Scoop Election 08: edited by Gordon Campbell

John Key’s infrastructure announcement

February 11th, 2009


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So earlier today, we saw Prime Minister John Key unveil phase two of his government’s ‘rolling maul’ of solutions to the financial crisis. Phase one had been somewhat of a popgun affair – $120 million a year for four years – to help small business out with its cash flow problems and compliance costs.

Phase two it seems, will entail $483.7 million of spending on education, transport and housing. Even more spending projects will be announced in the Budget, and in the wake of the jobs summit due later this month. We’re still waiting for a coherent overall plan for these various ingredients, commensurate with the scale of the crisis coming over the horizon.

So far, Labour has managed to tie itself in knots. All week in the House, it has been asserting that the projects in the stimulus package were mainly its ideas AND that they were inadequate. It was like watching a cranky old mammal fiercely claiming its eggs, and then trying to eat them too. Presumably, Labour’s solution was to have the same set of ideas, only bigger. Supersize me that spending on roads, with a side order of bridge-building fries as well, please !

As I’ll try and point out below, it is possible that the government response is both too small, AND too wasteful. Initially though, we need to appreciate why the government is adopting a ‘rolling maul’ approach to crisis planning. In my limited experience, rolling mauls are chaotic affairs of limited duration that screw sideways into touch more often than they head off productively downfield. I’ll leave it to the NZ Herald to embarrassingly proclaim John Key as a ‘strong captain’ of the nation’s rolling maul.

The real reason why New Zealand is not following overseas models and having one coherent ‘big bang’ stimulus package is because the government plainly sees danger in being overly transparent. The credit rating agencies are watching our huge current account deficit, and our debt management mojo.

So, better a rolling maul/drip feed than putting all your cards on the table at once – and lets just hope and pray that Standard and Poors can’t do long addition. Because if we add up the bits and pieces, and estimate the borrowing required to finance the full meta-package, we should discover the debt boundaries within which the Key government is working.

Today’s moves, we were told by Finance Minister Bill English, will not require any extra borrowing, but the full response package certainly will. What is the government now estimating that our debt levels ( as a ratio of GDP) are likely to be at the end of the next financial year ? What extra debt servicing costs is it expecting that the sum total of our various stimulus measures will incur ?

If, as English keeps hinting, our current account problem and debt levels pose a constraint on our stimulus package, we need to know exactly what the government currently thinks the market – and the credit rating agencies – can possibly bear. Because the already pledged rounds of tax cuts have left us precious little room in which to move.

Essentially, we need to know what the guesstimates English is making for the trade-off between job creation stimulus on one hand, and acceptable debt levels on the other. Such figures would tell us a lot about what size the Budget stimulus package component can possibly be, and how much headroom exists for extra spending on the proposals bound to emanate from the jobs summit at the end of this month.

Back to today’s spending package, though. There will be $216.7 million spent on education and ICT in schools, $142.5 million on roading and $124.5 million on housing. Thankfully, given that rapid stimulation of the economy is imperative, about $100 million of these projects will be fast tracked to start by June 30 this year. Only some 2,000 jobs will be created by today’s package, in an economy that is due to shed some 35,000 jobs this year.

How good was today’s ’s recipe? Well, I can’t see very many jobs for women in this package. Women are taxpayers too, and the number of households headed by single women earners is on the rise. Yet this package seems geared almost entirely towards construction – and to creating jobs for plumbers, electricians and tradesmen. Burly men with shovels should do fine out of it. Even in education, the emphasis is still mainly on construction – not on increasing the numbers of teachers in our schools, or on pouring in the human capital resources (beyond ICT) to staff our classrooms more productively.

Secondly, lets take a prime example of fast tracking. Namely, the $47 million Kopu Bridge Replacement that will enable Aucklanders to get there and back from the Coromandel more quickly. On the upside, this bridge replacement will help to eliminate existing bottlenecks.

Sound good? Look at the cost. Fully $21.7 million of the cost of this bridge project will be caused by fast tracking it. Or to put that another way, the cost of the Kopu Bridge could nearly be halved if it wasn’t being fast tracked. Presumably, the extra cost is due to using lots more labour, and (maybe) in taking out a loan with associated debt servicing costs to get the job done quickly, rather than financing it through normal land transport processes. Again, it would be useful to know just how the components of the fast track process are broken down. Is the cost difference because it entails hiring two times as many people as normal efficiency would require, or three times as many?

