Electricity policy - Labour just changed the conversation

Labour leader David Shearer with Greens leader Russel Norman

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For those close to the development of today's electricity market over the last 25 years or so, the Labour and Green party announcements on a return to central planning have landed like a bomb.

For many, it's a question of whether the world just changed.

For the Treasury and for MightyRiverPower, and the government as shareholder, the question is whether what Labour and the Greens just announced qualifies as a "significant adverse event", as defined in the MRP share offer document, and requiring that the offer document be updated.

If it is judged to be so, then that is an admission that the political balance just tipped strongly in the Labour-Greens' favour.

Yet the new policy stabs at the heart of the edifice on which the government's partial privatisation agenda is built.

Moreover the polls remain very close, the government is in the poop over privatisation and the spy agency stuff-ups, and it was counting on the MRP float to be a success. There could yet be a change of government next year.

Instead, Labour's emerging policy driver David Parker has fashioned either a brilliant new policy or a cynically calculated political move to pole-axe the asset sale which commits Labour to a populist winner of a new policy that will damned difficult to implement. The truth may well be both.

In essence, the Labour-Greens policy legitimises New Zealand deciding to make its hydro-electricity dominance a source of competitive advantage. But the devil's in the details. It throws out the electricity industry orthodoxy since corporatisation in the late 1980's that says security of supply is vital, and that competition to provide the next cheapest unit of supply is the best way to decide what to build next.

The Labour-Greens policy agrees security of supply is vital, but also thinks the market model has produced much higher than necessary prices and excessive profits to power companies. If people vote Labour-Green, they will be voting to strip probably billions of dollars of capital value - i.e, savings - off the balance sheets of New Zealand power companies.

Labour and the Greens see this as providing a dividend via politics to households and energy-intensive businesses, especially in regional economies.

As precedents for behaving this way and living to tell the tale, Labour has its punishment of Telecom in the mid-2000's under David Cunliffe as Telecommunications Minister, and similar value destruction at Auckland International Airport in pursuit of consumer gain.

In other words, whether you hate or love their electricity policy, Labour has achieved several useful objectives this week.

First, it's demonstrated unity with, but leadership of, the Greens. They look more like a credible government in waiting than they did a week ago.

Secondly, they've sabotaged the politically unpopular MRP float and poisioned it for a lot of retail and institutional investors, who just decided not to buy. A week ago, when fears about the Tiwai Point smelter contract renewal were the issue, a lower issue price looked like a reason to buy MRP shares with your ears pinned back. Now, it's not so clear.

Thirdly, and crucially, Labour has changed the conversation. Oppositions crave that attention. Policy still matters, and Parker has been here before. He changed the conversation just before the last election with Labour's capital gains tax advocacy.

That was too late in the campaign. It scared people. Since then, however, a capital gains tax has become almost uncontroversial as inevitable policy when next a Labour-led government is elected.

Could it be that Parker hopes to achieve the same with this policy, released well in advance of an election and therefore better timed?

Sure, it will wipe billions off the Crown balance sheet in both asset writedowns and lost dividends, since state-owned power generators won't be required to earn a profit. That is an irony given Labour's argument against selling half of MRP is that it would rob taxpayers of income. But taxpayers tend not to notice value lost through accounting changes.

And sure, investors will see value wiped off their shares. But not many of them vote Labour or Green and, in the case of Contact Energy's majority shareholder Origin Energy, they're Australian. Their electoral mileage for the Opposition is minimal. KiwiSaver savers might mind, but their political power has yet to be harnessed.

Finally, the Labour and Green parties have, with their electricity policy, not only identified a bellwether issue, but they've rung the bell vigorously.

Power companies are deeply unpopular, but after the best part of a generation, kiwis were starting to think the current electricity market was just the way of things. Labour has just shown them a rabbit they like the look of and reminded them that governments are powerful.

Many voters will like that and would only peripherally feel the impact of a cooling towards New Zealand by both foreign and investors, the slower economic growth, the loss of innovation and dynamism in the competitive parts of the electricity market today, and the dead hand and additional cost of a central buyer which probably won't see dry winters coming.

