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Those who don’t learn from history…

Written By: - Date published: 4:19 am, July 23rd, 2009 - 62 comments
Categories: economy - Tags: ,

Supposedly, we need Don Brash and a gang of his right-wing cohorts to tell us how to close the wealth gap with Australia. Brash and his merry gang are the same old faces from the neoliberal revolution of the late 80s and early 90s. Back then, they ruthlessly applied neoliberal economic theory to our economy in the belief that it was the perfect way to run an economy. But it didn’t work out well, except for the ones who bought up the assets we sold on the cheap.

When we started taking away workers’ rights, firing people hand over fist, making labour cheap, and selling everything that wasn’t bolted down, our wealth per person started to go down. The neolib promises failed to materialise. Meanwhile, Australia wasn’t embarking on a deranged neoliberal experiment, and they got wealthier, not poorer.

wealth gap aus vs nz

(source: IMF WEO)

aus-gdp-per-capita-greater-than-nz

At the start of the neoliberal revolution, Australia’s economy was 17% per person larger than ours. By the time the revolution began to peter out in 1993-1994, the gap was 32%. The only time in the last 30 years we have managed to really start to close the gap was in the last nine years under a government that rejected further neoliberal reforms and made some efforts – Air NZ, Kiwirail, Kiwibank – to reverse some of the revolution’s legacy.

Now, stop me if I’m labouring the point but this is important:

we started to fall further and further behind Australia when we began implementing the policies that Brash and the Right espouse, and we stopped falling behind when we stopped implementing those policies

It’s all very well to make up counter-factuals (‘we would have been stuffed if we hadn’t done it’, well, funny because Australia didn’t do it and they weren’t stuffed, in fact they did better than us) or claim that it was because of neoliberal revolution that we managed pretty decent growth after it stopped (a bit like saying ‘see you’re healing well, if I hadn’t been punching you in the face before, you wouldn’t be healing so quickly now!’) but the simplest explanation is the best: the neoliberal model failed to deliver growth, it failed to close the gap with Australia, it made it worse.

Brash’s economic snakeoil failed then and it will fail now if we try it again.

62 comments on “Those who don’t learn from history…”

  1. Gosman 1

    Ummmm…. Why haven’t you included the comparision figures for last year? You have claimed that it has narrowed over the past nine years but the graph doesn’t seem to indicate that to me.

  2. Bevanjs 2

    circle this bit on the graph if you please:

    “The only time in the last 30 years we have managed to really start to close the gap was in the last nine years”

  3. lprent 3

    Gosman. Looks like the classic neoliberal debating tecnique of avoiding discussion by nitpicking is alive and well in you.

    Looks to me like the 2008 figures are there. But knock yourself out and visit the IMF website.

    This is a blog done by people who work for a living. You use the numbers you have available. Go do some work yourself and look the 2008 numbers from the same basis ( ie don’t do the other neoliberal trick of arguing between apples and oranges) and bring them to the discussion.

    That would bring you far more credibility than your current appearance of pious self gratification. In other words jerk off elsewhere

  4. Marty G 4

    Hmm, well that shut up Gosman and Bevanjs. all bluster and aggression. now no answer?

  5. tsmithfield 5

    This is the danger of only considering one variable, where obviously a number of variables are involved. For instance, I suggest you go to a site like “Yahoo Finance” and graph the performance of the DJI over the last 30 years or so. You will find there was an enormous leap in economic activity as indicated by share values.

    Compared to NZ, Australia, of course is much richer in commodities, which were in huge demand due to the explosive growth in the world economy over the period. Consequently, there are other fundamental reasons that the gap.

    Looking at the graph, it is obvious that the gap has continued to grow, even under Labour. Hence, it seems that the political landscape didn’t really have that much to do with the overall picture.

    • Marty G 5.1

      share value isn’t a measure of economic activity, it’s a measure of a few companies’ values

      In % terms the gap shrank from 40% in 1999 to 34%, and has grown slightly during the recession. the period of dramatic increase was the neoliberal revolution.

      here’s the gap in % http://www.thestandard.org.nz/wp-content/uploads/2009/07/aus-gdp-per-capita-greater-than-nz.png

    • chris 5.2

      Sure, if you consider what share value means though? Who drove a lot of the share market increases in value world wide? Banks. and what did most of their wealth consist of? That’s right: ………. (owl noise). Oh ok, BHP and Rio in there as well for australia, but also they had massive “growth” from macquarie, commonwealth etc. etc. etc.

