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Molesworth & Featherston - 14 October 2003

Molesworth & Featherston


New Zealand's up-to-date business and political insight.

Weekly on Tuesdays.

14 October 2003

Read on for two chances to win bottles of fine New Zealand bubbly.

**** Fine print ****

Molesworth & Featherston welcomes your feedback. Email us at: editor@molesworthandfeatherston.info

Molesworth & Featherston is published on Tuesdays to be New Zealand's most up-to-date business and political newsletter.

You are encouraged to forward this copy. Copyright remains with the publishers.

Subscribe and view back issues at www.molesworthandfeatherston.info

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Helen wheels

Public Private Partnerships are a step closer with the return from select committee of the Land Transport Management Bill.

There is only one reason why the government wants PPPs – finance to enable more projects to be completed at the same time. The government has a limited sum of money to spend on infrastructure needs, and very heavy demands on those funds (particularly heavy at the moment). PPPs enable private sector funding to be directed towards the same projects.

The bill makes possible leasing arrangements such as in the Melbourne City Link project.

More flexible tolling arrangements will be introduced and we can expect to see tolls appear on existing highways to pay for new highway projects.

International research indicates that new roads, such as the proposed Transmission Gully bypass in Wellington, cannot succeed as profitable toll roads unless the competing route (the existing State Highway) is also tolled – otherwise traffic on the new road paying the toll reduces congestion (and therefore costs) for traffic travelling on the old road.

Tolls on existing roads will be an intensely political decision requiring the approval of the Minister.

Whether this is sufficient for Auckland will not be known until the new year. The government is promising to introduce legislation to fast-forward Auckland’s transport solutions if the Land Transport Management Bill as it stands won’t do the trick.

In a major reversal of policy from the Jenny Shipley-Maurice Williamson approach to the Transport portfolio, regional councils will once again be permitted to own and operate public transport services and infrastructure.

In other changes to the bill at select committee, new consultation requirements will be less cumbersome, and integrated with the new Local Government Act so that consulters (mainly local authorities) have to follow the same processes for everything.

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Molesworth & Featherston bubble challenge

We know Molesworth & Featherston is widely forwarded. But we would like some idea of how widely. So if you are receiving it from someone else, we will make it worth your while to register at our website:

http://www.molesworthandfeatherston.info

We will put everyone subscribed with us into a draw to win a bottle of New Zealand bubbly.

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Shock horror PROBE

The government is believed to be contributing over $30 million to subsidise the introduction of high speed internet into the regions, under Project PROBE. The precise sum has not been officially confirmed to avoid prejudicing commercial negotiations.

Four more regions were announced this week, with Telecom winning the tender in Bay of Plenty and Gisborne/Hawkes Bay, Walker Wireless in Canterbury and ThePacific.Net in Nelson-Marlborough.

The project is well conceived and expectations are high. The decision to split the country into separate regions ensures local communities can choose the best solution and that no single technology or company shuts out its competitors.

However, the Project’s emphasis on supplying broadband services to schools has left some regions feeling there is little advantage to the commercial sector.

None of the broadband delivery systems being trialled have yet been proven in practice. Analysts will be watching to see if the Walker Wireless system in Southland, Northland and the Wairarapa offers adequate ‘backhaul’ (backhaul allows users to send information back at the same time it is being downloaded from the Internet). The proliferation of the Telecom-BCL solution may stifle competition by making it uneconomic to introduce alternative technologies. Few believe a system based on their dated equipment will prevail long term.

The main effect of the project overall may be to put even more pressure on the Kiwishare. For every extra dollar earned, Vodafone-Walker Wireless (and other telcos) have to pay Telecom more as a contribution to Telecom’s Kiwishare obligation to provide rural services (it’s part of the deal carved in polystyrene when Telecom was sold in 1990). As other providers expand their share of rural services, the Kiwishare becomes less sustainable.

Lord of the rings

Meanwhile Vodafone’s revenue is reported to have leapt almost twenty percent last year to $841.4 million, producing a pre-tax profit of $135.8 million. Its $90 million profit was up from $48 million the year before.

So…Vodafone earned $623 of revenue from each of its 1.349 million customers – and made a profit of $66 each.

Vodafone is wholly owned by the listed UK telco of the same name.

Cabinet this week

Cabinet on Monday approved for introduction an Architects Bill, rewriting the Architects Act 1963.

It also approved an extension of the Orion aircraft deployment in the Middle East for three months, where it has been involved in surveillance of terrorist activity. PM Clark says it is not related to the ticking off from US Ambassador Charles ‘Butch’ Swindells last week, but it probably qualifies for one brownie point in the tortured world of diplomacy.

