KiwiRail | Utopia, you are standing in it!

Desperately seeking to agree with @JulieAnneGenter on transport investment quality

11 Jun 2016 Leave a comment

by Jim Rose in applied price theory, applied welfare economics, economics of bureaucracy, environmental economics, politics - New Zealand, Public Choice, transport economics, urban economics Tags: cost benefit analysis, KiwiRail, New Zealand Green Party, road pricing

I just wrote an op-ed for National Business Review online (pay-walled) agreeing with an op-ed last week by Green MP Julie Anne Genter on transport investment. My op-ed started

The Taxpayers’ Union welcomes the commitment of the Green Party yesterday to evaluating transport investments without any bias or favouritism to one transport mode over another.

The Taxpayers’ Union could not agree more with Julie Anne Genter when she said that the question ministers should always ask is “what is the best investment we can make?”

This op-ed was my rejoinder to her reply to my op-ed criticising a recent Green Party on national freight policy. That policy called for 25% of all freight by kilometres travelled to each go by rail and road. That would near double their freight market share from 30% currently to 50% when measured by kilometre.

Yes. And they all need to be evaluated on the same basis, and funded accordingly. Which is what we suggested. https://t.co/5caSJiAr9R

— Julie Anne Genter (@JulieAnneGenter) June 10, 2016

For my troubles I got nothing but criticism and accusations in the comments section in National Business Review Online. A tweet by Genter was far more gracious.

There was no praise in the comment section at the National Business Review online for agreeing with the Green policy. In the first comment I was told I did not understand economics and that

When the policy default is “cut taxes and spending and let me selfishly keep my money” they miss out on the much larger benefit to everyone, including themselves, by nudging or economy to spend more on intrinsically more efficient transport – like rail – and less on alternatives.

No thanks at all for agreeing that transport investments should be the best we can make. After saying that in their recent freight policy, the Greens set targets were specific transport technologies they favour, which are rail and sea freight.

You cannot argue that transport investments should be the best we can make then declare a preference for a particular technology or mode of transport. But let us not quibble over that glaring contradiction.

The broader principle was agreed which is transport investments should be driven by cost benefit analysis and value for money. It should be technology neutral and transport mode neutral. That, of course, means the Greens cannot declare targets for the market shares of particular modes of freight shipment if they want to follow their own policy about value for money.

$5.2 billion in rail spending since 2003 budget @JulieAnneGenter @JordNZ

02 Jun 2016 Leave a comment

by Jim Rose in politics - New Zealand, transport economics Tags: celebrity technologies, expressive voting, KiwiRail, network economics, picking losers, picking winners, rational irrationality, urban transport

$5.2 billion in rail spending since the 2003 budget! This $5.2 billion does not include any spending on urban rail, commuter train networks or their electrification. The $5.2 billion since the 2003 budget is for the passenger and freight network, not the urban metro contracts

Source: New Zealand Budget Papers, various years.

Desperately waiting for that dividend the taxpayers lose if any of these assets are privatised. The spending listed below in the two charts includes loans, capital injections and the purchase of the track and of the train operator itself. The latter was purchased for $690 million which was soon written down to zero.

Source: New Zealand Budget Papers, various years.

There is no table because the table format breaks down when blogged.

At various times, OnTrack and KiwiRail was subsidiaries of the New Zealand Railways Corporation, which was the holding company. Now OnTrack is a division of KiwiRail.

NZ state-owned enterprise dividends & cash injections since 2007 – updated

18 Feb 2016 Leave a comment

by Jim Rose in economic history, industrial organisation, politics - New Zealand, public economics Tags: government ownership, KiwiRail, New Zealand Greens, New Zealand Labor Party, privatisation, rational irrationality, state owned enterprises

With a straight face, the Labour Party and the Greens claim that state-owned enterprises should not be sold because taxpayers give up the future dividend stream.

Source: New Zealand Treasury – data released under the Official Information Act.

Leaving to one side what the sale price is the net present value of, for as far back as I could obtain data from the Treasury, it is a rare year in which the taxpayers does not pour more money into state-owned enterprises than they get back in dividends.

Transpower is carrying the entire state-owned enterprise portfolio. Earlier on, Solid Energy – a now bankrupt coal mining company– was carrying the portfolio in terms of cash flow to the taxpayer.

