Monday, 10 September 2007

John Minto on Rising Rates and the Labour Party

Local body funding

It says a lot about the outcomes the government wants from an inquiry when one looks at the person they appoint to lead it.

In the 1980s Labour chose businessman Brian Picot to propose a new model for school management and we got Tomorrow’s Schools which sees them as competing businesses in a marketplace. In the 1990s John Banks as mayor of Auckland picked ex National MP Bill Birch to make proposals on Auckland City finances and needless to say savage cuts were proposed.

Last year Labour set up an inquiry into local body financing after a public outcry at rapidly rising rates. The person they appointed to lead the inquiry was David Shand who had recently returned to New Zealand after many years overseas which included eight years working in Washington for the World Bank and the International Monetary Fund.

The World Bank and the IMF make up two-thirds of what is known as the “Washington consensus” (the other third being the US government) This so-called consensus is the view that economic progress requires countries to privatise their resources, sell their assets and deliver policies such as health, education and water supply through the private sector as “user pays” services. These policies have been implemented around the world under “structural adjustment” programmes whereby financial assistance is provided to countries on condition their governments agree to restructure their economies to match the needs of international business.

The trail of economic destruction these undemocratic, un-elected, all-powerful bodies have left throughout the world can perhaps best be described as a crime against humanity. Under their policies poverty for the world’s poorest has deepened with basic services now frequently unaffordable. The benefits go to the companies that now own the infrastructure and assets at the expense of ordinary people.

Frequently the indebtedness which has led to the structural adjustment programme in the first place has come from World Bank and IMF advisors who have encouraged countries to borrow heavily for large infrastructure projects. When the host country has difficulty making the repayments these same organisations then insist on their business-friendly policies. The debt is restructured and the economic screws tightened further. The IMF and World Bank are really just a more sophisticated version of the shop-front loan shark.

So what did David Shand’s report suggest were the answers to our high rates? In the report released last week there should be no surprise that the solutions proposed are along the same lines as an IMF prescription.

It’s not a structural adjustment programme but it has all the same elements. Shand is proposing such things as user-pays charges for water and wastewater, more flat charges for services, bringing in the private sector to build infrastructure such as roads which we would be charged tolls to use.

Shand knows public opinion is strongly opposed to more asset sales so he hasn’t advocated outright that council sell their assets but in an exercise of verbal gymnastics says Councils should justify not selling these assets such as ports and airports.

In true IMF style he is also proposing councils go into debt for long-term projects. Future councils would then be faced with the sale of assets to cover these debts. (Government debt was the reason given for selling off our prized assets 20 years ago)

The single biggest change he recommends is to “remove the business differential for rates”. Translated into English this means a massive shift in the rates burden from businesses onto householders.

It shouldn’t be any surprise that the report has been welcomed by business groups. David Shand has done them proud.

The report does say that government and councils should keep a close eye on the affordability of rates for "the two lowest income quartiles". In other words Shand realises his prescription will increase hardship markedly for low and middle-income households and this line is a sop to notions of social responsibility.

Councils should keep down their spending – fair enough! There are plenty of projects local body politicians dream up as monuments to themselves rather than to meet community needs. But this problem has been used as an excuse for transferring the rates burden onto those least able to pay.

It just doesn’t make sense. Rather than stabilising or reducing the burden, local body rates and service charges will increase rapidly for most of us under Shand’s proposals. Labour sees our future in the hands of business.

Earlier this month the government appointed the same David Shand to head the Tertiary Education Commission. Grim tidings for the future Labour sees for our kids’ education.

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