That makes the Opposition's announcements this week politically powerful. If the world didn't just change for the electricity sector, then at the very least the ground just shifted.

(BusinessDesk)


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61 Comments & Questions

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It shifted for me as a floating voter. I see Labour's political game playing as economic sabotage, very harmful to NZ. They're off my list. Greens were never on it.

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What do you call flogging our wealth enabling assets?

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Yeah right! You vote this government in, didn't you?

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All the same, John Key will be struggling come the next election.

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Cynical and ruthless in pursuit of political power best describes those few Labour politicians who understand the inevitable impact of bad populist policies. The rest and all the red Greens are simply stupid.

As ever, giving away other peoples' money is a brief feast followed by ruin. The income lost and other costs of their scheme will force compensating increases in taxation which will compound the flight of investment and talent. Our future has never looked so bleak and moribund since Muldoon's command economy collapsed.

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Blah, blah, blah...

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The usual intelligent contribution from the loony Left.

Can usually be summarized as "Shut up and give me all your property and money".

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By all means dismantle the policies of the left. Unveil their folly... reducing your argument to name calling, however, makes you look weak of mind and defunct of any real wisdom.
"Shut up and give me all your property and money".
While I can understand you associating this mantra with a communist bent, can it not also be as easily associated with capitalism and a certain 1%?

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And your usual right wing drivel Alan.

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... what's so alarming about a proposal that works perfectly well in Ontario and 30 US states - and has even been welcomed by the head of the Vector energy company?

What is alarming, however, is Stanford University's estimate that $NZ4 billion was gouged from NZ energy consumers over a mere six years under the current model.

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Selective quoting. Here is what the Stanford guy said:

Stanford University economics professor Frank Wolak wrote a report in 2009 that found New Zealand's electricity companies used their market power to push up prices. But he told Radio New Zealand's Nine to Noon programme on Friday that having a single buyer of electricity is no more effective in controlling prices than having several.
Professor Wolak says high-level regulation stipulating the price of electricity was tried in the United States and found wanting. He says the cards are stacked against regulators who always know less about a company they are trying to control than the company itself does.

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...so I take it from your comment that NZ power consumers being ripped off by $4 billion over six years is a mere inconsequential effect, rather than one of the most outrageous thefts in NZ history ?!? The fact that this gouging will be channeled increasingly to private investors in the future (over time increasingly to overseas investors, as with Contact) just makes it all the more wonderful.

With regard to the proposed model I'm reminded of Churchill's statement that "democracy is the worst form of government except all the others", with the govt's current model being the worst of the worst. Yes the generators would know more than the regulator but the regulator will have teeth and has the flexibility to adapt -- the model is accepted as the best option out of a series of even less ideal alternatives in North America.

I have no particular political interest in this -- I remain utterly appalled by the Clark govt's inaction on power prices over nine years.

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The Clark government aggravated the problem substantially: http://m.kiwiblog.co.nz/2013/04/electricity_prices.html

The proper solution is to sell the SOEs and regulate and structure the market properly when the Govt doesn't have a vested interest in excess profits.

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And let's be clear about this - the greatest percentage increase occurred under Aunty Helen's watch. So, Labour failed miserably in the past and now want another shot? Really? Forget it, the electorate is smarter than that.
Looney Left credibility = 0

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Alan you are a nasty piece of work. Never have I seen in any of your posts any coherent argument for any of the BS you put forward. You assume anyone against the stealing of our collective assets is automatically an evil commie and leftie, despite me saying on numerous occasions that I am personally not against the sale of some state assets like TVNZ, Air NZ, Kordia and so on. It's the sale of our power infrastructure that I am against and in your matchbox-sized mind that seems to qualify me as a commie.
You are obviously quite relaxed to see your fellow citizens/taxpayers being ripped off by our own government to the point where families struggle to pay for power. It's okay in your mind for kids to be subjected to Third World diseases because the house is damp and can't be heated. You come across as a cruel individual who, I'm picking, lives a lonely sad life. The classic line in the movie Planes, Trains and Automobiles seems to apply to you, when Steve Martin says to John Candy... 'oh, and next time you say something make sure there's a point".

