Simeon Brown's deal to carve Watercare out of Auckland Council is vague about the Crown's backing of Watercare's bonds & S&P is warning of rating downgrades costing Aucklanders many millions each year
When water costs were first separated from Council as CCO it was expected Auckland was intending to sell off to private ownership. There was major backlash but maybe that option is again in contention.
I guess that is the thing they are not saying isnt it. The Crown could bail them out if it got into strife, or it could sell it off in a firesale and use the emergency to justify the privatisation
So-called "water costs" are always in *real terms* not monetary terms if the purchaser is the government (or municipality via government budgeting allocations). The government/council believe it is "tax-payer funded", but it is not. The tax return is a redemption, not a pay-for (and helps limit some inflation impact in the case water supply capacity becomes scarce or under-resourced in *real terms*).
The *real cost* is the amount of workers and machinery resources etc employed by Watercare that is not then available to the private sector. The money is not an issue for the government or council except because of false psychology. See the film "Finding the Money" https://findingmoneyfilm.com/
Not at all. I am just saying the public sector via central government can *always* employ any idle resources. If they employ already employed resources that carries price inflation risk in the sector those resources are moved away from. But the balance of public versus private sector work and resource use is up to a society to debate. Personally, I prefer all public utilities that should not be for sale to highest bidders or market prices should be in the public sector. In that case the government determines the price level, and can pay any price demanded without question. The balance is a political choice. As I said, I prefer to have a lot more socially necessary output produced in the state sector (either by direct government programs, or state contracted work), since then it is not tax-payer funded there is no "user=pays" need.
Thanks Bernard, it really is only a deal good for Auckland Council, not good for the people of Auckland, and definitely not good for the people of Aotearoa New Zealand. Good to have the S&P comments, as I have discovered Moody's already separates the assets for their rating. How can they legislate and have monitors, but not fiduciary responsibility? You cant run a household like that!
This is a classic example of both Central and Local Government supposed "leaders" thinking in 3-year cycles. This is also a magician's sleight of hand. "Look at me. Aren't I clever. I've come up with something which nobody else was smart enough to come up with. The extra millions in interest? That's in the future, don't worry about it. THIS YEAR the rates will come down, just as I promised in the election campaign". Yeh right.
Thank you Bernard!! Great much needed investigative journalism. I am also concerned about Wellington, with Mayor Tory appearing to have very nebulous ideas and seeming relaxed about anticipated decades of serious problems and water restrictions, while the Chair of Wellington Water, with its history of extremely high costs and time (?17x) per pipe fix cf comparable bodies in other cities, is working with Dame Kerry who may be great, with energy and status, but has priorities from the past, including the Town Hall very expensive fix, which may deflect from alleviating a decent part of the 50% drinking water leaks and broken sewer pipes making Wn potentially unliveable, with L4 restrictions in summer. These two agree a proposal similar to this Akl one should be instituted for Welliington. I'd have thought Wellington Water would be under investigation, not given substantial borrowing capacity and autonomy like Watercare.
Not saying that Wellington Water does not have problems but to be fair, it wouldn't be Wellington Water but a different organisation that owns the assets and can fund and finance the work needed (which they can't do at present). There will also be more regulation looking at the costs and performance of the organisation too, so even if the same people get transferred over the same outcomes won't be allowed.
Thanks Andrew - I do hope so re more regulation, but a potential for this to be regulated well does not seem indicated given the overall scenario. I will watch with interest.
Load it up with likes folks! This is a good exposure of the playbook and should be distributed widely; especially as other regions are working on their own "deals".
I’m sure BlackRock Asset Management will be watching from a far. I can hear it now before the next election ’we sorted water! We will give tax cuts, oh by the way they are paid for by selling off (privatising) a few water companies, so nothing to worry about or see here!)
Politically unpalatable it might be now but I'd imagine a number of MP's in the current coalition would love to privatise public assets if they had the chance.
