In his role as M.C., Finance Minister Bill English did his best to make rank ideology sound like common sense, but the austerity rationales were wearing pretty thin this year. Talk to him – as someone tried in the Budget q & a yesterday – about the inadequate stock of social housing and the government’s apparent indifference to the scale of the housing problem and English replied – astonishingly – that we should be “thankful that government wasn’t building the houses” because, he went on that sort of “short term decision making” just isn’t what governments are good at. Coming from a John Banks this would have sounded like the propeller head nonsense it was. When expressed in Blinglish, it sounded merely like a rote reply that he didn’t really believe.

Among yesterday’s main talking points:

1. We are apparently on track for a margin-of-error $75 million surplus, now in sight for 2014/15. But this sickly creature is hobbling out of the lab on the basis of all kinds of facilitative conjuring: such as trimming by $200 million the amount of new spending next time around. With this strictly nominal surplus in sight, the 1984-ish justification for eternal austerity will have a news talisman: namely, getting Crown debt down to 20% of GDP by 2020. More on that below.

2. In a good example of how this new mantra is already impacting on sensible planning, the government confirmed in the Budget that it will not resume its contributions to the Government Superannuation Fund until government debt gets reduced to 20% of GDP, a target not expected to be reached until oh, 2020. Suspending those contributions barely made sense as a reaction to the Global Financial Crisis. With an ageing population, suspending them for what will be in effect, ten years, is an absolute dereliction of long term planning.

3. Some $1.7 billion has been raised by the selldown of Mighty River Power. Of that nearly $940 million will be spent on the Christchurch rebuild, and Canterbury will also receive a further $80 million boost for its irrigation schemes. Few New Zealanders would have realised beforehand that the asset sales programme was really intended to bankroll the earthquake recovery to quite this degree. Moreover, given the prominence of earthquake-related economic activity to the government’s overall strategy, selling down the family silver appears to be all that this government has to offer, in lieu of any coherent plan to boost the country’s exports.

4. Housing affordability and housing provision are two areas of policy where the government is politically vulnerable. On the issue of provision, Housing Minister Nick Smith announced earlier this week two initiatives costing $377 million that would see up to 3000 new state house bedrooms and 500 new homes built. At the political level this was an attempt to head off the emphasis placed late last year by the Labour Party on housing provision to meet the pressing need, especially in Auckland. At an ideological level, the government will also be shifting some of its stock to so called “community providers” – and time will tell whether this really means the likes of the Salvation Army, or the government’s developer friends in community provider drag.

In an attempt to staunch the inexorable rise in house prices, the Budget announced the government’s intention to (a) to empower central government to over-ride local council consents and thus fast-track the approval of new housing developments (b) to enable a Reserve Bank crackdown on excessive bank lending for housing and (c) to extend the eligibility rules for income related rent subsidies.

The problem here is that the provision measures are plainly insufficient, given the scale of social need. The recent Children’s Commissioner Export Advisory Group report on Child Poverty calls (at recommendation 22) for government to increase the number of social houses by a minimum of 2,000 units a year through to 2020. Nick Smith by contrast, is offering only a quarter of that figure. Nor, as BNZ economist Tony Alexander has already pointed out, will the Budget measures have much impact at all over the next three years on house prices – which reportedly rose by 9% nationwide last year, and by 14% in Auckland. Seen in that light, the Budget moves on housing looked purely like a response to the government’s political needs, than to the extent of social need out there in the community.

5. The promised massive cuts in ACC levies – a large tax cut for business in drag – are plainly being timed with 2014 electoral gain in mind.

6. For all the trumpeting of an “internationally focused growth package” in the Budget, the delivery largely consisted of a puny $75.2 million boost to business R&D grants (over four years!) and a $31.3 million scheme of repayable R&D grants for start-up businesses, the access criteria for which will not be released until next month. This will do very little to reverse the chronic short fall in research and development funding racked up by New Zealand when compared to the other countries with which it competes for trade. At this rate, the graduates that Tertiary Education Minister Steven Joyce is trying to force feed through New Zealand universities will have little choice but to head overseas for jobs, once they complete their studies.

7. As many have already noted, there were virtually no significant measures to combat child poverty and the social effects of the low wage economy – or to create jobs in the tradeable sector. True, there was a token amount set aside to treat rheumatic fever in children, a pilot scheme to create a Warrant of Fitness for rented properties, a home insulation scheme for the needy and a miserly $1.5 million funding increase for budgeting services. The scale and causes of poverty however, require far more substantive and wide ranging responses.

As Mangere Budgeting Service chief Darrell Evans told RNZ earlier this week, of the 240-270,000 children living in poverty in this country, and some 40% of the households in which they live contain at least one adult in full time work. In other words, low wages – as much as unemployment and lack of skills training – are underwriting poverty, but the Budget resolutely refused to tackle such issues. If things truly are coming right and on track, the government could, and should be offering more than the Budget’s random spray of token responses.

One small indication of the triumph of ideology over common sense: rather than regulate the loan sharking sector and its exorbitant interest charges, the Budget offered to investigate a pilot a scheme of low income (or no income) loans for low –income borrowers. So rather than outlaw the loan sharks and their predatory practices, the government will assist their victims to take out a loan to repay the loan to the sharks, and by that circuitous route, help the poor to meet their obligations to them.

As mentioned, the Budget signalled that the rationale for cost cutting and austerity will shift over the next couple of years from producing a (virtually meaningless) surplus to attaining an (equally meaningless) reduction in the Crown debt ratio. Both goals are excuses for the National/Act pursuit of small government, and a reduction in the quality and range of public services that the public can expect governments to deliver. By contrast, a previous generation expected the government to build social housing – and it did, spectacularly well. Yesterday, Bill English was trying to say that its just not the sort of thing that governments can do, or should be expected to do. Only the will to assist has changed, not the ability to do so.

