Technology: An Alternative Budget

Rod Drury

GUEST COMMENT

Budget 2013 makes good progress in reducing New Zealand's debt, but lacks the big ideas for driving growth.

The technology industry is going through a period of enormous change as the internet connects all businesses and consumers creating big opportunities for New Zealand.

Just for fun, here are a collection of ideas the government could consider for the next budget:

  1. The government announces NewZealand.net, a new Crown-owned company that commissions and manages a new international fibre cable that connects Australia, New Zealand and the USA.  The government commits $50 million of funding; the NZ Super Fund invests $100 million from Kiwisaver; and the government seeking expressions of interest from other investors such as iwi and ACC. The cable will cost $US300 million and deliver in excess of 12.5TB/sec of new capacity. Its charter would be to return 10% return annually on funds invested with other income used to improve New Zealand internet. 
     
  2. The NZ.net cable will supply virtually uncapped international connectivity at $5 per connection per month for consumers and $20 per month for small businesses. It will also supply connectivity to Australia's National Broadband Network (NBN) at prices to be determined. 
     
  3. The ICT and Broadcasting portfolios are merged. The new Minister is charged with unlocking content from overseas providers so it can be legally purchased in New Zealand (for example: Netflix, iTunes, Amazon) to stimulate UFB uptake. TVNZ will broadcast content for free and additionally make all content available globally for a small fee (for example: paid content in iTunes).
     
  4. A provincial call centres initiative. To create new provincial jobs, $2m allocated for NZTE to work with provincial councils, outside of Auckland, with the objective of creating 2000 new contact centre jobs servicing offshore customers.
     
  5. New Zealand is established as an internet privacy zone. Content stored here is private and cannot be accessed without a formal legal process. In addition, New Zealand issues 2000 internet working visas for US citizens who earn their income on the internet to reside in New Zealand. Their income is to be declared in New Zealand.
     
  6. A new global entrepreneur visa to encourage connected individuals to reside and invest in New Zealand. Their New Zealand personal tax is set at a flat $1 million per annum with no further claim on world wide income.
     
  7. The government signals to the banking and mobile industries it wants a single standard for mobile payments deployed nationally in 2014.
     
  8. All government departments make their business and consumer interactions available as web services by 2015.
     
  9. Establishment of an electronic register to identity all trading entities, including sole traders.
     
  10. In part to apologise for Novapay, and to enhance digital literacy, all teachers are given a tablet device (cost approximately $25 million, but offset substantially by reduced communication and systems costs). A further $25 million fund is made available for registered teachers to apply to create digital education courses. Any proceeds from sales of the courseware to be directed back to the fund. [The budget does provide an extra $50 million on the network infrastructure side of things, with $50 million more for the School Network Upgrade Project and . The move followed criticism many schools could not afford to connect to UFB fibre. Next problem: money and know-how to use that extra bandwidth - CK.]

There are some ideas. Would welcome any other thoughts.

Rod Dury is CEO of Xero, and was a co-founder of Pacific Fibre.

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29 Comments & Questions

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Provincial Councils disappeared from NZ in the 19th Century. One may have been re-established for the Auckland Province, but there appear to be no plans to return the rest of NZ to this form of governance.

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We seem to have locked into thinking that we are a nation of 'gamers' or non-tangible producers.
The reality of real industry being smartened is ignored, we import cr*p and we export ephemeral software to pay for it and, accordingly, we have stratified our society into the poor who make things and the smarts who pretend to make things.
Not pretty unless you can even afford to subscribe to NBR...

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It is dangerous to think you can predict the future development of technologies and make bets ($300 million worth!) using tax-payer dollars ... take a look at the fibre versus 4G debacle that is landing soon on govt. desks.

The UFB ($1.5 billion taxpayer punt) is about to become a huge white elephant as new technologies outpaces something govt. took way long with and got taken for a ride by its rent-seeking cronies.

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I beg to differ. LTE and all wireless technologies suffer from contention - that is you can't squeeze as many customers onto a wireless network compared with the number of customers getting the same speed on a fibre network.

Fibre deployments are the future, both of fixed and strangely enough of wireless networks. After all, mobile networks are only mobile from the phone to the tower - after that they're connected by fibre to the network.

