Powering back to socialist 70s

BusinessNZ calls the Labour/Green plan to nationalise electricity wholesalers economic vandalism.

Chief Executive Phil O’Reilly says the proposal would destroy a functioning market and replace it with heavy-handed bureaucracy.

“Inserting an army of bureaucrats between power generators and retailers would destroy price signals, so prices would not reflect the cost of generation.

“In that situation, the taxpayer would continue to pay ever higher subsidies of the electricity system. This is not sustainable.

“The Electricity Authority said only yesterday that the electricity market is as competitive as it has ever been. It can always be improved, and this is where the focus should be.

“It’s only competition that can drive prices down. Governments can’t do this, not without subsidising the sector from taxes.

“A state-controlled sector as envisaged by Labour would drive out private investment. Why would the private sector invest in generators when the state can determine the prices they can charge, while subsidising state-owned competitors?

“The private sector power companies would have to seriously consider their future in the market. Those who have invested heavily would basically find their profits confiscated.

“Interfering in the market in this way would send a signal to the rest of the world that it is not safe to invest anywhere in New Zealand. The knock-on impact from that, on jobs and growth, would dwarf any short-term benefit from artificially reduced electricity prices,” Mr O’Reilly said.

Energy and Resources Minister Simon Bridges says the Labour-Greens power plan is incoherent and will kill competition in the electricity market.

“Under the previous Government, electricity prices increased by 72 per cent. It has taken the National-led Government’s reforms to arrest these ridiculously steep increases on New Zealand households,” says Mr Bridges.

“The 2010 electricity market restructure is working. The market now has more players and much more competition than it ever had under Labour.

“New Zealanders are increasingly taking advantage of greater competition and are switching companies for a better deal – in some cases, saving up to several hundred dollars a year.

Since the Electricity Authority’s What’s My Number? campaign began in May 2011, there have been almost 700,000 consumer switches.

“Why scrap the whole electricity market when consumers can already save more than the economically illiterate promises the Opposition is making?

“These types of policies have been considered in the past and rejected for very good reasons. Consumers should be very afraid of them. They may look simple but all they will ultimately bring is higher costs to households,” Mr Bridges says.

Economic Development Minister Steven Joyce calls it a a half-baked Soviet Union-style nationalisation “plan”:

“This is truly wacky and desperate stuff obviously made up in the last minute in the Koru Lounge between comrades Norman and Shearer,” Mr Joyce says.

“Their crazy idea to have both a single national purchaser of electricity and to exempt Government-owned companies from both company tax and dividends would effectively demolish private investment in the electricity industry overnight. It would also raise real questions as to why any individual or company would want to invest in businesses in New Zealand.

“Even the idea of it is economic vandalism of the highest order, with the timing designed to try and disrupt the mixed-ownership company floats. What we are seeing here is a desperate Opposition that is prepared to sacrifice economic development in New Zealand on the altar of political opportunism.

“The sad truth is that Labour has no idea how to operate a competitive market that keeps downward pressure on prices. Labour made a number of reforms to the electricity market in the early 2000s and the result was power prices rising 72 per cent over nine years.

“This Government’s reforms have halved price increases while maintaining investment in generation and transmission. Labour’s suggestion today is no more than a belated apology for their mismanagement, with a back-to-the-70s solution that would only make things worse.

“You seriously have to question the quality of economic advice the Labour Party is getting. They really need to get a lot more serious if they are ever to be considered fit to manage the New Zealand economy.”

It’s not just the government questioning the policy.

Colin Espiner asks has Labour actually gone insane? As in stark, raving, Monster Loony Party mad?

I’m assuming the answer is yes, judging by today’s incredulity-creating announcement that, if elected next year, Labour will essentially nationalise the electricity industry. . .

The Opposition says it’s going to create a single buyer, NZ Power, that will buy all the country’s electricity generation “at a fair price” and then onsell it to consumers. 

It’ll pretty much give away a 300KW bloc to every household and then charge for additional units. 

At a stroke, Labour is proposing to dismantle the electricity market, ruin Contact Energy and Mighty River Power and decimate the Government’s share float plans for both MRP and Meridian. 

Oh, and sell thousands of mum and dad investors down the Mighty River, since MRP’s share price would almost certainly plummet if the company was forced to retail only through a government department at whatever price it deemed to be fair. 

Already Contact shares dipped 3 per cent on the news, and that’s just a taste of what would come if this policy was ever implemented.

I’m no fan of high power prices – and I don’t own any Contact or MRP shares – but what Labour is proposing is essentially nationalisation a la Brazil or Argentina. This is Third World, funny-money stuff. Goodness knows what the financial markets will make of it. And what message does it send to overseas investors? . . .