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Oh dear, the usual immediate, silly and boring resort to personal attack from the Left.

I have given coherent reasons why this nonsensical policy will be disastrous. You and your mates can only complain that power prices are too high - despite decades of the very Government ownership that you wish to retain.

Here's a hint for you: when advocating a solution, make sure it will not make the problem worse. Here's another: a Government that doesn't own a power generator will be more inclined to regulate and structure the market in a way that doesn't rip off consumers.

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Talking to yourself again Alan. I have never seen you engage in a single intelligent, open discussion anywhere on anything. You will of course respond that you have never seen anything intelligent to respond to, but there have been been a variety of very rational, reasonable and well argued options in this whole power debate that you conveniently ignore or play the argumentum ad hominum card.

Why are you scared of an intelligent discussion? I suspect you have a reasonable brain on you. Why can't you put ideology aside and have a discussion weighing up merits, offering counter ideas etc?

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What a pathetic little rant. Sounds like a spolied little kid who can't have everything his own way. Grow up join the real world - where you take responsibiluty for yourself.

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As ever, giving away other peoples' money is a brief feast followed by ruin. The income lost and other costs of their scheme will force compensating increases in taxation which will compound the flight of investment and talent.

sounds like a reference to the effects of selling our state owned enterprises...

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Nope, it's the reverse. Selling off assets the state owns and mismanages results in lower prices and better services for consumers, a permanent reduction in debt costs and ongoing revenue via taxes for the Government, and more private investment and innovation for the productive sector.

Naturally, all that is anathema to the Left ideologists and passes far, far over the heads of the idiots who vote for Left politicians.

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For a moment there Alan I thought there was potential for a reasonable discussion - and then you threw in your last para....

But in some sort of hope - what about the lost dividends to Government that would in 3 -4 years equate to the purchase price income? What of the effect on our balance of payments (and interest rates) of dividends being sent offshore? How does Government fulfil its policy role in the provision of a basic service without being a player in the market? Their only choice would then be to regulate (as most conservative governments in the western developed world do) but you are opposed to that. Where has an unregulated free market ever worked in a country the size of New Zealand?

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"what about the lost dividends to Government that would in 3 -4 years equate to the purchase price income"

They won't. Otherwise investors would pay more for the shares. The world is desperate for high return investments.

I'm not opposed to regulation of monopolies if there is no other choice. I don't think we have exhausted possibilities in this market though - as Lance Wigg's article demonstrates.

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On current dividends they would and that's a rough ratio for asset sale values anyway. But we will see....

And thank you for a dispassionate comment. Carry on like this and we could even have a discussion.....

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@Tom, I'm always up for a sane discussion but it is incredibly rare that Lefties can get past mouthing their slogans and then immediately resorting to abuse.

Can you please tell us why the market could possibly underprice the asset with respect to future dividends? I'm all ears.

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It was the cynical and ruthless transfer of wealth against the opinion of the majority of New Zealanders that has now come back to bite National on the a*se. National's attempt to sell assets, strip mine beaches, frack for oil, deep sea oil drilling and establishment of martial law on the sea that are acts of democratic sabotage. They are off my voting list. Labour/Green, congratulations on an innovative and courageous policy that will benefit many power users.

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Actually, Spartacus, it was a Labour government that started the whole asset sales programme. That kind of undermines your argument for supporting the left. In fact, it is worse than that, as they sold the entire asset, while this programme proposes to extract the value (for the benefit of New Zealanders) while retaining control. The whole control thing is conveniently overlooked by those looking to undermine this process.

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So selling off our assets to the few wealthy NZers before they flog it off to offshore buyers to make a quick buck for them at the expense of other NZers is going to solve our problem? Ridiculous!