  6. lprent 6

    Ts: Sure there are underlying factors. But if you have a look at the rate of change in the difference graph that he linked to in the comments, it looks far more like a failed policy was dropped.

  7. vto 7

    I suspect the movements on that gwaph are not due to those things you claim. The dates of implementation of various things do not line up with when effects were felt. It takes several years for large scale policy setting changes to flow through.

    Two examples – NZers got extremely carried away in the 80s share market boom, the consequent bust was more extreme here and the Labour govt’s response further exacerbated the problem. Second, MMP introduced bloody Winston Peters in 1996 and I distinctly recall the effect he had on NZ and the economy – big spending etc. You could feel the despondent “here we go again” from business folk and confidence plopped down some rungs with its consequent GDP effect.

    Your gwaph will not be adjusted for those things I imagine. You have used a blunt instrument.

    Anyway, we can all pull stats to support positions (except me as I have to work as well!).

    Further, Helen Clark and Labour claimed it was implementing policies to lift NZ into the top half of the OECD. We have in fact drifted further down the OECD. Therefore your type of policies do not work either.

    • TightyRighty 7.1

      hear hear. nothing says fail better than going the exact opposite direction to what you told everyone they’d be going.

      • Marty G 7.1.1

        Funny, this obsession with a ranking, it’s because when you look at the actual value, the actual standard of living, Labour performed very well…

        we’ll be remembering this quote “nothing says fail better than going the exact opposite direction to what you told everyone they’d be going.” when stats come out in the future under National

        Oh, does nothing say fail like saying you were going to make tax cuts, then canceling them? Or are you going to make excuses for that?

        • Daveski 7.1.1.1

          Stop deflecting Marty. It was Labour’s goal, they said it, they failed their own objective.

          My assessment is a little bit more charitable that yours, not surprisingly. From what I’m hearing on the radio, they doesn’t appear to be the same enthusiasm for the excesses of the 1990’s and we appear to have consensus on the economic fundamentals.

          I think those who are not partisan would accept the point that both parties have failed to close the gap.

          • jarbury 7.1.1.1.1

            What was the objective of the neoliberal agenda then? To increase the gap between NZ and Australia? Worked pretty well I guess….

            • Daveski 7.1.1.1.1.1

              As I said, a non partisan view is that both parties have largely failed to turn things around substantially over the past 30 years.

              I’m not the only one to point out that the fundamentals have been largely the same over this period of time and that at least provides some stability.

              NZ has actually weathered the economic crisis better than most as a result of this. Naturally, this isn’t helpful to the left as you want to blame the Nats.

              Some consensus around the non-economic policies would undoubtedly assist eg the vital role of education and research to lifting our economic performance.

            • Draco T Bastard 7.1.1.1.1.2

              I’m not the only one to point out that the fundamentals have been largely the same over this period of time and that at least provides some stability.

              The stability of going down?

              Yes, both major parties have accepted the neo-liberal agenda. They’re both wrong but that’s because the neo-liberal economics are wrong.

              NZ has actually weathered the economic crisis better than most as a result of this.

              I’d say that NZ weathered it better because the last government realized the damage that full neo-liberal policies were doing and didn’t follow them. They actually started to pay off the unaffordable debt rather than the NACT tactic of cutting taxes.

          • Bright Red 7.1.1.1.2

            But the gap did close under Labour, Daveski. Look at the graph. from 40% when they came in down to mid 30s

    • Marty G 7.2

      No, vto, my graph isn’t adjusted for any random thing that you decide it should be.

      Ah, the ‘delayed impact’ effect. I’ll tell you what, sacking tens of thousands of workers and cutting benefits didn’t have a delayed effect, it hit straight away.

      Our GDP per capita grew rapidly under Labour, enough to reduce the gap, which is impressive when they were 40% ahead in 1999 because you have to grow faster just to keep pace.

      Rankings are a stupid way to measure wealth – we closed on the top countries but so did the countries of similar rank, some who drew slightly ahead of us. The wealth gap between ranks is not uniform.

      • Marty G 7.2.1

        vto. you’re so clever. could you tell me how you would adjust graphs of GDP per capita for Winston Peters’ election to government? Would you downscale our number by 5%, give another $1000 to the Aussies?