Worldwide, the arguments in favour of continued austerity are looking more and more threadbare. The prevailing myth that the governments of Spain, Ireland and Italy spent themselves into their current situation simply doesn’t stack up, as this article shows.

Ireland and Spain weren’t overspending at all—but the banks and investors speculating on their housing markets most certainly were. When their banks went under, their economies collapsed, driving their unemployment rates, and their budget deficits, sky-high. If Ireland and Spain could do it over again, they’d have adopted far tighter bank regulations—something that the [German- French] deal doesn’t call for. As for adhering to fiscal restraints—well, they already did that, and look at them now.

The problem in Europe has not been about Budget deficits, but current account deficits. Martin Wolf in the Financial Times has published the data.

Wolf charts the fiscal balances and national debts of the eurozone nations between 1999 and 2007 and finds that every one of Europe’s currently beleaguered nations, with the single exception of Greece, actually complied with [demands] that they keep their budget deficits lower than 3 percent of their gross domestic product.

In other words, budget deficits weren’t the problem. So what was?

The one factor that did foretell the performance of national economies after the bubble burst, Wolf demonstrates, was a nation’s current account balance—that is, a nation’s international balance of payments, which is composed chiefly of a nation’s trade balance. Charting the balance of payments of Eurozone nations from 1999 to 2007, Wolf shows that those Eurozone nations with a favorable balance—the value of whose exports exceeded the value of their imports – are the nations that have weathered the storm: Finland, the Netherlands, Belgium, Germany, Austria and France. Those nations with negative balances—Italy, Ireland, Spain, Greece and Portugal—are now the sick men of Europe. As Wolf writes: “This, then, is a balance of payments crisis.

(BTW, those same healthy countries of Europe have also maintained their social welfare systems.) In yesterday’s Budget, New Zealand’s current accounts deficit was expected to rise to 6.5% of GDP over the forecast period. So much for us being on a track likely to re-assure the rest of the world. That’s why the lack of export-enhancing measures in the Budget is so alarming.

Could we afford to do more? (Can we afford not to?) In recent weeks, business analyst Bernard Hickey has been usefully publicizing the US debate on the relationship between indebtedness and economic growth – and the lack of research evidence that indebtedness impacts negatively on growth…or does so only when debt levels far in excess of New Zealand’s current position are reached. This NYT article is a good place to start, and will be essential reading if we persist with the nutbar 20% by 2020 goal.

One final point: much of the symbolism of the Budget lockup is intentional, but the unintentional symbolism was far more poignant. Budget Day makes the symbiotic relationship between politicians and the media absolutely explicit. Usually that is a free range exercise. On Budget Day though, the media is locked up and force fed the desired messages, is given inadequate time to consume the supportive evidence, and then has the Finance Minister wheeled in for coaching on the key message points. No wonder that after a few hours, some of the subsequent questions put to English – e.g. “what got you over the line to achieving the surplus?” – sounded a bit like versions of the Stockholm Syndrome.

In another example of the same process, a Treasury A-Team official – after giving out at 10.40am USB keys containing thousands of pages of economic information, charts, tables, forecasts etc – let it be known that Treasury would like those USB keys back at the 2pm end of the lockup for re-use next year. It seemed like a pretty bleak assessment of the news cycle. Not only would it be physically impossible to do more than glimpse those tundra-like expanses of data between 10.30am and 2pm – an hour of which was taken up by Bill English, and by lunch – the assumption was that no-one would be interested in taking the data home or back to the office to do it justice, now or later.

ENDS

Meanwhile, the government will presumably be trying to make a deal with Kim Dotcom to settle his damages claim for being subjected to the same kind of illegal surveillance. As the Minister responsible for the GCSB and its rogue actions, does John Key want to be looking down the barrel of 88 Dotcoms all asking for similar deals? No way. That’s why the turkeys at the GCSB are definitely voting for vegetarianism. In the national interest, of course.

Similarly, the government has no appetite for the MMP reforms. Justice Minister Judith Collins is claiming that because she has pre-determined that she can’t get a bill through Parliament incorporating all of the Electoral Commission proposals for MMP reform, she won’t put any of them in front of Parliament. Certainly, if one can believe Labour leader David Shearer, Collins’ attempts to explore consensus have lacked the Crusher’s usual vim and vigour. He claimed on RNZ this morning that Collins wrote him exactly one letter seeking consensus (which he agreed to) before she canned the whole project for the alleged lack of a consensus. At the first hurdle, the crush turned to mush.

One again, the self interest is pretty obvious. Act and United Future would be voting for their early demise if they supported the main trade-off – ie a new MMP threshold of 4% and the related scrapping of the ‘coat-tail’ provision that benefits parties who get one electorate seat, and can subsequently bring in more MPs in proportion to the party’s percentage vote. National currently benefits from these aspects of the status quo, and such arrangements could well be crucial to its quest for coalition partners at the next year’s election. For the same reason, Labour opposes keeping the ‘coat-tail’ provision for the 2014 election – but it benefitted (in the early 2000s) from the same provision with respect to the Alliance.

Why should Collins introduce a Bill regardless of the eventual outcome? Because this is a matter of public interest, as reflected in the demands since MMP was first introduced for opportunities to revisit it in a referendum, to fine tune its workings etc etc – and the National Party was at the forefront of those demands that MMP should be subjected to this oversight, to public inputs and reviews and re-calibration. But now – and out of sheer self interest – National is baulking at putting those calls for accountability to the test.

