By backing a (soft) privatisation policy, David Cunliffe is throwing away a vital point of difference with National and allowing National to move rightwards. Worse, Labour appears to be determined to give up political advantage for dumb policy: public-private partnerships and tolling have a terrible track record.
There’s no reason to think, even in theory, that PPPs should save money compared to the government building and running infrastructure itself, even if it has to borrow the money. It’s not as if the private sector has magical powers to save money and, unlike the government, any private investors have to turn a profit, which increases the cost of a PPP, everything else being equal.
People claim that PPPs put the risk on to the private sector – as if the private sector investors are chumps who take on risk for free. Of course, they don’t. Any private investor who is taking risk off the government is going to make sure that cost is covered by government contributions or tolls. In practice, it is the government that is the chump: contracts often explicitly put the risk of on the government by requiring it to top up private investors revenues if its below expectations. And, at any rate, the government is can’t afford to let major infrastructure collapse, so its always going to be there to step in with money if things get really desperate. This creates ‘moral hazard’ for the private investors: they get the gain if things go right but not the loss if things go wrong, that’s all borne by the poor old taxpayer.
New South Wales has been a major proponent of PPPs. In nearly every instance, the business case has massively overestimated patronage and toll revenue. This has led to the private companies running the PPPs collapsing and government bailouts. A new report estimates the NSW government would have saved AUD$4.6 billion if it had borrowed the money and done the projects itself without the PPPs.
PPPs are just a gravy train for lazy private investors. You can understand why National would be all for that, but why the hell would Labour be?
PPP roads are inevitably funded through tolling, which is awfully inefficient.
Take a look at the Northern Gateway road north of Auckland. NZTA built this toll road with a loan from the Ministry of Transport, which it is repaying at $6 million a year. In the past year, it collected $10.4 million in tolls (after GST) and paid $5.3 million for its toll collecting system. So, NZTA is spending nearly as much on collecting tolls as it is repaying the loans it took from the Ministry of Transport to build the road.
We’re going to end up expending probably over a hundred million dollars just to collect money for one government body to repay another government body for the cost of a road, whereas other road users elsewhere in the country just pay for their roads via their taxes. How is that a good use of the economy’s resources? The hugely expensive toll system contributes nothing to our wealth as a nation. We would be better off to pay through our taxes and not have the added expense of the toll system.
Take another example, the Tauranga Eastern Link – one of National’s Roads of National Significance. NZTA calculates that the Government’s decision to put a toll on it will increase costs and decreases usage so much that the benefits to the country will fall from $2.10 for every dollar spent to $1.80. Tolls are going to cost over a quarter of the net value of the project.
This is where we get to the real reason why some bad governments like PPPs and tolls. They allow the public cost of projects to be hidden. The government pays less up front and the rest is collected from taxpayers via tolls, rather than taxes. Unlike simply borrowing the money, which also spreads the costs into the future for the government and doesn’t carry the risks, PPPs don’t appear as a debt on the government books.
This doesn’t mean we don’t pay, of course, it just means those costs are hidden, less transparent, and often much larger.
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