, because of the rheumatic fever risk.

Although they’re now living in a different home, the move didn’t happen before Emma-Lita’s death.

Housing Minister Nick Smith said the government’s policy to fast-track those at risk of rheumatic fever into better homes has helped 270 families.

As Radio NZ reported Coroner Brandt Shortland’s findings;

“In my view, the house unfortunately was unhealthy for this family.

I am of the view the condition of the house at the time being cold and damp during the winter months was a contributing factor to Emma-Lita’s health status.”

Housing NZ’s general manager of tenancy services, Kay Read,  accepted the likelihood of a link;

“Our responsibility is to provide warm, safe and dry housing and, from the reports in this situation, it appears that we’ve failed.”

The above Radio NZ story features photos of another Housing NZ property also in a delapidated condition, with mould and condensation streaming down the walls. The property is tenanted.

Interviewed on Radio NZ’s ‘Morning Report‘, Minister for Housing, Bill English,  denied that money was the core problem of run-down Housing NZ properties;

“They’ve done a very large scale programme – insulated every house that it can, which is 48,000 houses over the last four or five years.

It’s got to deal with the same limitations of process as everybody else, it’s got to get consents, it’s got to find a workforce, but it’s not short of money to do the job.”

English’s assurance that Housing NZ “not short of money to do the job” appears to be contradicted by Housing NZ’s  2013/14 Annual Report;

The responsive repairs programme, which includes work on vacant properties, is dependent on demand, which was higher than expected in 2013/14. Consequently, the budget was overspent due to higher volumes of work orders. The average cost per work order was also higher as a result of more comprehensive repairs and upgrades being carried out on vacant properties. To mitigate this overspend, we deliberately reduced the planned maintenance programme, which decreased the percentage of maintenance spend on planned activity. [p28]

Furthermore, on page 36 of the 2013/14 Annual Report, Repairs and Maintenance is given as $220 million for the period.

This is $1 billion less than the $1.2 billion quoted by Bill English to TVNZ’s Corin Dann on 24 March, this year.

Whilst clouded in waffle, English admitted that “the system” (ie; government and Housing NZ) was responsible for this little girl’s death;

“Regardless of the cause it’s a tragedy for this family. It appears that while the system worked to some extent, we’ve got to test whether it was responsive enough quickly enough to the very real needs of this family.

They didn’t really have the option of ordering a higher grade of insulation for the house.

We’ve got a strong focus on organising the government services around vulnerable families – and this is a vulnerable family – rather than expecting those vulnerable families to find their way around various government departments.

This type of case should illustrate I think to the people making public policy, including us, that we’ve got some way to go yet to be as responsive as we should be when there’s serious issues going on in this family.”

. English responds to criticism of state houses - radio nz - morning report - audio.

Unfortunately, this is not the first time that New Zealanders have died for lack of adequate state funding of social services. For Minister Bill English, this is no doubt a matter of déjà vu, bringing back memories of late Northlander, Rau Williams, and late Southland farmer, Colin Morrison;

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Died waiting for by-pass - Otago Daily Times, 6 April  1998  (1)

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The 6 April 1998 ‘Otago Daily Times’ story stated;

Riverton dairy farmer Colin Morrison (42) has lost his race for a triple heart by-pass, dying of complications and leaving his widow, Christine, and his doctor blaming Health Minister Bill English and the health system for his death.

[…]

Mrs Morrison last night did not want to speak to Mr English, who is also her local MP. She said the minister and the health system had  failed her family and her husband.

“I don’t think I could cope. I know I can’t blame one person but I have got to have something or someone to blame. I wrote him a letter saying I blamed him [Mr English] but I blame the system as well”, she said.

His GP, Dr Russell Pridgeon, of Riverton, last night called on Mr English to resign, saying he held him morally responsible for Mr Morrison’s death.

A month later, then-Health Minister Bill English conceded that his government’s “booking system” was a failure – but not before others died on his watch as Health Minister;

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four-forced-off-waiting-list-die-the-press-15-march-1999

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Bill English did not resign, though National were swept from office the following year by Helen Clark’s Labour-led coalition.

English is now Minister for Housing.

And once again, people are dying.

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Addendum1

The National government does not have money to spend on refurbishing state housing, but it does have money for other projects;

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Government accused of wasting $11.5 million on wealthy Saudi farmer

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Addendum2

The National government does not have money to spend on refurbishing state housing, but it does have money for other projects;

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pm-defends-30m-payout-to-rio-tinto

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Addendum3

The National government does not have money to spend on refurbishing state housing, but it does have money for other projects;

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john-key-defends-cost-of-flag-referendums

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References

Parliament: Hansards – Tax Cuts – Implementation

Scoop media: Govt’s 2010 tax cuts costing $2 billion and counting

Parliament: Hansards – Housing, Affordable—Progress and Management of Housing New Zealand

Agrimoney.com: Dairy rout spurs $4bn cut to Fonterra milk payout

Hive News: Treasury re-crunching Budget numbers for low Fonterra payout

TV3 News: State housing sell-off worth $5B

Fairfax media: Slashed Fonterra payout will affect all NZers

Radio NZ: PM states housing intentions

Otago Daily Times: Fonterra cuts dairy payout forecast

Radio NZ: Tauranga, Invercargill state houses to be sold

Radio NZ: Budget 2015 – What you need to know

Fairfax media: International airfares will rise new departure tax

Radio NZ: Telecommunications tax will hit consumers

NZ Herald:  Secondary schools to slash spending

Radio NZ: Social bond system to target mental health

Parliament: Hansards – 5. Mental Health Services—Social Bonds

Investopedia.com:  Financial Instrument

NBR:  Roundtable and NZ Institute morph into new libertarian think tank

NZ Intiative: Social Impact Bonds

Government Economics Networks: The case for social bonds: A new way of financing and delivering social services

Fairfax media: Budget 2014 – The essential guide

Dominion Post: Women’s Refuge cuts may lead to waiting lists

NZ Herald: Govt funding cuts reduce rape crisis support hours

TV1 News: ‘Devastating news for vulnerable Kiwis’ – Relationships Aotearoa struggling to stay afloat

Fairfax media: Government may let Relationships Aotearoa fold

TV1 News: Relationships Aotearoa hanging on at ‘awful’ 11th hour

Radio NZ: Counselling service rejects claim it’s badly run

NZ Herald: Northland College students stuck with ‘worst classrooms in New Zealand’

Radio NZ: Northland ‘slum’ school fix-up very slow

TV1 News: English concerned by State House deferred maintenance bill

Radio NZ: Salvation Army won’t buy state houses

Fairfax media: Salvation Army says no to state houses

NZCity:  Girl’s death should spur action – Greens

Radio NZ: Damp state house linked to child death

Radio NZ: State housing criticism valid, says English

Housing NZ: 2013/14 Annual Report

Radio NZ: English responds to criticism of state houses (Alt. Link) (audio)

Dunedin Star: Death – the Northland Way

NZPA: English agrees system flawed

TV1 News:  Government accused of wasting $11.5 million on wealthy Saudi farmer

NZ Herald: PM defends $30m payout to Rio Tinto

NZ Herald: John Key defends cost of flag referendums

Additional information

Mana News: Housing under neoliberalism

NBR: Matthew Hooton – Gulf games fail to deliver

NBR: Matthew Hooton – Flying sheep endanger McCully

NZ Herald: Bryce Edwards – Political roundup – The bizarre ‘bribery’ and flying sheep scandal

NZ Herald: Dita De Boni – Kiwis hoodwinked over state housing

Radio NZ: Demand increasing on schools to fund out classroom activities

Radio NZ: Government hikes up Housing NZ dividend almost 20 percent (audio)

Previous related blogposts

That was Then, this is Now #6

Budget 2013: petrol taxes

“It’s fundamentally a fairness issue”- Peter Dunne

Housing; broken promises, families in cars, and ideological idiocy (Part Tahi)

Housing; broken promises, families in cars, and ideological idiocy (Part Rua)

Housing; broken promises, families in cars, and ideological idiocy (Part Toru)

The cupboard is bare, says Dear Leader

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This blogpost was first published on The Daily Blog on 6 June 2015.