What would be gained, even if all the measures did not achieve consensus? En route, the public would be able to see what aspects of MMP each party stood for, and what their rationalizations were for voting accordingly. It would mean that when and if National in 2014 – or Labour at some future date – sought to do sweetheart deals at electorate level to concoct a workable coalition, the public would be able to judge them by their record of what they said and voted for in the House. As with the GCSB, thje government will be more than happy that such information never gets a chance to be placed on the public record.

Adieu, Aaron
One turkey who has voted early for Christmas was Aaron Gilmore. I confess to being dead wrong on this point. Last week, it had seemed more consistent with his behaviour-to-date that Gilmore would cling to that backbencher’s salary and deny his enemies the satisfaction of his voluntary exit. It didn’t turn out that way. It would be nice to speak well of the departed and say he did the decent thing in the end after the party had left the revolver on his desk and shut the door behind it – but the decision to go looked to be consistent with the usual behaviour of a bully when confronted by a bigger bully.

Pita Sharples was probably right to indicate that others had done worse with fewer consequences – the double dipper from Dipton springs to my mind – but not many will be sorry to see Gilmore’s departure.

ENDS

Essay-writing services are reporting a sharp increase in demand from overseas students at UK universities. UKEssays.com says it has had a threefold increase in overseas students buying university essays – representing almost half of its customers. Universities have accused essay writing firms of fuelling plagiarism. But a spokesman for UKEssays.com says the rise in demand is caused by universities recruiting students with inadequate English language skills… the essay-writing firm accuses universities of turning a blind eye to the problem of overseas students with poor written English – with financial pressure overcoming any academic doubts.

At that point, any sympathy for Joyce runs out. The New Zealand tertiary education system is coming under intense pressure to recruit foreign students and fulfil the government’s ambitious earnings targets from international education. In addition, the relatively high tuition fees paid by foreign students take some of the funding pressure off our tertiary education system. (When questioned on RNZ this morning after an academic made this point, Joyce replied that universities had got a funding boost and anyone who couldn’t make a positive contribution on this subject “should get back in their box.” What a charmless bully the man is.)

In reality, a nasty dilemma faces those working in the sector, and it has been exacerbated by the inadequate funding over many years for tertiary institutions. Officials are under pressure to look the other way when it comes to English language requirements, in order to increase enrolments and meet the government’s earnings targets, while policing the same standards just strictly enough to avoid the kind of rorts highlighted by the Sunday-Star-Times. It is time that Joyce shouldered some responsibility for this situation, rather than shouting down anyone in the system who dares to bring it to public attention.

For an update on how well and how badly New Zealand is currently doing in its attempts at wooing international students, check out the percentage rise and falls recorded in the Country Of Citizenship table contained within the Export Education Levy: Full Year figures publicly available here on the Education Counts website.

Overall, there was a 5.4% decline in international student numbers in New Zealand tertiary institutions between 2011 and 2012 – but China, which accounts for the largest segment of our international student intake (26.6% of the total last year) has bucked that trend, and recorded a 4.5% increase last year. Even so, the government’s goal of doubling the current returns from export education to reach the declared target of $5 billion by the year 2025 is looking very, very ambitious.

In passing, one can feel a few twinges of sympathy for those foreign students with poor English language skills who are struggling to get the grades that will justify the investment being made in their careers by their families back home. Not that this can justify any surrender to cheating. The wider reality is that the vast bulk of foreign students in New Zealand do manage to honestly contend with their language disadvantages, and without recourse to ghost writers.

Depression & Allie Brosh
All my people that have mild depression or severe don’t worry because! There’s someone that loves u! and he’s a rapper with gold teeth – Lil B

Over the past few days, almost everyone and their dog has linked and tweeted that the popular US blogger Allie Brosh has returned from her self-imposed two year hiatus, and her struggles with depression. All the more reason to be glad that her comeback column on her Hyperbole and a Half website – which you can read here – also happens to be one of the most incisive depictions of the nature of depression that you’ll find anywhere. At a time when thousands of New Zealanders – and their families – are coping with depression, loneliness and the suicidal inclinations that come with the territory, Brosh’s column deserves the widest possible circulation.

It needs to be read here. According to this report, Kiwis under 30 are the age group most prone to depression: not old people living alone, but the supposedly social media-connected young. Clearly, Facebook and Twitter are not an adequate substitute for human interaction. Not when work remains so elusive, and when so many jobs are experienced as being comprehensively soul-deadening by those ‘lucky’ enough to find them.

Obviously, there was a danger that Brosh’s depiction of depression could suffer from an Unintended Cuteness Effect. Rendering depression in serio-comic form will always carry that risk, common to the pop cultural treatment of mental illness. The film Silver Linings Playbook for instance, portrayed manic depression as an adorable personality trait that enabled both the main characters to transcend the deadening rut of social convention in which almost everyone else in the film seemed to be trapped. (The terrors of bipolarity didn’t quite fit the film’s rom-com format.)

Brosh’s column isn’t like that. It doesn’t make depression seem like an enticingly superior mode of being. Yet as much as it humanely depicts depression in recognisable ways, I think its main value will be less to depressed people – or to the marginally depressed – than to the people who are trying to support a depressed person through the crisis. With devastating wit, Brosh shows how empty the usual things that we say to depressed people do sound. To make her point, she caricatures the well-meaning, but the caricatures are deadly accurate, regardless. So…what should the cluelessly well-meaning be doing? It seems to be a matter of hanging in for the very long haul that recovery from depression involves, and being at hand until…as Brosh shows, the depressed person finds their own way out of the swamp of non-feeling. The depressed can’t be cajoled, guilt tripped or rationalized out of it by other people. The escape has to be personal. Many of us will be thankful that Brosh made it through this far, and has portrayed her struggle with such fierce clarity.

