Nick Smith has just announced to the House he has resigned as a Minister of the Crown, and John Key has accepted his resignation.

A sad end to his ministerial career.  It’s a stark reminder that Ministers must be like Caesar’s wife – above suspicion, in matters of personal advocacy – especially in your own portfolio area.

Nick has a very solid record of achievement as a Minister in the 4th and 5th National Governments. He should be proud of his achievements in diverse areas. He will be missed as a Minister by his colleagues.

Oral Questions 2 pm – 3 pm

1. SHANE ARDERN to the Minister of Finance: What reports has he received on the economy?
2. DAVID SHEARER to the Prime Minister: Does he expect all his Ministers to comply with the responsibilities set out in the Cabinet Manual?
3. JONATHAN YOUNG to the Minister of Justice: What steps is the Government taking to improve public services in law and order?
4. GRANT ROBERTSON to the Minister of Local Government: Will he take the same approach to compliance with the Cabinet Manual as Minister for Local Government as he did as Minister for ACC?
5. DENIS O’ROURKE to the Minister for Canterbury Earthquake Recovery: Does he stand by all his recent statements?
6. EUGENIE SAGE to the Prime Minister: Does he stand by his statement, “I am not going to do something silly with the Department of Conservation estate”?
7. Hon DAVID CUNLIFFE to the Minister for Economic Development: What, if any, are the capital costs, write-downs and redundancy costs expected from the merger of the Ministry of Economic Development with the Ministry of Science and Innovation, Department of Labour and Department of Building and Housing?
8. Dr PAUL HUTCHISON to the Minister of Health: What progress is being made in relation to the Government’s key result of increasing infant immunisation rates and reducing the incidence of rheumatic fever?
9. Hon MARYAN STREET to the Minister of Health: Does he support Pharmac’s provisional decision to engage Auckland company, Pharmaco, to be the sole supplier of new diabetic meters?
10. PESETA SAM LOTU-IIGA to the Minister for Social Development: Has she received any reports on the Future Focus welfare changes in 2010?
11. Hon PHIL GOFF to the Minister of Foreign Affairs: Have New Zealand heads of mission overseas been recalled to a meeting in Wellington on 2 April, and if so what is the cost of holding this meeting?
12. Dr KENNEDY GRAHAM to the Minister for Climate Change Issues: Is he concerned by a recent report of an international team of scientists that, even with a two degree celsius rise in average global temperature, future generations could face sea levels of up to 12 to 22 metres higher than at present?

Patsy of the day goes to Q3 – What steps is the Government taking to improve public services in law and order?

Labour have two questions on Nick Smith, one on state sector, one on Pharmac and one on MFAT restructuring.

Greens are on the conservation estate and climate change. The climate change question is disgraceful scare-mongering talking of sea rises of 22 metres, when the IPCC projection is for a maximum 0.69 of a metre by 2100.

General Debate 3 pm – 4 pm

All eyes will be on Peters I suspect and what he may say re Nick Smith.

Private and Local Bills 4 pm – 6 pm and 7.30 pm – 10 pm 

I blogged yesterday:

As Nick has now conceded it was an error of judgement. You can quibble over the fact the letter was to independent medical assessors, not ACC. But the reality is Nick should have declined to write the letter at all, just as he had also declined to intervene with ACC. There were many other people who could write a letter about how Bronwyn was before her accident.

Doing the letter on parliamentary letterhead compounded the failure of judgement.

I also blogged:

While a failure of judgement, I was pleased to see a journalist tweet that David Shearer had declined to say he thinks the lapse in judgement was serious enough to warrant resignation.

Since then Shearer has changed his stance. Patrick Gower blogs on it, saying Shearer had a shocker.

I also blogged:

 I’m not actually against a fuller independent inquiry, because while I do not think anyone has acted with malign motives, the perception is that it is very murky and sunlight is the best disinfectant. However it might be that the Privacy Commissioner inquiry will be wide enough.

I am now of the view that an independent inquiry, at a minimum, is necessary. The Privacy Commissioner can only cover the privacy issues around the data breach, and can not cover the wider issues. The speculation on the nature of the friendship does raise issues that need to be dealt with.

If the terms of reference were wide enough, it could in fact cover the entire history Pullar has with ACC (something she wants). Not often I quote Bomber Bradbury, but I think he is correct when he says:

Even National Party activists deserve to be treated with dignity and watching ACC throw Bronwyn to the Police over a faked allegation that she threatened to expose ACC negligence in return for compensation boils my blood. I say faked because the doyenne of the right, MFB (Michelle Fucking Boag) was in that meeting. Say what you will of ‘chelle, but she ain’t stupid enough to rock up to ACC in the capacity of a support person and threaten them with a bribery option. …

 through their own negligence they release confidential papers and when called on it, bully and intimidate a woman who has an existing complaint against them. 