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= fs =

The Mendacities of Mr Key # 12: No More Asset Sales (Kind of)

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Lying National lying john key

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On 25 February 2014, Dear Leader John Key announced to the nation that his government’s asset sales programme was over;

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“Just as we did before the last election we’re making our position on share sales clear to New Zealanders before we go to the polls later this year. We’ve achieved what we wanted with the share offers in energy companies and Air NZ. We’re now returning to a business-as-usual approach when it comes to  [state-owned enterprises]. The truth is there aren’t a lot of other assets that would fit in the category where they would be either appealing to take to the market or of a size that would warrant a further programme, or they sit in the category that they are very large like Transpower but are monopoly assets so aren’t suited.”

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Like so many of  the Prime Minister’s promises, that “Key Committment” did not last long. Not even a year.

As Fonterra’s payout to farmers collapsed and weakening exports to China’s slowing economy began to impact on the government’s tax-take,   Bill English’s much-heralded promise of a Budget surplus sank deeper than the m.v. Rena in 2011. English promised almost exactly a year ago on 16 May 2014;

It’s a real surplus and it follows a string of improvements in deficits starting at $18 billion four years ago, this year about $2.5b and next year a surplus of $370 [million], and then bigger surpluses after that.

Barely three months after the 2014 elections, Treasury had bad news for English and the National government;

Treasury this morning delivered a body blow to the Government’s hopes of returning to surplus, saying it now expects a deficit of over half a billion dollars for the June financial year.

At this morning’s Half Year Economic and Fiscal Update, Acting Treasury Secretary Vicky Robertson said despite solid growth in the economy, the Crown’s finances would take a hit from lower than previously forecast tax take.

That had seen Treasury change its forecast operating balance before gains and losses (Obegal) for the 2014-15 year from a slim surplus of $297 million to a deficit of $572 million.

Treasury said softer outlook for economic drivers of the tax such as lower dairy prices and interest rates had seen the expected tax take for the year fall by $600 million.

In the same Herald report, English and Key  were both frantically doing their best King Canute impersonations since King Canute took a day to go to the beach;

But Finance Minister Bill English was this morning still clinging to the hope Treasury is wrong and the books will indeed be back in black this year as he and Mr Key have promised for some years.

I’m hopeful we will,” Mr Key told reporters this afternoon.

The view of the Minister of Finance is that we can still achieve that surplus. There’s a lot of different factors moving around here at the moment.

By 2 May of this year, even  National’s spin-meisters had run out of steam, and on TV3’s ‘The Nation‘, English was forced to admit that the world was indeed round and not flat; money-printing pixies did not exist; and dreams of a budget surplus were a Tory fantasy;

No, I don’t call it a failure. It is what it is, and that is for the 14/15 year, we budgeted $370 million surplus. It looks like it will be a $500 or $600 million deficit, and the surplus will be the next year. So we’re on track.”

So “the surplus will be the next year“?

The Minister had better be hoping that the Christchurch re-build; the Auckland housing boom; and renewed growth in China’s economy,  will continue to stimulate the economy. Otherwise, that “500 or $600 million deficit” will balloon into $1 billion or $2 billion or…

National’s expensive, multi-billion dollar 2009 and 2010 tax cuts may not have been such a clever move after all.

English, though, is not about to surrender. His government’s policies may be predicated on tax revenue from re-building a semi-destroyed city; an unsustainable housing boom in Auckland; and waning dairy exports – but National’s Finance Minister has other ideas up his sleeve.

In his 2 May interview on ‘The Nation‘, English committed the government not to cut spending;

Lisa Owen: Okay. Well, before on The Nation, you said that the Government would not make any cuts to reach surplus. Is that still your plan?

Bill English: That’s right. We’re not going to make any specific extra decisions now just because our tax revenue’s a percentage point – 1 percent down.

If past experience has taught us one thing about this government; if they promise you one thing, you can be sure that somewhere, in some back room; they are planning something completely different.

English has committed the government not to “make any specific extra decisions now just because our tax revenue’s a percentage point – 1 percent down”.

It’s just a shame we can’t believe a word of what he says. The cuts had begun long before English uttered his lies to Lisa Owen.

The story unfolds…

16 May 2014…

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Budget 2014 - Surplus real, says English .

National’s “economic whizz-kid” had promised the country a “$372 million surplus” – as well as “an increase to paid parental leave from 14 weeks to 18, free doctors’ visits and prescriptions for children under 13,  extra money to ease the cost of early-childhood education, eligibility for paid parental leave extended, and the existing parental tax credit to  rise“.

Labour’s social policies had been nicked by National. English basked in political glory. Sceptics were ignored. The country went to the polls four months later.

20 September 2014…

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National Party wins third term

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And then reality began to reassert itself.

16 December 2014…

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No surplus this year - Treasury

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National’s core policy; it’s raison d’être; it’s reputation amongst New Zealanders who are only vaguely politically conscious – is it’s so-called “reputation for fiscal prudence and responsible economic manager”, and it was rapidly being sucked down a flushing toilet of indebtedness. If it couldn’t deliver on it’s promise of returning the books to surplus – as Labour’s Finance Minister, Michael Cullen, had done between 2000 and 2008 – then what good was it?

English looked at his options to cut spending, and to raise money without creating headlines that shrieked “panic” or “broken promises”.

28 January 2015…

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Up to 8,000 state houses could be sold under John Key's radical plan - asset sales

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So much for Key’s assertion that “the truth is there aren’t a lot of other assets that would fit in the category where they would be either appealing to take to the market or of a size that would warrant a further programme”.

Truth and John Key parted company a long time ago. Key’s announcement that up to 8,000 State houses could be sold came only eleven months after his earlier committment to New Zealanders that no further state assets would be sold.

13 April 2015…

John Key denies there is a housing crisis in New Zealand;

No, I don’t think you can call it a crisis. What you can say though is that Auckland house prices have been rising, and rising too quickly actually.

21 April 2015…

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No free GP visits for all children - Government - broken promises - health cuts - National - under 13s

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National’s broken promise flew in the face of committments made prior to last year’s general election, as then-Health Minister, Tony Ryall said;

Free doctors’ visits and prescriptions for children aged under six will be extended to all children aged under 13 from July next year, Health Minister Tony Ryall says.

Budget 2014 is investing $90 million over three years from 1 July 2015 so primary school-aged children can go to a doctor for free, any time of the day or night, and get their prescriptions free as well, he says.

“National brought in the policy of free GP visits and prescriptions for children under six, including free after-hours visits. Thanks to our prudent management of the health budget, we are extending this policy to all children under 13.

This is what careful financial management can deliver to Kiwi families.