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For your benefit I repeat (read this slowly and digest):

Selling off assets the state owns and mismanages results in lower prices and better services for consumers, a permanent reduction in debt costs and ongoing revenue via taxes for the government, and more private investment and innovation for the productive sector.

I'm not sure what your problem is, so I doubt this solves it. However, it is good for the country.

How to improve electricity market competition is a separate issue but one that would certainly be more keenly and effectively addressed once the government was not dependent on ownership of excess profits for its revenue.

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"For your benefit I repeat (read this slowly and digest):

Selling off assets the state owns and mismanages results in lower prices"

.... way to be patronising -- since you like quoting Stanford professor Frank Wolak so much, you omit to mention what he said on RNZ yesterday i.e. that by selling off MRP and the others NZ would be locking in the current rort of $ billions from NZ consumers and make so much harder to redress this at a later stage.

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If I have to patronise those who willfully overlook content, so be it.

Wolak's point is the best, and probably the only good argument against the asset sales I have seen. However it is obviously less significant now that political uncertainty over the Left's lunacy has now zapped share value and the generators' inflated asset value. So long as Government is clear that it intends to bring full competition to the market investors will price accordingly.

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So you're upset because the value in your Contact Energy shares have been zapped? So be it.

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I don't have Contact shares because I don't believe in investing in anything a Government is likely to screw up. So most probably it is your own CE shares that have been zapped via your membership of Kiwisaver etc which I have also avoided.

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And now you've just gone and blown it again by adding the rhetoric.

I don't get you - there is no chance for a conservative (or "classic liberal" government unless more voters are persuaded. Yet your emotional name-calling approach is more likely to drive people away.

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I think from memory, David Shearer did warn the government in the House last year that they will fight them all the way to stop our strategic assets being sold off.
So I'm not sure why the nats are surprised by this policy, and why they are now crying foul and playing the scaremongering and red card tactics. Which is usually a good indication of, o-o-ooh, we are now worried.

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I've always been a fence sitter, but although I had voted National last election, I was starting to think Labour in 2014. I am just so glad that they came out with this now and clarified the situation for me. I see this move as one of the most blatantly cynical political stunts in my voting life from a party so intend upon power it is prepared to knee cap an industry longer-term - all they will do here is make sure that the taxpayer doesn't get a fair price for its asset sales and implement a power system that has major negative long-term consequences

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Doesn't get a fair price for what? flogging off our fundamental wealth producing and standard living enabling strategic infrastructure that was built by the people of NZ... the arrogance almost blocks out the sun.

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"Wealth producing"... No they produce electricity that enables people to be creative and productive, to then create wealth from their efforts, skills, knowledge and abilities... Some better than others.

By freeing up the capital in the 49%, this enables a number of things, but mostly it allows the NZ stock market to be reinvigorated with fresh investmet vehicles for the likes of the Cullen Fund, Kiwi Saver etc and gives them "somewhere" in NZ to invest in instead of Australian infrastructure like they do currently.

Plus, the funds realised in the partial asset sales allows those funds to be redistributed into things like 11 new schools for Christchurch and rebuilding our 2nd largest city without having to borrow Billions more.

Your comments just prove the point... You can always tell a Labour / union troll... You just can't tell 'em much.

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Johnny's fan boys at it again, swallowing every bit of compost they are fed. As I said, and you confirmed in your central casting response... wealth producing. And who said I should give up some of what I own so a small percentage of National Party voters and fund managers can invest in the stock market.
And the arrogance of assuming I'm a Labour troll. I think Labour is part of the problem, and I have never been in a union. I have a successful business into its 25th year. In fact, you'd be surprised if you knew who I was.

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Ah, the usual right-wing propaganda drivel by you, a Wallace. Pretend to be swing voters when their political views are totally right wing.

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Do we want cheaper power or not?' There's only one answer to that.

YES

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Cheaper power might be good - having more money to buy it with would be better, as that eliminates the risk of unreliable supply through strangling the producers. Sort of how the world works really - we seldom get premium goods or services by screwing the price down.