        What else should I adjust the GDP per capita numbers for and by how much? $20 because it was rainy that year? 2% because we won the World Cup?

        Honestly, I’m trying to think of a dumber suggestion I’ve seen on this blog… it’s a struggle

        • vto 7.2.1.1

          Marty G, re both your snarky responses above..

          1. My examples were not random, they were in fact two events which had a direct effect of NZ’s GDP. Why wold you not adjust for things that affect GDP when your entire post rests on it? And your belittling reflects only on you.

          2. If rankings are a stupid way of assessing things then why are you obssessed with our position wrt Oz? And you better ask Helen why she chose to run with rankings. Look within for your own answers fulla.

          3. How would your graph be adjusted for Winston Peters etc?? Dont ask me – your the one putting up the dumb non-adjustable graph. Bit useless isnt it.

          You are really missing the point. You say “What else should I adjust the GDP per capita numbers for and by how much? $20 because it was rainy that year? 2% because we won the World Cup?” The answer is in your very own words. Example – drought effects.

          Your graph is useless.

          • jarbury 7.2.1.1.1

            Marty focuses on the neoliberal age as being from around 1984 to 1994. When did Winston Peters have a significant effect on the economy during that period?

          • Bright Red 7.2.1.1.2

            You sound close to crying, vto.

            the point of a graph like this is to look at long-run trends, then seek explanations for changes in those trends.

            You want Marty to go and change the figure, the offiicial IMF figures, by whatever amount you make up so that the trends conform to your assumptions about what they should look like – ‘reality must be wrong, my theory is perfect’

            Can you show us one example of a GDP graph where the GDP numbers have been changed by some made up figure as an ‘adjustment’ for some non-regualr event? (ie not seasonal adjustment). Of course you can’t because that would be absurd.

            I mean, have you ever seen a graph where they’ve gone ‘well, inthis year GDP was 90 but there was a drought, so we’ll pretend it was 100’? Of course not. That would totally invalidate the figures.

            • vto 7.2.1.1.2.1

              Sheesh Bright Red.

              Just like Marty, your answer is in your own words. GDP figures arent adjusted for such events, as you state. Hence their uselessness for anything other than an extremely blunt brick-type instrument.

              I’ll repeat for the slow bwains.. You yourself agree the figures are not adjusted for all the variables that affect GDP so as to allow the effects of one such variable to be seen, yet you also claim that it represents the effects of just one of those variables, namely macro-policy settings. ha ha ha ha ha ha ha ha

            • snoozer 7.2.1.1.2.2

              Can someone get vto something to drink, and slip some tranq in there?

              GDP per capita is a perfectly legitimate measure of economic activity. We’re looking at a pattern over time and when we look at the late 80s early 90s, the gap grows a huge amount, basically doubles – that was the period when we were undertaking a massive economic experiment.

              So, we’ve got an economic experiment and a measure of economic activity. We can look at that measure and say ‘hey, what happened when we undertook the experiment, oh, our GDP per capita dropped and Aussie’s didn’t and the gap between our countries grew’

              You’re one of the ones who goes on about the gap between Australia and New Zealand. Now, you’re pretending you don’t accept the measure of that gap because it shows where the gap came from.

            • vto 7.2.1.1.2.3

              Bright Red, I have already covered those points in my posts above. Re-read.

              “You’re one of the ones who goes on about the gap between Australia and New Zealand. Now, you’re pretending you don’t accept the measure of that gap because it shows where the gap came from.”

              1. I have never gone about the gap. Personally I dont give a shit – we may as well compare ourselves to timbuktoo for all I care.

              2. Re-read posts above. It absolutely does not show where the gap came from. Not a single piece of evidence has been provided to show that the graph indicates such. And anecdote spilling forth from the likes of yourself is no such evidence.

              Just repeating yourself does not make it any more correct.

              Now, where’s my drink BR? Pop it in the courier will you – Bundaberg rum and Grants whisky will be fine given it is an Oz comparison.

  8. vidiot 8

    Wasn’t 1987 the stock market crash ? And 1997 the Asian financial crysis ? Seems that the graph spikes around both times.

    • Marty G 8.1

      that’s why you don’t look just at one year.

