Auckland & Christchurch propose Three Waters alternative where councils keep assets, but get Govt investment & loans; PM rules it out immediately; says balance sheet separation a 'bottom line'
Hi Bernard. I love your theory about the real driver of 3W but I don't understand how politicians would do this secretly. Wouldn't they want voters to know? Labour dropped all the things they campaigned on but won't drop this vote losing initiative or even debate, discuss, or tweak it. Would they pay such a high cost to drive through something without people understanding why? Most people want funding for infrastructure sorted I think
Tut Tut Bernard, can you name any political poll that has National 10% ahead of Labour. I can't think of any.
But I do agree with you regarding three waters. Frankly, as a user, I couldn't care less who owns or supplies and takes away our water, but agree that the whole matter has been badly handled by the government, starting with those dreadful advertisements that were meant to promote it. I would have thought that a way out was suggested by the three mayors, but as you have pointed out Ardern and Mahuta didn't take it.
great work. definitely open this to the public. I am bored with trying to tell people to discuss the issues of cost, functionality and accountability of Three Waters and forget about the co-governance issue. Where I work, Taranaki, the debate is always about race when this has nothing to do with it. Lets get the debate about the real issues. I think this article would help do that.
Oct 31, 2022·edited Nov 1, 2022Liked by Bernard Hickey
Hi Bernard
why don't you take a more critical approach to three waters the basic one is why I this government relying on "false facts" - they are as bad as the Donald - or even worse in that he at least didn't have a sanctimonious bone in his body.
1. There are no 34,000 cases of water borne disease annually from council owned water supplies - there are generally NONE - this estimate of disease burden applies to small private schemes not managed by Councils and the number is speculative and not supported with any factual evidence.
2. There is a plague of the same gastrointestinal disease from a wide variety of non-water sources - numbers that far outweigh anything from drinking water from private supplies.
Government makes much about the state of our rivers but I will bet if you asked for a publication that actually showed the extent of NZs waterways that were in a severely deteriorates state firstly there wouldn't be one that is supported by a single consistent and comprehensive national monitoring program and secondly those that do exist would be local/case by case issues to resolve - not national issues.
3. The issues of water quality in this country are a symptom of regulatory failure and failure to adequately fund and manage environmental science at a national level. The simple illustration of this assertion is that the great majority of farmers are not breaking any rules when they farm as they do -so that means the rule setters have failed not the farmers - indeed it is my experience that a number of farmers are ahead of central and regional government when it comes to addressing this problem.
4. Storm water discharges and sewage discharges are a significant problem as there is really no adequate technology for removing nutrients and other pollutants from sewage except for reverse osmosis/membrane filtration and that is expensive and energy intensive and still ends up with a whole lot of difficult to manage waste that is in a solid form rather than a liquid form. This also raises another issue that is largely ignored which is that the human race is gaily discarding the planet's finite resources of fertility every time the toilet is flushed. Ever thought why farmers need to put all of that nitrogen and super phosphate on the paddocks - it is because without that we would starve - we need to be managing our fertility cycle not treating it as a endless system - this is actually more of an issue for cities than it is from farms as it is relatively simple to capture and recycle on farm wastes.
5. We forget when it comes to urban waste water discharges that NZ has half a million dogs and more than one million cats all gaily crapping all over the place and all of this washes down into the storm water and into our stream and beaches. You will find a large part of the disease burden in our urban stream and beaches actually comes from this source. Marama Davidson has a dog - she is doing her bit!
6. Scottish water - the model for Three Waters - charges between two and three times what most councils in New Zealand charge - think of the impact on wellbeing that will have on lower income households. The remaining water corporations in the UK have been an unmitigated disaster.
Government has been running a population policy that has not been agreed with the general population that is causing our existing infrastructure to be severely overloaded - those moving into an area - whether from an internal or external source are not paying the full cost of the service required to service their new home - the $150billion (just a part of our infrastructure deficit) divided by the 2million people who have moved to NZ over the past few decades indicate that the unfunded per capita infrastructure cost of each new citizen is approximately $75,000. This cost is being imposed on the entire population so is in effect a subsidy on population growth. There are quite swag of other socialised costs from this population growth program as well - which unlike Muldoon's subsidies to farmers in the 1970's - is increasing our costs not our income.
