Show Me The Money! The alternative to state funding of infrastructure is, of course, to fund it by taking on massive amounts of private debt. On this issue, at least, Auckland mayoral challenger, Tamihere, has some solid points to make. In his own colourful turn of phrase, the incumbent mayor, Phil Goff, and the Auckland Council, have “maxed-out the credit card”. If the City is to preserve its international credit rating of AA, then it simply cannot afford to take on any more debt.
NEITHER PHIL GOFF, nor John Tamihere, are telling
Aucklanders the truth about their city, but Bernard Hickey has given it a
pretty good shot. In a powerful and deeply insightful article, posted on the Newsroom
website, Hickey not only explains why KiwiBuild failed, but why it could never
have succeeded. In the process, he lays bare the fundamental failures of
political and economic intelligence fuelling New Zealand’s conjoined national
and local infrastructure crises. Goff and Tamihere are part of that
intellectual failure, and that is why neither politician is giving Aucklanders
meaningful answers to their most pressing questions.
Tamihere has proposed selling 49 percent of Watercare to
either the Accident Compensation Corporation, or the Superannuation Fund, or
both, and using the proceeds (estimated at around $5 billion) to fund
Auckland’s urgent infrastructure needs. Goff, who, in his years as a member of
the Fourth Labour Government, never once voted against the privatisation of
state-owned monopolies, has come out as a staunch defender of the
municipally-owned Watercare company. He is warning Aucklanders that Tamihere’s
plan would increase the average Aucklander’s water bill by $200-400 per year –
falling most heavily on the poorest Auckland families.
What does Hickey say about the funding of local government
infrastructure?
“After the mid-1980s, the Government saw the private
sector as the provider of housing and saw any infrastructure as a cost that
needed to be borne by those building the new houses and local Government, not
the wider taxpaying public. Even now, that thinking is infused through Treasury
and into the minds of the current Labour leadership, going from Ardern through
Finance Minister Grant Robertson to Twyford.”
In other words, the neoliberal principle of “user pays” has
been extended well beyond its original target, the hapless individual consumer
of government services, to encompass everyone: consumers, businesses, central
and local government institutions; everyone. The contrast between the
neoliberal approach and the nation-building approach, which, historically, has
informed the policies of successive New Zealand governments, could hardly be
starker.
As Hickey makes clear:
“[N]neither the National or Labour-led governments of the
last 35 years have seen it as their role to pay for [housing’s] underlying
infrastructure. Their instincts have been to get others to pay for it, unlike
during the golden eras of the 1930s, 40s, 50s, 60s and early 1970s when
governments of both colours used the national balance sheet to build and
subsidise that infrastructure through the Ministry of Works, State Advances
Corp and various Group Building schemes and child benefit capitalisation
policies.”
The alternative to state funding of infrastructure is, of
course, to fund it by taking on massive amounts of private debt. On this issue,
at least, Tamihere has some solid points to make. In his own colourful turn of
phrase, Goff and the Auckland Council have “maxed-out the credit card”. If the
City is to preserve its international credit rating of AA, then it simply
cannot afford to take on any more debt. What’s more, the rest of the country
cannot afford for Auckland to take on any more debt.
Hickey tells us why:
“The technical problem is the Auckland Council is almost
at its debt-to-revenue limit ratio of 270 percent, which is the level specified
by Standard and Poor’s for Auckland to keep its AA credit rating. This is
important because taking on more debt would mean Auckland’s credit rating would
be downgraded, which would increase the interest costs on existing debt and
force up rates. But it would also breach the rules set by the Local Government
Funding Agency [LGFA] about Auckland’s credit rating not falling more than one
notch below the Government's AA+ rating. That’s important because Auckland’s
rating essentially sets the base for all local government borrowing through the
LGFA. It means there is enormous political pressure locally and financial
pressure from other councils (and the LGFA) for Auckland not to borrow much
more. Councils beyond the Bombays and north of Orewa would scream blue murder
if their interest bills went up because the Auckland Council decided to solve a
funding problem the central Government won’t solve.”
Unable to take on any more debt, Tamihere knows that the
only way for Goff to fund infrastructure development in Auckland is by
increasing rates, raising user-charges, and/or adding another 5-10 cents to the
price of a litre of petrol. Tamihere is far from convinced that Goff (or anyone
else) is willing to risk a ratepayers’ revolt by leading Auckland up that
particular garden path, hence his plan to access five billion desperately
needed dollars for urgent infrastructure development by selling 49 percent of
Watercare.
The politics of this is quite clever, because, by the time
ACC and/or the Superfund take the necessary steps to secure their standard
rate-of-return from Watercare by taking it out of everybody’s water bill – Goff
is quite right about that – Tamihere may have earned himself enough public
good-will to be re-elected Mayor in 2022. (Assuming, of course, that this
partial privatisation policy enables him to beat Goff in October 2019.) Five
billion dollars builds a lot of infrastructure, so, who knows, Tamihere’s use
of Peter’s central government funds, to pay for Paul’s local government needs,
might just work. “The Mayor who rebuilt Auckland without plunging us all into
deeper debt!” – has a rather nice political ring to it.
In the long run, however, Tamihere’s gambit can only be a
bust. Liquidating and then spending Auckland’s capital assets can only end up
dragging the city to the same point Goff has already reached. Namely, facing
the politically unpalatable reality of requiring people to give up an
increasing proportion of their income to the Council and/or its commercial
arms. While the New Zealand political class – and that includes you, Jacinda
Ardern, Grant Robertson and James Shaw – remains incapable of thinking outside
the neoliberal box, New Zealand’s crumbling infrastructure, not to mention the
many large-scale public works projects that will be required to meet the
challenges of the future, cannot be addressed.
Goff and Tamihere would be better advised to jointly demand,
as the leading mayoral candidates, that the State once again steps up to the
plate of nation-building. In a country whose entire population is smaller than
that of a medium-sized global city, there never has been, and still isn’t, any
other viable alternative to turning the state into New Zealand’s angel
investor.
This essay was originally posted on The Daily Blog
of Thursday, 4 July 2019.