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So what premium goods and services have we got from some of the highest power prices in the developed world?

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We have one of the lowest power costs in the OECD. Fourth lowest from memory. We have also an extremely reliable supply which wasn't the case at all in the NZED days. So low priced premium service. .

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Incorrect - check your facts. We are in the top third. Plus remeber that power prices are dropping in the OECD while they continue to rise here - and we have the two cheapest forms of power production.

And where I live there certainly hasn't been an "extremely reliable supply" over the last 10 years - constant problems in loss of supply somehow all blamed on the weather.

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Yes, indeed, but only as long as someone else will pay for it - the standard socialist approach.

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Paul N
Why should governments pretend to be businessmen? They are there to govern and should not be owning businesses.
The role of government is to govern us, protect us and punish us. Nothing else.

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Again woeful one-liners masking ignorance that knows no bounds... we are a small country the size of Sydney population-wise. I'll say this very slowly... there are a few items of national infrastructure that need to be funded and run by a governing entity, and the electricity system is one of them. Do you sell shares in your house? Of course not, because you need to control your house. The same goes for this vital piece of national enablement. How do you think we got this electricity system in the first place, or do you conveniently edit out the bits of history you don't like?

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It doesn't matter how slowly you say something if it is wrong. Energy companies including electricity do not need to be state owned as has been proven in very many countries.

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Very few actually own their own home. Most have their name on the mortgage by the banks that actually "owns" the property....

When will the MSM ask Parker how $27.50 a month for those that get a power bill, will actually create 5000 new jobs? Please don't tell me it will be another govt dept head count increase to "manage" this?

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Sorry - how have they protected us from such high power prices?

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What most seem to fail to understand is Labour & the Green objection to the assets sales program is nothing to do with the assets (although their economically ignorant constituencies’ are focused on them) but everything to do with the money the sales will generate giving National a huge advantage going into next years election and beyond. New schools, hospitals Roads etc all those bad things

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Brilliant move. This proposal not only derails the asset sales but gets the opposition parties additional votes in the next election.

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... and sabotages NZ's economy. What could be better?

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Hang on a minute. Most of the arguments above are either "wholly owned" or "wholly sold" by the Government. The arrangement on the table is a joint (i.e. Government & Market ownership) ownership model where the Government and the Market can hold each other accountable. Isn't this a better (I'm not saying excellent) solution rather than the corruption inherent in an extreme at either end of the left/right spectrum?

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Wholly sold avoids politicians profiting from excess profits made by wholly or partially owned SOEs. They then have no conflict of interest in properly structuring and regulating the market.

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Exactly so Lincoln. Shareholders provide an excellent overseer for companies. I'd like to see pvt. shareholders involved in all SOEs.

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The L/Gs have given us Kiwis an opportunity.Buy as many shares as you can as they will probably float at the lower end.Vote for National at the next election,watch your share price rise in value and collect your dividend,then pay your power bill.All good.

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If you are thinking of buying MRP shares you better watch this... http://www.youtube.com/watch?feature=player_embedded&v=K6rnWHXzbDE

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He's certainly good for a laugh is Winston first. Fortuately very few will take him seriously otherwise that would be the end of Kiwisaver or any other retirement saving scheme.

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Gosh, I've never met or read "Alan Wilkinson" before. But if I've just scrolled through the 'conversation' here. And if I wasn't ready to give Labour/Greens a go before, I certainly am now. Way to go, Alan. If you want to know what swung it, it was all the bile about "idiots" voting for left wing politicians and the tiresome drivel about "other people's money". I pay my taxes too, Alan - maybe even as much as you do. Perhaps the difference is that I do so willingly.

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I think the government / private ownership discussion is largely an illusion. My view is that the Clark govt sat on its hands and watched the money roll in. The Nats were happy to continue this complicity. The govt has largely become irrelevant as it's clear that the corporate sector runs the govt. The govt takes the rap and the corporate takes the money. The govt changes but the corporate remains behind the scenes to work the game. The govt then gets elected to face the music, when it is really big business interests.

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