      • Pascal's bookie 8.1.1

        Those things hit Australia too, though for some reason their effects were worse here…

      • So Bored 8.1.2

        Marty,

        Your graph really only demonstrates to me that the deforms implemented by Dodgy Roger and his soul mate Roof really have not changed under 9 years of Labour. The fundamental building blocks of the neo lib deforms were not reformed, overturned or questioned particularly hard by Labour, the graph remains constant. Changing the scales or parameters might prove otherwise.

        Another problem with the graph is that you are assuming that it was the deform process that widened the gap between us and Oz since 1984 …thats a bit hard to substantiate with just this graph. It may be true (I suspect it is) but I wouldnt hang that up alone as the evidence for the prosecution.

        • snoozer 8.1.2.1

          merely reversing policies would not in itself have made us catch up. Imagine we’re driving side by side, I implement a ‘rapid, random, unskill change of gear policy’, my car starts to go slower than yours. Even if I resume driving normally, I won’t catch up to you.

          Anyway, I read Marty’s post as condemning neoliberal ideas, Brash’s ideas, as a solution, not saying that Labour had reversed all those policies.

  9. tsmithfield 9

    It is a fundamental mistake to include only one variable in an analysis when there are clearly many variables that have an effect.

    In a number of studies I have done using multiple regression, or something similar, an apparent correlation at the single variable level often reduces or even reverses when other relevant variables are included.

    So the whole basis for the argument is highly spurious.

    • So Bored 9.1

      I dont think the argument spurious, merely lacking the correct substantiation. You could also question the validity of the empirical measures.

      What I would not question is that an income gap has widened between the two countries. I would be more interested to see the comparative income gaps in both countries between the top and bottom deciles. That would tell you a lot more about policies and results.

    • jarbury 9.2

      On how many occasions does the right focus on one variable? Come on TS don’t be a hypocrite and ignore that just when the stats show what an absolute failure neoliberal economic policies were.

      • tsmithfield 9.2.1

        I don’t agree with anyone, whether on the right or the left, focusing on only one variable when clearly many relevant variables are at play.

        If its bad science, its bad science.

    • Bright Red 9.3

      This post simply compares GDP per capita between two countries – the measure, along with wages, that people use when talking about the gap between Australia and New Zealand.

      You don’t like the outcome becuase it show neoliberalism was a failure, ts, so you’re MAKING UP the possiblity that if you compared something else the gap would look different. You provide no evidence to back up your claim/

  10. tsmithfield 10

    Further to my comment above, here is an example of what I mean.

    There is a strong negative correlation between height and hair length: As people get shorter their hair length tends to get longer. However, when the gender variable is included in the equation, the single variable correlation between height and hair length will disappear altogether.

    This type of effect could very well happen with the analysis that Marty has provided. It might be that the apparent correlation between the political landscape and GDP gap may well disappear, or even reverse once demand for commodities is included in the equation. It may well be that the gap would have even been bigger had Rogernomics not happened.

    • snoozer 10.1

      ts wrote: “It may well be that the gap would have even been bigger had Rogernomics not happened.”

      in the post, Marty wrote: “It’s all very well to make up counter-factuals (‘we would have been stuffed if we hadn’t done it’, well, funny because Australia didn’t do it and they weren’t stuffed, in fact they did better than us)”

      lolz

      love all your conditionals – “could very well”, “It might be”, “may well”, “may well be ”

      all you’re saying is that anything is possible. I prefer Occam’s razor myself.

      • tsmithfield 10.1.1

        If we were to apply Occams Razor in the way you are suggesting, then we would have to say that the negative correlation between height and hair-length is real and not spurious.

        I don’t think you really understand Occams Razor.

        • snoozer 10.1.1.1

          Yes I do: ‘given the information available, the simplest explanation that fits that information is the most likely to be correct, and, so, is the one most logical to assume’ or to put it antoher way “When competing hypotheses are equal in other respects, the principle recommends selection of the hypothesis that introduces the fewest assumptions and postulates the fewest entities while still sufficiently answering the question”

          I’m not interested in hairy midgets but I’ll tell you what, the information on GDP per capita shows that the gap increased while we were embarking on a radical economic experiment and Australia wasn’t. The simplest explanation is that the experiment caused that outcome.