LTE will continue to increase in speed and yes, it's good to have an alternative, but dollar for dollar/MB for MB a fibre network is more cost effective to run.

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But that is an argument for a fibre backbone - not fibre to every home.

The Government should facilitate private enterprise and private investment, not attempt to substitute for it. I was always and remain highly sceptical of the UFB project.

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I agree Alan. You could replace the 10 items with three.
1. Get govt to sell off any business it owns.
2. Shred all laws preventing entry into the marketplace, be it banking, telecoms, or power generation.
3. Introduce a flat tax rate of 18%.

Do that and the economy will take off and you will have all the Internet you need at low prices.

Unfortunately Rod's proposals are subsidies.. All subsidies are socialist in their foundation. Subsidizing consumer Internet to drop traffic to $5 a month at the tax payers expense is not part of the solution, it is merely compounding the problem.

But you kind of expect that thinking from Rod because he has already had his snout in the public trough with major govt subsidies for Xero, which has yet to make a profit because Rod is intent on inflating the value of Xero until it gets sold off making him rich. And since it will probably be sold off shore where will the benefit be to NZ? For his benefit I hope he does well, and I hope he returns the subsidy several fold.

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Sadly Alan, private enterprise and private investment has failed New Zealand telco users time and again. That's why this investment (and I would argue a new submarine cable) are the kinds of investments government should make, rather than leaving us at the mercy of companies determined to make a buck for their offshore shareholders.

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It doesn't matter how good the idea is. It is still a subsidy and it is taxpayers money. Govt should not be in business and should not be taking money from taxpayers to prop up a business, give incentives to business or provide cheaper services to business or the consumer.

It should simply get out of the way of business, and remove the barriers to competition.

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Come off it, Paul. State ownership of both the airwaves and the phone network was both an economic and service disaster. The failures to properly remove barriers to entry during privatization have certainly caused a lot of problems but they are an order of magnitude less than the old ones.

All companies should be determined to make a buck for their shareholders - overseas or otherwise. That was a silly comment. The trick is to make sure enough companies are able to compete to do so in the best possible ways.

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It is hard to argue that private enterprise has failed in the NZ telco market since every successive govt. gets more and more involved, discouraging any planning or investment ... ever since Labour announced in 2002 they were "investigating the telco market" then it has been under govt. enthrall and in a downward spiral iterating between more dysfunctionality leading to more govt. intervention.

See, it is not enough for govt. to stay out of the market they have to not even think about getting involved, or else it will immediately chill all activity in the space because they have the monopoly power over law. And with the power of law comes the power to send a budding entrepreneur bankrupt overnight ... by the mere mention of getting involved in what he imagined was a free market.

Sadly, the NZ govt. has failed the telco market by their increasingly interventionist tendencies. Yes, we know NZ needs newer and better telco to compete ... but his is not the best way. It is a way but a slow stodgy bad way to go about it.

Do you really believe having smart, impatient, keen techie guys having to go begging to Amy Adams for permissions to do things in the telco space is the way to get networks built? C'mon that's stupidity.

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Sadly, the facts don't quite back up your story. Investment in the telco space has increased hugely since the market was regulated in 2006. We've seen both Vodafone and Telecom pour billions into mobile networks, Telecom pour more money into its cabinetisation programme, 2Degrees enter the market and actual competition break out... that's before we get to the RBI or UFB programmes.

Regulation and government interest has stimulated the market and customers are better off or it.

Where it goes pear shaped is when a government decides to derail the regulatory process in favour of one company. It failed with National's protectionist approach to Telecom in the 1990s and we seem likely to repeat history with a move to protect Chorus today.

The regulatory regime set up in 2006 is working well. Instead of spending years fighting through the courts to get a decision on anti-competitive action, we've seen at least two cases raised by the industry, addressed by the Commissioner and dealt with in less than two years. It works - we should stop meddling in it.

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I guess you can spin the "facts" anyway you like. The boom in telco spending after 2006 was due to two factors ... the pent-up spending that got put on hold when Labour intervened in 2002 was released after waiting 4 years for politicians to diddle with things they had no clue about ... and, secondly, telco spending was going up rapidly anyway because, if you hadn't notice, we are in the midst of an IT (internet) boom. Sorry, nothing to do with lovely govt regulatory miracle cures. In fact, the opposite.