This doesn’t change my view that Pullar shout not have retained the data, but it doesn’t mean ACC have behaved correctly either.

A full independent inquiry could cover:

• Consideration of Pullar’s grievances against ACC
• How the data breach to her occurred, and how it can be prevented in future
• Pullar’s actions with the data, and what happened at the meetings held with ACC
• Smith’s interactions with Pullar over her grievances
• Anything else the QC deems relevant

This may not be an attractive option to the Government. Personally I am of the view that Nick’s ill judgement was motivated by compassion, and there are no malign motivations involved. However others will suggest different motives, and for that reason I don’t think the issue will go away, unless there is a full inquiry, or some other form of accountability.

UPDATE: Cactus Kate has an interesting blog post on the issue. She picked Bronwyn up from the hospital after her accident, so speaks from some first hand knowledge.

John Hartevelt reports at Stuff:

More accountability for teachers and larger class sizes are again on the political agenda as Treasury Secretary Gabriel Makhlouf shapes up for a scrap with education unions.

He was urged yesterday by a teachers’ union, the New Zealand Educational Institute, to “stick to his knitting” after he went on the offensive, saying it was the quality of teachers that made the greatest difference to student achievement.

Here’s what’s funny. I would have thought a teachers’ union would absolutely agree that the quality of teachers makes the greatest difference to student achievement. They should be proud of the fact, and trumpeting it about how important teachers are.

Research suggested the impact on student learning of a “high-performing teacher” compared with an average teacher was “roughly equivalent” to the effect of a 10-student decrease in class size, Mr Makhlouf said.

So a good teacher with a 30 person class will be as effective as an average teacher with a 20 person class.

He suggested “a number of ways” to assess teacher quality, including in-class observations by other teachers, direct observations by principals, and feedback from students and parents.

At almost every school, students and staff know who are the most and least effective teachers. I certainly knew as a student at Rongotai College. Mr Jackson, Mr Reid, Mr Wilson were all great teachers, and all their students talked about how great they were.

A boost in class sizes of one or two students per classroom could free cash to invest more in quality teachers, he said.

Until we are out of deficit mode, extra funding is limited. So yes I agree investing more in quality teachers is more important than class sizes (within reason).

My blog at Stuff is on reining in local government.

In 2002 local councils were given the power of general competence. It meant they could do anything at all, so long as a majority of councillors voted for it. Any amount of spending could be justified so long as it contributed to the social, economic, cultural and environmental wellbeing of their communities.

For the life of me, I can’t think of anything that wouldn’t be justified under those criteria. A local council could probably build its own air force and claim it was essential to their social wellbeing.

I deal with the counter view:

Some have argued that these proposed reforms are undemocratic. They say that a local council should be able to spend ratepayers’ money on anything they want, and it is up to the local voters to keep them or sack them. They say the Government should leave it to local voters.

The problem I have with this argument is that many large items of expenditure that councils approve are not known before elections, and councils proceed regardless. Some of them turn into disasters such as the Hamilton V8s. Yes, you can sack the councillors responsible at the next election, but that doesn’t stop you being left with the bill regardless.

And the bill keeps getting bigger.

The verdicts are in. The four have been found not guilty on some firearms charges and guilty on some, and no verdict on the organised criminal group charges.

Idiot/Savant blogs at No Right Turn:

Genesis Energy has been granted resource consent for its proposed Castle Hill wind farm. At a potential 858 MW, Castle Hill would be the biggest wind farm in the country, and our second-largest power station; if constructed, it would double our total wind generation in one hit, and put us 5% closer to our “90% renewables by 2030” target.

This is a good thing. At present, wind is not as cheap as other forms of power, but it is an important part of our future as it is renewable. You can never rely on wind alone, due to the need for security of supply. But I think it is great to be making more use of wind for power, rather than finite resources.

Stuff reports:

Labour productivity improved 3.5 per cent in the year to March 2010, according to new Statistics New Zealand figures.

In part that reflected fewer workers in manufacturing, building and business services with those remaining producing more each.

The standout sectors were communications services, with productivity up 12.4 per cent in the year to March 2010, and finance and insurance up 7 per cent.

There was strong growth in productivity for the goods producing sector, up 3.8 per cent, and the service sector, up 3.3 per cent.

Labour productivity growth is important and 3.5% isn’t too bad. However the way it has come about is sub-optimal:

Labour productivity is the amount of goods and services produced by each worker. The declines in labour input were greater than that for output, resulting in labour productivity growth for these sectors.

Obviously the recession impacted. Ideally what we want is labour inputs increasing, but outputs increasing even faster.

I’d not yet blogged on the ACC saga as there were not enough facts out there to form conclusions on. I also have been wary as I know reasonably well several of the people involved – Bronwyn Pullar, Michelle Boag and Nick Smith.

