Ideas@TheCentre
KiwiFail – the ideology of state ownership
When New Zealand’s former Minister of Finance Dr Michael Cullen announced the re-nationalisation of KiwiRail last year, Rail’s alleged ‘failure’ was presented as an example of ‘the failed policies of the past.’ The story was that selfish foreign interests had bought our rail system, stripped it off its assets, and run it down – leaving the government to pick up the pieces.
The reality was quite different. In repeated advice to Dr Cullen, the Treasury had advised against the purchase of the rail system warning that changing ownership of Rail would not cure its underlying problems. This includes the unfortunate fact that it isn’t commercially viable. It earns roughly enough to cover operating costs, but the capital costs of rail are unmet and substantial. It has too much track and not enough custom.
The rail system required a subsidy under private ownership to operate a network of this size. This policy will continue under public ownership – except that the subsidy will get larger. KiwiRail has already cost the taxpayer a billion dollars and will become a soak hole for taxpayer cash.
In purchasing such a fraught asset, the previous Labour government demonstrated its allegiance to an ideology: that government ownership and operation of rail is inherently more desirable than private operation and ownership.
The government bought the asset hurriedly and went into the last election with the campaign slogan of ‘Kiwibank, Kiwisaver, KiwiRail – keep it Kiwi, Vote Labour,’ as if public ownership of assets were something worth fighting for.
There is a problem with this approach: Nationalisation of utilities and transport systems is a policy of the past. In fact, organisations such as the World Bank say that ‘privatisation is now so widespread that it is hard to find countries not using this approach: North Korea, Cuba and perhaps Myanmar make up the shrunken universe of the resistant.’ That’s not exactly the kind of company New Zealand should keep.
The buyback was, to use the words of Michael Cullen ironically, ‘an ideological burp.’
Reform, rationalisation and resale of KiwiRail should be high on the Key government’s agenda. The longer Rail remains in state hands, the longer taxpayers are exposed to risk and ever-rising costs created by political meddling with what should be a private operation.
Luke Malpass is a policy Analyst with the New Zealand Policy Unit of the Centre for Independent studies. His report KiwiRail: Doomed to Fail? was released by CIS this week.