Put it that way, and you could well start to ask – is getting Aucklanders to and from the Coromandel more rapidly for weekend holidays of such national importance as to justify the extra millions being wasted on it ? Even if treated purely as a job creation scheme, it seems a very expensive way to go.

As the Greens have been arguing for years, putting the spend into better urban transport could unclog existing roads, and save Aucklanders more time and money every day, than what they might save perhaps, on their occasional holiday excursions in Coromandel.

The jobs/efficiency equation doesn’t really stack up, as Greens Co- Leader Jeanette Fitzsimons pointed out today :

“Money spent on new roads generates less employment than money spent on fixing old roads or, even better still, money spent on increasing public transport services… Investing in more roads, rather than better public transport services, will increase our oil dependence, increase our carbon emissions, and ultimately employ fewer people over the [course of the] recession.”

Arguably, we are all Keynesians now. Only well allocated government spending it now seems, can lead us back out of the swamp into which the Friedmanites have led us. Fast tracking though, can easily make that spending prone to capture by politicians and by lobby groups, who may like to bypass the systems of independent scrutiny built up – for good reason – over decades. Spending wins votes.

Meaning : in the name of fast tracking a solution to the financial crisis, taxpayer funds can easily be tapped to serve the cause of pork barrel politics. Where some, for instance, will see virtue in the way the transport projects have been spread around the regions, others will see vote-buying. That’s the risk we run.

To minimize that risk, the government has to pledge to be transparent in the way it awards and monitors these projects. Commercial sensitivity will not suffice as an excuse for blocking taxpayers from learning how their money is being prioritized, and spent. In today’s government press release, we got this tidbit:

Cabinet will shortly consider the establishment of a small infrastructure unit to manage and plan New Zealand’s long term infrastructure needs, and the Budget will include significant infrastructure initiatives.

So in future, a ‘small infrastructure unit’ will plan and manage our infrastructure needs. Cozy. Starting from now, Key should be giving us assurances that the workings of this unit will be carried out with full transparency, and not behind the curtain of commercial sensitivity. If we are to continue to operate an open economy during this financial crisis, we have also got to ensure open government will be the operating norm.

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    1. 11 Responses to “John Key’s infrastructure announcement”

    2. By Robert Harvey on Feb 12, 2009 | Reply

      What ever happened to the $7 billion that National claimed prior to the election was available for such things as tax refunds, etc?

    3. By millsy on Feb 12, 2009 | Reply

      ‘a small infrastructure unit’.

      A already had one – the policy advice division of the Minstry of Works….unfortunately Roger and Richard thought that the ‘free market’ would provide us with our infrastructure needs….looks like it didnt…

      I personally think its a good idea..

    4. By student_still on Feb 12, 2009 | Reply

      Excellent point about women and how the recession will impact on them. It seems as if NOBODY has undertaken any significant analysis into how women fit into the economy, and their potential role in bringing it out of the current recession. Women need to be PART of the solution, not sitting on the fringes as wives, mothers, secretaries, cleaners, nurses and teachers (to name a few female dominated jobs/professions). Where are the female economists? Or better still, where are the feminist, female economists? Nowhere to be seen, I suspect, as money is the realm of men, and they are vehemently opposed to that ever changing.

    5. By timmy on Feb 12, 2009 | Reply

      “The real reason why New Zealand is not following overseas models and having one coherent ‘big bang’ stimulus package is because the government plainly sees danger in being overly transparent.”

      In fact it is the overseas approach that suffers from a transparency problem. For example the US congressional stimulus bill – contains many examples of expenditure which is marginally stimulating – teh problems is you have to read a vast numbr of pages to find that out. By contrast the NZ approach does let us know project by project what is being done and therefore surely is transparent to ratings agencies and everyone else.

      Of course whether that will have any more or less economic effect in the short or medium term that the US approach is something we will all find out.

      On another note since the Kopu Bridge is a “replacement” doesn’t that mean it meets Jeanette Fitzsimons’ criterion of fixing an old road?

    6. By timmy on Feb 12, 2009 | Reply

      Oops should have read correctly

      In fact it is the overseas approach that suffers from a transparency problem. For example the US congressional stimulus bill – contains many examples of expenditure which are marginally stimulating – the problems is you have to read a vast number of pages to find that out. By contrast the NZ approach does let us know project by project what is being done and therefore surely is transparent to ratings agencies and everyone else.