We have a huge range of infrastructure issues that we need to be addressing - not the least of which is an urgent need to become energy self sufficient and free of fossil hydrocarbons
Government is about to commit $150Billion to 3 waters with no comparative analysis of other investment priorities. This week the Otago Daily Times had the following head line " Claims of more capacity cuts at new hospital" This hospital is an investment not just in the future needs for Otago and Southland but also the primary teaching hospital for training New Zealand's future doctors. More people have died sitting in overcrowded hospital EDs in the past month than have died from drinking council supplied water in the past FIVE DECADES!!! If this is not startling evidence of this government having a complete lack of a coherent investment strategy in public health I can't think of what else might be (though there is a long list to choose from!)
Also ever thought that three waters might be a mechanism for sneaking some more indirect taxation into you life? Wont be any different than the power companies - govt will sell 49% of the shares and spend that money and then use the remaining asset base as justification for chiseling a few billion out of water consumers.
You would all be advised to invest in rainwater tanks and composting toilets - - you could install those for less than one year of the hypothetical costs that Ms Mahuta is suggesting your water charges will be without three waters.
Installing rainwater tanks also has the benefit of reducing urban storm water flows substantially, it would also increase society's resilience to disaster, greatly expand the drinking water resources available in our cities - and composting toilets would - in one blow - fix the issue of sewage discharges and your wastes could be given back to farmers to put on the land instead of mineral fertilisers - just like humanity has done for millennia. Check out Bambooloo for an example of an aesthetically pleasing option to do this.
I have voted for labour the past two elections but I wont be this election - this government is doing a great job of resurrecting Winston but a very poor job of everything else!
One way for the government to avoid the horns of the dilemma would be to take the off ramp but make it a condition that, for the good of consumers and investors, the councils will be subject to economic and consumer regulation. Councils believe that they are doing this well and so should have no objections.
The requirements of this, combined with adverse findings from the regulator, would force councils towards amalgamation just to avoid the risk of non-compliance they would now be responsible for. And this would be completely independent of the government.
How long have the Mayor’s been working on their alternative proposal? Did they take that vision to the council elections or is it policy on the fly after what, two weeks in the job? (I honestly don’t know the answer to that, when ever anyone 60+ mentions 3 waters these days I tend to zone out.)
Why would anyone listen to these new trainee Mayors for such important reform? The mind boggles that anyone is taking them seriously at this point. At least give them a year of governance under their belt, then if they still feel the same way let’s debate their idea.
Regarding bank stress tests, there is one significant risk that doesn't seem to be in the tests. The banks are sitting on a $100B foreign currency-denominated debt, roughly the same as our total public debt. Ironically most of it seems to be there to meet RBNZ prudential capital requirements where banks choose to take on "cheaper" foreign currency-denominated debt in lieu of NZD deposits or other options to meet their capital requirements.
This is in contrast to the NZ Govt which converted all of our government debt to NZD-denominated in the 1990s, making default virtually impossible and protecting monetary sovereignty and national security.
Why, then, is there no stress test for the impact on bank balance sheets of a currency collapse/attack? It is not safe to have a debt mountain roughly equal to our public debt sitting on the balance sheets of a handful of Aussie banks and hoping that hedging arrangements to insure risk will do the trick. The recent UK experience with its pension funds shows that is a folly.
I'd like to see a regular exchange risk added to the stress test to make sure we don't lose sight of this - not to mention a change of prudential rules to make this risk unnecessary in the first place.
To be specific, on the stress testing, I am surprised at a modeled 47% drop in residential - value we have elsewhere stated as $1.8 trillion, so around $900B in lost value - resulting in only $6B losses to the banks' mortgage lending programme. It doesn't pass the smell test.
Table 2 in the stress test doc shows an allowance for 1.9% (cumulative loss rate) on residential. This is optimistically low, all the while predicted to occur under conditions more severe than the GFC.
I'm curious about the additional cost of the structure of Three Waters that Bernard mentions. Whilst I get that the frequently proposed economies of scale for amalgamations do not always eventuate, I can't quite see the source of these additional costs to get the loans for new infrastructure off the local and central government balance sheet.
Also, I'm left wondering whether Three Waters is a good idea that simply doesn't fit through the Overton Window, or whether it is a bad idea that shouldn't. Either way, whether it fits through the Overton Window seems to me to be a separate issue to whether it is a good idea.
