|
You are subscribed as |
Unsubscribe
|
View online version
|
Forward to a friend
|
|
|
||||||||||||
|
||||||||||||
|
||||||||||||
|
|
||||||||||||
|
||||||||||||
| Dr Eric Crampton | Chief Economist | eric.crampton@nzinitiative.org.nz | ||||||||||||
|
This kind of ‘free’ insurance policy leads to no end of bad outcomes. If central government cannot credibly promise to let depositors bear even minor losses when a bank fails, then deposits effectively come with free insurance. If that free insurance did not exist, banks wanting to reassure depositors would need to hold enough capital to demonstrate their safety. But depositors expecting bailouts will not exercise diligence. That encourages prudential regulators to require banks to be very strongly capitalised. At best, regulated capital requirements replicate those that unregulated banks would choose if their capitalisation was their depositors’ only insurance, and when their shareholders and creditors assets would be the first to be liquidated. But ‘free’ insurance comes at high cost when capitalisation requirements err on the side of caution. The problem extends well beyond banking. In 2019, BNZ filed a claim against Wellington Council for the BNZ building that failed in the 2016 earthquake for “no less than $101,243,345”. Council had issued resource consents and code compliance certificates for the building. That certification comes with a form of ‘free’ insurance enabling building owners to sue council if the building fails. This week, the Supreme Court said that engineering and design consultancy Beca might share some liability with Wellington Council. Council’s liability could yet be large. The BNZ building is not an outlier. In 2019, MBIE-commissioned work showed that in about half of the cases in which claims of building defects lead to compensation, councils wind up bearing the entire burden. Without that free insurance policy, people commissioning new buildings would demand warranties or explicit building insurance against defects and failures. The strength of those warranties and insurance would be a point of competition in the building market. Construction companies would weigh the costs of different building methods against the expected costs of warranties. When a building consent comes with a free insurance policy, every consented building is a potential liability for council. Councils then become highly risk averse in consenting, pushing up costs across the sector. The government may yet legislate to remove this burden from councils, but the broader underlying problem remains. When people expect government bailouts if anything goes wrong, from increased flood risk to unexpectedly high power prices, that insurance comes at very high cost. Ending bailouts may be the best insurance. |
||||||||||||
|
||||||||||||
|
||||||||||||
| Nick Clark | Senior Fellow | nick.clark@nzinitiative.org.nz | ||||||||||||
|
One intriguing idea is whether mayors should have their own staff, directly accountable to them. The rationale is to ensure that the voices of communities, represented by elected mayors, are heard more clearly within the machinery of local government. As floated in Hon Simeon Brown’s speech to Local Government New Zealand, this could mean extending the Auckland mayoral model to the rest of New Zealand. Under that model, the mayor has an office and staff reporting to them rather than to the chief executive. The Auckland model is explicitly legitimised by legislation. It differs from traditional structures under which council administration is firmly in the hands of chief executives. Mayors serve as councils’ public faces and chair meetings, but they cannot direct council operations. That split between political governance and professional management is deliberate. However, it arguably results in inadequate democratic oversight and conflict between the interests of mayors and those of chief executives. Usually, tensions play out behind the scenes, but Gore District had a very messy public blow-up in 2023. Auckland’s mayoral model seems effective. Auckland’s Watercare charges for water separately, making rates comparisons with other councils imprecise. However, Mayor Wayne Brown this year drove cost savings that enabled Auckland to impose a rates increase that, at 6.8%, is much smaller than the average of 14% for other councils. Would it work elsewhere? In larger cities, mayoral staff could help navigate complex issues, deal with the bureaucracy, and engage with communities. In smaller councils, however, the addition of another layer of advisors might be too costly relative to the benefits. Many countries have ‘strong mayor’ models, including some large cities in United States and Australia. In some German states mayors are also the heads of council administrations, providing strong democratic oversight. Whether or not mayoral powers should be strengthened depends on broader conceptions of the nature of local democracy. Should mayors, as elected representatives, have more direct control over council operations to advance their policies? Might a higher calibre of mayoral candidates be attracted if mayors were more empowered? Or would it weaken checks on political interference and increase risk by giving too much power to low calibre mayors? And would more powers for mayors do much to resolve political dysfunction when mayors struggle to get support from majorities of councillors? These are not easy questions, but it is encouraging the Minister is keen to consider them. Nick is currently working on a research note looking into this issue. He would welcome any thoughts from readers. |
||||||||||||
|
||||||||||||
|
||||||||||||
| Grant Scobie | Guest author | insights@nzinitiative.org.nz | ||||||||||||
|
For many New Zealanders the image might evoke thoughts of easy-going summer holidays with laughing children jumping from the jetty and using the ladder to climb back out. But behind that idyllic imagery lies a sinister reality. The swim ladder posed a potential threat both to life and limb and to the lake’s ecosystem. You see, it protruded 11cm beyond the consented footprint of the jetty. Who, you might wonder, would be thoughtless enough to possess such irresponsible infrastructure? With deepest shame, I confess it was me. Fortunately, our stalwart public agencies stood ready to protect the public and the environment from my negligence. They rode to the rescue armed with a raft of approval processes. The opening shot from our courageous agencies was a letter from the Bay of Plenty Regional Council expressing its concern. A veritable barrage of bureaucracy quickly ensued. I was required to obtain approvals from the Council’s Maritime Team, the Department of Conservation, Fish and Game, Land Information NZ, and Te Arawa Lakes Trust. To the relief of all concerned, the Maritime Safety Team determined that the ladder did not constitute a hazard to shipping. Subsequently, approvals trickled in from the other agencies. But the approvals process was just the first line of defence. Next, I had to submit an extensive application to Te Arawa Lakes Trust. Detailed plans, GPS coordinates, and consideration of cultural values were required, capped off with a $400 fee. Some four years later, the Council was finally obliged to issue a consent. As a parting shot, they sent me an invoice, detailing six hours and 45 minutes of staff time priced at $775.08. That brought the total cost of legalising the ladder to $1,175.08, amounting to $10.68 per millimeter of its extension beyond the jetty’s originally consented footprint. I paid gladly. After all, no price is too high when it comes to public safety and environmental protection. This tale of bureaucracy heroism enjoins us to reflect with reverence on the noble public agencies that protect us from all dangers, great and small. Duly chastised, I am grateful for the lesson and have reformed my previously cavalier attitude to public safety. |
||||||||||||
|
||||||||||||
| On The Record | ||||||||||||
|
||||||||||||
| All Things Considered | ||||||||||||
|
||||||||||||
|
|
||||||||||||
Unsubscribe me please |
|
Brought to you by outreachcrm |