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Insights 5: 23 February 2024
Newsroom: Dr Oliver Hartwich on Tucker Carlson's admiration for Putin and Russia
Podcast: Dr Eric Crampton and Kevin Counsell on competition and land-use planning
NZ Herald: Dr Matthew Birchall on our biggest infrastructure issue - investment inefficiency

Economists agreeing
Dr Eric Crampton | Chief Economist |
There was remarkable agreement at the New Zealand Economics Forum last week.

Waikato University’s Forum is now an annual feature of the policy calendar, barring Covid interruptions.

Two very definite themes ran through this year’s sessions.

First, fiscal consolidation. Running deficits during a downturn or as temporary response to a crisis is one thing. But structural deficits, with ongoing spending at levels above expected revenue, are fiscally irresponsible. Fiscal consolidation means getting the books back in order.

A panel of monetary policy experts, including former Reserve Bank Deputy Governor Grant Spencer, the Initiative’s Bryce Wilkinson, and ANZ economist Henry Russell, were asked what one piece of advice they’d provide to the government. Spencer and Russell said fiscal consolidation. Bryce added price stability.

Treasury Secretary McLiesh also highlighted the structural deficit, suggesting a combination of tax increases and spending reductions as solution.

But the conference’s second big theme was on value-for-money in government spending.

Impact Lab’s Maria English talked about the value NGOs can provide when their work is properly assessed. Whānau Ora’s Merepeka Raukawa-Tait described traditional government social spending as a “big black hole”. She challenged the government to stop wasting money on underperforming agencies and instead fund providers delivering results.

Even the Council of Trade Unions’ Craig Rennie said successful policy is often about “letting the losers [failing policies] go.” That requires rigorous assessment of whether programmes deliver value for money. But Rennie pointed to the Auditor General’s view on the quality of that reporting: it has “a lot of rubbish”.

So far, so good. If the government is serious about returning to the investment approach’s rigorous assessment, it will have support in doing so.

Remember that the last time the government’s books balanced, core government spending amounted to $2.80 of every $10 of total national output, and core tax revenue was $2.79 for every $10.

In December, Treasury projected that core tax revenue would be $2.91 for every $10 of total national output – a substantial increase. But core government spending would be $3.34.

National inherited a substantial structural deficit not because of reductions in revenue but because of a massive increase in spending.

A Treasury that has overseen “rubbish” reporting on the value of spending while failing in encouraging fiscal discipline should be more reluctant to recommend tax increases to fund black holes.

A stronger focus on value-for-money could help with fiscal consolidation.

Has the Supreme Court lost its way?
Roger Partridge | Chairman |
With age comes wisdom – or so it is said. Yet exceptions abound. A notable reflection from leading lawyer Jack Hodder on the Supreme Court’s 20th anniversary suggests the Court is a case in point.

Hodder, a barrister and senior King’s Counsel, spoke at last week’s Legal Research Foundation conference to commemorate the Court’s anniversary.

His paper, One Advocate’s Opinions – The Least “Dangerous Branch”? Predictability and Unease, was couched in the politest terms. But it delivered a withering critique of a court with fundamental misconceptions of its role gravely exceeding its bounds.

The Supreme Court derives its authority from an Act of Parliament, the Supreme Court Act 2003. This means Parliament is ‘sovereign’ and sits above the Court.  

It might be expected that one of the Court’s tasks would be to give full and fair effect to laws passed by Parliament. And certainly, that is the orthodox view.

But as Hodder points out, the Supreme Court has increasingly favoured a more activist approach. Sometimes called “the principle of legality”, this involves the courts interpreting their way around the words used by Parliament if they believe a statute conflicts with what the Court perceives to be ‘fundamental rights.’

It doesn’t take much wisdom to realise this approach is a slippery slope. And when successive court decisions on highly political issues have gone against the apparent wishes of Parliament, this, in Hodder’s words, “demonstrates inconsistency with wider public assumptions about just who does (and should) make the law.”

But Hodder’s paper reveals an even bigger concern. The Supreme Court now considers it is the Court’s role to divine changing societal values and then use them to ‘develop’ the common law. (For example, in the Ellis case, by deciding the time had come for the courts somehow to “weave” tikanga Māori into every aspect of the law.)

Yet, the Supreme Court Act does not refer to ‘development’ of the law. Rather, it expressly refers to the ‘rule of law.’

Two critical requirements of the rule of law are the law’s accessibility and predictability. The idea of 'developing’ the law to reflect the court’s view of changing societal values torpedoes both requirements.

More troublingly, the court is ill-equipped to discern societal values. In practice, the words are just code for the values of the judges.

Inevitably, this politicises the judiciary. Yet, the courts lack the democratic legitimacy or accountability needed for political decision-making.

Hodder’s paper ends by predicting a time of “unprecedentedly sharp political debate” about the role of the Court.

Sadly, that would be wise.

To waste
Max Salmon | Research Fellow |
I’ve always had a focus on New Zealand’s infrastructure issues. Like many other waste enthusiasts, I’ve been concerned about the likely impact of the incoming government’s focus on cost-efficiency on our infrastructure outcomes. However, recent headlines have given me hope that we will continue to punch above our weight regarding rail infrastructure waste.

Kiwirail is a glowing example. It has built 18 kilometres of the Wairarapa line upgrade using too narrow a gauge, rendering it useless for passenger cars. As a profligate spending admirer, I am impressed. Kiwirail’s entirely in-house approach to design, construction, and certification has generated a shambles to aspire to. It sets a new gold-standard for the nation.

Cost blowouts on Auckland’s City Rail Link have also helped to keep us at the top of the international game. It remains the world’s most expensive metro rail project ever, at $1.5 billion per kilometre.

However, we ought not to rest on our laurels. Launched in 2011 and ongoing to this day, Britain’s HS2 (High Speed 2) rail project shows us how we might take fiscal irresponsibility to the next level.

The 2017 legislation for the HS2 project that granted HS2 Ltd the authority to acquire land was so detailed that its specifications extended to an incredible 50,000 pages.

It also allowed councils to request design changes and halt work. This led to lengthy legal battles, some of which were fuelled by council planning officers funded with HS2 money.

With over 8,000 consents and numerous court cases, such delays have gloriously inflated costs, with the total price currently at £67 billion. To cap it all off, the current iteration is massively truncated in size from the original plans.

This level of bureaucratic entanglement and self-destruction is wonderfully Kafkaesque. It’s an excellent demonstration of a system so enwrapped in process that it’s forgotten how to achieve outcomes.

If current trends persist, we have every reason to believe that before long, we’ll be able to stand alongside such excellent examples of infrastructure waste.  

It’s a future worth fighting for, and that’s why I’ll be rooting for the political opposition as they prepare to make a stand against fast-tracked consenting and RMA (Resource Management Act) reform.

On The Record

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