Back when I was still an obediently socialist teenage idiot, Ronald Reagan made his famous quip about government. The nine most terrifying words in the English language are: ‘I’m from the government, and I’m here to help’. At the time, I thought it was the dumbest thing I’d ever heard.
Then I grew up. A lifetime of experience and a predilection for studying history have taught me that Reagan was right. There have been very few questions where ‘more government’ was the right answer.
And there have been very few businesses that governments haven’t been able to screw up. Even a seeming doddle like New Zealand’s Cook Strait ferries.
A private operator like Bluebridge, owned by Morgan Stanley Infrastructure Partners […] make[s] decisions based on business fundamentals. The company runs a profitable service, commanding 56 per cent of the vehicle freight market. It secured that market share through sound commercial judgment.
The government, on the other hand…
When politicians play shipping magnates with taxpayers’ money, even simple business decisions become exercises in bureaucratic mismanagement. The saga of state-owned KiwiRail’s Interislander service provides a masterclass in how not to run a transport company – and why governments should think twice about running businesses at all.
Unfortunately, a succession of New Zealand governments haven’t thought even once.
The New Zealand government owns assets worth several hundred billion dollars. From banks to broadcasting, valuation services to farming, politicians control enterprises that compete directly with private companies. This creates inherent tensions between political and commercial objectives.
Guess which always wins?
The ferry debacle perfectly illustrates these challenges. What began in 2018 as a NZ$775 million procurement project to replace three ageing ferries has spiralled into a multibillion-dollar nightmare.
The cost escalation tells its own story: NZ$1.4 billion by late 2019, NZ$2.6 billion by February 2023, and NZ$3.2 billion by December 2023. When the new National government finally cancelled the project, estimates had climbed to NZ$4 billion.
Tell me this isn’t a government operation.
Remarkably, only 21 per cent of these costs were for the actual ferries. The rest would have gone into landside infrastructure – new terminals, berths and facilities in Wellington and Picton. As various stakeholders added requirements, politicians eager to create a legacy project encouraged scope creep rather than enforcing commercial discipline.
The new National government, supposedly run by a hard-headed business type, is proving as essentially useless as any government enterprise.
A year ago, Finance Minister Nicola Willis cancelled the original ferry contract, declaring the proposed vessels were like “Ferraris” when “Toyota Corollas” would suffice. Break fees for the cancelled contract could reportedly reach NZ$300 million – more than half the original vessel cost.
As it stands, Kiwis would settle for a three-wheeled shopping trolley. After all, it’s better than nothing, which is what they’ve got from the government instead.
Twelve months later, there are still no ferries. Instead, the government has created a new Crown company to run the procurement and appointed a dedicated Minister for Rail, despite transport already having its own minister.
Because ‘more government’ is obviously the answer to government screw ups.
The existing Interislander fleet, with vessels dating from the 1990s and early 2000s, must now soldier on until at least 2029. Recent incidents highlight mounting risks. One ferry lost power in Cook Strait. Another ran aground. KiwiRail has sought 22 exemptions from maritime safety rules in three years, while its private competitor Bluebridge needed only nine.
If it’s any consolation to readers, though, the newly-completed Spirit of Tasmania III and IV ferries are currently mothballed in Leith.
Because no one in the government thought to check if the new, bigger boats would fit in the existing harbour facilities in Devonport, Tasmania. Surprise: they can’t! So, now the government has to decide whether to spend millions leaving the boats in storage, or lease them out for two years and present Tasmanians with secondhand ferries for all our taxes.
Similar patterns are visible across New Zealand’s state-owned enterprises. State-owned Kiwibank competes with private banks. State-owned Quotable Value competes with private valuers. State-owned New Zealand Post competes with private couriers. In each case, commercial objectives must be balanced against broader political and social goals. Taxpayers must ultimately pay for the resulting inefficiencies.
More government is obviously the answer.
The government’s solution to the ferry fiasco? Create yet another Crown company with an impossibly complex governance structure. This new entity must co-ordinate between KiwiRail, port companies, regional councils, and various government agencies. It must evaluate both traditional procurement bids and innovative private sector proposals. Three ministers will exercise oversight and attempt to reach consensus on major decisions.
Further delays and cost increases are virtually guaranteed. Each stakeholder can effectively veto decisions. Each minister must satisfy different political constituencies […]
New Zealand must now wait until 2029 at the earliest for new ferries while paying hundreds of millions in break fees and hoping its ageing vessels stay afloat – all because politicians could not resist playing shipping magnates with other people’s money.
Ah, government: is there anything they can’t royally screw?
Lushington describes himself as Punk rock philosopher. Liberalist contrarian. Grumpy old bastard. This article was first published HERE
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