This week in the House

Today sees the final reading of the Supreme Court Bill, passed with the help of the Greens, and the New Organisms and Other matters Bill, putting in place the last elements of the post-GM moratorium ‘strict controls’. The Progressives will not back the bill, but the government will get enough votes from United and the other centre-right parties.

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Another Molesworth & Featherston bubble challenge

This one’s a bit harder…We’re offering you the chance to win a bottle of fine New Zealand bubbly simply by being the first person to send us convincing evidence that any person has suffered any ill health as a result of the commercial release of genetically modified material.

GM has been commercially released for a decade and widely consumed in New Zealand since the early nineties. Before the first ‘GE Free’ stickers were printed, there were activists who would apply their own labels to supermarket claiming ‘this product contains GM’. In those innocent days, the aim was to label GM products, not to ban the technology. Lately we have read widely of claims of ‘risks’ associated with GM ‘contamination.’

So, our cynical circulation booster. The hapless victim doesn’t have to have died. Toothache will do. But evidence needs to be convincing. Not the 1989 story about a filtering failure involving GM tryptophan. The case has to be capable of being repeated by scientists in a controlled environment. If no prize-winner is forthcoming, we may award the prize to the entry with the best evidence no one has been harmed.

Winners may substitute the prize for feijoa wine.

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Also in the House this week

Wednesday is a private members day and will be dominated by Steve Chadwick's SmokeFree Bill. The government is keen to get it passed this year and has deferred local government legislation, and will not take urgency until next week, to allow the required number of fortnightly members days to get it through and into law.

It will take effect, banning smoking in bars and restaurants, from one year from its passage. So the government is keen to get it in place fast so it does not get too much ‘PC law’ fallout too close to the election -- and so it can take effect in summer next year when puffers can go outside without freezing their filters off and get used to it before winter's gales.

Also this week will see the Members of Parliament Pecuniary Interests Bill first reading, the Counter-terrorism bill second reading, and the second reading of the Copyright Amendment bill.

If there is time the House will go on to the Statutes Amendment Bill, and Reserves and Other Lands Disposal Bill.

This week outside the House

Trade and stuff

The PM is off to Apec in Thailand this week via Singapore, where she will meet PM Goh Chok Tong and Deputy PM Lee who is the PM designate, and then to Vietnam for two days -- the first visit by an NZ PM since Jim Bolger in 1995.

At Apec she has swung a ‘formal pull-aside’ with US president George Bush where they can again run through their differences and get on to NZ’s support for a US push for more anti-terrorism measures in the Apec region.

NZ trade officials hope Apec can focus on refloating the Doha trade round which hit a sandbar at Cancun. With the EU pulling some of the so-called ‘Singapore’ investment issues off the table in Mexico in a last minute bid for a deal, there is some expectation that progress on agriculture can be made. Been there, heard that.

PM Clark is also hoping for a Bogor goals stocktake, hoping to see some movement from the likes of Japan and others towards the zero tariffs voluntary goal by 2010. If not that, then some evidence that our own progress is relatively good would be diplomatically and domestically useful – since we came perilously close to a breach with our recent decision to hold tariffs at 10 per cent on textile clothing and footwear out to 2009.

Back home

We expect an announcement on teacher retention and supply initiatives, announcements on police vehicle purchasing from minister George Hawkins, and on Thursday, Paul Swain will announce significant funding on small engineering projects - road straightening, median strips and the like -- to improve road safety.

Also on Thursday, Economic Development Minister Jim Anderton will release the Government's response to the design taskforce.

Inflation figures

CPI figures will be released on Thursday and watched closely as the last inflationary signal prior to next week’s official cash rate announcement.

An OCR increase would shock everyone – but the ninety-day bill rate at 5.17 is significantly above its recent lows.

Last week the Reserve Bank of Australia maintained its official cash rate (the ‘cash rate target’) at 4.75 per cent, where it has been locked since June last year. Australia’s annual inflation rate is 2.7%.

We like the analysis of the National Bank in its October financial markets update:

‘The diverging paths of the externally-faced and domestic sectors will continue to have contrasting effects on tradeables and non-tradeables inflation – tradeables inflation will stay low, and non-tradeables inflation high. Like the fool with his feet in the oven and his head in the freezer – on average the temperature appears just right.’

National Bank predicts the Reserve Bank will continue to ‘wait and see’, keeping the official cash rate at 5 percent at least until the second half of next year. On this analysis, ‘interest rate markets are pricing in rate hikes too early and bond rates are too optimistic.’