Like  many in National I knew Bronwyn before her head injury nine years ago. Head injuries can leave people massively affected, and this has been the case for Bronwyn.  My mother practised as a neuropsychologist and was involved in the Head Injury Society, so through her I have gained a reasonable lay understanding of head injuries, and especially how many people never fully recover from them.

It is precisely for injuries like Bronwyn suffered that we have ACC. Now Bronwyn has felt for some years that she had been badly treated by ACC, and also her private insurers off memory. Her battles with them have to some degree become quite consuming for her. I don’t know the details of all the issues, but I will say that from what I do know I think Bronwyn has had some legitimate grievances. That doesn’t mean all the grievances are legitimate – I am not in a position to judge that.

Having set out that background, I do believe Bronwyn made an error of judgement when she was accidentially e-mailed an ACC spreadsheet which included some client details. The correct thing to do would be to immediately notify ACC, and delete the file. It would be fine to perhaps record down a few details from them as proof the data breach occurred, and complain to the Privacy Commissioner. But retaining the data was unwise.

The fact that there is a dispute over who was laying down conditions over its return, reinforces to me that deleting or returning the data was what should have happened.

There has been some focus on the role of Michelle Boag. Yes Michelle is a former National Party President, but that was a decade ago. For much longer than that she has been Bronwyn’s friend. I do not accept that a former party president can not be a support person to someone dealing with a government agency.

It is entirely natural, and in fact advisable, that someone with a head injury has a support person along.

Then we have the letter from Nick Smith, which the Herald has online here. As Nick has now conceded it was an error of judgement. You can quibble over the fact the letter was to independent medical assessors, not ACC. But the reality is Nick should have declined to write the letter at all, just as he had also declined to intervene with ACC. There were many other people who could write a letter about how Bronwyn was before her accident.

Doing the letter on parliamentary letterhead compounded the failure of judgement.

While a failure of judgement, I was pleased to see a journalist tweet that David Shearer had declined to say he thinks the lapse in judgement was serious enough to warrant resignation. It isn’t, and it is good to see Shearer not trying to beat this up, beyond the rightful criticism that is due. If there was some suggestion of self-gain, then it would be a different matter.

The Privacy Commissioner is going to investigate this issue, and she is independent. It remains to be seen how wide her terms of reference will be. I’m not actually against a fuller independent inquiry, because while I do not think anyone has acted with malign motives, the perception is that it is very murky and sunlight is the best disinfectant. However it might be that the Privacy Commissioner inquiry will be wide enough.

Oral Questions 2 pm – 3 pm

1. DAVID SHEARER to the Prime Minister: Does he stand by all his statements with regard to asset sales?
2. KEVIN HAGUE to the Minister for ACC: Does she consider an independent inquiry into ACC’s management of the incident in which personal information relating to 6,700 claimants was sent to Bronwyn Pullar is needed; if not, why not?
3. PAUL GOLDSMITH to the Minister of Finance: How will the Government’s programme for delivering better public services within tight financial constraints contribute to the Government’s economic plan?
4. Hon ANNETTE KING to the Minister of Local Government: What recommendations from at least three government reviews of local government since 2006 are yet to be implemented, and if any have not been implemented yet, why not?
5. NICKY WAGNER to the Minister of Local Government: What steps is the Government taking to address the average national 7% per annum rate increase and the quadrupling of local government debt from $2 billion to $8 billion since the major reforms of 2002?
6. CHRIS HIPKINS to the Minister of State Services: Does he agree that few problems are solved by significant reorganisations – in fact many more tend to be created and it is easy to underestimate the amount of energy and inspiration soaked up by institutional change, as well as the loss of personal and institutional knowledge?
7. TIM MACINDOE to the Minister for Social Development: How will the current welfare reforms support the Government’s better public services programme?
8. ANDREW LITTLE to the Minister for ACC: Will she set up an independent inquiry to reassure all New Zealanders that ACC and its Ministers act with the utmost integrity when in possession of people’s intimate and sensitive information?
9. COLIN KING to the Minister for Economic Development: What actions are the Government taking to drive business growth in New Zealand?
10. HOLLY WALKER to the Minister of Housing: Is he concerned that poor quality and overcrowded housing is contributing to high rates of infectious and respiratory diseases among Māori children?
11. JAMI-LEE ROSS to the Associate Minister of Transport: What is the Government doing to raise awareness about upcoming changes to the give way rules?
12. BARBARA STEWART to the Minister of Health: Does he stand by all his statements as Minister of Health?

Today there are five questions from National, four questions from Labour, two from the Greens and one from NZ First.

Patsy of the day goes to Q3 – How will the Government’s programme for delivering better public services within tight financial constraints contribute to the Government’s economic plan?