KiwiRail commercial valuation since 2007 @JordNZ @dpfdpf

18 Feb 2016 Leave a comment

by Jim Rose in industrial organisation, politics - USA, public economics Tags: KiwiRail, privatisation, state owned enterprises

Source: New Zealand Treasury – data released under the Official Information Act.

The commercial valuation of the New Zealand state-owned enterprises portfolio since 2007 with and without Solid Energy and KiwiRail

29 Sep 2015 Leave a comment

by Jim Rose in economic history, energy economics, financial economics, industrial organisation, politics - New Zealand, survivor principle, transport economics Tags: KiwiRail, privatisation, Solid Energy, state owned enterprises, suppressing voting

Source: The New Zealand Treasury – data released under the Official Information Act.

@nzlabour @NZGreens New Zealand state-owned enterprises dividends paid and capital injections since 2007

25 Sep 2015 Leave a comment

by Jim Rose in financial economics, industrial organisation, politics - New Zealand, public economics, rentseeking, survivor principle, transport economics Tags: government ownership, KiwiRail, privatisation, rational ignorance, rational rationality, state owned enterprises, suppressive voting

The New Zealand Labour Party and New Zealand Greens both make much of the fact that when you privatise a state-owned enterprise the taxpayer is no longer entitled to dividends from the privatised business. The fact that the sale price is the net present value of those future dividends is a rating fallacy that is not the subject of this post.

Source: New Zealand Treasury – data released under the Official Information Act.

What is the subject of this post is whether there are indeed any dividends paid to taxpayers after capital injections. 2007 was the last year in which dividends to the taxpayer exceeded capital injections. The reason was that dog called KiwiRail.

The Amtrak and KiwiRail bailouts compared

18 Jul 2015 1 Comment

by Jim Rose in economic history, economics of bureaucracy, politics - New Zealand, politics - USA, Public Choice, rentseeking, transport economics Tags: Amtrak, corporate welfare, expressive voting, industry policy, KiwiRail, privatisation, rational ignorance, rational irrationality, state owned enterprises

Figure 1: Amtrak and KiwiRail bailouts, (exchange rate US$1:NZ$1.53), 2008 – 2015

Sources: Federal Funding Received by Amtrak | Mercatus and New report: Corporate welfare in the 2015 budget – Taxpayers’ Union.

New Zealand with its KiwiRail does a good job of keeping up with the Amtrak bailout especially when you look at figure 2, which computes the bailouts on a per capita basis.

Figure 2: Amtrak and KiwiRail bailouts per capita (2014 populations), (exchange rate US$1:NZ$1.53), 2008 – 2015

Sources: Federal Funding Received by Amtrak | Mercatus and New report: Corporate welfare in the 2015 budget – Taxpayers’ Union.

Hopeless KiwiRail bailout reporting by Radio New Zealand

10 Jul 2015 Leave a comment

by Jim Rose in applied welfare economics, economics of bureaucracy, economics of media and culture, politics - New Zealand, rentseeking, transport economics Tags: corporate welfare, KiwiRail, media bias, privatisation, public ownership, Radio New Zealand, state owned enterprises

This morning on 9 to noon on Radio New Zealand, Kathryn Ryan, the compere of the program, repeatedly claimed that the government pumped $1 billion into the KiwiRail Turnaround Plan between 2010 and 2014. I was so annoyed by this that I made a broadcasting standards complaint while the program was still being broadcast on my mobile as a one finger typist.

The report on 9 to Noon was in response to the government putting KiwiRail on notice, giving it two years to identify savings and reduce Crown funding required or risk the possibility of closure. Since KiwiRail was acquired in 2008 for $665 million as a commercial investment, Crown investments (taxpayers bailout) totalled $3.4 billion – see Figure 1.

Figure 1: State-owned enterprise welfare, Vote Transport and Vote Finance (KiwiRail), Budgets 08/09 to 15/16

Source: New Zealand budget papers, various years.

Table 1 shows that the KiwiRail Turnaround plan of $1.272 billion since the 2009-10 Budget is only a small part of the bailout of KiwiRail. 9 to Noon simply ignored the $210 million in the 2015 budget for KiwiRail for no explicable reason and instead talked about a $1 billion Turnaround plan rather than the $1.272 billion Turnaround plan.