Brosh’s earlier column – from 2011 – when she first communicated about her depression, is also worth reading.

ENDS

In fact, Gilmore has usefully enabled Key to look like a pillar of rectitude – a man who is trying his darndest to rid National of its wayward back bencher but gosh, is being prevented by the vagaries of MMP from doing so. Key has depicted himself as a virtual prisoner prevented by Parliamentary red tape from doing what he, and the public, would like to do to Gilmore. For similar reasons, the entire National parliamentary caucus should be passing a vote of thanks to their errant colleague – if only because on a compared-to-Gilmore basis almost all of them can look a lot better, and can go to local electorate meetings with a sigh and a “What can we do?” bearing of long suffering. When National MPs are carrying such a burden, for any aggrieved party member to raise the MRP fiasco would seem like very bad form.

Oh, but in the meantime of course, John Key will be happy to accept Gilmore’s vote to further his own legislative agenda – and if not him, his eventual replacement, whatever. That’s the element of pantomine in this whole business. Gilmore knows he can’t be sacked – and he isn’t about to altruistically walk away from a backbencher income worth at least $150,000 in base salary and perks. Key knows he can’t sack Gilmore. The crunch question for Key would be – will you decline to accept a vote cast by Gilmore on any of your upcoming legislation, given that reliance on such a tarnished MP will taint any laws passed with his help, and thereby lower the status of Parliament in the eyes of the public? I think we know the answer to that one.

That’s the point. The Gilmore saga – in all its shock horror, revelation aspects – is mainly about the striking of poses. It is a matter of impression management, and little more. Probably, it rather suits National to keep him around as a distraction, as a useful contrast and for his ongoing support on cliffhanger votes, and – no doubt – it suits him to keep his salary. A win/win for those concerned.

MRP fallout
Incredible to watch the attempt to shift the political blame for the Mighty River Power fiasco from those responsible – i.e., the government that could never offer a credible economic rationale for the float – onto those watching from the sidelines. Labour and the Greens it seems, had the temerity to offer not only criticism, but a real political alternative that addresses the needs of the 97% of New Zealanders unable or unwilling to take part in sharemarket speculation over an asset they own. Shame on them.

To listen to the critics of NZ Power, the Opposition was obliged to suspend democratic debate entirely, lest any alternative proposal or critical debate should prevent this turkey from hobbling over the finish line. Well, lest the contrary arguments vanish entirely down the memory hole: there is no sane economic rationale for the asset sales programme. The fate of the Tiwai Point smelter is still hanging over this float, with many possible consequences for pricing and profit taking. (In the past week, multimillion dollar backdated employment costs have also just been added to the smelter’s liabilities.) There are residual obligations on water rights. There are three other energy companies being lined up in this process, in a market already containing such options in Contact Energy etc etc.

Even with all those liabilities, the wonder is that a $2.50 share price was still achieved. Yet the political fallout from this wildly unpopular gambit is being heaped on the parties that consistently opposed the plan. Only in New Zealand could such gullibility pass itself off as the hard nosed wisdom of the market.

ENDS

We can take from this debacle a number of lessons (a) the vast majority of New Zealanders simply don’t have disposable income to risk on the sharemarket and (b) they refused to be suckered into re-investing in what they already own. Keep in mind that before this asset sales programme was conceived, it was already known that only about 10% of the population invest in shares. So the 3% who have decided to buy into Mighty River Power are a small minority of a small minority. Even among this minority it is clear most of them (c) regard it as foolhardy to put four energy companies on the market at once and (d) had already soured on their flirtation with Contact Energy and (e) are spooked by what the fate of the Tiwai Point smelter might mean for the energy sector.

Yes, the NZ Power regulatory proposal put forward by the Greens and Labour would also have deterred some investors – but that after all, is only democracy at work. Surely, no one seriously expects there should be a total moratorium on political debate about a contentious issue, purely for the benefit of investors. Oh, this guy evidently did. And this guy. So did SOEs Minister Tony Ryall:

“We can’t know for sure but we can surmise that some New Zealanders were intending to take part in the IPO and were scared off by the Opposition’s interference…

And of course, all of them present the spectre of the NZ Power proposal on the outcome as being a lost opportunity for all of us, and a cost to ordinary New Zealanders. According to them, it is only by selling out (at a premium) the profitable assets that we already own that the government can continue to afford quality social services. LOL. Saner commentators, such as Carmel Fisher of Fisher Investments, have pointed out that the $2.50 share price is in the mid-range, and shows that the mooted NZ Power proposal had surprisingly little effect.

The worrying thing about the Mighty River Power flop is that the government will treat the selling down of its stake in our energy companies as a politically bad idea – it never made sense on economic grounds – and will now turn instead to Air New Zealand. Rod Oram had a good recent column on this option, and Oram later interviewed Larry Williams about the pros and cons.

As Oram says, the Air New Zealand option would makes (short term) political sense for the government. The fate of the Tiwai Point smelter makes Meridian and Genesis an uncertain bet. Solid Energy is barely in survival mode. By comparison, Air NZ could look quite attractive. As he explains:

Superficially, Air New Zealand would be an easy and attractive float. It is already partially listed; investors, analysts and the public are very familiar with it; and its profits and share price are rising.

But hang on:

But the reality is radically different. Worldwide, airlines are a nightmare for investors. Always have been, always will be. Air New Zealand is no exception. The problem is the industry itself, as IATA, the airlines’ global association, described in its extensive 2011 analysis “Vision 2050 – Shaping Aviation’s Future”. (The report is available at http://bit.ly/13LjFo5)

Aviation is profitable for all the players except airlines, IATA concluded. Aircraft and engine makers, fuel suppliers, airports, air traffic control organisations and a plethora of other providers have made money from the tenfold growth of aviation in the past 40 years. But airlines haven’t.