Labour are asking about asset sales, local government, state sector restructuring, and ACC. Bit surprised to see them asking on local govt and restructuring as these are areas where I’d say the Govt has popular support.

Greens are on ACC and housing. The ACC question is likely to be the most interesting with the Bronwyn Pullar issue.

NZ First is on Health.

Government Notice of Motion 3.00 pm – 4.00 pm

That under section 8 of the Intelligence and Security Committee Act 1996, this House endorse the following as members of the Intelligence and Security Committee: Hon John Banks and Hon Peter Dunne, nominated by the Prime Minister under section 7(1)(c) of the Act; and Dr Russel Norman, nominated by the Leader of the Opposition under section 7(1)(d) of the Act.

This is a debatable motion, with speeches of up to 10 minutes each. The Speaker will probably put it to a vote after an hour.

This continues the pattern of the last Parliament with the PM and Opposition Leader appointing other party leaders to the ISC, rather than someone from their own party. The only change is Peter Dunne instead of Tariana Turia.

Government Bills 4.00 pm – 6.00 pm and 7.30 pm – 10.00 pm 

1. Appropriation (2010/11 Financial Review) Bill – first reading (no debate, happens before Govt notice of motion)
2. Search and Surveillance Bill – committee stage continued
3. Regulatory Reform Bill – second reading
4. Regulatory Reform (Repeals) Bill – second reading
5. Trade (Safeguard Measures) Bill – second reading

The Appropriation (2010/11 Financial Review) Bill seeks to confirm and validate financial matters relating to the 2010/11 financial year.

The Search and Surveillance Bill was introduced in July 2009 and aims to implement the Government’s decisions on the legislative reform of search and surveillance powers”, based on the Law Commission’s report, “Search and Surveillance Powers”. It amends 69 different Acts and was supported at first reading by all parties except the Green Party.

The select committee did an interim report in August 2010 and a final report in November 2010. There was considerable opposition to the bill as originally drafted, such as by Tech Liberty.  Significant changes were made by the select committee with the Greens noting “They generally restrict search and surveillance powers more than the original bill, and improve accountability provisions”.  However they still oppose the bill, especially the provisions for Examination and Production Orders. Labour also opposes those two provisions.

At second reading Labour, Greens, NZ First, Maori and Mana voted against. An SoP will be considered at committee stage, which is supported by Labour, but they are still voting against the bill as a whole – mainly because the SFO is not included (they want the SFO powers reduced to the same as other agencies). NZ First appear to be voting against also.

The Regulatory Reform Bill was introduced in December 2010 and seeks to  improve the regulatory environment by amending 13 Acts “to reduce the compliance burden on business by amending ineffective or excessively costly regulation”. It was supported at first reading by all parties except the Greens. There is no minority report from the select committee so appears to have broad support.

The Regulatory Reform (Repeals) Bill was introduced in November 2010 and seeks to repeal “31 Acts that have been identified as spent, meaning they no longer have any actual effect, or have very limited effect, and are out of date”.  It was passed on a voice vote at first reading, and considered in tandem with the Regulatory Reform Bill by the Commerce Select Committee. There was also no minority report so appears to be non-controversial.

The Trade Safeguard Measures Bill was introduced in September 2008, and seeks to repeal the Temporary Safeguard Authorities Act 1987 (which embodies New Zealand’s current safeguards regime) and to replace it with a new regime consistent with World Trade Organisation (WTO) rules. ‘Safeguards’ are emergency measures applied at New Zealand’s border, such as a duty. It passed first reading on a voice vote and the select committee report back has no minority report.

The Telegraph reports:

The adult rate of the minimum wage is to rise by 11p to £6.19 an hour from October, Business Secretary Vince Cable announced today.

That is $11.90 in NZ dollars, which is 88% of the NZ minimum wage of $13.50 an hour. So the next time Labour or the unions insist our minimum wage is set at third world standards and keeps people in poverty, remember it is 13% higher than the UK one.

But the rates for younger workers will be frozen at £4.98 for 18 to 20-year-olds and £3.68 for 16 to 17-year-olds. 

Sensible when the focus is getting them into jobs.

The starting out minimum wage in NZ is $10.80 an hour, and doesn’t even apply to all under 21s like the UK one. It only applies to 16 and 17 year olds for their first six months with an employer or 18 and 19 year olds who have been on a benefit for at least six months.

The UK youth minimum wage is NZ$9.58 for 18 to 20 year olds, and NZ$7.08 for 16 and 17 year olds. That means those on the starting out minimum wage in NZ are getting 13% more and  53% more respectively.

At the weekend the film Lost Airmen of Buchenwald was on television. It told a fascinating little known story of 168 allied airmen who were illegally sent to a concentration camp in WWII, and how Acting Squadron Leader Phil Lamason kept them alive. Lamason is a kiwi, and amazingly is still alive aged 93.

