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EDITOR'S INSIGHT: Business throws down gauntlet in Green/Labour power play

The unprecedented move of the 10 leading business and employer groups to demand the withdrawal of the Green/Labour power plan proposal will determine how far political parties are prepared to go in changing the country’s economic direction.

The groups represent virtually all the large and medium employers in the private sector as well as the largest power users. Only John Walley’s Christchurch-based manufacturers’ and exporters’ group is missing.

The open letter to leaders Russel Norman and David Shearer says the policy of restoring subsidies and greater state control of the electricity market is “damaging” to the country and has had a “chilling effect” on investment across the entire economy.

It quotes one estimate that $1.4 billion will be wiped from the value of private power companies and the same amount from taxpayer-owned ones.

“Capital destruction on such a scale will severely undermine business confidence,” the letter says.

“Such policies have been tried in the past and have been shown to be incapable of meeting the challenges of a modern economy with a complex, real-time electricity market.

“Putting aside the sheer complexity of their implementation, policies that protect businesses from the full costs of the inputs they use ultimately dull the incentive to innovate and make them less, not more internationally competitive.

“Reducing retail prices below the full marginal cost of production encourages households to use more than they should.”

In a warning that should be heeded by workers as much as employers, it goes on: “[The policy] sends signals to investors, on whom the New Zealand economy relies, that their wealth and the benefits it provides are not welcome. Investment plans and job creation opportunities are foregone.

“Rather than remote and intangible, this dampening of investment intentions will have a direct and real economic impact on those of all walks of life who seek to accumulate wealth by working hard to save, invest and grow.”

The response of both parties will be instructive, with the entire business community – and those who depend on it – blatantly demanding why a potential government  would want New Zealanders to be worse off with such a policy.

“It [will cause] interest rates to rise, depletes retirement savings held in KiwiSaver accounts and means that other economic opportunities such as first homes are foregone and new business ventures as savings are unexpectedly reduced.”

The letter ends with an offer from the groups – headed by Business New Zealand – to work with Green/Labour to increase “public understanding of the operation of the electricity market and in ensuring consumers, both small and large, have better choice from one of the increasingly competitive electricity markets in the world”.

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Comments and questions
56

Greens won't have much of an issue with this but Labour should be careful as it still needs to gain the centre-left vote.

I would invite every employer that closes its door and relocates to another jurisdiction to express in public the reason, particularly, if it relates to such policy. Then the Greens will take notice. Captial will go overseas but the unemployed workforce will remain and will not be left wondering why.

They must be seriously concerned at Labour/Greens winning next years election. And I think we will see a change of government next year.

Mate, ya dreamin!

Latest poll results:
Labour was on 31.5% in the latest poll, down from 35.5%, and the Greens were on 11%, down from 13.5%.
Seems even Labour and watermelon supporters see the folly in the latest Looney Left idea. What a monumental stuff-up by the looneys.

Good try.
But!
You can lead a donkey to the truth, but you are never going to make it think.
You are wasting your time. Sorry 'bout that!

So, does that mean they should not have sent the letter? It's about time more people spoke out.

Business people, in particular, have been too busy trying to make money to get involved in political issues. They need to change their ways, and use their voice. If not you will let politicians like Russel Norman walk or over you and dig their sticky fingers deeper and deeper into your bank account. If you let that happen you may as well start planning your relocation overseas because there will be no future for you here.

More concerned about their short-term money making schemes.

Yep? I said it, "was a good try" and yes, they should lay their concerns on the table for all to see.
But please do not insult your readers intelligence by implying that it may result in the edification of Messrs Shearer and/or Norman.
As I said, "You can lead ............................."

Good to see more constructive criticism of this medieval policy surfacing. Simon Botherway's contribution was also very considered and valuable.

Notably most of the policy's supporters attack the messenger, in lieu of defending the indefensible.

What rubbish - NBR's comments for most stories are full of personal and emotive attacks on anyone who tries to offer a non-right wing view.

This issue in particular has seen some of the most divisive scaremongering tactics in recent times, led by the government who are trying to position Labour as extreme left wing. Talk of communists and Stalinists belittles the intelligence of New Zealanders.

And before people come back referring me to analysts' positions, there have been so many different analyst positions that the whole issue is further muddied, regardless of some of the vested interests of the analysts.