It's quite feasible to see a future state (maybe 5-10 years) where water rates are going up 25% per annum to cover the interest payments and the backlash overwhelms the Water Services organisations to the point where they just can't raise enough to even maintain basic services. A big old "For Sale" sign will be posted and the likes of BlackRock will come a calling
When I saw the news I was trying to figure out how the Browns had screwed it up. So good to have Bernard explain just what a mess they have made of what should be a straightforward investment in infrastructure by the government or at least by the council.
As usual it's the short-term thinking around immediate costs that drives the politicians
Wellington is one semi-decent quake away from water infrastructure death! Neh mind worrying about who pays for what and when, it wont matter. Its why i have a serious amount of emergency H2O in storage. I'll be showering in it when it turns to custard!! Ill give some to the neighbours as well ..... :)
A solution no neolibs will contemplate: stop selling bonds. They are not funding the public sector. They are pro-inflationary (given propensity of savers.resp.borrowers to spend.resp.save is equal) and serve an interest rate floor purpose. So incredibly stupid since the NZD is on a float. Government issues the currency first, from inception.
All these public utilities are cases for government-pays, not user-pays, not bond-buyer pays. If the work done by Watercare is paid for at market price there is no inflationary impact, even if they are a private firm contracted by the State. The currency does not need to come from the "tax payer" or municipality rates. Those are redemption operations, not funding operations. Auck.C.C. is a branch of government, so they inherit fiat currency issuance capacity, provided central government marks-up the Auck.C.C. bank account.
Great work Bernard. Let’s open this up. Why are politicians so afraid of a downgrade? Is this a throwback to previous decades. Seems bizarre that politicians both smiling about this when as a ratepayer and taxpayer it’s not a particularly good deal for us.
Thanks for opening this up for the public - your clarification is interesting. Comments re the possible setting up for future privatisation unfortunately could well be accurate.
When water costs were first separated from Council as CCO it was expected Auckland was intending to sell off to private ownership. There was major backlash but maybe that option is again in contention.
I guess that is the thing they are not saying isnt it. The Crown could bail them out if it got into strife, or it could sell it off in a firesale and use the emergency to justify the privatisation
This is exactly the plan. Thatcher's 80's rerunning live in NZ
So-called "water costs" are always in *real terms* not monetary terms if the purchaser is the government (or municipality via government budgeting allocations). The government/council believe it is "tax-payer funded", but it is not. The tax return is a redemption, not a pay-for (and helps limit some inflation impact in the case water supply capacity becomes scarce or under-resourced in *real terms*).
The *real cost* is the amount of workers and machinery resources etc employed by Watercare that is not then available to the private sector. The money is not an issue for the government or council except because of false psychology. See the film "Finding the Money" https://findingmoneyfilm.com/
So the private is the goodee and the public the baddie? Is that your point?
Not at all. I am just saying the public sector via central government can *always* employ any idle resources. If they employ already employed resources that carries price inflation risk in the sector those resources are moved away from. But the balance of public versus private sector work and resource use is up to a society to debate. Personally, I prefer all public utilities that should not be for sale to highest bidders or market prices should be in the public sector. In that case the government determines the price level, and can pay any price demanded without question. The balance is a political choice. As I said, I prefer to have a lot more socially necessary output produced in the state sector (either by direct government programs, or state contracted work), since then it is not tax-payer funded there is no "user=pays" need.
Thanks for clarifying
Thanks Bernard, it really is only a deal good for Auckland Council, not good for the people of Auckland, and definitely not good for the people of Aotearoa New Zealand. Good to have the S&P comments, as I have discovered Moody's already separates the assets for their rating. How can they legislate and have monitors, but not fiduciary responsibility? You cant run a household like that!
very informative
This is a classic example of both Central and Local Government supposed "leaders" thinking in 3-year cycles. This is also a magician's sleight of hand. "Look at me. Aren't I clever. I've come up with something which nobody else was smart enough to come up with. The extra millions in interest? That's in the future, don't worry about it. THIS YEAR the rates will come down, just as I promised in the election campaign". Yeh right.