Interestingly, there was a very minor – but all-important word missing between two otherwise identical Facebook postings by John Key and the National Party;

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Facebook - free GP visits for all children - Government - broken promises - health cuts - John Key - under 13s

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Facebook - free GP visits for all children - Government - broken promises - health cuts - National Party - under 13s

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Note the one missing word – “all” – from Key’s Facebook statement.  Otherwise, the statement is identical to the National Party Facebook page. Someone in the National Party’s politburo obviously wasn’t keeping track of re-writing their election promises.

Green Party Health and ACC spokesperson, Kevin Hague, hit the nail on the head when he demanded;

If one in ten kids have to pay up to $38 to go to the doctor when they have an accident, then that visit is not free and that’s a broken promise. It begs the question: what other promises are the Government going to renege on this year in a bid to save a bit more money?  This shows how desperate the Government is to reach a surplus that it’s trying to pinch pennies from injured children.”

30 April 2015…

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Government offloads 2800 state houses to Auckland development company

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Attempting to justify the transfer, English announced;

Over half of the new houses will be sold to help offset construction costs, and the remainder will be retained as social housing. Our bottom line is that there will be at least as many social houses in Tāmaki as the 2800 there now.

As with previous promises, National’s assurances cannot be relied upon. Ministers will utter soothing reassurances one day – and weeks, months, or years later will find justification why they had to retract.

National ministers simply cannot be trusted to keep their word. Even if 7,500 new homes are built, there is no guarantee that “half of the new houses will be … retained as social housing“. National will find a reason to sell them.

English further stated;

The Government owns one in 16 houses in Auckland and we need to do a better job with them for the sake of tenants and aspiring homeowners, as well as for the neighbourhoods they live in and the wider city…

…This transfer of ownership of HNZC properties and the responsibility for tenancy management to TRC will enable faster construction of warm, dry and safe houses that better meet people’s needs.”

His comments are a repetition of National’s spin that NZ Housing properties are ‘badly run down and in dire need of maintenance’;

Finance Minister Bill English has confirmed the Government will need to spend $1.5 billion upgrading state houses as they are sold to social housing providers.

Mr English conceded many state houses were not up to standard and had not been properly maintained.

He said the cost of deferred maintenance had risen to $1.5 billion and that the matter had been raised during discussions with social agencies considering buying state houses.

“They’ve highlighted that. So part of the benefit of the process we’re going through is that these agencies are going to apply a very tight scrutiny to the state of the houses that maybe they might be looking at buying.”

Mr English blamed the former Labour-led Government, saying it had focused more on building new state houses than on maintaining existing homes.

English’s apportioning of blame to the previous Labour government is disingenuous.

The sole reason why Housing NZ has not been able to maintain it’s properties is that it has had to pay dividends from income (rent paid by low-income/beneficiary tenants) to successive governments. According to National’s Building and Housing Minister, Dr Nick Smith;

The average dividend under the 5 years so far of this Government has been $88 million. The dividend this year [2014] is $90 million…

Fairfax reported Nick Smith as stating;

Smith said the dividend had been been fairly consistent in the past several years – $71m in 2010, $68m in 2011, $77m in 2012 and $90m in 2013.

Four years worth of dividends – $306 million – were paid to the government’s Consolidated Fund. No wonder Housing NZ is unable to maintain it’s properties.

National was brutal in it’s expectations of huge windfalls from Housing NZ;

The letters reveal that on six occasions ministers asked for dividends to be hiked, or paid faster. In March 2010, Maurice Williamson wrote: “I expect . . . a significantly higher annual return to the Crown.”

Phil Heatley, when he was housing minister, asked that in 2011-12 and 2012-13 the dividend be $45m higher than that forecast in the 2011 Budget. Later he revised expectations upwards, to $251m over three years.

In July last year, Smith said “dividend levels should be significant enough to represent a challenge”.

These demands from National ministers were placed on a government department charged with housing the poorest and most vulnerable in our society. Williamson, Heatley, and Smith were content to bleed Housing NZ and let tenants live in cold, damp, miserable conditions.

Williamson, Heatley, and Smith – National’s 21st century slumlords.

As with Solid Energy, National exploited government departments and SOEs such as ACC, as “cash cows”, with which to balance their books to return to Budget surplus. (see: Solid Energy – A solid drama of facts, fibs, and fall-guys )

It is also worthy to note that National Ministers are employing spin when it comes to state house  sales. English and other ministers use the term “transfer” and not sale.

On 6 May, Bill English stated that  houses would not be sold “unless tenants get better services and taxpayers get fair and reasonable value“.

On TVNZ’s Q+A on 10 May, Minister for Social Housing, Paula Bennett, admitted that her government was selling state housing;

@ 2.13

Corin Dann: “But the point is, they are going to get these houses, they’re going to be sold these houses, aren’t they? You say transfer but it’s a sale of houses at a discount, right?

Paula Bennett: “Well, I’m sure it’ll be less than the market value, yes.

These are sales, not a transfer. “Transfer” implies a change of ownership without cost or exchange of money. There is Big Money involved in state house sales.

[Incorrect information deleted. – FM]

6 May 2015…

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 Invercargill and Tauranga chosen for first state house sales

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The Great Sell-off of Housing continues under National – with the government disposing of all state housing in Tauranga and Invercargill. Radio NZ reported;

The Government has announced it will begin selling off up to 1600 state houses in Tauranga and Invercargill to social housing groups.

There are 370 state houses in Invercargill and 1250 in Tauranga and it’s understood all of them could be sold if buyers come forward.

Only vetted and registered community housing providers will be able to buy them and, depending on their negotiations with the Government, they may not have to pay the market price.

There is nothing to stop private developers from acquiring state houses through back-door means, as this report on a landlords website explained;

The state houses will only be available for sale to registered Community Housing Providers (CHPs).

However, Housing NZ Minister Bill English said that registered CHPs can partner with other organisations to acquire and develop social housing.

Any transfer of houses will not affect the rent tenants pay or their eligibility for subsidised housing, and properties transferred as social houses will also have to stay as social housing unless the Government agrees otherwise.  In both Tauranga and Invercargill, Housing New Zealand owns a significant number of houses so there is potential for more than one organisation to acquire houses for community ownership.

This means there could be scope for private investors to get involved in the provision of social housing – either by becoming a registered CHP or by partnering with a registered CHP.

Speaking on TVNZ’s Q+A on 10 May, Minister for Social Housing, Paula Bennett confirmed that private investors could “partner” with Community Housing Providers to purchase state houses; re-develop the properties; and sell new residences at a profit.

On 6 May, English assured the public;

Any transfer of houses will not affect the rent tenants pay or their eligibility for subsidised housing, and properties transferred as social houses will also have to stay as social housing unless the Government agrees otherwise.”

Of course National will agree. This is a wholesale sell-off of state housing. Why wouldn’t they agree to new owners on-selling these properties for a profit? Otherwise new owners would be stuck with old, dilapidated properties, requiring expensive repairs, and soon getting into deep debt.

This is privatisation, by stealth,  through the back-door, using intermediaries. This is a whole new level of government subterfuge.

It also exposes John Key’s assurance – that state assert sales have ended – as a lie.

Conclusion

Finance Minister Bill English is desperately scrabbling for every dollar he can claw back. Miserly does not even begin to aptly describe this government’s actions.

It seems that the tax cuts of 2009 and 2010 are being paid for by paperboys and girls; sick children; welfare beneficiaries; and Housing NZ tenants.

It remains to be seen what further cuts in social spending Bill English has planned. His reassurances on 2 May 2015 – that there would be no cuts to social spending – are to be treated with the same contempt as other promises, assurances, and committments that have been made, and broken, by John Key, Bill English, et al.