The 168 airmen were sent to Buchenwald concentration camp, which was technically not an extermination camp, but still saw 55,000 people shot or worked to death.

Lamason as the senior officer assumed command of the airmen, and many of them say his leadership kept them alive. Lamason kept asking for them to be transferred to a POW camp, but this was denied. They were ordered to work as slave labour. Lamason refused to order the men to work, as allied soliders could not work for war production for the Nazis. He refused to back down even when threatened with summary execution by an SS officer.

Lamason managed to get word to the Luftwaffe, about the airmen being held at the concentration camp. He was hoping they would intervene, as they would not wish their captured airmen in the UK to be treated in the same way. Two Luftwaffe officers visited the camp pretending to inspect bomb damage, and talked to Lamason. They reported to Hermann Goering who ordered them transferred.

However before news of the transfer came through, they were ordered to be shot on 26 October. Only Lamarson knew this, but didn’t tell the others to keep morale high. Then the transfer came through on 19 October.  They were just one week away from execution. 166 of the airmen were transferred and survived.

It was a fascinating documentary and well worth watching. New Zealanders can be very proud of Mr Lamason, a true war hero.

An interesting article in the NY Times on why some countries go bust:

Over the centuries, proposed answers have varied greatly. Smith declared that the difference between wealth and poverty resulted from the relative freedom of the markets; Thomas Malthus said poverty comes from overpopulation; and John Maynard Keynes claimed it was a byproduct of a lack of technocrats.  …

Jeffrey Sachs, one of the world’s most famous economists, asserts that poor soil, lack of navigable rivers and tropical diseases are, in part, to blame. Others point to culture, geography, climate, colonization and military might. The list goes on.

But a different theory:

Now, in their new book, “Why Nations Fail,” Acemoglu and his collaborator, James Robinson, argue that the wealth of a country is most closely correlated with the degree to which the average person shares in the overall growth of its economy. It’s an idea that was first raised by Smith but was then largely ignored for centuries as economics became focused on theoretical models of ideal economies rather than the not-at-all-ideal problems of real nations.

I don’t see this as contradictory to what Adam Smith said, but complementary to it.

Consider Acemoglu’s idea from the perspective of a poor farmer. In parts of modern sub-Saharan Africa, as was true in medieval Europe or the antebellum South, the people who work the fields lack any incentive to improve their yield because any surplus is taken by the wealthy elite. This mind-set changes only when farmers are given strong property rights and discover that they can profit from extra production. In 1978, China began allowing farmers to benefit from any surplus they produced. The decision, most economists agree, helped spark the country’s astounding growth.

Absolutely. Those who for 100% state ownership should look at the massive difference it made in China to allow people to gain reward for their efforts beyond what the state mandated they should get.

According to Acemoglu’s thesis, when a nation’s institutions prevent the poor from profiting from their work, no amount of disease eradication, good economic advice or foreign aid seems to help. I observed this firsthand when I visited a group of Haitian mango farmers a few years ago. Each farmer had no more than one or two mango trees, even though their land lay along a river that could irrigate their fields and support hundreds of trees. So why didn’t they install irrigation pipes? Were they ignorant, indifferent? In fact, they were quite savvy and lived in a region teeming with well-intended foreign-aid programs. But these farmers also knew that nobody in their village had clear title to the land they farmed. If they suddenly grew a few hundred mango trees, it was likely that a well-connected member of the elite would show up and claim their land and its spoils. What was the point?

Which reinforces the need for clear property rights.

Acemoglu, Robinson and their collaborators did not come up with the idea that incentives matter, of course, nor the notion that politics play a role in economic development. Their great contribution has been a series of clever historical studies that persuasively argue that the cheesiest of slogans is actually correct: the true value of a nation is its people. If national institutions give even their poorest and least educated citizens some shot at improving their own lives — through property rights, a reliable judicial system or access to markets — those citizens will do what it takes to make themselves and their country richer. 

And this is why we should do what we can to improve educational outcomes for the “tail” and why we should encourage people from welfare into work.

This suggests, among other things, that instead of supporting one-off programs promoting health or agricultural productivity, the international community should focus its aid efforts on deep political and economic change.

Absolutely.

Acemoglu and Robinson are on the pessimistic side of optimism about the United States’ chances of a resurgence. Congress, they told me, is too heavily influenced by the wealthy, and the advent of super PACs has only given elites more power. Yet Acemoglu surprised me when he said he was encouraged by the rise of the Tea Party and Occupy Wall Street. While neither has an especially coherent or subtle economic agenda, both show that, however frustrated they might be, large numbers of Americans still believe they can influence the political process to improve their fortunes. Since the future of American economic health lies in its people, Acemoglu explained, as long as Americans believe they can influence the process, they will.

I think the future is fairly murky for the US.

