Kiwirail is just wrong

It’s possible that Labour has stopped mining the road as it retreats, but unlikely. This piece of ‘think big’ spending is unlikely to be topped this year.

Politically this is about as cynical as things get.

They have carefully added it to their brand stable by calling it Kiwirail. Calling it Kiwirail is inspired, it will make it so much more difficult to sell later (as it will be sold again) and it blatantly appeals to national sentiment.

While Labour ‘only’ had to spend $700 million, they have committed the next incoming government to billions of dollars in spending.

Cullen has been so philosophically opposed to tax cuts that the buy back of rail (regardless of cost) served two purposes. It got rid of some of the pesky surplus, and it appealed to nationalistic voters. There is clearly no coincidence that this has occurred months out from an election and is yet another example of the government and it’s coalition supporters using our hard earned cash as election bribes.

Buying back rail is another chapter in the history of bad management of rail, that started at it’s inception when we adopted a narrow gauge system apparently to save money on tunnel building – thus limiting for ever the speed and types of trains that could be operated on the system. Rail has never worked in NZ because it always required huge subsidies. Even in the UK with substantially more population density then NZ, but with the same landmass rail is costly to run and profit thin. It’s no coincidence that the most avid proponents of national rail have English accents and are refugees from the UK with the same illogically sentimental attachment to rail. If we struggle to manage to pay for a decent roading network (and that hasn’t even been finished) then thinking that we can do this for rail is just naive.

Governments shouldn’t be running business, full stop. Yes, there are examples of successful government run business, and there are examples of poorly run private businesses, but on balance, historically, governments do a very bad job of business. Some immediate reasons why the taxpayer should not be running rail:

  1. Kiwirail will compete with private enterprise now it will be on taxpayer life-support, any competitive situation is encounters will be met with tax payer subsidies – this could even put people out of work in competing businesses. This is just totally wrong and immoral.
  2. Kiwirail will be a monopoly, it was before, but now will almost unlimited access to cash and no shareholders directly focusing on results, it will behave in a lazy monopolistic way, tax payers cash will be wasted on yet more bureaucracy and poor service.
  3. If businesses wanted to use rail to move freight they’d be doing it already. The only reason to switch is for the cost to become cheaper. Given the difficulties of making money out of it, there’s no way you could make the service cheaper without subsides from tax payers.
  4. We already have ways of moving freight nationally, it isn’t like industry is screaming for rail services. Why spend taxes on this when there are things like health and education that have immediate benefits to all tax payers? A billion dollars on education would be of huge Longterm benefit for NZ, a billion dollars on freight will do nothing.

As soon as people start talking about making things world class you know it’s going to be a dud. Will this latest enterprise fail? Of course not in the narrow definition of going bust – it can’t because you and I will pay, and pay, and pay. Labour is pointing to Kiwibank as showing how successful they are at running businesses. Well so what? It’s a tiny bank, and it won’t fail. The success or failure of either is irrelevant. You really need to ask why, why bother?

We already had a rail system, we already had banks, so why is the tax payer funding them when we have other tax payer provided services that need cash.

The whole mentality of voters thinking in terms of a ‘public’ (taxpayer) funded business as being different or better than public (owned by private shareholders) funded businesses is weird. There was nothing stopping any New Zealander buying shares in rail if it made them feel warm and fuzzy. They just shouldn’t try and foist this on everyone else.

The sooner long term tax cuts are put in place that prevent future governments of wasting our taxes on pointless enterprises to pander to voters, the better.

http://shareinvestornz.blogspot.com/2008/05/kiwirail-will-cost-mainfreight.html

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    • Geoff
    • July 21st, 2008

    You state “Rail has never worked in NZ because it always required huge subsidies”. What you didn’t state is that road transport requires even bigger subsidies.

    Rail in NZ pays 82% of the costs it imposes on the New Zealand taxpayer. Road transport only pays 56% of its costs. People often moan about rail losing money, but never ever question the fact that road transport loses a heck of a lot more.

