|
You are subscribed as |
Unsubscribe
|
View online version
|
Forward to a friend
|
|
|
||||||||||||
|
||||||||||||
|
||||||||||||
|
|
||||||||||||
|
||||||||||||
| Dr Bryce Wilkinson | Senior Fellow | bryce.wilkinson@nzinitiative.org.nz | ||||||||||||
|
It must be done by some combination of cutting other spending, raising taxes, borrowing, or selling assets. Raising tax rates rubs against the government’s growth objective. Borrowing is troubling because the public debt is already imprudently high. Asset sales should be in the mix. This week, the New Zealand Initiative published my research report making this case. The report, "The People's Portfolio: A $571 Billion Question", looked at the issue from a householder’s perspective. The New Zealand government valued Crown-owned assets at $571 billion as of June 2024—approximately $275,000 per household. This portfolio encompasses commercial entities, housing, hospitals, schools, and 40% of New Zealand's land area. The Crown’s borrowing costs exceed its income from those assets. One way or another, the difference comes out of householders’ wages and other income. That burden is significant. Treasury estimated in 2022 that the opportunity cost of government asset ownership was around $22 billion annually (now closer to $30 billion). Crown revenue from dividends and rents was only $2.2 billion in 2023-24. Net interest costs on associated borrowing exceeded that at $3.3 billion. For core Crown, interest payments consumed 3.7 cents of every tax dollar collected. If households were in this situation, many would consider selling some assets to reduce their debt. The government should do the same on their behalf. The case is made stronger by official reports identifying ongoing poor quality asset management and government procurement. Why do the problems persist despite them being well known? There are systemic reasons why politicians and public servants typically manage assets poorly. For a start, incentives are misaligned, voters might reward bold “let’s do it” aspirations rather than boring prudent management. This is not just an ‘in principle’ argument. Local and international empirical research confirms the benefits of private ownership subject to competition. People who doubt this should read the evidence. Even so, doing asset sales well is a challenge. The process must be squeaky clean to attract bidders and maintain public confidence. There are valuable lessons from 1987-1999. A professional non-partisan body could assess why the Crown should continue to own assets it does not need to own. Its reports should inform public debate. Dr Bryce Wilkinson’s research report, The People’s Portfolio, was published 25 February. |
||||||||||||
|
||||||||||||
|
||||||||||||
| Nick Clark | Senior Fellow | nick.clark@nzinitiative.org.nz | ||||||||||||
|
I recently attended a series of webinars on cluster development. Participants shared domestic and international knowledge and experience of what makes clusters great and how they can be developed. Clusters are geographic concentrations of interconnected businesses, suppliers, service providers, and associated institutions centred on regional specialisations. When allowed to flourish, they foster innovation and knowledge spillovers, draw domestic and foreign investment, and attract highly skilled workers. New Zealand has many clusters, including fintech and med tech in Auckland, Bay of Plenty kiwifruit, wood processing in Rotorua, energy in Taranaki, ‘Wellywood’, Nelson’s blue economy, Marlborough sauvignon blanc, Christchurch aerospace, tourism in Queenstown, Dunedin video games, and engineering in Southland. But too often, their potential is hampered by lack of engagement. Many other small, advanced economies have been more proactive with cluster development. The feeling is that clusters need help to make this happen. Instead of allowing clusters to grow naturally, central government agencies try to orchestrate economic development using subsidies and other interventions to 'pick winners' among regions, sectors and individual businesses. Meanwhile, councils do not have financial incentives to embrace growth and development. Both tiers of government tie businesses in red tape. Think Big and the Provincial Growth Fund gave government-led economic development a bad name. A better approach, inspired by the Initiative’s report In the Zone, would be to empower clusters of local businesses, helped by economic development agencies, to come together with local stakeholders to identify opportunities for growth as well as barriers. They could then pitch for specific carve-outs or policy trials supporting their emerging clusters. The success of clusters internationally comes from giving businesses the ability and freedom to collaborate within their regional ecosystems. Local clusters will never be successfully driven by central government agencies – they are too remote and siloed. Centralised attempts to direct their development undermine what makes them successful. The government’s recent announcement of reforms to foreign direct investment should boost local and regional economies. Making it easier for digital nomads should help too. Local clusters will have their own ideas. New Zealand's economic challenges require bold thinking across many policy areas. A more proactive approach from the local level, leveraging local specialisations and strengths, could actively support national ambitions. |
||||||||||||
|
||||||||||||
|
||||||||||||
| Dr Eric Crampton | Chief Economist | eric.crampton@nzinitiative.org.nz | ||||||||||||
|
Thomas Schelling explained it in his 1960 Cold War opus, The Strategy of Conflict. A rational person, watching Soviet missiles arc over the horizon, might hesitate before pushing the launch button. But deterrence works best when you’ve precommitted—when you've signalled that you will retaliate, no matter what. I don’t normally like to brag about my whakapapa, but Schelling is my academic grandfather—my dissertation supervisor’s supervisor. And his work is relevant again. New Zealand has no nuclear arsenal. But we have something almost as terrifying. For years, the government of New Zealand has been pouring hundreds of millions of dollars into James Cameron’s Avatar films. Two hundred million dollars so far. And more are coming. It seems absurd. No sane country would subsidise films with such beautiful graphics and such aggressively terrible plots. No sane country indeed. But maybe one that’s crazy like a fox – as intrepid Twitter strategic analyst @nzsd has hinted. New Zealand has been quietly amassing a strategic Avatar stockpile, diverting funds that might otherwise have gone into futile attempts at naval defence. The films released so far, like nuclear tests, are mere demonstration of our destructive potential. If China really wanted to invade New Zealand, the largest navy we could possibly build would barely slow them down. We can’t count on the Americans to save us. They’ve already threatened to invade Canada and who knows if we’re on their list too. And on the economic front, Canada continues to block our dairy exports, despite having signed a trade agreement that supposedly forbids it. And high American tariffs on New Zealand goods seem inevitable. Ordinary economic retaliation is impossible. No tariff we impose could plausibly deter them. But what if New Zealand, in response, unleashed another subsidised Avatar sequel? Hundreds of millions of dollars’ worth of Avatar films, each worse than the last, broadcast over RocketLab-launched satellites in geostationary orbit over Washington, Beijing, and Ottawa. Avatar 5 is already in production. Avatar 6 could be greenlit at a moment’s notice. We have Avatar films, and we’re not afraid to use them. It is the only sane explanation for subsidising those gawdawful movies. |
||||||||||||
|
||||||||||||
| On The Record | ||||||||||||
Initiative Activities:
To listen to our latest podcasts, please subscribe to The New Zealand Initiative podcast on iTunes, Spotify or The Podcast App. |
||||||||||||
| All Things Considered | ||||||||||||
|
||||||||||||
|
|
||||||||||||
Unsubscribe me please |
|
Brought to you by outreachcrm |