It’s extremely rare that I agree completely with Economic Development Minister Steven Joyce, but his comment today that the plan was “a return to the 1970s-style monopoly provision of electricity…Only North Korea and Venezuela did not think such ideas are nuts” is pretty much spot on.

I agree with Joyce that Labour is virtually sabotaging the economy. 

It is, in my view, also an indication that Labour does not believe it has any hope of winning the next election. In my experience, only political parties that know they have no realistic hope of winning an election propose things they know they will never have to try to implement. . .

There is no virtually about the economic sabotage this policy would inflict.

I was in parliament for Question Time yesterday.

The Government benches were enjoying themselves and Ministers made the most of the opportunity Labour and the Green Party gifted them:

Hon STEVEN JOYCE: The Electricity Authority yesterday released its review of the electricity market in 2012. The report showed 18 percent of customers, around 32,000 people a month, voted with their feet by switching electricity providers in 2012, presumably for lower prices. For the benefit of the Opposition, that is called “competition”. Since November 2008 annual electricity price increases have halved from the 8 percent year-on-year increases suffered by hard-working New Zealanders during the previous 9 years. This follows a number of pro-competitive reforms by this Government, which apparently the Opposition is not aware of. We have reconfigured State owned enterprise assets to increase competition, created the Electricity Authority and made it responsible for promoting competition, allowed line businesses to compete in the retail space, and funded promotion of consumer switching through the What’s My Number campaign.

Todd McClay: Has the Minister seen any other proposals to try to lower electricity prices?

Hon STEVEN JOYCE: Well, weirdly, yes, I have. Just before lunch today I received one report, which I believe came from the “North Korean School of Economics”. Apparently, the suggestion there was that nationalising the entire electricity industry would somehow lead to lower power prices. . .

That got a point of order call from Winston Peters to which the Minister responded:

Hon STEVEN JOYCE: If I could perhaps clarify my answer, I should clarify that I received a report from the local branch of the “North Korean School of Economics”.

I’d like to believe Espiner’s theory that this is the policy of parties which know they’ll lose the next election and therefore never have to implement it.

The only other explanation is that the people promoting them are so economically illiterate they don’t understand what they’re talking about.

Either way, it shows they haven’t learned from history because these policies would power us back to the socialist seventies and it would be all downhill from there.

TPP – threat or opportunity?

Is the TPP a threat to democracy?:

Almost three quarters of a million people around the world have signed an online petition that brands the Trans-Pacific Partnership (TPP) agreement a “threat to democracy” and a “corporate takeover”. . . .

“Many hundreds of thousands of people from around the world have sent a blunt message to politicians and corporations who tout the TPPA as a model for the 21st century that it does not represent not their 21st century”, said Jane Kelsey, who has been asked to present the petition to the negotiators. . .

Or is it of seminal importance for jobs?:

The Trans Pacific Partnership is of seminal importance for developing job opportunities in New Zealand, says Kim Campbell, chief executive of the Employers & Manufacturers Association.

But alongside our ongoing struggle to win access for our agricultural products we need a completely separate work stream dealing with intellectual property, Mr Campbell said.

“It is evident that in terms of the TPP, intellectual property is a complicated rat’s nest full of ambiguity and vested interests,” he said.

“Well-resourced groups have the capacity to subvert the TPP process if we are not most careful to ensure it is robust and enduring.

“Hence the need for caution and precision over the agreement’s terms and conditions.

“New Zealand business will be paying close attention to the details of this part of the agreement because tomorrow’s globally integrated business world will be driven by intellectual property.

“And we are 100 per cent committed to New Zealand negotiating a high quality TPP agreement for the job opportunities and economic growth prospects it can undoubtedly deliver.”

Business NZ sees the importance of the TPP for people:

The Trans Pacific Partnership will help build more successful communities, says BusinessNZ.

Speaking at the Trans Pacific Partnership Forum in Auckland today, BusinessNZ Chief Executive Phil O’Reilly said the TPP has the potential to raise living standards around New Zealand.

“This trade agreement goes beyond the 20th Century approach of simply seeking to reduce tariffs and border restrictions.

“It recognises the fact that industry now relies on complex supply and value chains involving producers in many different locations and countries. New Zealand is deeply involved in many international value chains and the TPP will enable more New Zealand businesses to trade more effectively in more countries, and that means increased growth and more jobs for New Zealanders.

“The particular value of the Trans Pacific Partnership is that it involves many of the fastest growing economies on earth. Economic growth in the Asia Pacific region is surging and the TPP will help unlock that growth for New Zealand’s benefit.

“It’s appropriate that New Zealand’s negotiators are focused on protecting and advancing our interests including public health, intellectual property, the environment, and the Treaty of Waitangi, and success in these areas will mean a high-quality trade deal that is sustainable in the long term,” Mr O’Reilly said. . .

Both sides of this argument are right about the need for caution over some of the details.