    7. By Jum on Feb 12, 2009 | Reply

      In an AA magazine interview Maurice Williamson stated that if National won the election the Kopu bridge would be a first priority. Know why?

      He lives across it. (Or under it, like the Billy Goats’ Gruff and the Troll. – Ohh, stop enjoying yourself Jum)

      No doubt a payback from Key to shut him up over losing his cabinet position. Worked well. We haven’t heard a peep out of him.

      I said it some months back. 90day probation a perfect way to sack women, only hire men, use women as cheap cleaners or better still ‘homemakers’.

      This has always been the goal of the NAct conservatives. Get women back in the home. Still, many women voted for National. Maybe that’s what they want…

      Certainly, in the local paper, the 18 year olds with their first vote in 2008 all seemed to be going for National, 90% of them young women.

      These younguns seem to think NZ is an equal opportunity/gender equal country. The hell it is. The next NAct plan is to turn welfare over to the churches and we know how much they love independent women, not.

      Mission Australia will control all support agencies.

      Women, without support systems will be forced to remain in bad marriages.

    8. By murrayg on Feb 13, 2009 | Reply

      there is no point in discussing deck-chairs. We are at a turning-point in human affairs, a permanent one. We are now bumping into the ‘limits to growth’. Long foretold. If activity revs up, world-wide, we run back into the supply/demand peak of oil supply, and that in itself is now a sinking lid. No more growth, a long recession therefore, and less resources to go around even more people. There must be wars over what is left, ironically using up what is left in the process. There will be a move from the rich (if the concept retains validity) to exclude the poor (get tough on crime – how dare you steal bread….). Irrespective of both, there is a need to establish sustainable infrastructure, while we still have access to the oil to do so. We must be set-up for an oil-less society, within a decade at the most, perhaps less. Economists – welcome to reality

    9. By stuart munro on Feb 13, 2009 | Reply

      It is of course interesting that the package can be interpreted as a gender issue, but it is probably more important that it cannot be mistaken for an adequate response to the severity of New Zealand’s economic plight.
      50 or 60 new state houses will make less than a cosmetic difference in a chronically under-building market. It would need to be 10-20 000 to begin to address NZ’s housing crisis, much less mitigate the effects of the global depression.

      A government that consistently refuses to address the crisies that face a nation deserves to be ousted or overthrown.

    10. By Stephen Whittington on Feb 22, 2009 | Reply

      You are probably right that there are few jobs for women. The point you make touches on one of the realities few seem to have understood: times have changed significantly since Keynes last wrote.

      Back then, the Labour force was more homogenous. Give someone a spade and they could be a construction worker. That’s why infrastructure spending could increase employment – the unemployed could all do the new jobs. Now, construction work is specialised and skilled. Those unemployed manufacturers cannot move into the newly “created” construction jobs.

      Even acepting the Keynesian framework, stimulus spending is no answer.

      Infrastructure spending also takes time to get into the pipeline. As Keynes said in 1942 in his Collected Writings, vol. XXVII, p.122:

      “Organized public works, at home and abroad, may be the right cure for a chronic tendency to a deficiency of effective demand. But they are not capable of sufficiently rapid organisation (and above all cannot be reversed or undone at a later date), to be the most serviceable instrument for the prevention of the trade cycle.”

      In terms of your point about transparency, I would question how transparent it was when a bill that was over 1000 pages long was introduced, passed, and signed into law very rapidly in America. No one had read that law in its entirety. I fail to see how America’s stimulus has been transparent.

    11. By royce on Feb 22, 2009 | Reply

      One reason they may be wanting to keep the male trade people busy is because of what these people do in a recession. The eithier head of to Australia or go on the dole and do cash jobs. Eithier way their taxes are lost.

    12. By smokee on Mar 3, 2009 | Reply

      To the People of NZ,

      I read some truely ignorant and politially stupid comments by some of you. You thinking any woman will be treated well by any political party is hopeful at best,doomed to historical obscurity definitley. The feminist movement here in the US left our kids running wild and illiterit(read future goverment deadbeats)and any time a bright and educated woman voices an opinion that does not meet the approval of THE ENLIGHTENED (liberals)they are stone by our media.
      My mother stayed at home by choice,and most kids I have delt with where one OR the other Parent is there for them any time do far better than most latchkey kids.
      Please don’t disrespect or Degrade women that choose parenting as their FIRST employment rather than an inconvienent nessessity.
      PS; Not all Americans love war,but anyone, right wing fringe or left wing whaco trying to kill my family will die.

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