As Oram concludes, Air New Zealand is in a vulnerable position:

Air New Zealand is particularly exposed to these economics because it generates a very heavy proportion of its passenger revenue kilometres on very long, very thin routes, that is ones with small passenger volumes by international standards. For example, 12 extra passengers on an Air NZ 747 at the average fare yield doubles the profit from the flight.

Air New Zealand has already had a brief flirtation with private shareholding and management and that ended quite disastrously: Air New Zealand went bust in 2001, partly due, as Oram says, to the dysfunctional bickering among its private shareholders. As a result – and given the importance of this long range carrier to a trading/tourism dependent nation like ours – the government then proceeded to bail out Air New Zealand, and brought coherence to its management and stability to its financial position. The necessity for maintaining that same degree of government involvement in our national airline in the country’s wider interest, remains unchanged:

Broadening Air New Zealand’s stockmarket ownership, even with a 10 per cent cap on each investing entity, runs the risk of attracting hostile airlines with unhelpful agendas to harass Air NZ. The Clark government recapitalised Air New Zealand with $1b of equity, knowing we as a tiny nation at the very end of world routes need a very strong national carrier to ensure adequate international air service.

Regardless, the sharemarket is now reportedly expecting that Air New Zealand will be the next state asset put on the auction block. In which case, we will be playing Russian roulette with the country’s future as a trading nation and tourism destination. And doing so purely for ideological reasons, in order to benefit a tiny minority of investors – in a process that makes no economic sense whatsoever. This morning, as the scale of the government’s Mighty River Power failure sinks in, many voters will be feeling a bit like that waiter in Hamner Springs: angry, abused, and hankering for a just outcome to this whole sorry business.

ENDS

“First they came for our light bulbs, and then they came for our showers!! Is there no limit to the nanny state?” Well no, there doesn’t seem to be a limit, as it turns out. Because National – apparently, with the help of New Zealand First – is about to make it legal for the Government Communications Security Bureau to spy on New Zealanders. For reasons that they’d prefer to keep to themselves, thanks. Fine by the centre-right. This time it’s their Big Brother.

Dress this up as you will, this enhanced GCSB role is a major extension of the surveillance powers of the state, and it is being directed at New Zealand citizens. At yesterday’s post-Cabinet press conference, Prime Minister John Key did his best to make it all seem like tidy housework rather than a radical renovation of the premises. In Key’s view, the GCSB had always thought it could provide “agency support” to the Police and to the SIS, and so this proposed change will merely “clarify” a piece of legislation that allegedly was never “fit for purpose.”

Which is true only if you consider that all along, the purpose was to spy on New Zealanders. The alternative view was that the purpose of the previous legislation was to draw a clear line of difference – that the GCSB was there to protect New Zealand from the hostile actions of foreigners, and the SIS was to look after domestic security. Yesterday, Key tried to justify the de facto merger of the two agencies (on operational matters involving cyber-technology) with a few flimsy explanations. One was economics. Namely, the cost of the SIS duplicating the technical expertise of the GCSB. The oversight mechanisms, Key promised, would also be strengthened. And thirdly, there had been a significant increase, he added, in the number of cyber- attacks being launched against government and business in New Zealand this year.

On that last point, Key could hardly have been more opaque. No, he wouldn’t confirm whether China had been the source of any of those attacks. When I asked whether he could indicate what proportion of this year’s attacks came from offshore as opposed to domestic sources, he replied that he didn’t have that information at hand. Which seems incredible, given that he is the relevant Minister on security matters. (Can he really not know, even approximately, whether most of these cyber attacks are being launched externally or internally?) As things stand, the public is being asked to endorse a move to lay themselves open to being covertly spied upon by the GCSB – but without being told whether the alleged threats that justify such actions originate from a hostile foreign power, or from some goofy kid down the road trying to harass a local corporate with a Denial-of-Service attack.

While D-O-S attacks can be annoying and disruptive, they don’t require or justify expanding the surveillance and intrusion powers of the state. Hopefully at select committee, some light can be thrown on the ratio of foreign to domestic sources of cyber attacks in New Zealand, and the ratio of those aimed at government agencies as opposed to those at private sector firms seeking to raid each other’s trade secrets. On that score, it would be useful to know how the GCSB/SIS propose to distinguish between genuine cyber-attacks on corporates, as opposed to the bogus ones that enable one corporate to deploy the security services in order to harass a rival. Get involved in economic/industrial espionage, and those kinds of thorny operational questions arise. At crunch, does the state have any valid role at all (in being the detection-arm-for-hire) when it comes to cyber raids between corporate rivals ? Do we have any reliable guarantee that those corporates will always be paying for their own cyber security measures in future – rather than calling in the GCSB on the taxpayer’s tab?

Finally, there is the little matter of the allegedly ‘strengthened’ oversight mechanisms. Obviously, once you increase the powers of the GCSB powers there is a parallel need for expanding the oversight on how those powers are being exercised. Yet evidently, this aspect remains a work in progress, even though the relevant Bill is being introduced this week to Parliament, to be debated under urgency. Yesterday, Key indicated he was still talking with Winston Peters about whether to incorporate Peters’ idea of a ‘panel’ of three to enhance the current role of the Inspector-General of Security and Intelligence. Peters has outlined other conditions of his support here.

In practice, this still looks like merely a slightly expanded version of the current inadequate system, with the addition of a couple of similar people – e.g. a deputy Inspector-General, with at least one of the three being a retired judge. (When Peters says there should be an ‘expert judge’ on the panel, it’s unclear what kind of ‘expert” he is talking about. In security/intelligence matters? Privacy law? Human rights law? Or is being a judge of any sort ‘expert’ enough for him?)