Governments are at their worst and most dangerous, when desperate. And this is a desperate government.

Addendum1

Karol, writing for The Standard, has more on this issue. See: “Key Govt asset stripping state housing‘.

Addendum2

Registered community housing provider, Habitat for Humanity Invercargill-branch  chairman, Stephen Falconer, is an enthusiastic cheerleader for National’s covert privatisation programme. He told the Otago Daily Times on 7 May;

We’re a private organisation, essentially, and we think that private enterprise can actually do a better job than Government on most things.

Because private enterprise has done such a stirling job thus far in meeting demand for housing in Auckland, Christchurch, and elsewhere?

It is disappointing that an ostensibly community organisation like Habitat for Humanity has bought into the government narrative, complete with parroting neo-liberal cliches that “private enterprise can actually do a better job than Government“.

If it were true that “private enterprise can actually do a better job than Government“, then why does Habitat for Humanity exist?

Addendum3

Social Housing Minister Paula Bennett is interviewed by Corin Dann on TVNZ’s Q+A. Along with Bill English’s admissions, her comments are a disturbing indication where National is going with state housing.  See:  Govt social housing target 3000 homes

 

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References

NZ Herald: PM – no more SOEs to sell after Genesis

John Key: My key commitments to you

NBR: Weak dairy prices prompt analysts to pull back Fonterra forecast payout for next season

The Independent: How China’s slowing GDP growth could drag down the global economy

TV3 News: National Party wins third term

NZ Herald: No surplus this year – Treasury

Fairfax media: Budget 2014 – Surplus real, says English

TV3: The Nation – Bill English

Fairfax media: Budget 2014 – Surplus real, says English

TV1 News: Up to 8,000 state houses could be sold under John Key’s radical plan

Radio NZ: Key denies Auckland housing crisis

NZ Herald:  No free GP visits for all children – Government

National Party: Free doctors’ visits, prescriptions for under 13s

Facebook: John Key

Facebook: National Party

Scoop media: Govt breaks free doctors visit promise to kids

Fairfax media: Government offloads 2800 state houses to Auckland development company

Radio NZ: Govt to spend $1.5b fixing up state houses

Parliament: Hansards – Questions for Oral Answer — Questions to Ministers – 8 May 2014

Fairfax media: Nats milking Housing NZ – Labour

Fairfax media: Not much in the cupboard for English to dine on

NZ Herald: State houses in Tauranga and Invercargill to go on the market

TVNZ Q+A: Govt social housing target 3000 homes

Landlords – For Kiwi Property Investors: State houses to go on sale in Tauranga & Invercargill

NZ Herald: Budget 2012 – ‘Paper boy tax’ on small earnings stuns Labour

Fairfax media: Invercargill and Tauranga chosen for first state house sales

Radio NZ: Tauranga, Invercargill state houses to be sold

Otago Daily Times: Invercargill among first state house transfer sites

Previous Related Blogposts

Can we do it? Bloody oath we can!

Budget 2013: State Housing and the War on Poor

Budget 2013: State Housing and the War on Poor

National recycles Housing Policy and produces good manure!

Our growing housing problem

National Housing propaganda – McGehan Close Revisited

Housing; broken promises, families in cars, and ideological idiocy (Part Tahi)

Housing; broken promises, families in cars, and ideological idiocy (Part Rua)

Housing; broken promises, families in cars, and ideological idiocy (Part Toru)

“It’s fundamentally a fairness issue”- Peter Dunne

Solid Energy – A solid drama of facts, fibs, and fall-guys

The Mendacities of Mr Key #11: Sorry, Prime Minister, what ‘mandate’ were you referring to?!

Other blogs

Polity: Housing horrors

The Jackal: Nationals housing failure

The Standard: Key Govt asset stripping state housing

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I will never turn my back on the poor

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This blogpost was first published on The Daily Blog on 10 May 2015.

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“The Nation” reveals gobsmacking incompetence by Ministers English and Lotu-Iiga

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If there is a crystal-clear example why a functioning democracy must have  vibrant, critical current affairs programmes on free-to-air televesion, then  TV3’s ‘The Nation‘ on the morning of 2 May was top-of-the-pile. Without doubt, this land-mark episode was a powerful insight into the general competence (or lack, thereof) of two of the government’s senior ministers; Finance Minister Bill English and Corrections Minister, Peseta Sam Lotu-Iiga.

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Corrections Minister, Peseta Sam Lotu-Iiga -- TV3's 'The Nation' host & interviewer, Lisa Owen -- Finance Minister Bill English

(L-R) Corrections Minister, Peseta Sam Lotu-Iiga — TV3’s ‘The Nation’ host & interviewer, Lisa Owen — Finance Minister Bill English

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The highly talented host-interviewer, Lisa Owen, interviewed both, drilling deep down, and extracting information; admissions; and more critically – waving aside pathetic attempts to fudge legitimate answers. The resulting exchanges did not make for a ‘happy day’ for either government minister, revealing one totally out of his depth, and the other unwilling to admit that his stewardship of the country’s economy has been an abject failure.

1. Finance Minister Bill English

In  the opening months of World War 2, there was a period from September 1939 to May 1940, known as “the Phoney War“. Both the Allied Nations (led by Great Britain) and the expanding Third Reich were technically at war, but major military operations did not commence until Nazi Germany invaded Belgium, the Netherlands and Luxembourg on 10 May 1940.

In New Zealand, we might have referred to those first eight months as a “Clayton’s War” – the war you’re having when you’re not really having a war. (For those old enough to remember, “Clayton’s” refers to a non-alcoholic beverage marketed in New Zealand in the 1970s and 1980s. It was heavily promoted with the catch-phrase, “the drink you have when you’re not having a drink”. The marketing campaign was an advertisers dream-come-true, catching the public’s attention. The product, unfortunately for the manufacturers, was less successful. )

The same could be said of New Zealand’s so-called “rock star economy” and “recovery”.

By nearly all accounts, our recent growth has been predicated on three factors;

  1. The Auckland housing boom/bubble
  2. The Christchurch Earthquakes re-build
  3. Exports – particularly dairy – to China

The first is reliant purely on borrowing from off-shore to fund speculative activity. When that bubble finally bursts, we will be left with a multi-billion debt; thousands of bankruptcies; and an economy in tatters as capital flight takes place.

The second is a short-term growth-spurt which owes it’s origins to two natural disasters – literally disaster capitalism.

The third is built upon China’s unsustainable growth, and has recently fallen away, returning Australia as our number one trading partner, as the value of dairy commodities plummet.

The first two are unsustainable. The last is reliant on a major trading partner’s economic well-being. As with New Zealand’s lamb and butter exports to the UK prior to it joining the EEC in January 1973, we have placed our export “eggs” in one, very big, very fragile, basket.

Against this backdrop of The Phoney Economic Recovery,  the following financial facts should give us cause for concern;

  1. The on-going cost of the 2009 and 2010 tax-cuts, estimated to be around $3.8 billion per year, and up to $4.26 billion last year
  2. Plummeting dairy prices resulting in lower payout to farmers and taking $7 billion out of the economy
  3. Reduced tax-take by the government is around $4.5 billion

In view of unsustainable tax-cuts in 2009 and 2010; the economy taking a $7 billion “hit”; and lower than anticipated tax revenue by this government, it was hardly unexpected that Bill English’s promises of a surplus this year have collapsed.