Hoorah, we now have the same two inucmbents dominant players we had 10 years ago, except they get to spend great wads of taxpayer dollars as they see fit "for our benefit". I guess you haven't been stuck on hold waiting for customer service for rural broadband at either Vodafone or Telecom recently?

The regulatory regime maybe working well, for you and your cronies on the inside ... the rest of us are getting service that frankly just sucks.

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In answer to your questions
1. Telco's are in the way for this to happen
2. Only possible if there is demand and since their is nothing to encourage people to take up ufb cant see it happening.
3. Can already access these services thru a VPN network
5. Isnt Dotcom already doing this

The other points look interesting could tie in govt depts doing all there services thru local enterprises also like the idea off turning nz into a big data farm for the worlds data storage but i guess then you need a cable to support this.

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Was expecting an article about technology but it's about IT.

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Have a guess what the 'T' in IT stands for Chica.

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Excellent make a start and get on and do it.Some of the ideas above may work others won't but the biggest crime will be not doing anything.
The failure to impliment the original Pacific fibre cable was a travesty.Can only assume the party's involved didn't want it enough or didn't have the talent to pull it off.A competent working party and CEO needs to be employed to accomplish this task.

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These all sound like reasonable ideas Rod, but why is it always rich listers like yourselves that look to the Government to fund the the type of initiatives you have suggetsed? Surely if you believe in what you are suggesting, shouldn't you invest your own money and reap the 10% returns? In other words, put your money where your mouth is.
The Government has no real place getting involved in what you have suggested. I believe the government can provide certain tools for certain projects, but really the government should focus on its core business of running the country, not playing entrepeneur with tax payer money.

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Surely the Government should look at investing in Electronic infrastructure as much as they would potentially invest in roads or rail.

Many seem to want them to invest in housing, roads, rail etc. Many want them to keep their investment in Power generating infrastructure, and airlines, a bank, Why not Electronic infrastructure. This would provide a new arm of export opportunities to bring in offshore funds and bring in taxes paid by high earning people (who are currently elsewhere in the world).

I see much of what is suggested as a critical investment that the Government should be making to create a successful environment for New Zealanders to success in in the modern very inter connected world.

This is not entrepreneur stuff it is simply pure basic infrastructure that we are horribly constrained by that should be provided in this day and age.

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'The government ' does not invest in roads, it is the taxpayer, and it is funded in large part by road-user charges, not general taxation (witness the latest hike in petrol tax). Ditto electricity infrastructure (Transpower grid), which is funded by a 'tax' (paid to Transpower) for each megawatt of electricity each residential consumer uses. These 'investments' are low-risk and are occurring because (a) congestion already exists on both networks and (b) there are fairly accurately-predictable increases expected in the near future, which reduce the risk of overbuilding too early and wasting resources that could be spent on more urgent matters - e.g., high-quality teaching in our schools.
The case of fibre is very different:(a) there is heaps of unlit capacity already on the Southern Cross cable and (b) future demand for capacity is far from clear as more and more internet data is actually static video and audio files rather than truly interactive data, so is much more amenable to local storage (e.g., movies stored by the distributors on servers at each Internet exchange, and in the case of NZ, caching by ISPs of popular content to avoid international capacity charges).

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The value in these comments is that they put forward some new ideas,sadly lacking in the budget.
liberte

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These ideas call for front-foot action,has the present goverment the ability and the desire to investigate them?
WG

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Some good ideas. Of course, the Budget doesn't decrease NZ's debt, however, it dramatically increases it. The NZ Govt might be moving towards a surplus, but the country's deficit with the rest of the world increases from $10 billion a year in 2013 to $17 billion a year under the Nat's economic plan, and NZ's net debt increases to $208 billion in 2017.

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But Russel, surely the Government can always just print more $?

And what should we sell or avoid spending on to reduce our external debt?

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I think some great ideas here - I have always been supportive of the asset sales programme as the wording implied. I.e. to Sell off some parts of assets and use the money to diversify our asset portfolio.