          You haven’t provided any evidence of any other cause or any evidence that the gap didn’t increase during that period, you are just saying there ‘might’ be such evidence. Well, there might be an invisible, weightless parrot on my shoulder but I’m not going to worry about it pooing on my jacket. I’m going to carry on in the assumption that it isn’t there.

          • tsmithfield 10.1.1.1.1

            You have defined Occams Razor, but you don’t understand how to apply it.

    • Daveski 10.2

      Like the patient whose life is saved by having a limb amputated but blames the surgeon for the loss of a limb.

      Not one of my more uplifting analogy but I think you get the drift!

  11. Ianmac 11

    Key/Brash/English are saying that the gap must be closed. Right. But what information are they using that shows the gap or even if there is a gap? (There is.) If Marty’s graph above is so wrong as some are arguing, what is being used to show the trend over the last couple of decades or so? TS Could you show me a graph that shows that the gap did not increase under so-called neo-liberal policicis over this time? (Instead of quibbling over detail.)

  12. gingercrush 12

    It also ignores that the last budget National produced before Labour formed a government showed that future growth would be high. Labour inherited surpluses. Something National had been working on for years. National was also reducing debt. It took a long period of time.

    When National departed government, we left you lot on the left an economy that had the ability to grow. Tis a pity then that you lot in turn gave us a recession.

  13. vto 13

    Exactly ginger.

    Due to Labours policies of course (in line with Marty’s own reasoning)

  14. rebelrocker 14

    “This post simply compares GDP per capita between two countries the measure, along with wages, that people use when talking about the gap between Australia and New Zealand. ”

    No the data in the post does this. The post then goes on to state a cause and effect relationship without any substantisation ie, it remains a theory.

    What some of the posters above are asking for is the theory to be tested ie, including other variables which may impact on the comparison between GDP per capita between the two countries.

    It’s sloppy thinking to suggest this further analysis is unnecessary.

    “You don’t like the outcome becuase it show neoliberalism was a failure, ts, so you’re MAKING UP the possiblity that if you compared something else the gap would look different. You provide no evidence to back up your claim/”

    Likewise you provide no evidence to support your theory that neoliberalism failed because you don’t account for other valid variables. If you did they could support or discount your theory. What are you scared of?

    • snoozer 14.1

      If you don’t agree with the interpretation of the data – ie the gap grew at the same time at the neoliberal revolution therefore the neoliberal revolution was a cause of that growth in the gap, then make a fact-based counter-argument.

  15. tsmithfield 15

    Since the argument here is based on oversimplification to the degree of absurdity, then no-one here should be able to argue with my observation on the graph:

    The graph shows that the gap started as narrow when National was in power, widened when Labour was in power, narrowed slightly again when National was in power again, and then widened out again when Labour was in power.

    So, Labour was responsible for the widening gap between Australia and NZ. I have just “proved” it.

    That should also satisfy Snoozer with his misguided way of applying Occams Razor.

    • jarbury 15.1

      Should we really classify the 1984-1990 government as Labour? I mean I guess they were, but the economic ideology was more along the lines of Act.

  16. Draco T Bastard 16

    Correlation does not necessarily equate to causation. We would have to look at things that were done individually, what they did to the economy and if they were a part of the neo-liberal reforms.

    Did wages go down over that time period? Yes. Was this drop caused by the policy? Neo-liberal policy called for the smashing of unions and abolishment of the penal rates system. Both of these neo-liberal policies were subsequently implemented. This would have caused a decrease in bargaining power of workers decreasing the wages they could demand. The abolishment of penal rates would drive up unemployment putting further strain on the negotiating power of the workers and, thus, further decreasing wages. Decreasing wages would necessarily decrease GDP because people wouldn’t be able to spend as much.

    Neo-liberal policies also called for the eradication of protections of national businesses which put our businesses in direct competition with businesses in countries with less environmental protections, lower or no minimum wages and even less worker protections. This would, again, force wages down as businesses were moved offshore or closed down completely further increasing unemployment.

    Foreign ownership, another neo-liberal policy and one that was implemented in the reforms of the 1980s and 1990s. GDP would, in the neo-liberal theory, stay the same as the receipts would be the same. This isn’t true though as the profits going offshore are a multiplier decrease. It results in a direct decrease in capital expenditure – the money, quite simply, isn’t being spent. With the decrease in financial capital investment in actual capital will also decrease minimizing productivity increases.