Lisa Owen challenged the hapless Finance Minister in a sixteen minute long interview. In this excerpt, English is evasive when asked questions about the governments surplus;

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Full interview here

Throughout the interview, English was upbeat and insisted that a surplus was just around the corner;

“Well, okay, it would be nice if the number got there this year; it’ll just take a bit longer. What’s important here is the trajectory. So Government is closing its deficits; it’s getting to surplus. We’ll soon be in a position to start paying off debt. Our expenditure’s under control; the revenue’s a  bit harder. You’ve just seen in the last day or two, dairy prices are going down again; that has an impact. So we’re sufficiently confident in the direction that we’re not going to cut services or cut entitlements to try and chase a larger surplus number.”

Lisa Owen asked the Minister: “Okay. Well, before on The Nation, you said that the Government would not make any cuts to reach surplus. Is that still your plan?

English replied;  “That’s right. We’re not going to make any specific extra decisions now just because our tax revenue’s a percentage point – 1% down.”

Then, incredibly, English maintained that tax-cuts were still on National’s agenda;

Owen: “I just want to look at some of the big promises, like tax cuts. They were meant to come from that $500 million that you now don’t have. But is it fair to say that they’re not really likely now?

English: “As we indicated last year, we wouldn’t be able to contemplate that until 2017 for some of the reasons that you’ve outlined. So at the moment, the ability to deliver some kind of moderate tax cut hasn’t changed and we would have the next couple of budgets to work out how that would happen.”

Owen: “Hang on, Minister. It has changed, hasn’t it, Minister, because you’ve just identified the fact you’ve got less money, so it must have changed.

English: “Well, we’ve shifted the money from next year to the year after; that’s technically what’s actually happened. We’ll deal with that as time goes on, but the point I’m making is our finances are-“

Owen: “Is it likely that your tax cuts then will be delayed as well? Maybe 2018, not 2017?

English: “No, we’re not suggesting that. We said at the end of last year that they would be possible in 2017. We’ve made allowance for that.”

It beggars belief that we have a Finance Minister willing to entertain the notion of tax cuts at a time when dairy prices are dropping; tax revenue is falling; and public debt has ballooned to $59.9 billion  and rising by $27 million per day, every day.

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public debt - NZ Treasury

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Never mind tax cuts – when do we, as a nation, start to repay this debt mountain?!

The reality is that if National proceeds with promises of tax cuts in 2017 (which is an election year – bribe anyone?) New Zealand will have to  borrow from offshore to make up the shortfall in revenue. Our debt mountain will continue to grow.

English himself admitted that the deficit this year will be in the order of around half a billion dollars;

“…It is what it is, and that is for the 14/15 year, we budgeted $370 million surplus. It looks like it will be a $500 or $600 million deficit, and the surplus will be the next year. So we’re on track.”

Somewhere in National’s gross mis-management of the economy, they have gone from a $370 million surplus to a potential $600 million deficit – just shy of $1 billion lost.

How does a government make such a colossal mistake? “It is what it is” is hardly an explanation.

Throughout the interview, English kept repeating the mantra of a future surplus;

“The direction is pretty clear. Our surpluses will come and they will grow, and we’ll be able to pay off debt.”

“The target remains getting to surplus, and in the Budget, you’ll see the details of where the Government is up to with it. But I’m indicating that despite falling a bit short in 14/15, we’re on track for surplus.”

Though English insisted that there would be no cuts to spending, he did use coded language for possible reductions to welfare spending;

Owen: “Is it likely that your tax cuts then will be delayed as well? Maybe 2018, not 2017?”

English: “No, we’re not suggesting that. We said at the end of last year that they would be possible in 2017. We’ve made allowance for that.”

Owen: “Okay. So what about measures to curb poverty, then? Will they have to be delayed? Because the Prime Minister identified them as something of a priority. Is that going to be delayed?”

English: “Well, we’ve been working on these issues for a while, particularly focused on communities and families with persistent deprivation and caught in a cycle of dependence. And so you could expect to see us continue with that sort of programme through this Budget…

… Or sickness and invalids beneficiaries with more support for their health issues and more support for employment, could actually get out of dependency, off welfare and remain in work.

Because as we all know, invalids don’t actually have real disabilities or debilitating injuries or diseases – they are simply on a “cycle of dependence”.

When in trouble, blame someone else. In this case, invalids.

Owen then moved on to the issue of Auckland’s growing housing crisis and nailed English on this government’s spectacular inability to manage and address that city’s housing shortage. English simply blamed the Auckland Council;

“Well, the migration numbers have stayed high, bearing in mind about half of migrants appear to go to Auckland; the other half go to the rest of the country. But there’s pretty clear signals that Auckland City Council need to get on with the job. They are the ultimate decision-maker around the infrastructure and around the consenting for new houses. We’re giving them the toolkit to enable them to do it faster, but there’s clearly a lot more to be done, and we’ll keep looking for more tools to help the Auckland City Council to do the job they need to do.”

When still in trouble, keep blaming someone else. In this case, the Auckland Council.

Thus far, National’s grand strategy to cope with Auckland’s housing crisis is to shift ownership of 2,800 properties from Housing NZ to the Tamaki Redevelopment Company – as if shifting properties around on a giant ‘Monopoly’ board will somehow solve the problem?

Owen pointed out to English that in transferring 2,800 houses to the Tamaki Redevelopment Company, that he was breaking a previous committment;

Owen: “Now, hang on a minute. There you offloaded 2800 houses, and I thought you had a cap on getting rid of state houses of about 2000. So is that cap gone now?

English: “Well, no. What we’ve said is Housing New Zealand will own at least 60,000 houses, and that certainly hasn’t changed. Government remains the owner—”

Owen: “No, you said a cap, Minister. So has the cap gone now with this 2800 houses? The cap’s blown?

English: “No. Government will remain the owner of the Tamaki houses. We’ve simply put them in a different government company, which has been set up specifically to regenerate that community, because it’s a very particular skillset.”

English had all but surrendered to Owen’s persistent questioning by outright admitting his government’s failure to address Auckland’s mounting housing crisis;

“That’s right. We’re not meeting demand. I certainly agree with that. Whether it gets worse before it gets better, forecasters can argue over that. We’ve got plenty to do to meet the demand that’s been there for a while. And as I said, the Government’s supporting Auckland City, trying to get them a better toolkit and making our own contribution through redeveloping our own land in Auckland.”

For English, this interview was possibly the worst in his political career. He had to explain why his commitment to returning to surplus this year was now in tatters, and why his government’s housing plan for Auckland consisted of moving state housing from owner to owner, without adding significantly to the overall stock.

The only reason why National’s reputation for being a “sound prudent fiscal manager” survives intact is because New Zealanders are not paying attention.

But worse was to come when Corrections Minister, Peseta Sam Lotu-Iiga took the chair and was also interviewed by Lisa Owen. What followed was a debacle of Hekia Parata proportions.

2. Corrections Minister, Peseta Sam Lotu-Iiga

With on-going  privatisation of State services dressed up as so-called “Public-Private Partnerships” (PPPs), Lisa Owen put several questions to the Corrections Minister on the role of UK company, Serco, which has been contracted to run the new prison at Wiri.

His responses were jaw-droppingly incompetant. The man was totally out of his depth, as these excerpts show;

Owen: “So are they getting paid and how much?”

Lotu-Iiga: “Well, the contract is between Serco and PlaceMakers, and I’m not privy to those sums, but—”

 

Owen: “So you don’t know how much the business is going to make—”

Lotu-Iiga: “I don’t have the figures on me, but we could ask Serco what the contract’s for.”

 

Owen: “Out of the inmates building framing and having these contracts. So who makes the profit out of the contract?”

