Editorial
Never-ending spending
KiwiRail is on track to become the new bottomless pit for taxpayers’ money.
It has been a couple of weeks since British betting agency Ladbrokes stopped taking bets on the price of crude oil reaching US$150 a barrel by the end of the year. And why wouldn’t it when the surging cost of oil shows no sign of slowing?
It is sobering to think that 10 years ago the price of Brent crude was just $11.36 a barrel. It was the era of cheap oil – though few of us thought of it like that at the time. Everyone knew it was a finite resource, and that demand was continuing to increase, but few if any could have foreseen that within a decade oil would have topped $143 a barrel, itself a doubling of price in just 12 months. Now, the bets are about when oil will reach $200 and, more importantly, what sort of changes that will bring to our cities, neighbourhoods, transport and workplaces.
To say our way of life is under threat is to imply the coming changes will be harmful. To the contrary, many of the changes forced upon New Zealanders out of economic necessity may turn out to be socially and environmentally friendly.
If the price of oil results in demand for high-quality inner-city residential developments that people prefer to move to rather than pay for long commutes from suburbs, that would certainly improve some people’s lives.
There is also likely to be an increase in working from home as the cost-saving and flexibility of technology is taken up by more enterprises.
In the United States, some economists have gone so far as to predict that outlying suburbs of big cities will become the new slums. In a New Zealand context, lifestyle blocks may be good for growing your veges – which will be just as well if those property owners can scarcely afford to drive to the supermarket.
Global financial markets are also in upheaval and it is against these uncertain backdrops that the Government has nationalised rail, committing taxpayers to a programme of spending that could be without end. Many factors militate against rail being a prudent purchase and none of the Government’s arguments for its decision are sufficiently persuasive.
Prime Minister Helen Clark says diesel-powered trains are four times more efficient than road transport at carrying the same load. But that does not explain why the public has to own trains. Nor does having trains obviate the need for road transport. Reaching a railway station is only part of the journey.
Yes, rail may have been under-funded by its private owners, but the taxpayers’ purse is not bottomless either. Subsidies to a private operator may well be anathema to taxpayers, but the amount of public money being spent has just increased, not decreased, by the change of ownership. Every $100 million that goes into rail is $100 million unavailable for health or education.
There is no successful international model on which KiwiRail can be based. Finance Minister Michael Cullen acknowledges it may never make money. With New Zealand seemingly heading into recession, the Reserve Bank predicting unemployment will rise, and high inflationary pressures, including upwards pressure on prices of all crude-oil by-products, there are more important priorities than nationalising rail.
On top of the initial outlay of nearly $700 million, Cullen says he will take to Cabinet a “longer-term, more aggressive investment campaign” for KiwiRail. As this came on the same day that the Auditor-General was critical of the Government’s handling of Ontrack – the rail track operator it has already owned for four years – taxpayers can only quail at what lies ahead.
The Government’s determination to own the rail system at a huge and likely never-ending cost to taxpayers appears motivated by ideology rather than financial prudence or environmental concerns.
Back in April, Clark said asset sales were a “defining issue”. The taxpayer has just paid a very large price – “a premium price”, to use Cullen’s words – for one of Labour’s election campaign planks, painted in Labour’s livery.
These are uncertain times in which to have committed to such major spending on old technology. Ladbrokes would be unlikely to take bets on such a purchase being worth it.