    The truth is nobody expects roads to make money. Neither should they expect rail to do the same.

    • consumist
    • July 21st, 2008

    Hi Geoff,

    There is a big difference. Everyone uses roads, not everyone uses or needs to use rail. The costs of roads are meant to be funded through road user charges from registrations and fuel taxes, however for many years the government plundered this ‘fund’ and diverted it into the ‘general fund’ for use on other projects. As a result what should have been a straight forward targeted tax that if used as intended would have seen most major roading projects in places like Auckland finished years ago (at less cost that it is costing now).

    Had the money collected for roads been spent on roads, then not only would we have had the state highway and motorway network completed when it was originally planned, but it entirely possible that by now the money could have been diverted into improving public transport.

    Instead we have a half arsed incomplete roading system that we are now trying to complete at 2008 prices (with all the delays and costs of things like the RMA) little effective public transport, and a rail system that despite billions in subsidies isn’t effective.

    The costs of roading could be met through fuel tax which is the most obvious user pays system. Rail on the other hand cannot be user pays, if it could then the Aussies wouldn’t have been so relaxed about selling it. Rail can only cover it’s costs in the form it currently is, so what’s the harm in that? It was working as it was and didn’t need financing from you and me when our taxes could be spent on more pressing things – or just returned to us.

    The purchase was done for ideological reasons, not practical commerical reasons and so will always require funding from the taxpayer to survive, and all that when we have an alternative that is self funding… why bother, which was my point.

    • Aristarchus
    • July 21st, 2008

    I think the buy back of rail could have worked if it was a complete package, i.e. rail and road transport. Rail is but one aspect of a total intergrated multi modal transport soloution, and in the end rail can only work if it is intergrated with other modes. If the Government had purcahsed the entire toll business back, it would have worked, however instead the Government only brought back the rail side. Thats like buying the hull of a ship, with no sails or rudders and then expecting to sail the dam thing-ergo it cant work. If we are to maximise government investment in the business, the fact is they will have to nationalise other transport busineses and compnents so as to create a intergrated transport provider and one that provides the complete soloution, in order to make the Railways work. Rail can only work if it is intergrated with other modes, then the cost of rail can be juftoided because its part of a network and isnt stand alone. Under state ownership, we can then redictribute income from other aspects of the intergrated business to offset costs for rail that would otherwise haveto be paid for by the taxpayers. Unfortunately the Government only brought back the rail side, and without those other components with it, rail is bound to founder as a result of this bad decision making. Rail can only work, if it is part of an intergrated network.

    • consumist
    • July 21st, 2008

    Aristarchus,

    I think buying rail was a waste of our money because ‘we’ as providers of cash to the government just shouldn’t be running any businesses at all, full stop.

    Rail is already part of a network and the previous owner managed to ensure it was as intergrated as much as it could be commerically.

    The problem with rail in a country the size of the UK, with the population of a suburb of London, is that we simply can’t afford this as a method of moving people or goods – there are not the concentrations of people of industry to justify a national network.

    The costs of track are hugely expensive, the rolling stock and gauge we have are wrong for high speed trains so it will never compete with air of road.

    Even in places like Japan the rail network wouldn’t survive in places without heavy subsidies from the taxpayer. The difference between Japan and NZ is that they can sort of afford it, we can’t.

    There is a romantic attachment to rail that seems to stem from immigrants from the UK who were involved in rail there, that coupled with the nationalist we-need-to-own-strategic-assets crowd and greenies combines to form a perfect storm of rail supporters.

    Like I said, none of this has anything to do with whether people need or want rail in NZ.

    Oh, and naturally if you ask business whether they want a rail system across NZ they will say yes, but obviously only if you and I are paying for it – theyv’e had a commerical system available for years and clearly they voted on that with their wallets.

  1. July 5th, 2008

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