Fly blown

Air New Zealand is expected to announce a management shake-up in the next week, possibly before the Commerce Commission announces its decision on the Qantas merger.

Is this a pointer to Air NZ’s expectations of the Commerce Commission decision? Why would an airline shake-up management if it was expecting to merge soon, and have to change its management structures again?

Meanwhile, news of increased airline capacity into New Zealand appears to be a weekly event.

Cathay Pacific will this month increase its capacity to Auckland with another two flights a week. This increase alone is greater than the entire Virgin Blue service to New Zealand, which has enjoyed so much news coverage.


Comedians

The new TranzRail chairman, Mark Rowsthorn, is 46th on the Australian Business Review Weekly’s Rich List, with an estimated fortune of A$364.

BRW reports the Melbourne family ‘appeared for the first time on the BRW Rich 200 in 2000, with a $90-million fortune. In the following two years, they more than doubled their wealth each year to reach $420 million last year, largely from their 16% stake in Toll Holding.’ Their wealth is down this year with a decline on Toll’s share price. Mark owns a share in two racehorses. He is a brother of Comedy Company comedian Peter Rowsthorn.

Surplus to requirements

After we called for more debate on the surplus last week an excellent Sunday Star Times feature quoted Finance Minister Dr Cullen arguing that $2.4 billion of the surplus has gone on capital expenditure. That doesn’t make sense to us.

Is the Finance Minister seriously arguing that capital expenditure is funded from the government’s operating budget? You don’t buy your house out of your weekly household budget -- you only pay the mortgage. Increased capital outlays may mean Dr Cullen has to borrow more than he would otherwise, but it doesn’t reduce his operational budget by any more than the increased debt repayments. For example, if he spends $800 million buying an airline (just say), then his operational budget is reduced by the interest the government pays on $800 million (about $40 million), less any dividends from the airline (putting aside changes in the capital value of the airline, which Dr Cullen ignores for operational purposes ever since he introduced the OBERAC three years ago). So the $2.4 billion of capital is a red herring – the money is there to be spent or used for debt repayment.

Besides, capital expenditure is necessarily one-off. The surplus is structural. Political debate (which should be the front line of fiscal politics) is whether the best use of structural surpluses is to reduce revenue (tax cuts), increase costs (government spending) or pay off debt faster.

Solitary confinement

Nelson Mandela was a political activist opposed to a repressive government that smeared his name around the globe. Unlike Algerian Paremoremo inmate, Ahmed Zaoui, Mr Mandela actually did advocate the armed overthrow of the state (that was the pretext for his jailing). Isn’t it lucky Mr Mandela never sought entry to New Zealand?

Perhaps because he has never called for the violent overthrow of the state, Mr Zaoui has not yet been transported to an island.

Although the official line remains that the government is waiting for a report by the Inspector General of Intelligence, anxiety that the Zaoui case is a botch-up continues to grow. This week we heard one Beehive staffer describe the Zaoui episode as a ‘fiasco’. Ministers are privately blaming each other’s departments and instead of ‘lying in unison’ or defending the decision to lock up Mr Zaoui, Police, Corrections, Immigration and the SIS are all quietly directing blame elsewhere.

Still unexplained is why the government sources threat assessments from a website operated by right-wing US nutcase Lyndon La Rouche.

We continue to predict a political solution, though not soon. We also recall Mr Mandela invited his Robben Island jailers to his inauguration as President of a united South Africa.

Quote of the week

Government announces new initiative to rehabilitate tautologies

“These new initiatives are designed to support schools and encourage disengaged students back into learning.”

- Education Minister Trevor Mallard

“The new initiatives include…”

- Mr Mallard again

“Government proposes new initiatives for the Family Court. The Government has announced proposals for three new initiatives in the Family Court…”.

- Courts Minister Rick Barker

“Last year government introduced the first steps of the strategy - a range of new initiatives and extra funding…’.

- Transport Minister Paul Swain

“This new initiative will affect an estimated 297,000 more young New Zealanders covered by PHOs.”

- Health Minister Annette King

“Judith Tizard said these new initiatives build on earlier initiatives that the government has already introduced to tackle vehicle pollution.”

- Associate Transport Minister Judith Tizard

“As part of this years budget, I was pleased to announce $15 million for a new initiative.”

- Mr Mallard, again.

**** Fine print ****

Molesworth & Featherston welcomes your feedback. Email us at: editor@molesworthandfeatherston.info

Molesworth & Featherston is published on Tuesdays to be New Zealand's most up-to-date business and political newsletter.

You are encouraged to forward this copy. Copyright remains with the publishers.

Subscribe and view back issues at www.molesworthandfeatherston.info

**********

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