Wednesday, June 22, 2022

Eric Crampton: The Government transport policy that gave officials a day to cost it on a Sunday

Just before 3pm on a Sunday afternoon, about a dozen New Zealand Transport Agency and Ministry of Transport officials received a weekend-ruining email. Subject: “Cabinet paper: Urgent.”

It provides a depressing insight into how policy gets made.

The agency that would have to administer a fuel tax and Road User Charge (RUC) holiday had less than a day’s notice that the change was coming.

Important detail had to be filled in after the policy was announced, which also may have prevented improvements that ran counter to what had already been announced.

The scheme was obviously fraught with complexity and potential for gaming.

I expected that the NZTA may have provided a few warnings about the messes that the Government would encounter, so I put in a request for any advice that NZTA provided in advance of the scheme’s announcement, and correspondence about it.

The very first email in that trail was an urgent email from an NZTA senior manager in Investment and Finance to a collection of NZTA and Ministry of Transport officials at 2.53pm Sunday, March 13. An urgent cabinet paper was due to the minister at 11am the next day.

Officials were told to calculate how much it would cost to reverse the increases in RUCs and Fuel Excise that had occurred since 2018, assuming normal use volumes. They had 20 hours, less any amount of time spent sleeping.

That email noted that “The [redacted, but potentially the two Ministry of Transport officials cced] are on this email and they may contact people for urgent responses – they are in a difficult position with such as [sic] short turnaround time. All of this is confidential so please only involve those who have to be involved.”

The scheme wound up being announced at the Prime Minister’s post-cabinet update, at about 4pm on Monday, March 14.

Monday’s announcement had no detail on how rebates on RUCs would be handled. Nobody would have had any chance to think it through.

The officials started in. They quickly noted the importance of maintaining support for the National Land Transport Fund to cover the resulting shortfall. One official noted, “Given the increases in fuel costs we have seen, any roll back of tax increases may just be a drop in the ocean”.

Officials worked well into the night. By 7.35pm, NZTA had some preliminary costings. They received a query back from the minister’s office at 8.57pm.

The last email from officials that night was at 11.42pm. They’d arranged a meeting for 8.30am on Monday to go over any comments on the draft paper.

The first email of the morning, at 9.04am, noted, “There is a lot of complexity here. Including can the systems make the change (RUC) … implications around a decrease in RUC (which is much more difficult than FED [Fuel Excise Duty]).”

NZTA was asked for bullet points on “big issues” for the “Min meeting” – presumably the meeting on the Cabinet Paper.

The first reply notes the obvious problem with RUC:

“noting the issue that temp nature of the drop is going to create some odd behaviour, i.e. big operators will purchase up while RUC is lower … meaning a “lag” hit to the NLTF [National Land Transport Fund] after the rate goes back up. Perhaps the Revenue floor to us is the way to go to make it easier to plan and deliver.”

At 10.08am, the National Manager, Policy and System Planning, summarised the main issues. After noting consequences for the NLTF of any reduction in revenue, “which is the primary focus of the MoT draft Cab paper … requested yesterday afternoon for 11am this morning”, they noted that it was unclear what proportion of any excise reduction would pass through to customers, and that removing excise would have no impact on diesel prices.

Officials then discussed the management of surrendered RUC licences – which was presumably, at that point, the preferred option for dealing with RUC.

It was not crazy as a starting point. Holders of existing licences may have been rebated for unused kilometres while purchasing new, discounted RUC. Discount licences could have been printed on a different coloured paper, usable only for the period of the discount. At the end of the discount period, any kilometres left on the permit could be refunded or put toward the cost of a new full-cost permit.

But that option would have required every single diesel vehicle in the country to queue up for an odometer check, or risked causing rorts. Officials hadn’t yet had time to work through how any of this could be made to work.

By about 11am, in time for the Cabinet meeting, they had firmer numbers on costs.

At 4pm, about 24 hours after NZTA first started discussing things, the policy was announced at a post-cabinet briefing.

This Government has regularly been accused of inventing policy on the hoof, with neither forethought nor planning.

NZTA seems not to have been asked whether it was a good idea, or whether there were alternatives that could better advance the Government’s objectives.

It was a fait accompli. Officials had to cost the thing and deal with the consequences.

Dealing with the consequences started that evening, when Transport Minister Michael Wood told officials he wanted “advice in the “next 1-2 days” covering a clear way forward for PT [Public Transport] and RUC, including the steps required to make the decreases happen by 1 April 2022.”

It would prove far from simple. Nobody had thought to ask NZTA ahead of time what would be needed, or what was possible given existing systems.

On March 16, one NZTA official despaired to the Ministry of Transport:

“I’m keen to understand if there was any consideration given as to whether we could achieve the desired outcome through tackling price at the pump. In our comments, you’ll see that we have raised a number of risks and challenges. In particular, I’m concerned about the complexity of the RUC regime and the ease (lack thereof) of implementation. This will result in a heavy administrative burden, both for Waka Kotahi and RUC licence holders. We’re also concerned about the gaming opportunities which may arise, and inequities (eg compared with FED reduction) through other unintended consequences.”

A diesel subsidy equivalent to the petrol excise discount could have been simpler. But the press release from the Beehive had already announced a cut to road user charges, before anyone had had time to think about it.

So we wound up with a high-trust system and many potential stockpiling issues.

NZTA did an admirable job, under circumstances that should not be faced except under real emergency.

There was no emergency that required inventing policy on less than 24 hours’ notice to officials, forcing them to work past 11pm on a Sunday night.

There was only a political emergency caused by Labour’s drop in the polls, resulting in a ruined weekend for officials, extensive and imperfect backfilling of details afterwards, and theft from the Covid fund to cover road costs.

It is a terrible way to run a country.

Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE


DeeM said...

So Eric, you're summary of the whole process was "NZTA did an admirable job".
And with only the bare minimum of people working on the problem...not the countless minions that the department employs.
And with less than a day to put it together...not the many weeks, if not months the department would have taken, with all those man-hours, if there had been no tight delivery timeframe.
But poor lovies, they might have had to work overtime...God forbid. I'm sure they have a special rate for weekend overtime work far in excess of anything the private sector gets.

Just goes to show, government departments can get things done quickly and with minimum resources. Just the way the voters want so that more of OUR money stays in our pockets or is spent on something more worthwhile.

ihcpcoro said...

That's exactly the sort of situation that is very common in the private sector. Compact, experienced teams of people who really understand, get things done most efficiently. Bureaucrats are not the people you need controlling things in times of crisis, perceived or otherwise.