But one side is anti-trade in general and using that bias to oppose the TPP in its entirety.

The other realises the importance of trade for maintaining and creating work opportunities here and earning the export income which will support the first world economy and society to which we aspire.

Left don’t learn from history

The statistics on the youth unemployment rate are unequivocal – it increased far more steeply than rate for older adults when the youth minimum age was axed by Labour.

But have people and parties on the left learned from that? No.

Yesterday Labour Minister Kate Wilkinson announced a starting-wage for young people and immediately got this response:

Lower wages no solution – from the Council of Trade Unions.

Poverty pay won’t give young people skills or jobs - from the Service and Food workers Union.

More youth to pack for Australia – from  Hone Harawira.

National offers young workers a hefty pay cut – Metiria Turei.

And low wage no future at all from David Shearer.

None of these people have joined the dots between increasing the cost of employing young people and the sharp increase in the unemployment rate for that age group.

The Employers and Manufacturers Association has a far more positive view of the starting-wage:

Everyone concerned about our alarming rates of youth unemployment should be celebrating today’s announcement on the Starting-out wage, says David Lowe, Employment Services Manager for the Employers and Manufacturers Association.

Then they will be looking out for more ways to help, he said.

“Without an incentive an employer with a choice between an experienced worker and an inexperienced worker will choose experience every time,” Mr Lowe said.

“Though there is no silver bullet for creating jobs for young people, the Starting-out wage offers a vital first step up the employment ladder.

“Unless there is an incentive for taking on the added issues of employing youth workers, young people will continue to be over represented in the unemployment numbers.

“The Starting-out wage will restore a form of youth rates that were abolished in 2006 and which proved, as predicted, to hurt the very people its supporters were trying to help.

“Independent research from Pacheco at the time found job opportunities for youth would fall by nearly 20 per cent for all teenagers if youth rates were abolished, but that turned out to be very conservative.”

BusinessNZ also sees the starting-wage will benefit the economy and communities:

Chief Executive Phil O’Reilly says having to pay unskilled teenagers at adult rates makes it hard for many young people to get a job.

“Not being able to get that initial job prevents many young people from gaining workplace skills, further reducing their future employment chances.

“A starting-out wage at 80 per cent of the minimum wage for the first six months’ employment will make it easier to employ a young person so they can gain those vital workplace skills.”

Mr O’Reilly said the policy announced today would particularly benefit teenagers who were vulnerable to being trapped on a benefit through being unable to compete effectively for a first job.

Costings indicate that with accommodation and other applicable subsidies unaffected, a teenager on a starting-out wage would earn more than if on a benefit.

“Getting more young people into jobs – especially including those currently on a benefit – will benefit the economy and communities all through New Zealand,” Mr O’Reilly said.

If employers have to pay people the same rate they are almost always going to favour age and experience over youth and inexperience.

Enable them to pay younger people a bit less in recognition of the bigger investment required in training and the bigger risk with people with no work experience, and they will be more willing to take them on.

Councils’ purpose needs clarity

BusinessNZ says the purpose of local government needs to be properly established in new legislation:

Chief Executive Phil O’Reilly says the purpose statement in the current Act is very broad and permissive, and has resulted in a number of councils taking on, or investing in, too many non-essential activities exposing ratepayers to unnecessary risk and cost.

“The current Act allows councils to ensure communities’ ‘four wellbeings’ – social, cultural, economic and environmental – and this very broad purpose statement has allowed councils throughout New Zealand to continue to expand their operations into the provision of services which more appropriately should be undertaken by the private sector, if at all. Moreover, councils have backed projects with marginal or negative economic returns. Businesses often bear a disproportionate share of these costs given the significant use of business rating differentials by many councils.

“The Amendment Bill has a more restrained purpose statement and is a significant improvement on current legislation, but should to be tightened further.

“A clearer definition of local government’s important role is essential,” Mr O’Reilly said.

Amen to that.

Although Tourism New Zealand is concerned events and festivals will be at risk.

“The tourism industry is concerned that the Local Government Act 2002 Amendment Bill could restrict councils investing in events, festivals and other visitor infrastructure if it is passed in its present form,” TIA Chief Executive Martin Snedden says. . .

TIA is calling for local government to continue to be allowed to invest in the visitor industry, which creates jobs and income in communities around the country. Support from visitors makes possible a range of events and festivals that residents also enjoy, enhancing that community’s vibrancy and well-being. . . .

Events and festivals do attract visitors and add to the vibrancy of communities but current legislation has enabled councils to back them at great cost with questionable return.

It’s up to business

Anyone who has taken a modicum of interest in politics in the last four years should be in no doubt about the government’s economic plans.

They might not like it but they should understand it.

But a majority of respondents to the Herald’s mood of the boardroom survey say the government has failed to articulate its plan.