Thank you Bernard!! Great much needed investigative journalism. I am also concerned about Wellington, with Mayor Tory appearing to have very nebulous ideas and seeming relaxed about anticipated decades of serious problems and water restrictions, while the Chair of Wellington Water, with its history of extremely high costs and time (?17x) per pipe fix cf comparable bodies in other cities, is working with Dame Kerry who may be great, with energy and status, but has priorities from the past, including the Town Hall very expensive fix, which may deflect from alleviating a decent part of the 50% drinking water leaks and broken sewer pipes making Wn potentially unliveable, with L4 restrictions in summer. These two agree a proposal similar to this Akl one should be instituted for Welliington. I'd have thought Wellington Water would be under investigation, not given substantial borrowing capacity and autonomy like Watercare.
https://www.thepost.co.nz/nz-news/350267817/mega-wellington-water-entity-promises-lower-rates-rises
Not saying that Wellington Water does not have problems but to be fair, it wouldn't be Wellington Water but a different organisation that owns the assets and can fund and finance the work needed (which they can't do at present). There will also be more regulation looking at the costs and performance of the organisation too, so even if the same people get transferred over the same outcomes won't be allowed.
Thanks Andrew - I do hope so re more regulation, but a potential for this to be regulated well does not seem indicated given the overall scenario. I will watch with interest.
A clear case for compulsory an hour a day maths lessons for this government’s ministers.
Load it up with likes folks! This is a good exposure of the playbook and should be distributed widely; especially as other regions are working on their own "deals".
Yes please, needs a wide read
Thanks Clare and Tim. We got there!
I’m sure BlackRock Asset Management will be watching from a far. I can hear it now before the next election ’we sorted water! We will give tax cuts, oh by the way they are paid for by selling off (privatising) a few water companies, so nothing to worry about or see here!)
Thames NZ water anyone?
Hedge funds should never be allowed anywhere near utilities
Exactly Andrew.
Politically unpalatable it might be now but I'd imagine a number of MP's in the current coalition would love to privatise public assets if they had the chance.
It's quite feasible to see a future state (maybe 5-10 years) where water rates are going up 25% per annum to cover the interest payments and the backlash overwhelms the Water Services organisations to the point where they just can't raise enough to even maintain basic services. A big old "For Sale" sign will be posted and the likes of BlackRock will come a calling
When I saw the news I was trying to figure out how the Browns had screwed it up. So good to have Bernard explain just what a mess they have made of what should be a straightforward investment in infrastructure by the government or at least by the council.
As usual it's the short-term thinking around immediate costs that drives the politicians
Wellington is one semi-decent quake away from water infrastructure death! Neh mind worrying about who pays for what and when, it wont matter. Its why i have a serious amount of emergency H2O in storage. I'll be showering in it when it turns to custard!! Ill give some to the neighbours as well ..... :)
What should we do about Wellington? I think we should move it to the Horowhenua.
Move the city of Wellington to Horowhenua and make Russell the Capital again. Why they moved it South I have no idea 💡 😃
A solution no neolibs will contemplate: stop selling bonds. They are not funding the public sector. They are pro-inflationary (given propensity of savers.resp.borrowers to spend.resp.save is equal) and serve an interest rate floor purpose. So incredibly stupid since the NZD is on a float. Government issues the currency first, from inception.
All these public utilities are cases for government-pays, not user-pays, not bond-buyer pays. If the work done by Watercare is paid for at market price there is no inflationary impact, even if they are a private firm contracted by the State. The currency does not need to come from the "tax payer" or municipality rates. Those are redemption operations, not funding operations. Auck.C.C. is a branch of government, so they inherit fiat currency issuance capacity, provided central government marks-up the Auck.C.C. bank account.
Political fig leaves 🍃 👏 bravo, Bernard.
Great work Bernard. Let’s open this up. Why are politicians so afraid of a downgrade? Is this a throwback to previous decades. Seems bizarre that politicians both smiling about this when as a ratepayer and taxpayer it’s not a particularly good deal for us.
Thanks Stephen. We go there.
Many thanks to paying subscribers. We got over 100 likes so I’m opening it up for full public reading, listening and sharing. Nga mihi nui.
Thanks for opening this up for the public - your clarification is interesting. Comments re the possible setting up for future privatisation unfortunately could well be accurate.
Bring back Three Waters!!!