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Insights 44: 23 November 2018
Read: Oliver Hartwich discusses on Newsroom the draft Brexit deal
Read: Jenesa Jeram argues on Stuff that the pension age should be linked to health expectancy
Read: Matt Burgess says in NBR that NZ could learn from Germany's renewables policy disaster

Surviving the conversation
Dr Eric Crampton | Chief Economist |
Unless we are good friends, my picking the restaurant when you are paying the bill can be a recipe for trouble. Central and local government are not always the best of friends. And when central government sets the water quality standards, local government foots the bill.

In places with high water-treatment costs, residents might reasonably prefer the occasional boil water notice to hefty rates hikes. Central standards then amount to an unfunded mandate on local councils. And central government help in meeting those compliance costs would be a reasonable solution.

Central government this week launched a ‘conversation’ about drinking water that could resolve the problem of the unfunded mandate in a rather different way: a central government takeover of local water delivery.

Minister of Local Government Nanaia Mahuta suggested service aggregation, whether to a super-regional council level or to central government, to manage drinking water infrastructure. A complete takeover of the water system would be one way of ending unfunded mandates – if central government covered all the costs and owned the system. But that would mean central government usurping tens of billions of dollars of assets.

Minister Mahuta pointed out success stories like the Wellington region’s shared drinking water supply in her case for greater reliance on amalgamation.

But Wellington’s amalgamation model works because local councils saw the advantages of working together within a fairly compact region for shared water services. The same reservoirs and treatment facilities can serve the broader region. Nobody had to compel Upper Hutt and Porirua to join Wellington and Hutt City’s amalgamated management regime. Pointing to successful marriages among consenting councils does not make a convincing case for forced marriages elsewhere.

Moreover, amalgamating water supply across regions too dispersed to reasonably share facilities does not reduce the cost of upgrading facilities in small communities. It just spreads those costs over a broader region. It can also punish councils doing a good job of maintaining their assets by requiring them to cover the costs of councils that have not.

Lastly, the property rights issues involved need closer attention. Councils own their water pipes. Central government should not simply be able to take them, whether outright or through regulatory impositions that amount to taking them.

On a positive note, Infrastructure New Zealand’s Stephen Selwood suggests this discussion opens the conversation about what local government is really for. We just hope local government survives the conversation.

Cease this foreign investor farce
Dr Bryce Wilkinson | Senior Fellow |
New Zealand’s screening regime for foreign investment in sensitive land conjures images of a madman waving a big stick in a public place. He is as likely to hit his own head as anyone else’s, but it is bad either way.

It piles absurdity on absurdity.

First on my list of self-inflicted harms is the economic madness of the Overseas Investment Act’s refusal (section 17(2)) to recognise that the primary benefit to New Zealand from selling land to a foreigner is the enhanced price paid. Why sell it to them otherwise?

Imagine a government banning anyone from selling their labour unless they could prove to a regulator that the non-wage benefits exceeded the costs of forgone leisure time. Yet that is the OIA’s evaluative framework.

Second is the ridiculously broad definition of what constitutes sensitive land. The government’s recent and opportunistic decree that all residential land is sensitive takes it to an extreme. Sensitive to whom? Someone with extreme xenophobia?

Third is the broad definition of an overseas person. Any company with 25% or more overseas ownership is an overseas person. Government and iwi-controlled organisations can be overseas persons. Mercury, Meridian and Genesis Energy too. Our major banks have been around for more than 100 years, but they can’t be trusted with buying ‘sensitive’ land freely. Neither can Fletcher Building, Ryman Healthcare or Metlifecare.

Making long-standing New Zealand-based companies apply for approval to purchase land now deemed sensitive but is a standard aspect of their business is wasting everyone’s time and money. Whose interests are served by this?

The absurdity of the law’s scope has forced the government to create limited exceptions for investments in forestry and hotel units. On-sell prohibitions have had to be modified to attract capital for retirement villages. But these and other expedient but necessary carve-outs and provisions create a legal minefield that must exacerbate investment uncertainty.

The importance of attracting overseas investment was acknowledged in the Prime Minister’s recent first meeting with her business advisory group. Yet, the government disdainfully tells overseas investors that investing in New Zealand is a privilege. It is New Zealanders who miss out if, say, Swedish furniture retailer IKEA decides not to compete in New Zealand. Why treat it as suspect?

New Zealand already had the most restrictive screening regime in the OECD before the latest measures kicked in. Our screening criteria are commercially and economically ridiculous. The UK has no such screening requirements … why should New Zealand?

Destroying the town to save it
Matt Burgess | Research Fellow |
Question: What costs three moon programs, puts nobody in space, and makes no difference to emissions?

Answer: Energiewende (or energy turnaround), Angela Merkel’s plan to cut Germany’s emissions.

Energiewende aims to make Germany the first industrial economy to fully run on renewable energy. The cost so far: 29,000 wind turbines and 1.6 million solar panels for the bargain price of €500 billion.

Yes, half a trillion euro.

So how much is half a trillion euro, really? To get a sense of what a colossal sum that is let’s convert it into units of moon program.

Between 1961 and 1972, the US Apollo program launched 27 rockets, put 31 men in space, sent 24 men to the moon, and put 12 men on the surface of the moon. All up, Apollo cost a mammoth US$200 billion in today’s money.

Energiewende will cost three times more.

Another €1 trillion may be needed to upgrade Germany’s national grid to cope. Or six moon programs.

All would be tickety-boo if Energiewende were pulling somewhere between three and nine moon programs worth of carbon from the air.

But it’s not. Germany still makes its electricity by burning about as much brown coal to produce about as much carbon as it did in 2010.


Half a trillion euro goes a long way in other places. It could buy 7.3 million new Mercedes C-Class sedans. Or 47 billion Oktoberfest steins. Or 200 billion sandwiches from the Circus Café in Berlin (they look nice).

Or 20 billion tonnes of carbon.

That’s what half a trillion euro would buy at the going rate for carbon emissions in Europe’s emissions trading scheme (ETS).

That’s more than half the entire world’s emissions in 2017.

It’s also 26 years worth of emissions from Germany.

So here’s how Germany could have taken its cool half trillion, become the first industrial economy to achieve net zero emissions, and stayed that way for a quarter century: by purchasing and retiring emissions certificates from Europe’s ETS. An approach that would have come with the added advantage of actually helping the environment.

Instead, Germany has the Energiewende debacle.

New Zealand can count itself lucky by comparison.

We produce 82% of our electricity from renewables and rising (33% in Germany), our household electricity costs are half those in Germany, and not one New Zealand dollar – or zero moon programs – is paid in generation subsidies.

Prost! (Cheers!)

Read more about Germany's renewables policy disaster in Matt Burgess' latest NBR column. 

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