Just how much does a political party have to do to get its message across?

Almost every speech from Prime Minister John Key, Finance Minister Bill English, and any other minister who mentions the economy spell out the plan quite clearly.

Perhaps those who haven’t got the message should follow this advice:

Can’t understand why the Business leaders aren’t aware of the present National Governments long term PLANS. I have certainly had no trouble finding and understanding where National wishes to position NZ, such that the sons and daughters of not only Business Leaders, but all NZ’ers will have a future in NZ.This is a vastly different future to that which Parker is planning for when he rolls Shearer next year, a possibility, regardless of the recent labour conference change of rules.
The information is out there, if one looks; BUT you are unlikely to find it headlined in the written, or voice media. They are too Socialist.
Perhaps the Business Leaders should step out of the Cocktail circuit, and visit their local National Party office for a briefing; or if they wish have both, hold the Chardonnay glass in the left hand, and lookup the National website using the Right hand.

However, in spite of what respondents to the Herald survey said, a BusinessNZ survey show its members do understand, and support, what the government is doing:

BusinessNZ chief executive Phil O’Reilly said the “standard response” that might otherwise be expected from business was that the Government should cut spending. But the results from his organisation’s survey were consistent with what members were telling him.

“They are supportive of this kind of track the Government’s taking. You don’t want to get so much austerity that you push the economy into recession – at the same time you don’t want them to just blast money everywhere in the hope of getting the economy moving faster because a lot of it will be low-quality spend.” . . .

O’Reilly said the SME Snapshot results largely reflected what business people told him every day. That included the widely held view among members that they generally supported the direction of the Government’s “relatively conservative economic reform programme”.

Building business competitiveness, reducing Government spending as a proportion of GDP, improving New Zealand’s international situation, and building innovation and skills were all regarded as important.

“There will be some in the business community that will have concerns about the pace and execution of government policy, but they broadly support it.

Regardless of what businesses know and understand about government’s plans, the good ones treat governments like the weather, enjoy it when it’s good and do all they can in spite of it when it’s not.

The businesses that get on with their businesses, concentrating on what they can control, are the ones with the best chance of success which will be good not just for them but for the wider economy.

This point is made by Liam Dann:

. . . In reality business knows that there is little point in looking to Government for any major new spending in the next few years.

So what next? Where does all this leave business in 2012? Where will the circuit breakers for this economic cycle come from?

We are going to need strong and innovative leadership from the business community to turn the tide. And we are going to have to see some of that dogged optimism translate into business spending.

Teasing the public out of its recessionary mindset will be a slow process but it is a chicken and egg scenario. Business can lead the way by being proactive and trying new things. It is never easy because there are many reasons why we can’t afford to do something. But if the alternative is slowing sinking in the mire of a stagnant economy – can we afford not to?

Governments come and governments go, so do recessions.

The global financial crisis one isn’t going anywhere fast and it will have an impact here.

But where there is crisis there is also opportunity and businesses which realise it’s up to them and do what they can about it will help turn the tide.

Certainty and predictability needed

Sir Graeme Harrison, chair of the  NZ International Business Forum, wants the Cabinet ministers considering the Crafar farm sale to Shanghai Pengxin to give a clear signal foreign investment is welcome here:

NZIBF chairman Sir Graeme Harrison makes the point that foreign investors are prepared to respect the rules but they need predictability and certainty that when conditions are complied with the investment will be able to proceed.

“That is why the current uncertain situation with regard to the Crafar Farms is so negative for New Zealand’s interests. It risks detracting from New Zealand’s attractiveness as an investment destination at a time when there is strong competition for foreign investment from other countries.”

Sir Graeme’s determined push follows a strong statement by Auckland Regional Chamber of Commerce chief executive Michael Barnett who railed against the way the Shanghai Pengxin bid had been demonised by late-comer bidders in an appearance on Q&A at the weekend.

Fran O’Sullivan has added Sir Graeme to her unofficial roll-call of business people who are finally stepping up and saying this country needs to protect its reputation as a fair regime for foreign investors.

But the big question is why is that only Sir Graeme, Barnett, BusinessNZ’s Phil O’Reilly and George Gould have been prepared to openly speak up for what matters in this area. The paucity of open debate on the pros of foreign investment is astounding and business does need to step up here.

One of the glaring omissions from the list is anyone from Fonterra.

I can’t understand why the company which sells most of its produce overseas and which itself owns farms in other countries, is opposed to foreign ownership here.

As Sir Graeme says, we need foreign investment to make up for our own lack of savings:

“Foreign investment is what plugs the gap in our low domestic savings rates. Without it, ratings agencies could react by increasing New Zealand’s (already high) credit risk rating and interest rates will rise.”

Would the people so strongly opposed to foreign investment be quite so sure of their stand if their mortgages increased without it?