    Has all of these occurred due to the reforms? Yep. Is the graph that Marty G put forward therefore indicative of the reforms causing the increase in the GDP/capita gap between NZ and Oz? Yep.

  17. Bryan 17

    NZ companies are getting relatively SMALLER and THUS less productive. It takes only a little thought and intuition to understand, but here’s some research evidence:

    http://www.stuff.co.nz/business/personal-finance/2661911/Higher-pay-doesn-t-always-mean-higher-skill

    Provides real insight to English, Brash, Douglas & their new right productivity fictions. The real story behind this research entails the wide range of pressures and incentives for businesses to get smaller – de-regulation, de-unionisation, contracting out, dependent contractors, less red tape etc.

    Makes life much easier for their monopolist mates who make the perfectly rational calculation that it’s better to have a huge share of smallish cake that a shrinking share of a growing one.

    • RedLogix 17.1

      Very interesting Bryan. I haven’t seen the idea that smaller firms are less productive explicitly articulated like that before.

      I spent much of the 90’s travelling for a large corporate. I got to visit dozens of small outfits in the electrical/automation business. One thing I can assure you of is that many of the guys working in them had world class skills and worked damn hard. Yet it was obvious to me that they were largely wasting their time all running about cutting each other’s throats chasing pissant little jobs. As a result contracting in the country amounts to little more than a frack you contest, the client screwing the contractor before the deal is signed, and the contractor screwing the client after.

      From time to time I’d try to hint that maybe, just maybe there was merit in some of them setting aside their egos and consolidating their undoubted energy and skills into a larger enterprise that could tackle some genuinely profitable jobs overseas. But it never happened. Now a decade later I look about and only see a handful of survivors still grimly grinding their way, never really making it.

      The biggest barrier to improving productivity here in NZ is a dearth of confident, competent business leaders, people with the capacity to take on the world and win

  18. rebelrocker 18

    “The abolishment of penal rates would DRIVE UP UNEMPLOYMENT putting further strain on the negotiating power of the workers and, thus, further decreasing wages.”

    Unemployment fell following the introduction of ECA and kept falling until the recession of the late 1990’s then resumed falling once the economy recovered. It remained falling before and after the introduction of ERA.

    Here is a link that shows unemployment declining from 1991 http://www.dol.govt.nz/PDFs/lmr-hlfs-mar2006.pdf

    • toad 18.1

      rebelrocker said: Unemployment fell following the introduction of ECA…

      Of course it did. Because the ECA was designed to empower employers to lower wages, and benefits were cut in 1991 to encourage that too.
      So employers could get unemployed workers (who were work tested in a way that compelled them to apply for any available job, whatever the wages and conditions, and irrespective of their qualifications) to take shit jobs.

      That’s exactly why the income gap between Australia and New Zealand spiraled out in the ’90s.

  19. toad 19

    And there is a serious danger we will repeat history Marty.

    It is scary how many of the neo-liberals of the 90s are being resurrected.

    Indicative of a governemnt that has no vision, and naturally falls back on its already discredited ideological allies for ideas.

    • Swampy 19.1

      Bit like the regurgitated communists in the Green party, people like Keith Locke and Sue Bradford. The union leaders who have all come out of the woodwork since the Labour Party passed the ERA to rebuild their movement.

  20. Swampy 20

    Some “workers rights” were “taken away” and Labour has never reversed that. Maybe they were unreasonable things to have, like closed shops.

  21. vto 21

    Marty, above you say this “Our GDP per capita grew rapidly under Labour”; and this, “What else should I adjust the GDP per capita numbers for and by how much? $20 because it was rainy that year? 2% because we won the World Cup?”

    as some sort of claim to support your post that GDP is solely affected by govt policy.

    but then later the same day on the post “Show Pony” you say..

    “there was a drought, a bursting housing bubble, a global spike in oil and food prices in the first half last year. They caused the recession, not Labour.”

    as some sort of claim that GDP is solely affected by anything other than govt policy.

    Care to explain ?? Or prefer to remain wallowing in the smell of hypocrisy ..

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  • Waikato-Tainui settlement story launched on 25th anniversary of Treaty signing
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  • New District Court Judge appointed
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  • $206 million investment in upgrades at Ohakea Air Force Base
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  • Review of CAA organisational culture released
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