Lotu-Iiga: “ Well, we don’t know whether there’s profits being made, but what PlaceMakers—”

 

Owen: “Why don’t you know that, Minister? Because this is under your watch.”

Lotu-Iiga: “Well, I spoke to the managing director of PlaceMakers yesterday, and they said that they will pay a standard contract for fees to Serco. I don’t know what that amount is…”

 

Owen: “Right, so in terms of rehabilitation, but you don’t know who’s making a profit or if one’s being made?

Lotu-Iiga: ” Hang on. They’ve got a commercial transaction between Serco and PlaceMakers. I don’t know what that figure is, but we can work it out.”

 

Owen: “Even with that $30 million? Even with that $30 million profit that they’re making per annum?”

Lotu-Iiga: “I don’t think they’re making a $30 million profit.”

 

Owen: “You don’t think it’ll make $30 million, and what you’re saying is it’s still saving money even though this company is making a profit out of it? It’s still saving us money even though they’re taking that profit.”

Lotu-Iiga: “It’s… Well, it’s saving the taxpayer money. It is saving the taxpayer money.”

 

And then this astounding admission from the Minister that must have had every viewer that Saturday morning choking on his/her milo/tea/coffee, and the Prime Minister speed-dialling his Chief-of-Staff;

Owen: “Who employs those monitors? Who employs the monitor in the prison? “

Lotu-Iiga: “There will be— If I can just finish, there will be an ombudsman. They will be subject to complaints—”

Owen: “So the monitor in the prison, Minister, just to be clear, the monitor in the prison; who employs the monitor?
Lotu-Iiga: “My understand is that the monitors are based in the prisons, but they report to the Department of Corrections.”

Owen: “Who employs the monitor and pays their wages, Minister?

Lotu-Iiga: “Well, I don’t have those facts on me, but they do report—”

Owen: “Well, I do. The person who employs the monitor— the person who employs the monitor is the company, Serco. They employ the monitor, and pay their wages.”

Lotu-Iiga’s spectacular ignorance of his own portfolio has almost certainly destroyed his political career. He will also have disappointed his political strategist and mentor, controversial far right-winger,  Simon Lusk.

Lusk was employed by Lotu-Iiga during the 2008 election campaign for the Maungakiekie Electorate Campaign. In return, as well as being paid by Lotu-Iiga, in his Maiden Speech in Parliament the newly-elected MP openly acknowledged Lusk’s involvement in his election to Parliament. In this Youtube video, Lotu-Iiga mentions Lusk at 3:56. Note who is sitting behind Lotu-Iiga – Aaron Gilmore, another Lusk protégé.

Bad luck, Simon.

It is not often that I feel sympathy for a Minister of a National Government. When I do, it is the pity I feel for a doomed man whose career has come to a grinding, crushing halt.

At the next Cabinet re-shuffle, Lotu-Iiga will be joining Kate Wilkinson, Phil Heatley, and Aaron Gilmore in political oblivion.

Dead Minister Walking.

3. Political Panel

Mike Williams, Bernard Hickey & Jamie Whyte comment on interviews with Bill English and Peseta Sam Lotu-Iiga. Note ex-ACT leader, Jamie Whyte’s cringe-worthy apologistic comments on behalf of English, and why he thinks government debt does not matter.

4. The Programme

All in all, this was one of the most outstanding episodes of “The Nation” with excellent interviews; topical subject matter; and insightful analysis by (most) of the panellists. Lisa Owen joins Kim Hill as two of this country’s most formidable interviewers.

This is the sort of programming Mediaworks should be broadcasting at Prime Time. My “money” would be on people desperate for informative television – who are sick to their stomachs on a sickly diet of “reality tv” – to flock to such a viewer-friendly scheduling.

Good, quality, current affairs should never be tucked away as some sort of “guilty pleasure”.

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References

Wikipedia: The Phoney War

Wikipedia: Claytons

Rabobank: Country Report New Zealand

Farming Show: Australia becomes top trading partner once again

Radio NZ: Price drop another blow for dairy farmers

NZ Herald: Brian GaynorPlans for jump-start reveal differing styles

Scoop media:  Govt’s 2010 tax cuts costing $2 billion and counting

Fairfax media: Dairy prices fall at Fonterra GlobalDairyTrade auction

Beehive: Fact sheet – Personal tax cuts

Radio NZ: English concedes surplus target unlikely

Youtube: The Nation – Can National promise a surplus by 2016?

TV3: The Nation – Interview –  Finance Minister Bill English

Treasury: Debt

Fairfax media: Public debt climbs by $27m a day

Fairfax media: Government offloads 2800 state houses to Auckland development company

TV3: The Nation – Interview – Corrections Minister Sam Lotu-Iiga

Wikipedia: Serco

Simon Lusk: Clients

Fairfax media: The rapid rise of a well-educated man

Youtube: Peseta Sam Lotu-Iiga MP – Maiden Speech

Previous related blogposts

Tax cuts and jobs – how are they working out so far, my fellow New Zealanders?

Did National knowingly commit economic sabotage post-2008?

Budget 2014 – Why we will soon owe $70 billion under this government

The Mendacities of Mr Key #3: tax cuts

When the Rich Whinge about paying tax

Two Tax Strikes against Dunne?

“It’s one of those things we’d love to do if we had the cash”

National’s Ohariu candidate admits contact by Simon Lusk

Power Struggle in the National Party?!

Other blogs

Unframed: John Key has no credibility on debt and no Plan B

Acknowledgement

Tim Watkin, Producer of “The Nation“, for interview transcripts; link to Youtube excerpt featuring Bill English; and valuable insights.


 

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This blogpost was first published on The Daily Blog on 3 May 2015.

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Christchurch City Council – Having your asset-cake and eating it

28 March 2015 2 comments

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Prelude

On 29 January 2013, Prime Minister John Key announced that the rebuild of Christchurch would be a Herculean, multi-billion dollar task;

New Zealand also faces a domestic construction boom. That will be centred, of course, on Christchurch, where the total spend is now estimated to be around $30 billion.”

By 15 May 2014, National’s Finance Minister, Bill English delivered his sixth Budget speech to Parliament. The cost of the Christchurch re-build  had escalated by $10 billion;

The total cost of the rebuild has been estimated at $40 billion and the Government’s share will be significant.

On current estimates, the Government’s contribution to the rebuild is expected to be $15.4 billion, of which $7.3 billion will be incurred by the Earthquake Commission, net of reinsurance proceeds.

Despite central government’s massive re-build bill for Christchurch, in his Budget Conclusion, English was at pains to repeat his new mantra;

The Government’s books are on track to surplus next year and are the envy of most developed countries.”

The surplus English referred to was an Operating balance Before Gains and Losses (OBEGAL),  forecast to be a hair-thin  $86 million for 2014/15.

English’s  Budget document pointed out;

Government is still borrowing a net $78 million a week, and in dollar terms, net debt is expected to peak at $64.5 billion in 2015/16...”

Little wonder that English stated, with blinding obviousness four days earlier;

It means we will need to maintain firm expenditure control beyond our return to surplus...”

Which is why an increasingly nervous Finance Minister, conscious of spiralling re-build costs, came down hard and crushed any suggestion that taxpayer’s money be used to subsidise the proposed SkyCity convention centre;

There’s no contingency for that. If the less preferred option ended up being the option then that money would be part of the Budget process.”

Firm expenditure control in this case meant that the government-purse was firmly shut. And padlocked.