That Three Waters is a effectively an 'end run' getting around having a debate about the 30/30 'rule', our immigration settings and population aspirations, and by implication our housing market (aka pretty much the whole of NZ's economy..) does seem to be an opportunity missed, but for the last couple of decades it seems to me that political parties do not campaign on anything that might be controversial to the median voter, hence they have tepid policies, and even when elected with a solid majority have effectively no remit to do anything that moves the political, economic or social dials much at all. So I guess we will never get such a useful debate in this country, and we'll keep on shafting the poor and the marginalised for the benefit of already wealthy land owners. Sigh.
Hi Bernard. Very interested in your analysis but completely foxed by your description of co-governance as a "red herring" — and elsewhere as an "inconsequential sideshow".
If it were either or both of these things the govt would have ditched it long ago. Mahuta explicitly ruled it out of discussion by the Working Group last year.
It is the whole point of 3W as a "Treaty settlement disguised as an infrastructure project" (as David Seymour put it).
Co-governance at the four Regional Representative Groups is only one part of the handover of power to iwi. The more significant provisions are in S140-141 of the WSE Bill that gives iwi and hapu the right to make binding edicts to their WSE over any freshwater body in their rohe.
This is a right denied to non-Maori (and, no, they are not confined to water purity but include anything covered by matauranga Maori / tikanga etc, including the presence of taniwha and any other "cultural" considerations).
Your argument that iwi can't be given the extensive power some allege is that: "Standard and Poor’s would never approve the debt issuance required if actual revenues and assets were to be actually controlled by Iwi groups.”
But do S&P "approve" deals, or just say the numbers they are presented with will likely work or not? They are paid a fee to give a rating.
In the case of 3W, it's up to the water service entities and the govt how they structure the deal. S&P doesn't recommend to do it this way or that.
It's also completely moot whether they understand the power of Te Mana o Te Wai statements, given they are not spelled out in the Bill (and no one in the MSM appears to have noticed their scope).
The only analyst who has grasped their scope as far as I can see is Thomas Cranmer (whose expertise as a lawyer is in international leveraged finance deals).
Nice piece on Breakfast this morning Bernard.
Was the audio in today's Kaka supposed to have more than the Interview? We usually get a Morena at least...
Hi Bernard. I love your theory about the real driver of 3W but I don't understand how politicians would do this secretly. Wouldn't they want voters to know? Labour dropped all the things they campaigned on but won't drop this vote losing initiative or even debate, discuss, or tweak it. Would they pay such a high cost to drive through something without people understanding why? Most people want funding for infrastructure sorted I think
The "ladies"?
Tut Tut Bernard, can you name any political poll that has National 10% ahead of Labour. I can't think of any.
But I do agree with you regarding three waters. Frankly, as a user, I couldn't care less who owns or supplies and takes away our water, but agree that the whole matter has been badly handled by the government, starting with those dreadful advertisements that were meant to promote it. I would have thought that a way out was suggested by the three mayors, but as you have pointed out Ardern and Mahuta didn't take it.
Three mayors on Three Waters: do open this to everyone.
great work. definitely open this to the public. I am bored with trying to tell people to discuss the issues of cost, functionality and accountability of Three Waters and forget about the co-governance issue. Where I work, Taranaki, the debate is always about race when this has nothing to do with it. Lets get the debate about the real issues. I think this article would help do that.
Please open the Three Waters part to the public Bernard - Sharon
Hi Bernard
why don't you take a more critical approach to three waters the basic one is why I this government relying on "false facts" - they are as bad as the Donald - or even worse in that he at least didn't have a sanctimonious bone in his body.
1. There are no 34,000 cases of water borne disease annually from council owned water supplies - there are generally NONE - this estimate of disease burden applies to small private schemes not managed by Councils and the number is speculative and not supported with any factual evidence.
2. There is a plague of the same gastrointestinal disease from a wide variety of non-water sources - numbers that far outweigh anything from drinking water from private supplies.
Government makes much about the state of our rivers but I will bet if you asked for a publication that actually showed the extent of NZs waterways that were in a severely deteriorates state firstly there wouldn't be one that is supported by a single consistent and comprehensive national monitoring program and secondly those that do exist would be local/case by case issues to resolve - not national issues.