Stuff reports:

An artist admitted Friday to taking shortcuts in crafting an often harrowing tale about Apple’s operations in China after the veracity of his one-man theatrical show was challenged by a public radio programme that had based a broadcast on his work.

But writer Mike Daisey said he stands by his monologue and called what he does theatre, and not journalism.

“It uses a combination of fact, memoir, and dramatic license to tell its story, and I believe it does so with integrity,” Daisey said in a statement posted on his website.

Translated this means a combination of facts and lies.

In his monologue performance, which currently running at the Public Theater in New York, Daisey describes meeting very young workers who put in very long hours and were forced to do crippling, repetitive motions at factories that make Apple products in China. Some he claimed had been poisoned by a chemical called hexane.

But This American Life says a China correspondent for the public radio show Marketplace named Rob Schmitz located and interviewed Daisey’s Chinese interpreter, who disputed much of the artist’s claims.

Daisey, in an interview with Glass broadcast as part of Friday’s episode of The American Life, admitted that he didn’t meet any poisoned workers and guessed at the ages of some of the workers he met.

“This American Life” said in its statement that staffers asked Daisey for his interpreter’s contact information while fact-checking the story. Daisey replied the cellphone number he had for her didn’t work anymore and he had no way to reach her.

So he also tried to cover up.

THIS WEEK ON BACK BENCHES: Watch Wallace Chapman, Damian Christie, the Back Benches Panel and special guests discuss the week’s hottest topics!

JAILHOUSE BLUES: Old regional prisons are going to be closed and replaced with a shiny new one at Wiri in South Auckland. Closing prisons—that must be a good thing, right? Well, the new prison is privately-built and run. Plus without regional prisons—will prisoners lose touch with the families? Will it impact their rehabilitation? Do the closings mean a loss of jobs? But then again—is one new modern prison better than a bunch of run down old prisons? Is a gaol from the 1860s conducive to rehabilitation?

NATIONAL vs. LOCAL: Local council debt and our rates are on the rise and the Government wants to do something about it. Local Government Minister Dr. Nick Smith is expected to announce sweeping reforms this week aimed at reducing debt levels and curbing local powers. Are the reforms needed? What should we expect to get from our council rates? What should local councils be responsible for vs. National Government? Will any reforms mean we pay less?

Join us for a night of LIVE pub politics from the Backbencher Pub: Wednesday, 21st of March. Our Panel: Labour MP Phil Goff, Mana Party Leader Hone Harawira, and National MP Michael Woodhouse.

Wednesday at 9.05pm and Saturday at 10.05pm | TVNZ 7

Better Local Gvt Pr08

The Government has announced some fairly significant local government reforms. They are not yet online so have embedded them above. The summary of them is:

1. Refocus the purpose of local government – to change from the ‘social, economic,environmental and cultural well-being of communities’ to ‘providing good quality local infrastructure, public services and regulatory functions at the least possible cost to households and business.’
2. Introduce fiscal responsibility requirements – will allow Government to set fiscal limits for Councils such as debt, income and expenditure levels. Flexibility in case of disasters though.
3. Strengthen council governance provisions – will allow Councils to set a cap on staff numbers and set a remuneration policy. Also salaries to be disclosed in bands like for central Govt.
   Also powers of Auckland Mayor to be extended to all Mayors – to appoint Deputy Mayor, Committee Chairs and propose the budget.
4. Streamline council reorganisation procedures
5. Establish a local government efficiency taskforce
6. Develop a framework for central/local government regulatory roles
7. Investigate the efficiency of local government infrastructure provision
8. Review the use of development contributions

I think giving Mayors some modest powers is a good thing. At present they have no power beyond a Councillor except through the force of their leadership.  Having the Mayor propose the budget and Council above to approve a staffing cap and remuneration policy dilutes the powers of chief executives.

The new purpose statement looks much better focused to me, and also approve of fiscal responsibility requirements. However the key thing will be what they actually are, rather than just having them.

The Herald reports:

President Barack Obama is calling anew on Congress to end tax subsidies for the oil and gas industry, saying America needs to develop alternative sources of energy in the face of rising petrol prices.

Obama said in his weekly radio and internet address that he expected Congress to consider in the next few weeks halting US$4 billion ($4.85 billion) in tax subsidies, something he hasn’t been able to get through Congress throughout his presidency. …

Industry officials and many Republicans in Congress have argued that cutting the tax breaks would lead to higher petrol prices, raising costs on oil companies and affecting their investments in exploration and production.

Obama is on the right side of this one. Just as I am against subsidies for bio-fuels (especially as they caused mass starvation with crops being converted to bio-fuels from grain), I am against subsidies for oil.

We should not shelter people from higher petrol prices. That is a market signal that supply is becoming more difficult, and will encourage investment in other technologies, plus encourage greater use of other forms of transport.

