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Gordon Campbell on credibility, and irrigation plans

Gordon Campbell on credibility, and the government’s irrigation plans

Like the Biblical loaves and fishes, the government’s Future Investment Fund from asset sales just keeps on giving – $1 billion for schools and hospitals one day, a $400 million ‘investment’ in irrigation yesterday – even before the money actually exists in any palpable, cash in the hand fashion.

In the real world, will investors really want to stuff four energy companies into their portfolios ? Not very likely – if only because the wisdom of diversifying your portfolio still applies. Which means the last energy companies assets off the cab rank will almost certainly attract cut rate bids.

So when the government discovers that there’s significantly less money in the till… is it likely to be our schools and hospitals, or National’s friends down on the farm that get squeezed? Hint : nurses and teachers tend to vote centre-left.

Last week, Prime Minister John Key made the economic credibility of Labour into a campaign touchstone yet arguably, the Tooth Fairy has as much credibility as the government’s Future Investment Fund. Selling down state assets to pay for day to day social spending is bad enough. When it comes to the irrigation spend that Key confirmed yesterday, Cabinet papers released earlier this year made it clear just how risky this investment is, in economic and environmental terms.



Oh sure, the numbers at the bottom of the page claimed for the irrigation spend looked enticing enough. In the economic modelling cited in the Cabinet Summary Paper, NZIER claimed (para 58) “Increases of agricultural exports.of $4 billion by 2026 in real 2010 prices… and increases in GDP of .8 % by 2035 over what it would otherwise have been.” Ahem. That’s if you ignore the social and environmental impacts of the 42% increase in dairying activity envisaged (para 56) some 80% of which would be occurring in Canterbury (para 54).

But no worry! Because “social and environmental impacts were not considered as part of this study” (para 57). Nor was consideration given to the impact on the costs of likely skills shortages in building these irrigation schemes, even though we’ll be re-building Christchurch at much the same time. No worries, mate: “The economic gains quantified in this analysis assume that development proceeds in the shortest practicable time unconstrained by finance or access to appropriate skills.” (para 59)

Mind you, its not as if the Treasury/MAF officials didn’t know all this was highly speculative thinking. As officials do when they know that government is intent on a course of action, they try and dress it up as best they can. As black humour though, it is hard to beat the cover-my-arse clauses at paras 11 and 12: “While considerable effort was put into developing the analysis supporting this paper MAF advises caution in using these results as business cases for individual schemes. Robust economic and financial analysis is required on a scheme by scheme basis before decisions to proceed to construction – it is likely that some of the current propositions may not be proven to be commercially viable.”

Uh oh. So in irrigation, we’re allocating money and calculating the returns even before we know which (if any) of the schemes likely to access the funds will be commercially viable. But that’s OK – because (para 12) none of these guys know what they’re doing anyway! That’s why apparently, they need the taxpayer to front up, to cover the risks: “Large scale irrigation schemes are an immature financial asset in the sense that financiers do not understand the demand (farmer uptake of irrigation water) and supply (hydrological, regulatory and ownership issues) risks, and therefore are likely to look to a public partner to underwrite these risks.”

Hmmm. Now is that a good thing? Treasury worries (para 14) whether an approach where the private sector gets the gain and the public sector shoulders the venture risk might not ‘crowd out’ the risk taking initiative of the private sector. Later on though, Treasury convinces itself brightly that no, no, it will instead “crowd in” private sector investment further down the track. Once that is, the initial risks have been covered off with public money, and it looks like a sure thing.

Meanwhile, back in the real world, a large chunk of the agricultural community – fully one third of Canterbury farmers according to Environment Canterbury’s daily effluent monitoring report – continues to flout the existing effluent management regulations.

In Southland, the situation is like this:

89 per cent of all rivers and streams in Southland have a water-quality rating of poor or very poor…20 per cent of all water bores in the province had bacteria levels, mainly nitrate, exceeding guidelines in the most recent study done, two years ago. Residents in some outlying towns are regularly warned to boil water before drinking it, because of high pollution levels.

A foul taste, from increased nitrate levels, afflicts the Invercargill water supply in high summer. The Mataura and Waikaia rivers regularly carry excessive E. coli bacteria.

So… our Minister of Tourism heads a government hell bent on selling down state assets to fund further irrigation schemes that will primarily result in more dairy farming in Canterbury (and pollution) before any proper assessment of the trade off costs to the environment or to tourism that this investment will entail. Clearly, credibility in this election campaign is very much in the eye of the beholder. Unfortunately for Labour (and for the country as a whole) the public seems to have hung up the phone on credibility quite some time ago.

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