3. The issues of water quality in this country are a symptom of regulatory failure and failure to adequately fund and manage environmental science at a national level. The simple illustration of this assertion is that the great majority of farmers are not breaking any rules when they farm as they do -so that means the rule setters have failed not the farmers - indeed it is my experience that a number of farmers are ahead of central and regional government when it comes to addressing this problem.
4. Storm water discharges and sewage discharges are a significant problem as there is really no adequate technology for removing nutrients and other pollutants from sewage except for reverse osmosis/membrane filtration and that is expensive and energy intensive and still ends up with a whole lot of difficult to manage waste that is in a solid form rather than a liquid form. This also raises another issue that is largely ignored which is that the human race is gaily discarding the planet's finite resources of fertility every time the toilet is flushed. Ever thought why farmers need to put all of that nitrogen and super phosphate on the paddocks - it is because without that we would starve - we need to be managing our fertility cycle not treating it as a endless system - this is actually more of an issue for cities than it is from farms as it is relatively simple to capture and recycle on farm wastes.
5. We forget when it comes to urban waste water discharges that NZ has half a million dogs and more than one million cats all gaily crapping all over the place and all of this washes down into the storm water and into our stream and beaches. You will find a large part of the disease burden in our urban stream and beaches actually comes from this source. Marama Davidson has a dog - she is doing her bit!
6. Scottish water - the model for Three Waters - charges between two and three times what most councils in New Zealand charge - think of the impact on wellbeing that will have on lower income households. The remaining water corporations in the UK have been an unmitigated disaster.
Government has been running a population policy that has not been agreed with the general population that is causing our existing infrastructure to be severely overloaded - those moving into an area - whether from an internal or external source are not paying the full cost of the service required to service their new home - the $150billion (just a part of our infrastructure deficit) divided by the 2million people who have moved to NZ over the past few decades indicate that the unfunded per capita infrastructure cost of each new citizen is approximately $75,000. This cost is being imposed on the entire population so is in effect a subsidy on population growth. There are quite swag of other socialised costs from this population growth program as well - which unlike Muldoon's subsidies to farmers in the 1970's - is increasing our costs not our income.
We have a huge range of infrastructure issues that we need to be addressing - not the least of which is an urgent need to become energy self sufficient and free of fossil hydrocarbons
Government is about to commit $150Billion to 3 waters with no comparative analysis of other investment priorities. This week the Otago Daily Times had the following head line " Claims of more capacity cuts at new hospital" This hospital is an investment not just in the future needs for Otago and Southland but also the primary teaching hospital for training New Zealand's future doctors. More people have died sitting in overcrowded hospital EDs in the past month than have died from drinking council supplied water in the past FIVE DECADES!!! If this is not startling evidence of this government having a complete lack of a coherent investment strategy in public health I can't think of what else might be (though there is a long list to choose from!)
Also ever thought that three waters might be a mechanism for sneaking some more indirect taxation into you life? Wont be any different than the power companies - govt will sell 49% of the shares and spend that money and then use the remaining asset base as justification for chiseling a few billion out of water consumers.
You would all be advised to invest in rainwater tanks and composting toilets - - you could install those for less than one year of the hypothetical costs that Ms Mahuta is suggesting your water charges will be without three waters.
Installing rainwater tanks also has the benefit of reducing urban storm water flows substantially, it would also increase society's resilience to disaster, greatly expand the drinking water resources available in our cities - and composting toilets would - in one blow - fix the issue of sewage discharges and your wastes could be given back to farmers to put on the land instead of mineral fertilisers - just like humanity has done for millennia. Check out Bambooloo for an example of an aesthetically pleasing option to do this.
I have voted for labour the past two elections but I wont be this election - this government is doing a great job of resurrecting Winston but a very poor job of everything else!
One way for the government to avoid the horns of the dilemma would be to take the off ramp but make it a condition that, for the good of consumers and investors, the councils will be subject to economic and consumer regulation. Councils believe that they are doing this well and so should have no objections.
The requirements of this, combined with adverse findings from the regulator, would force councils towards amalgamation just to avoid the risk of non-compliance they would now be responsible for. And this would be completely independent of the government.
How long have the Mayor’s been working on their alternative proposal? Did they take that vision to the council elections or is it policy on the fly after what, two weeks in the job? (I honestly don’t know the answer to that, when ever anyone 60+ mentions 3 waters these days I tend to zone out.)