Without more detail, the reassurances on offer aren’t very re-assuring at all. Instead of the current farcical arrangement of a retired judge working part-time, we are being promised a couple more bodies of similar type and vintage to share the workload. That’s hardly enough. Crucially, no structural change is being envisaged in the oversight mechanisms – only a beefing up of the existing, readily captured post. Supposedly, the I-G’s office will be given more resources. Really? Will that entail in-house research and investigative staff to engage in corroborating and cross-checking Crown Law advice, and what the security services are up to? Or, as always, will this toothless watchdog be utterly dependent for research, expertise and resources on the very agencies it is supposed to be monitoring?

It is enough to makes anyone feel nostalgic for the days when Big Brother was interested only in whether our light bulbs were working efficiently. Now, we have to worry about whether they’re also a means of surveillance.

ENDS

Which raises a related point. If there is any downside to the resurgence of enthusiasm for Anzac Day, it would be the seemingly uncritical nature of that support. If Anzac Day truly was an occasion marked by a critical assessment of the politico-military backdrop for such bravery – which would require an explicit recognition that such bravery and attendant loss of life has often occurred in the service of stupidity and political calculation – then maybe we would be doing an even greater honour to those who served. One can assume that they would not have wanted their loss to become a way of gilding the often vain and politically motivated decisions that cost them so dearly.

Which is to say that a healthy celebration of Anzac Day should inspire feelings of ambivalence, not just a simple glorification of the events and the suffering they entailed. The principles involved are alive and still controversial – as we saw last week, when the conscientious objection that is also part of our Anzac Day story, cropped up again in the debate over same-sex marriage.

I’m not implying that people who turn out for the dawn parade and other Anzac Day ceremonies don’t have mixed feelings about military service, and about the sacrifices it involves. There is hardly a New Zealand family tree that hasn’t lost some relative at Gallipolli or the Somme, at El Alamein, Crete or Cassino. We know this stuff. The point is that the official tone of the day’s events is almost uniformly celebratory – which is arguably not the best or only way of honouring those who died, or those who came home wounded in various ways. In the process the allegedly glorious nature of the human sacrifice involved tends to drown out the consideration of the horrors of war, and the craven nature of many of the decisions that generated them.

The troops in the field certainly felt that ambivalence keenly. As Anthony Hubbard pointed out in an interesting Listener article in the mid 1990s, the Kiwi soldiers often railed against their British commanders:

“The men are horribly bitter against Winston Churchill,” one officer noted in his diary on May 25, 1915. “They say we are sent here with no guns, little ammunition, no aeroplanes and the whole adventure is a betrayal. Their language is blasphemous, but deadly earnest.”

And here’s the same issue, in its modern guise. Can we entirely and separately honour say, the 10 New Zealanders who have died on active service in Afghanistan – and who were prominently invoked in yesterday’s ceremonies – while still separating their loss from being actively critical of the political decisions that put them in harm’s way? It is possible to do, but it isn’t easy. Almost inevitably, the honouring tends to cast a golden glow over the entire context – or worse, the criticism of the politics involved is taken to be disrespectful of those that died. That’s one reason why militarism loves Anzac Day: it’s really good for the brand.

Such issues will become more pointed over the next two years. Right now, and as we approach the 100th anniversary of the Great War in 2014, we definitely seem to be casting our Anzac Day ceremonies more in the spirit of Rupert Brooke than of Wilfrid Owen. Brooke, you’ll recall, was the young poet who at the outset of the war, wrote gloriously about how if he died in the service of his country – which he was soon to do – there would be a corner of some foreign field which would be forever England. By the end of the same war, another young poet called Wilfrid Owen (who died in action a week before the Armistice, at the age of 25) – wrote scathingly about Brooke’s empty-headed kind of patriotism in his poem “Dulce et Decorum Est.” Owen directed his final stanza squarely at those who preach to the young about the glories of military sacrifice:

If in some smothering dreams you too could pace
Behind the wagon that we flung him in,
And watch the white eyes writhing in his face,
His hanging face, like a devil’s sick of sin;
If you could hear, at every jolt, the blood
Come gargling from the froth-corrupted lungs,
Obscene as cancer, bitter as the cud
Of vile, incurable sores on innocent tongues,
My friend, you would not tell with such high zest
To children ardent for some desperate glory,
The old Lie; Dulce et Decorum est
Pro patria mori.

In other words….Anger deserves to be as much a part of the emotional landscape of Anzac Day, as gratitude.

ENDS

Energy traders took power plants offline for maintenance in days of peak demand to increase the price. Traders were thus able to sell power at premium prices, sometimes up to a factor of 20 times its normal value. Because the state government had a cap on retail electricity charges, this market manipulation squeezed the industry’s revenue margins, causing the bankruptcy of Pacific Gas and Electric Company….The financial crisis was possible because of partial de-regulation legislation instituted in 1996 by the California Legislature…..Enron took advantage of this de-regulation and was involved in economic withholding and inflated price bidding in California’s spot markets. The crisis cost between $40 to $45 billion.

So…the California energy crisis was actually set in motion as an experiment in partial de-regulation by a right wing state legislature. Far from Bill English’s claim that electricity regulation is too complex for governments, the California example goes to show that the pricing of electricity is far too important to be thrown over to the investment whims of a ‘free’ market that is open to price manipulation by a bunch of private investors – who, if given the chance, will simply screw consumers into the ground.

That’s what the Greens and Labour have concluded. They have decided that the price paid by electricity users is too important to be further exposed to price gouging and profit taking by private investors. Incredibly, that position needs to be defended. Because… such has been the lurch to the right in New Zealand politics over the last 30 years, the need to provide investment ‘certainty’ and thus remove any element of actual risk from profit speculation by a small minority of investors, is being treated as more important than the affordability of essential power services for the majority of voters.

