Rail funding not a matter to be taken lightly
The National Party’s notorious dancing Cossacks in the 1975 election campaign has lived on in our political folklore, but the point that advertisement was trying to make is almost never mentioned.
It was not just a witless, poorly crafted piece of Cold War red-baiting. It was aimed directly at the Labour Government’s newly launched investment fund, which, all going well, would be paying for national superannuation by now.
“All going well” means the fund’s investments would not only increase its value over the next 40 years but would contribute to economic growth. Opponents feared the fund would become so large it could dominate all investment in the economy.
They were more perceptive than they knew in 1975. It took another nine years to demonstrate conclusively how government-led investment could make an economy poorer, with or without a Super Fund.
Today we do have a fund, set up by the previous Labour Government. It is run, as the 1975 fund would have been, by guardians charged with making investment decisions independently. It did that quite well under National, building up its capital despite being starved of further government contributions. The present Government resumed contributions and, in April last year, the guardians announced they would like to invest in the Government’s plans for light rail in Auckland.
I doubt those decisions are connected, Transport Minister Phil Twyford seemed as surprised as anyone at the time. But I do wonder why guardians charged with maintaining the value of a fund would want to invest in anything that is not expected to make a profit.
Not much more was heard about the light rail offer until this week, when it came to light that the NZ Transport Agency has been frustrated by having to evaluate a proposal that, according to the agency’s recently replaced board, amounted to little more than “six pages of a powerpoint presentation”.
Twyford, who had previously pretended to be “agnostic” on the offer from the NZ Super Fund in partnership with a Canadian fund, blames the former board for delay and now sounds very keen for the fund’s money. “Wouldn’t it be wonderful”, he beamed to a television reporter, “if every time you paid a fare you were contributing to your superannuation?”
Well, yes, if the fare was covering the full cost of the investment and paying a dividend to the fund. Not so wonderful if the fund is looking for a guaranteed return because the project will be subsidised from taxation. That sort of “investment” is not just a cost to the economy, it sucks resources from activities that would be more likely to add to the nation’s wealth.
Bright-eyed, Twyford now calls the proposal “a public-public partnership”. Oh dear.
The economic benefit of a “PPP” is supposed to be that public projects have to pass a private investor’s test of value. To provide that benefit the project must bear some risk for the private partner.
If the project is a public transport system that will always need a subsidy from taxation, the level of subsidy needs to be agreed at the outset based on an expected level of patronage. If the patronage turns out to be lower than expected, the private investor must suffer a loss and that risk must be stated firmly from the beginning.
All too often, PPPs mean the private provider of capital stands to gain handsomely if patronage is higher than expected but is guaranteed a return from taxation if patronage is lower. It’s called capitalising the gains and socialising the losses.
The public has not heard anything from the NZ Super Fund to suggest it has carefully evaluated different possible configurations of light rail in Auckland and developed a properly costed proposal. Rather, it sounds content to fund whatever the Government wants, which can only suggest it is banking on a one-way bet.
If that is the case, there is no public benefit to be gained from paying the Super Fund for the capital. It would be cheaper for the Government to borrow the money directly and it would be better for the system to be run by a dedicated agency with a subsidy the public can see.
I don’t know why this Government is determined to put public transport on rails. Not long ago I was at dinner with a representative of a Chinese company that makes wheeled versions of these trams. He reckons they can provide the same passenger capacity without costly, inflexible rails in the streets.
But he hadn’t been able to even meet ministers of transport, it seems the Government doesn’t want to know. If the Super Fund is going to finance this Government’s pet project, the fund needs to know it could lose money. Otherwise the ultimate losers would be us.