Why would anyone listen to these new trainee Mayors for such important reform? The mind boggles that anyone is taking them seriously at this point. At least give them a year of governance under their belt, then if they still feel the same way let’s debate their idea.
Regarding bank stress tests, there is one significant risk that doesn't seem to be in the tests. The banks are sitting on a $100B foreign currency-denominated debt, roughly the same as our total public debt. Ironically most of it seems to be there to meet RBNZ prudential capital requirements where banks choose to take on "cheaper" foreign currency-denominated debt in lieu of NZD deposits or other options to meet their capital requirements.
This is in contrast to the NZ Govt which converted all of our government debt to NZD-denominated in the 1990s, making default virtually impossible and protecting monetary sovereignty and national security.
Why, then, is there no stress test for the impact on bank balance sheets of a currency collapse/attack? It is not safe to have a debt mountain roughly equal to our public debt sitting on the balance sheets of a handful of Aussie banks and hoping that hedging arrangements to insure risk will do the trick. The recent UK experience with its pension funds shows that is a folly.
I'd like to see a regular exchange risk added to the stress test to make sure we don't lose sight of this - not to mention a change of prudential rules to make this risk unnecessary in the first place.
To be specific, on the stress testing, I am surprised at a modeled 47% drop in residential - value we have elsewhere stated as $1.8 trillion, so around $900B in lost value - resulting in only $6B losses to the banks' mortgage lending programme. It doesn't pass the smell test.
Table 2 in the stress test doc shows an allowance for 1.9% (cumulative loss rate) on residential. This is optimistically low, all the while predicted to occur under conditions more severe than the GFC.
Prefers earlier B52's
I'm curious about the additional cost of the structure of Three Waters that Bernard mentions. Whilst I get that the frequently proposed economies of scale for amalgamations do not always eventuate, I can't quite see the source of these additional costs to get the loans for new infrastructure off the local and central government balance sheet.
Also, I'm left wondering whether Three Waters is a good idea that simply doesn't fit through the Overton Window, or whether it is a bad idea that shouldn't. Either way, whether it fits through the Overton Window seems to me to be a separate issue to whether it is a good idea.
That Three Waters is a effectively an 'end run' getting around having a debate about the 30/30 'rule', our immigration settings and population aspirations, and by implication our housing market (aka pretty much the whole of NZ's economy..) does seem to be an opportunity missed, but for the last couple of decades it seems to me that political parties do not campaign on anything that might be controversial to the median voter, hence they have tepid policies, and even when elected with a solid majority have effectively no remit to do anything that moves the political, economic or social dials much at all. So I guess we will never get such a useful debate in this country, and we'll keep on shafting the poor and the marginalised for the benefit of already wealthy land owners. Sigh.
Hi Bernard. Very interested in your analysis but completely foxed by your description of co-governance as a "red herring" — and elsewhere as an "inconsequential sideshow".
If it were either or both of these things the govt would have ditched it long ago. Mahuta explicitly ruled it out of discussion by the Working Group last year.
It is the whole point of 3W as a "Treaty settlement disguised as an infrastructure project" (as David Seymour put it).
Co-governance at the four Regional Representative Groups is only one part of the handover of power to iwi. The more significant provisions are in S140-141 of the WSE Bill that gives iwi and hapu the right to make binding edicts to their WSE over any freshwater body in their rohe.
This is a right denied to non-Maori (and, no, they are not confined to water purity but include anything covered by matauranga Maori / tikanga etc, including the presence of taniwha and any other "cultural" considerations).
Supplementary!
Your argument that iwi can't be given the extensive power some allege is that: "Standard and Poor’s would never approve the debt issuance required if actual revenues and assets were to be actually controlled by Iwi groups.”
But do S&P "approve" deals, or just say the numbers they are presented with will likely work or not? They are paid a fee to give a rating.
In the case of 3W, it's up to the water service entities and the govt how they structure the deal. S&P doesn't recommend to do it this way or that.
It's also completely moot whether they understand the power of Te Mana o Te Wai statements, given they are not spelled out in the Bill (and no one in the MSM appears to have noticed their scope).
The only analyst who has grasped their scope as far as I can see is Thomas Cranmer (whose expertise as a lawyer is in international leveraged finance deals).
https://cranmer.substack.com/p/the-unbridled-power-of-te-mana-o?