To repeat: what the Greens and Labour are proposing is a mechanism to remove from the power equation the ability to create and maintain artificially high prices and profits. Any loss of value that energy companies are currently experiencing in the shadow of the Greens/Labour proposal should be taken as a measure of the artificial value that has been built on the back of price gouging. Preserving the status quo means keeping that system in place – and watching impotently from the sidelines as the asset sales programme then proceeds to rachet it up. Given the chance, most consumers would probably prefer not to keep on inflating the value of energy companies by paying more than they should on their power bills every month. Pharmac intervenes in the market to keep drug costs under control. It’s time that a New Zealand government did likewise for power costs.

ENDS

Not that the likes of Mr Stent are interested in any market signals for his clients that aren’t green lights. Evidently, his brand of bold, risk taking investors would have already been unnerved by all this political “uncertainty” – aka democracy – and thus “investors would require a higher risk premium on that listing…” The fact that this sort of stuff can still be said in public 25 years after New Zealand’s experience of the damage done by light handed regulation (in everything from telecommunications to banking to the provision of electricity) shows the level of ideologically-driven idiocy that Labour and the Greens are up against. In everything from supermarket pricing to power pricing, New Zealand consumers have never been exposed to a free market, if that means protection by robust anti-trust mechanisms that a genuine free market requires, and which New Zealand has conspicuously lacked. The only freedom at work here has been a licence to gouge profits from a captive pool of consumers – and it is that unjust, woefully inefficient system that the Labour/Greens electricity plan seeks to address.

In case you missed it last week, what Labour and the Greens are proposing is to create a new Crown entity – called NZ Power – that would negotiate prices and buy electricity from generators on the public’s behalf, in much the same way that Pharmac successfully deals with drug companies in order to purchase medicines and essential health services. The outcome, Greens co-leader Russel Norman says, would deliver savings to households of about $300 a year on average in energy costs. (Not an earthshaking gain: that’s roughly $6 a week.) According to the financial experts at BERL this will translate into a $450 million annual boost to the economy, and 5,000 additional jobs.

If anyone still needed a rationale for why an agency such as NZ Power is needed, this was provided on the weekend in an excellent NZ Herald column by business commentator Bernard Hickey who provided evidence that the market system that is supposed to generate competition and rein in power prices simply hasn’t been working for New Zealand households. True, those price hikes may no longer be occurring at the rampant 8% average annual increases racked up during the decade to 2008 – but as Hickey adds, they have still been running at roughly four times the general rate of inflation for the past four years. The difficulty of holding the current – and previous – governments to account for this situation was demonstrated last week in the House by this fiery exchange – the transcript of which incidentally, demonstrates once again how hopelessly out of his depth David Carter is, as the new Speaker.

As the housing plans released late last year also served to do, the NZ Power proposal creates a clear, bright line of difference between the centre left and centre right on an important pocketbook issue. By adding NZ Power to the political equation, the Opposition not only blindsided the government but has offered voters a clear choice. Currently, the government is committed to an asset sales programme in which only a small and relatively wealthy minority of voters can afford to invest, and that delivers into private hands a greater ability to set power prices and rake in the subsequent profits. The Opposition proposal by contrast, has painted itself as an attempt to rein in – on behalf of the majority of voters – the super profits being racked up by the energy companies at the expense of power users.

As Stent and others have pointed out, the fear among professional investors about the NZ Power proposal has already wiped a significant amount off the book value of some energy companies, and this is likely to affect the likely value of shares in Mighty River Power. Too bad. To many ordinary New Zealanders, such impacts indicate the artificial value that they have been sustaining with their power bills every month. Few will shed tears if an ability to claw back some relief from electricity price gouging should ultimately cause a decline in the profit taking opportunities for private investors.

This raises a familiar political point that was usefully re-stated in Hickey’s column – namely, that power price rises might once have been grudgingly accepted, when they were a virtual tax that went straight into government coffers and paid for essential social services. Yet now…the asset sales programme has only served to erode that justification, because it will divert a significant slice of state energy company profits into shares, dividends and boardroom salary packages. That’s a much more difficult proposition to sell to voters.

One should also note that the asset sales programme is, at this point, a total shambles. Long ago, the government lost the argument for this selldown, on any grounds of economic efficiency. At the outset, it was always going to be a marginal matter whether it would be cheaper to borrow the money rather than sell the assets – but now, the government doesn’t even try to make a case based on the actual and opportunity costs involved in such a comparison. We’re talking about losing hundreds of millions in this ideological exercise.

Still, for individual investors, are shares in Mighty River Power a good buy – and at what price? And the answer is: no one has a clue. On the weekend, business commentator Rod Oram tried to get some informed advice – and failed spectacularly to do so. If someone as plugged in as Oram can’t get a reliable steer….then it goes to show that the Key government is really throwing all those prized Mum and Dad investors to the wolves of fortune.

ENDS

Of course it is this leveling, normalizing aspect of the gay marriage law that most concerns the likes of the Catholic Church. Yet the negative comments on RNZ this morning by Patrick Dunn, the Catholic bishop of Auckland mainly served to underline just how impossible it is for the Catholic Church nowadays to engage credibly on any issue of public morality, in the wake of the child abuse scandals. Dunn’s argument – such as it was – appeared to rest on the premise that marriage had for centuries been seen as only between a man and a woman, in cultures the world around.

That sounds depressingly familiar, doesn’t it? An injustice, unchallenged for centuries and occurring across cultural boundaries gets treated by the Catholic Church hierarchy as thereby normal, and somehow justified. Well, just because it has always been that way doesn’t make it right – whether it be child abuse, slavery, or social discrimination based on sexual orientation and identity.