My difference is that I mean what I term business assets not social welfare assets such as education and hospitals - these should be paid for by the community i.e. tax.

I am currently working in London (visiting my grandchildren for a couple of years). I am a Data Integration Architect. I am contracted to IBM and am working from my home in Teddington in a project based in Sweden. I have a 100 Mb connection and I dial into the IBM network from home to do my work. I have also done the same from my home on Waiheke island though had to play some tricks to get around the bandwidth problems.

Another time I set up an onshore offshore development team for Telstra in Australia using an onshore team of 8 to facilitate 3 offshore teams of up to 20 people in India.

There are huge opportunities for NZ and just like us wanting road or rail infrastructure in today's world, we need electronic infrastructure.

Further we can use the internal fibre network that is being rolled out to build distributed work centres, North South East West of Auckland and centres such as our main cities in NZ to reduce the need for daily commuting for Knowledge workers - reducing the amounts we need to spend on rail and road networks and solving some of our housing issues which are mostly for people moving to a central place to work.

This is not just business this is about the government facilitating the basic infrastructure for kiwis to be successful in this modern world where we are facing such massive technological change within a generation. I started programming on punch cards and before the IBM PC' was building remote flood forecasting systems on a computer that had 56 k memory no hard disk and I had to write in overlays to swap both data and code on an off a 8 inch floppy disk - this was back in 1985 not so long ago.

Good ideas.

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Great ideas, Rod, thanks for speaking out (and congrats on scooping the trophies at the HTA!!)
I am a free market guy as much as anyone but every now and again you come across a situation where some kind of Govt. intervention or assistance makes sense, and I believe that a trans Pacific fiber optic cable is one of those situations, because it does offer the potential of paradigm shifting capability for NZ in a rapidly changing world.
Bankers and investors like established revenue streams and as much certainty as they can get, which is fair enough, but exactly how people and businesses would use huge amounts of bandwidth that such a cable would provide is uncertain. But it would open up so many opportunities for NZ, some that we can envisage, but many, many more that we can't even imagine, but that is too much uncertainty for NZ bankers and investors. NZ has a growing number of investors that can take a punt of $1m or $5m or $10m, but not $400m or $500m, which is why it is a bit much for the private sector.

Here is a link to a HuffPo article about the impact of Google fiber in Kansas City where Google Fiber's mega bandwidth is turbo charging the tech start up scene.
http://huff.to/188q7Ih

Imagine what could happen in NZ with our growing tech scene, serious bandwidth at low cost would most likely have a huge impact. Hopefully the famously pragmatic Mr John Key will spring some of the emerging surplus for this undertaking. It is a small amount of money relative to the possible upside.

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Sounds like bull to me. We are already "connected" with the world. A few minutes or seconds time delay will not affect my business overseas or others I suspect.
The constraint traders face is the time and cost to get real goods from one place to another. Trade in real goods between countries is still the catalyst for jobs and growth.

Technology (ideas) change, get copied, sold off, domiciled elsewhere, unlike a leg of lamb, milk powder or a timber log grown in NZ..

Further, how would the proposal reduce debt and meaningfully enhance the NZ inwards cash position?

We need proposals that lower government and non productive private debt, not increase it.

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Rod, stick to B2B. Govt messing around like these initiatives would have huge ramifications. Take the first. If govt provides fiber what will existing suppliers do? That's right, compete. What will happen to the price? Who will pay the shortfall to fund the people at home watching movies?

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Number 10: ...A further $25 million fund is made available for registered teachers to apply to create digital education courses. Any proceeds from sales of the courseware to be directed back to the fund...

Don't sell the courseware, make it part of the remit to publish all of the courseware under a Creative Commons CC-By license so others can use it freely. This way we can reduce the cost of education by spending less time on course generation (via more sharing), less money on text books and have higher quality content as it gets improved over time.

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What about tax incentived technology/commerce development zones or corridoors (eg towards Hamilton or in Manganui, Napier or Manawatu) OUTSIDE OF AUCKLAND to encourage job growth and movement of people OUT of Auckland to cheaper housing areas? This would decrease house prices in Auckalnd too.

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