Table 1: State-Owned Enterprise welfare, Vote Transport and Vote Finance (KiwiRail), Budgets 2008/09 to 2015/16, $million

	08/09	09/10	10/11	11/12	12/13	13/14	14/15	15/16
New Zealand Railways Corporation Loans		405	55	250	108		11
KiwiRail Turnaround Plan		20	250	250	250	94	198	210
KiwiRail Equity Injection					323	25		29
Rail Network and Rolling Stock Upgrade		105	71	10
New Zealand Railways Corporation Loans	55
New Zealand Railways Corporation Increase in Capital for the Purchase of Crown Rail	376
Crown Rail Operator Loans	140
Crown Rail Operator Equity Injection	7
Total	578	530	376	510	680	119	209	239

Source: New Zealand budget papers, various years.

Other parts of the bailout of KiwiRail include $405 million in loans to the New Zealand Railways Corporation in the 2009-10 budge – see table 1. There was a $323 million equity injection in the 2012-13 Budget – see table 1. KiwiRail has also caused write-downs in the Crown balance sheet of an incredible $9.8 billion since it was repurchased in 2008.

9 to Noon ignored at least two thirds of the cost to the taxpayer of bailing out KiwiRail by only limiting its reporting to part of the KiwiRail Turnaround Plan. It ignored the contribution in the most recent budget to that plan. That does not meet broadcasting standards of accuracy or professional responsibility.

Any reasonable listener will infer, as I did when listening, that the entire cost of the bailout of KiwiRail is represented by the Turnaround Plan of about $1 billion. If listeners were left with that impression, they were misled by 9 to Noon and Radio New Zealand.

It’s Time to Name a Price on KiwiRail – how much more in losses before committing to shutting it down?

09 Jul 2015 1 Comment

by Jim Rose in economics of bureaucracy, politics - New Zealand, Public Choice, public economics, rentseeking, transport economics Tags: corporate welfare, hard budget constraints, KiwiRail, privatisation, public ownership, state owned enterprises, state-owned enterprise welfare

In the finest public service traditions of free and frank advice, the New Zealand Treasury in its budget advice this year advised ministers to contemplate shutting down KiwiRail.

Treasury recommended the Government fund KiwiRail for one more year and undertake a comprehensive public study to look into closing the company. The study is public so that people were informed of the costs of running the rail network compared with any benefits it provided. The Government rejected the idea.

Figure 1: State-owned enterprise welfare, Vote Transport and Vote Finance (KiwiRail), Budgets 08/09 to 15/16

Source: New Zealand budget papers, various years.

KiwiRail has been a constant thorn in the taxpayers’ side. Since this rail business was acquired in 2008 for $665 million as a commercial investment, Crown investments have totalled $3.4 billion – see Figure 1.

Fortunately in the 2015 budget, the Minister of Finance signalled that the government’s patience with the KiwiRail deficits is not unlimited. KiwiRail has a 10-year Turnaround Plan to make its freight business commercially viable. The current network of 4,000 km must be reduced to 2,300 km for the company to even breakeven. The Treasury advised, to no avail, that this massive and painful restructuring was required before KiwiRail was purchased. The purchase went through.

The latest developments where Treasury advised ministers to contemplate shutting the network down is an opportunity for ministers, and the opposition spokesmen on finance and transport both to say how much is too much in accumulated KiwiRail losses.

The Minister of Finance and his Cabinet colleagues must say after the public review that there is only so much more left in the cupboard to bailout KiwiRail losses. After that fiscal cap is reached, KiwiRail is on its own. If that means bankruptcy and network closure, so be it.

In the interim, on the side of every KiwiRail train there should be advertising billboards with the following disclosure statements:

KiwiRail losses adds one percentage point to the company tax rate each year;
KiwiRail losses takes deny sick taxpayers X number of elective surgeries per year; and
X number of doctors, nurses, and teachers could have been hired but for last year’s KiwiRail losses!

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Utopia, you are standing in it!

Desperately seeking to agree with @JulieAnneGenter on transport investment quality

$5.2 billion in rail spending since 2003 budget @JulieAnneGenter @JordNZ

NZ state-owned enterprise dividends & cash injections since 2007 – updated

KiwiRail commercial valuation since 2007 @JordNZ @dpfdpf

The commercial valuation of the New Zealand state-owned enterprises portfolio since 2007 with and without Solid Energy and KiwiRail

@nzlabour @NZGreens New Zealand state-owned enterprises dividends paid and capital injections since 2007

The Amtrak and KiwiRail bailouts compared

Hopeless KiwiRail bailout reporting by Radio New Zealand

It’s Time to Name a Price on KiwiRail – how much more in losses before committing to shutting it down?

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