National Government’s Predictable Response

In May 2011, barely three months after Christchurch’s devastating earthquake that killed 185 people, there were already suggestions from Gerry Brownlee that the Christchurch Council would have to sell part of their community-owned assets to fund the re-build.

National’s mis-handling of the economy, with two unaffordable tax-cuts,  as well as the Global Financial Crisis and resultant recession,  had left the government’s books deep in the red.

At first, Brownlee was coy at any suggestion of asset sales;

I don’t foresee the council having to sell any assets, though in the end that will be their choice.

But in the next breath, he added;

I would suspect that Treasury have had a look at the city council’s balance sheet, given that we are going to have to take a whole lot of debt onto our [the Government’s] balance sheet.

It’s only natural we would have a look at what the council can stand [to pay].

Yes, there is provision in this legislation for Cera [Canterbury Earthquake Recovery Authority] to suggest to council that they might need to sell something.

Brownlee denied that government or Treasury had been scoping CCC assets with a view to partial (or full) privatisation;

The accusation is that Treasury have been looking at council assets with a view to what the council will sell. That is, I think, completely erroneous.

On 9 February 2012, a year after the second earthquake,  Brownlee admitted in Parliament (in response to questioning by the future mayor of Christchurch, Lianne Dalziel);

In the days leading up to that particular injudicious comment from me there were numerous discussions going on with the council—between the senior executives, the mayor, me, and the senior executives of the Canterbury Earthquake Recovery Authority—over a number of issues that we want the council to take some responsibility, alongside us, for. Although Treasury officials will have talked to the council, I am unaware of exactly what that discussion would have been about. But let me tell you that when the Government is spending $5.5 billion anywhere we expect the recipients of that to have some plan for how they will participate in what will be a very, very expensive recovery, and that plan has to be a lot better than saying “We’re just going to put up the rates, and we’re going to borrow a lot more money”.”

Brownlee would have us believe that he was “unaware of exactly what that discussion would have been about” between Treasury officials and  Christchurch council?  As Minister of Earthquake Recovery of that devastated city, that proposition is simply not credible.

Brownlee was not being truthful.

The Minister’s denial was further shown to be less than truthful with this evasive response in Parliament on 2 August 2012;

I have received advice from Treasury and the Canterbury Earthquake Recovery Authority on a range of funding options for the rebuilding of Greater Christchurch, to which the Government has committed $5.5 billion to date. Alongside the Christchurch City Council, I support the regeneration of our city, which will be enhanced by the development of the central city plan, released on Monday. I have publicly acknowledged the funding challenges for both the city council and the Government. Councillors and I have agreed to discuss, alongside our respective organisations, a sensible and achievable time line and funding programme for the delivery of the blueprint. I approach these discussions in good faith, as the thousands of city residents would expect us to do so. I intend to say no further on this matter.

The full text  of a remarkable, and somewhat ‘testy’ exchange between Minister for Canterbury Earthquake Recovery, Gerry Brownlee, and the then-Speaker of the House, Lockwood Smith, under-scored the sensitivity of any suggestion that central government was putting the “squeeze” on Christchurch to sell community-owned assets and relieve pressure on English’s struggle to balance the books.

By May 2013, all pretences that asset sales were not being discussed were firmly kicked to the side, with John Key entering the political fray (and Gerry Brownlee standing pensively and obediently in the background);

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Christchurch rebuild - Council needs to come to the party - PM

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Key was clear with Christchurch residents in his expectations;

The only other option available to it is that it doesn’t actually embark on some of the projects it might want to embark on. In the end Cantabrians will have to have a say on what they think is the right mix.

I actually personally hold the view that for Canterbury, where you love sport, happen to be pretty darn good at it, and have climatic conditions that argue that a covered stadium might make sense, then actually it could be a really sensible thing to do.

And if it was up to me I would make that choice in a heartbeat if it meant changing the mix of assets, but I understand for lots of other people they might not hold that view.

This is the chance to get it right. I just urge everyone to think that through.  There is the opportunity to have some quite fantastic facilities here.

The Government is quite happy to step up and put $15bn in, and there is a limit as to how much we can put in, and some of it must come from the council.

The threat is obvious; ‘cough up the extra cash by selling some of the family silver, or  no more rugger for you lot’!

Faced with National firmly closing off any options to meet ever-increasing re-build costs, Christchurch was faced with few alternatives and on 1 August last year the Council caved to central government pressure in the form of a report from investment bankers, Cameron Partners. As Mayor Lianne Dalziel admitted;

We’ve got nothing, there isn’t even wriggle room any more, there’s just nothing there, we’re over the line and we have to pull it back before 2017.

Creating financial certainty will attract much needed investment in the rebuild. We want to work alongside the Canterbury earthquake Recovery Authority (CERA) to scope the possibilities for a one-stop landing point for both local and foreign investors.”

Note the year Dalziel refers to: 2017. An election year.

Dalziel’s reference to “both local and foreign investors” is an oblique acknowledgement that the Christchurch City Council will have to part-privatise community assets to raise money that will not be forthcoming from Key’s government.

She was more forth-coming here, on the same day;

Releasing capital from our balance sheet alongside the other options, (including increased income, reduced operational expenditure and government assistance), is clearly one of the ways we can address the uncertainty around the city’s finances.

Dalziel also hinted at why Christchurch was forced to undertake asset sales;

The purpose of releasing capital would be to generate funds to assist in solving the identified funding shortfall; provide the level of confidence and certainty required to develop a credible long term financial strategy and get on with the rebuild of our community facilities, infrastructure and housing; allow CCC to buffer Christchurch residents and businesses from the exponential rates increases; and allow CCC to align our vision and strategic objectives for the rebuild with our asset portfolio – that is, what we own and operate.

It is simply untenable – both from a commercial perspective, as well as morally – that citizens in one city should be forced to pay for the rebuild of their infra-structure. This was a disaster not of their making.

Any suggestion that the cost should not be spread more evenly around the country would create a precedent that we are each solely responsible for any disaster that might befall our own region. Do New Zealanders really want to go down that road? They should think long and hard if that is the kind of society they want for themselves and their children.

Earthquake Recovery Minister could not endorse the Cameron Partners report fast enough, releasing this statement on the same day – 1 August;

The Cameron Partners report makes it clear some major areas of financial uncertainty are causing headaches for Christchurch City, including the cost of repairing and replacing the city’s essential horizontal infrastructure [pipes, roads, waterways].

When we signed the cost-sharing agreement with the council in June 2013 we foresaw this and undertook to do a thorough review of where the shared costs of the rebuild lay by 1 December this year.

Once we have this information we can consider if any amendments are required to the cost-sharing agreement.

Officials from CERA and the Treasury are working with the council already to ensure the review provides Christchurch City with the clarity it needs to help make some of the big decisions ahead of it.”

National had won.

Brownlee had successfully forced Christchurch Council to adopt unofficial National Party policy; that Council’s were expected to divest themselves of strategic assets if funding for extraordinary projects was required. This was the same policy that Brownlee had forced on Auckland, to fund it’s rail loop, and which he outlined on TV3’s ‘The Nation‘, on 30 June 2013;

Rachel Smalley:John Key said on Thursday that Auckland should consider selling its assets in order to meet some of these costs. Should the Council consider that?”

Gerry Brownlee: Well I think it’s one of those things that’s inevitably going to be on the table. Remember that we’ve got a programme that is now set out for the next 10 years, and as we come up to the point where you’re getting the business case together for the city rail link and that huge expense that’s involved in that, and recognise that you’ve got a 2016 Local Body Election as well, I’d be very surprised if it wasn’t something that was considered by some people.”