Dotcom’s Property, Done Properly
This morning in the High Court in Auckland, the Dotcom defence team will begin replying to the arguments put forward by the Crown earlier this week. At issue is Dotcom’s access to property seized during the joint Police/FBI raid on his mansion, a raid carried out via what the High Court ruled last year to have been an invalid search warrant. Furthermore, some of this illegally seized material was then copied and sent off to the US prosecution team.

This week’s legal clash is largely one for Dotcom trainspotters, but it touches on important underlying issues. The “remedy” being sought by the Dotcom team in this legal action is not financial damages, but the return of their property, or cloned copies of it. The Crown response this week was to freely admit the flaws in the search warrant – they could hardly do otherwise – but to split the seized evidence into three groupings (a) the stuff scooped up during the raid that has no bearing at all on the criminal conspiracy/copyright case against Dotcom. Presumably, the return of this material is not a problem (b) the stuff in a grey area that may or may not be relevant and (c) the stuff central to the case.

Essentially, what the Crown tried to do this week was to beat a dignified retreat, while conceding as little as possible. Chief High Court Judge Helen Winkelmann was urged by the Crown to restrict any remedy that she might have in mind to merely the (b) materials in the grey area, and to continue to deny Dotcom access to the crucial (c) case elements. Moreover, in the Crown’s view, almost everything can still potentially fall into the “crucial” category. Dotcom’s own home entertainment system for instance, the Crown argued, might conceivably contain evidence that he had improperly accessed the contentious material on Megaupload.

Anyone concerned about the recent Search and Surveillance legislation would have found the Crown’s line of argument to be hair-raising. It went like this: yes, the search warrant was flawed, but the arrest warrant kind of, sort of, indicated what the search was about so no real harm done. What harm was done really, the Crown argued, by the gap between what was done and what should have been done? Judge Winkelmann was advised by the Crown to restrict her “remedies” to the gap between perfect Police practice and the actual Police practice on the day– and furthermore, she was invited to assess that gap in the light of the subsequent Search and Surveillance legislation, in whose terms any transgressions by the Police on January 20, 2012 might not seem unduly excessive.

To her credit, Winklemann didn’t seem to be buying this attempt to drive a bulldozer through the authority of the courts on such matters, and the powers that are meant to be circumscribed by court-issued search warrants. (She also seemed unimpressed by the weight the Court was putting on the Royal Timber case as precedent.) We will see this morning how Paul Davison QC makes his attack on the Crown’s “near enough = good enough = no real harm done = so, no major remedy needed” line of argument.

In a wider context, everyone should be concerned at this demonstration of the links between Police/security service screw-ups and subsequent legislation. In the Zaoui case, the systemic flaws that created the mistakes made by the SIS were not addressed in the subsequent Immigration Act rewrite – most of the effort went into making such mistakes harder to detect and expose in future. Similarly, in this Dotcom action, the Police made significant mistakes in terms of the rules of the day – but the Crown is citing the subsequent Search and Surveillance legislation with its expansion of Police search powers in order to retroactively minimize the extent of the wrong done to Dotcom, and to limit the remedies available to him. It is a really outrageous way of pulling yourself up by your own legislative bootstraps – and as Stephen Colbert once said, pulling yourself up by your own bootstraps is a really painful thing to watch.

In sum, the outcome to watch out for is not whether Dotcom gets some stuff returned, but whether he gets it all – or clones of it all – back. If he is to mount a defence in a timely fashion, he needs it all back, and right now. Especially given that in the extradition context, the Court of Appeal decided on March 1st 2013 to effectively allow the US to get away with presenting merely a summary of allegations, and not much at all in the way of actual evidence or any details of the interpretive leaps of logic in the circumstantial case they are mounting. (BTW, leave has been sought by Team Dotcom to contest that Court of Appeal ruling, in the Supreme Court.)

Mindful of the timetable – an extradition hearing in August which the Dotcom process is supposed to meet, Judge Winkelmann could well give a speedy response on this particular issue. For the Crown, this one is a damage limitation exercise. For them, a remedy restricted to just the “grey area” items would count as a victory.

Footnote: The US is asking us to extradite Dotcom. For a taste of how the US behaves when other countries try to extradite someone from their soil – in this case someone apparently responsible for the killings of at least 67 people – this example is instructive. For the best part of a decade, the US has repeatedly refused to return the fugitive former President of Bolivia to face justice. Here are the details:

During his second term, Sánchez de Lozada sought to export Bolivian natural gas to the United States and Mexico through a pipeline to Chilean ports before violent political protests forced him to resign and flee the country in October 2003. His address in court documents is in Chevy Chase, Md., a D.C. suburb. As many as 67 people died after protesters — mostly poor, indigenous Bolivians — clashed with security forces. Hundreds more were injured, according to press accounts and a lawsuit filed in U.S. District Court on behalf of 10 Bolivian families.

In 2011, a handful of former military officials and ministers who had not left Bolivia were tried and sent to prison for charges related to the bloodshed. Bolivia sought to try Sánchez de Lozada during that trial as well, but could not do so while he remained abroad. Sánchez de Lozada was sued in U.S. federal court in 2007 and accused of committing “crimes against humanity,” including employing “violence to quell widespread popular criticism of his policies.” The case has been dismissed by the U.S. Court of Appeals for the 11th Circuit…

Ah, but Dotcom has to be extradited by New Zealand to face US justice. The same US justice system that ensures Sanchez de Lozada can remain free. Too bad for the Bolivians. And too bad Dotcom has no friends in the natural gas industry.

ENDS