As for investments in exploration and production, you do not need subsidies for that. As petrol prices increase, then exploration of new reserves becomes economically viable.

Stuff reports:

Electricity retailer Mercury Energy is using new technology to make pre-paid electricity plans more convenient for customers, but Consumer New Zealand says it isn’t in people’s interests to pay in advance for power. …

But Consumer NZ testing manager Hamish Wilson said the consumer rights group suspected systems like Glo-bug might mean retailers became more aggressive about channelling customers towards pre-pay. It was also concerned by planned increases in power prices.

“All of this is about making life easier for the electricity companies to do what they already do very well, which is effectively plunder people’s bank accounts. We don’t think pre-pay is in the best interests of most of the people who are likely to end up on it,” he said.

It depends. I’m with Powershop (which according to a story in the Herald is picking up the most customers from the large retailers) and I buy my power in advance with them. I will sometimes buy months in advance as you can buy winter power cheaper in advance than during winter itself. There is a cost of capital to consider but it is not major.

Glo-bug uses “cloud-based” software, smart meters and the pager network to make it easier for pre-pay customers to monitor their accounts. The system also means customers who run out of credit will only have their electricity disconnected at noon, after 36 hours’ notice.

Customers are given a wireless in-home display which receives updates on their remaining credit over the “oft-forgotten” pager network. It flashes amber and then red if they are about to be disconnected. The set-up relies on Mercury being able to read, connect and disconnect people’s power remotely, using smart meters.

What I like about Powershop is they don’t disconnect if you are late buying power. They e-mail you to remind you, and if necessary even top up the power automatically using their bulk product. I’ve never had to worry about accidental disconnection with them.

“Customers can top-up their accounts at thousands of retailers. It takes an old concept and brings it into the 21st century,” Munro said. “At the moment there is only one retailer deploying smart meters in Wellington, which is Genesis, but I believe the lines companies and other retailers are looking at what to do there.”

Actually Powershop supplied a smart reader to me at my old apartment, which was great. Sadly though it couldn’t move with me, so I back on a dumb meter at my new place.

Tim Watkin blogs at Pundit:

it’s never been cheaper for the government to borrow money. Although we’ve come up from the all-time low of 3.75% in December, the government can borrow money – by issuing bonds – at  4%. That’s real cheap. Which is why it’s interesting to ask whether National’s missing a trick and its commitment to austerity isn’t coming at the cost of potential investment and growth.

Because really, government debt isn’t the problem; it may be an opportunity. You and I need to save more, that’s unquestioned. But what the country needs from the government and business is some demand side growth – creating value-added products, wagier jobs, and more exports.

Putting aside the quaint notion that the Government, rather than the private sector, creates products, jobs and exports, Tim overlooks what would happen if the Goverment said “Yes, we will be the only Government in the world that thinks it needs more debt, not less, and rather than aim to get back into surplus we will aim to grow debt faster. We are only paying 4% on out debt because of the commitment to get back into surplus. Throw that out the window and those interest rates will rise.

 You might have better ideas that me as to where money could be spent, but some joint venture building houses for first home buyers has been suggested (which could be a way of using the low government debt to help lower our high household debt that the credit ratings agencies are so anxious about)… there’s rail… R&D incentives and more money for the CRIs… export drives… things that will pay off in the long run.

Tim wants the Government to borrow more, to encourage more people to borrow money for homes. Have we learnt nothing from the global credit crisis? This must be the worst idea for sometime, I’m afraid. I’m amazed at how you can have such a relaxed approach to debt – a “Oh lets just borrow lots of money and spend it on nice things”. Would you run your own business like that? Fuck, no.

As for the other examples. The return on rail is basically negative – needs subsidies to be profitable. R&D incentives generally lead to legions of tax accountants reclassifying expenditure as R&D, and more money for CRIs has actually been happening anyway – science and innovation is one of the few areas not frozen for funding.

The reality is that every dollar we borrow means we have to spend more tax revenue on interest on that debt, rather than on stuff like schools and hospitals. Debt is a valid way of funding capital expenditure, but debt should not be used to fund operational expenditure – that is exactly how you end up in trouble.  Even when we back in surplus, the Government will still be borrowing for some capital requirements. But this notion of borrowing billions cheaply to encourage people into property ownership is exactly what caused the problem in the first place.

Brian Edwards blogs:

I find myself wondering whether I want to be bothered with the Labour Party any more. Increasingly, it seems to me, the Greens reflect the philosophical and moral values to which I subscribe more accurately than the Labour Party whose philosophical and moral values are now so ill-defined as to be beyond definition.

Strong words from a (I suspect) lifetime Labour supporter.