But more was come on 6 December 2014, Brownlee was demanding that Christchurch Council increase the level of asset sales;

So it’s a positive step but it’s not the end yet. I do have some worries that it might be a little timid and particularly if it were to lead to much higher rates there in Christchurch.

Murray Horton, from the lobby group ‘Keep Our Assets Canterbury’, was correct when he warned;

Once a chunk of ownership of those assets, the council’s assets, is gone then it won’t be long before there are calls for more to go.

Horton’s prescience was proved barely three months later.

Costs & Consequences

On 26 February, 2015, four years and four days after the city’s second quake, the Christchurch City Council voted;

“...subject to public consultation, the council will release $750m in capital through the sale or partial sale of assets the council owns through its commercial arm, Christchurch City Holdings, to help plug its $1.2 billion funding shortfall.

By the following day, Brownlee was demanding more asset sales, which he repeated more forthrightly on TVNZ’s Q+A on 

I don’t think you can put a particular price on it. What I think they need to do, and I’m sure that the council will get there. I’ve got to say the council have been edging their way to a position that I think will leave them in a good space progressively. What really is necessary is a sales process that gets you the highest possible price. If you go out and say, ‘Look, I’m just going to sell a little bit of this and a little bit of that,’ then you’re not going to get any premium on it at all. And if you’re going to sell something, you may as well get as much for it as you possibly can. That’s my real point.

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…if you look at something like the airport. It’s essentially a real estate company that just provides parking for planes. You could break it down to being that simple. It’s still going to get used. It’s still going to provide the service the city requires whoever owns it. It is partly price controlled through the Commerce Act, as is Orion. Completely price controlled. So the idea that someone else would buy it and the pricing of your electricity lines are going to become completely out of control is completely wrong. ”

The sale of community assets is a perfect fit with National’s ideological and fiscal needs;

  1. Ideologically, National is as wedded to privatisation as it ever was. It is only held back from a  more radical asset sales programme by public opinion – a point no doubt reinforced through National’s on-going secret polling.
  2. Fiscally, forcing local territorial authorities to finance infra-structure through sales of community-own assets lets central government off the hook, and gives English his desperately needed surplus.

Territorial Authorities have little control over Point 2.

With regards to Point 1, however, Territorial Authorities finding themselves under financial pressure can be more strategic when it comes to finding ways and means to navigate political pressure from the likes of right-wing governments and ministers like Gerry Brownlee.

One such mechanism is found within Christchurch City Council’s own document, “Council decision on proposed Financial Strategy“, where it states;

The sale of 14.3 % of Orion on condition that the shares are only offered to another public entity, such as another TA [Territorial Authority], or an institutional investor such as NZ Super Fund, and that any agreement would be subject to the shares returning to the CCC should the investor wish to sell down its share at a future date.

The same document suggests the sale of 34% of Lyttleton Port Company and 9% of Canterbury International Airport Ltd to “a suitable strategic partner“.

The latter measure opens the proverbial slippery slope to further down-selling of Christchurch Council’s shares in both companies. As such, it would be unacceptable to most Cantabrians (and New Zealanders, who have experienced the down-side of sales of strategic assets).

The NZ Super Fund would be an ideal partner for a Territorial Authoritory such as Christchurch Council. At present the NZSF’s investment in New Zealand amounts to only  13.8% in 2014  (down from 14.2% in 2013).

Not only would the NZSF offer an ideal means by which to keep these assets in New Zealand ownership, but would retain the profits instead of seeing them sent off-shore, worsening our Balance of Payments even further.

It would also fulfil the Super Fund’s  2009 directive from the Minister of Finance “requiring us to, while always investing in a prudent and commercial manner, identify and consider opportunities to increase the allocation to New Zealand assets in the Fund“.

Lastly, the Christchurch Council could eventually re-purchase the shares from the NZSF once the city’s re-build was essentially completed and it’s books were back to some semblance of normality.

The first option should always be that local strategic assets remain in local ownership, so that everyone in the community benefits.

In the face of intransigence from an ideologically-bound, and fiscally inept National Government, the best we can hope for is Plan B.

Plan B: transferring ownership, by temporary sale, to the New Zealand Super Fund. It ticks nearly all the boxes.

Additional – Christchurch City Asset Holdings

  • Christchurch City Holdings Ltd (CCHL) is the commercial/investment arm of the Christchurch City Council.
  • CCHL manages the Council (ratepayers’) investment – worth around $2.6 billion – in these seven fully or partly-owned council-controlled trading organisations.
  • CCHL is forecasting to paying $46 million in dividends for 2015/16 period.
  • CCHL Special dividend for 2015/16 period: $549,300,000
  • “The return on our CCHL investment from cash dividends has averaged 3 per cent in the last three years and 4 per cent in the last 10 years. When the appreciation in the capital value of its investments is taken into account, CCHL has achieved an internal rate of return over the past five years of 8.0per cent a year, or 25.9 per cent a year since its inception in 1996.” (Source)

Trading Organisations

Orion New Zealand Ltd: 89.3% shareholding

Christchurch International Airport Ltd: 75%

Lyttelton Port Company Ltd: 78.9%

Christchurch City Networks Ltd (trading as Enable Networks): 100%

Red Bus Ltd: 100%

City Care Ltd: 100%

Selwyn Plantation Board Ltd: 39.3%

[Acknowledgement Fairfax Media]

 

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References

National Party: Prime Minister’s Statement to Parliament

NZ Treasury: 2014 Budget Speech

NZ Treasury: Rebuilding Christchurch

NZ Treasury: Budget Priorities

Beehive.govt.nz: Budget will confirm track to surplus in 2014/15

Interest.co.nz: Finance Minister prefers not to spend taxpayer cash to avoid Sky City ‘eyesore’; no money in Budget 2015 for it

Fairfax media: Christchurch door open for asset sales

TV3 News: Government accounts show $18.4 billion deficit

Scoop media: Parliamentary Questions And Answers Feb 9 2012

Green Party: Eugenie Sage questions the Minister for Canterbury Earthquake Recovery on Christchurch asset sales

NZ Herald:  Christchurch rebuild – Council needs to come to the party – PM

Fairfax media: Cameron Partners Review – full report

TV One News: Christchurch facing huge financial black hole

Sharechat.co.nz: Christchurch considers selling strategic assets stake to fund rebuild

The Press: Council asset sales mooted to help raise $900m

Scoop media: Brownlee says its up to Len to sell assets for loop

Radio NZ: Asset sales plan ‘may be too timid’

The Press:  Christchurch City Council votes for $750m asset sales

The Press: Gerry Brownlee says Christchurch rate rise as ‘too much’

Scoop media: TV1 Q+A – Govt will protect identities of NZ troops – Brownlee

NZ Super Fund: 2014 Annual Report

NZ Super Fund: 2009 Ministerial Directive

Statistics NZ: Balance of Payments and International Investment Position – December 2014 quarter

Christchurch City Council: Christchurch City Long Term Plan 2015 – 2025

Christchurch City Council: Council decision on proposed Financial Strategy

Additional

Christchurch City Council: Long Term Plan consultation document adopted

Previous related blogposts

Christchurch, choice, and charter schools

Christchurch – Picking the bones clean?

The “Free Market” is a fair-weather friend


 

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This blogpost was submitted to the Christchurch City Council as a submission to the Long Term Plan, on 22 March 2015.
This blogpost was first published on The Daily Blog on 23 March 2015.

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