I’m a socialist at heart and, whatever it is, New Zealand Labour is not a socialist party. It wasn’t just Rogernomics that scotched that idea; Tony Blair’s ‘third way’, a significant influence on the Fifth Labour Government, was really just a watered down version of Douglas’s ‘trickle-down’ economics. The ‘third way’ was, by definition, a ‘middle-way’, neither one thing nor the other and ill-suited to political idealism of any stripe – a Clayton’s political philosophy.  

I read that Labour’s new leader, David Shearer, wants to move the party to that ideological no-man’s-land that is ‘the centre’. National already occupies that space but, as the distinctions between Key and Shearer lose focus – both promising to deliver ‘a brighter future’ and the Labour leader ditching policies specifically directed at putting more money into the pockets of the poor – I’ve no doubt that an accommodation can be reached between centre-right and centre-left.

Personally I am glad Labour is (mainly) not a socialist party. Socialism doesn’t work. It has been tried in dozens of countries, and nationalising the means of production etc is a failed experiment.

I’m a firm believer in progressive taxation – ‘From each according to his ability, to each according to his needs,’ as Marx  so neatly put it. You can call that Communism or Socialism or pure Christianity.  It doesn’t really matter. What matters is the core principle that the strong should support the weak. So it’s good that Labour’s new leader is at least intent on keeping a Capital Gains Tax as Labour policy. The earnings of the rich should be taxed to support the poor.

They are. Families below $50,000 income effectively pay no net tax at all.  We have a massively progressive tax system. If Brian feels it is not progressive enough, well Treasury does accept donations 🙂

But I’m not comfortable with Mr Shearer’s reported intention to move the party ‘to the centre’. It’s a misnomer for one thing. Labour is already in the centre. It has already lost its working-class constituency. Any move ‘to the centre’ will merely be, as the share-brokers say, ‘a technical correction’, not as extreme as in ‘84 but a move to the right nonetheless.

What Labour politics now seem to be about is finding ‘sellable’ policies and a ‘sellable’ leader in order to regain power. (For National read ‘retain power’.) What Green politics seem to be about is persuading people to come across to policies not obviously or immediately founded in self-interest, but in the long-term interests of all of us and (there’s no avoiding it) of the planet. No doubt they’d like to be in government too. But it doesn’t seem to be their primary motivation.

So I find myself wondering…

The harsh reality is that Labour has a better chance of gaining power if they do lose left-wing voters to the Greens, so long as they pick up some centrist voters from National.

Page 1009 of the 15 March NZ Gazette reveals that the Progressive Party has officially disbanded, in that it has had its registration as a registered political party cancelled.

I’m a bit surprised the Electoral Commission hasn’t announced this on their website, or updated their list of parties. Normally I find out from their website, not from obscure Gazette notices.

While the Alliance had a distinct place on the political spectrum, I never worked out what the Progressives stood for, except to have Jim Anderton as Leader.

Stuff quotes NZUSA:

The NZUSA presumably has a few budding economists at its fingertips and has calculated putting interest on a $50,000 loan would see it grow to a $90,000 repayment, yet the extra value to the Government would be only $3000 out of the extra $40,000 paid.

So who would the extra $37,000 go to? Can someone in NZUSA provide their calculations, because on the surface,  I don’t see how this works.

Maybe they are saying that students would end up spending the $40,000 on goods and services, which would generate economic activity which would produce $37,000 of income for the Government? Any economists out there want to take a stab?

UPDATE: NZUSA have kindly responded:

The $50K becoming $90K if interest was added (and taking 15 years to repay instead of 8) was John Key’s. You’ll have to ask him where he got those numbers from.

According to IRD’s student loan calculator, to pay back a $50K loan in 8 years requires a salary of just over $80,000 – about twice the (university) graduate average. Of course as we all remember from 2005, IRD’s calculator doesn’t have income growth – or growth in the repayment threshold – built into it.

$70+2.5% gets a similar result.

The average graduate salary is around $40K. $45K – $48K if you believe the marketing on the NZ Immigration website. Not sure about salary growth rates in the midst of the Great Recession.

 The Net Present Value of $50K in 8 years is ~$29K; that of $90K in 15 years, is ~$32K. Hence $3,000. That’s at a 7% discount rate. Key’s interest rate seems to be higher than this, but it always was much higher than the actual cost of capital.

 These are terminal payments. Of course this is an unlikely scenario. However, since it depends on the actual cashflow, it is hard to know without the Prime Minister’s numbers. If the money comes quickly, high starting salary, low growth (to still get the repayment time), then the difference between the two would be greater, if it came later, lower starting salary with high growth, then the difference would be relatively smaller, especially if there was a break in payments – unemployment, travel overseas. These could likely be quite reasonably be factored in.

Okay this makes more sense.  What would be good is to model an actual scenario based on actual repayment times for say the average graduate. I don’t think any policy change is likely here (which will please NZUSA) but it would still be good to understand what the “cost” of no change is.