Until we can discuss and debate issues properly, we will have an uninformed public voting accordingly, instead of maybe accepting concerns and finding a way to deal with them.

Pretty much proving my point. Anything to say about the issues raised in the letter? Didn't think so.

Yes, I do have a lot of further questions about the issues raised in the letter because their position is not matched by some leaders in business and by some analysts who don't have vested interest.
Plus, I think the organisations have set themselves up for problems in their relationship with a Labour/Green government (which will inevitably happen at some stage). They chose to attack before making any contact - not a way to be an effective lobby group and certainly no way to achieve changes in policy.

Good. Now let's see them issue another letter with regards to the similarly damaging Emissions Trading Scheme.

L&G have cast their die and have now made the bed they will need to sleep in.

Trouble is, it’s not a soft, fluffy, cosy bed – it’s a cactus bed full of prickles and pricks … and no matter how much they intend on giving anyone who will sleep with them, most of us who can tie our own shoelaces wouldn’t want the blatant bribe to sleep with the prickles! The waft of tainted political bribes never makes a good bed partner when trying to screw over the entire country!

Shearer and Norman trying to “sell this to NZ” will be kinda like a hybrid mix of Faulty Towers meets Yes Minister and The Office.

They’ve done an exceptional self-hoisting petard job on themselves with this one and now they’re going to have to uphold this “policy” while trying to appear credible enough to run for government.

Pass the popcorn and bring on the leaders' debate!

The more extreme you people get in your arguments, the more you will drive the public towards Labour and the Greens. Your scaremongering and emotional name calling will achieve the opposite of what you wish.

Or maybe this ill-thought out policy is as bad for NZ as they warnings say. Just the fact that the Greens (and Labour) can so quickly brush off any feedback from industry leaders does not fill me with any confidence that they know-how to work constructively with anybody, and we will see a fully-blown command economy in 2015 which will stretch well beyond power.

But there is no unanimous view of things despite what it may look like. Non-vested interest analysts don't support these organisations' views. Read what the CEO of Vector said. Even the CEO of Mighty River Power has it at a very low priority of concern

Bring on the elction vote!

Labour/redGreens have already decided to sacrifice national interest for their own interest. These kinds of initiatives have to be aimed at the electorate, not at these self-serving politicians.

Alan - your perception of national interest is simply different to theirs. But are you really arguing that they are the only self-serving participants in this debate?

Capital gains tax, higher income tax (relative to Australia); new property taxes; higher ACC fees again; and restrictions on foreign investment are amongst the policy options that would appeal to Labour and the Greens - alongside higher public expenditure.
True, we shouldn't attack the messenger. However, is difficult not to get frustrated hearing Russel Norman spout opinons to an all too-willing media, a man who having left Australia in 1997 where he was a member of the Socialist Party and who has never run or managed a real business. Little wonder that Mr Norman would like to print more money, the sort of thinking that characterised Social Credit many years ago.

Not forgetting the Australian Labor Party found out too late, being in partnership with the so called green party and their loopy ideas,has probably cost them the election Labor uncoupled from that looney tunes party a few months ago. Too little too late.

Does the opposition to subsidies of these business and employer groups also extend to the enormous subsidy given to Rio Tinto for the electricy supplied to their smelter at Bluff? Following this approach,they should also be paying a 'market-driven' price for electricity - whatever that is.

A subsidy driven by the same Labour / Green (in guise of alliance) parties.

The price set by NZ Power will not be market-based, but will be set by political fiat. Make sure you donate to the "party" and I am sure we can arrange a phone call from the ministers office to "help" your company out. Better still, become a "party" member and that will help even more.

And there is transparency around the pricing of power at present? Yeah, right! I don't support the Labour/Greens position at all, but there seems to be collective amnesia among most of the writers here about the present government's huge subsidy that enables cheap power to be supplied to the Bluff smelter. This point is conveniently forgotten by all of you pure free-marketers out there.

Isn't there legacy supply contracts dating back to Tiwai Pt's formation that required X amount of power to be constantly delivered at X price so the then owners would invest the millions required to build the shelter - that would then employ the thousands it did?

The "legacy power contracts" mean power supplied well below the cost of production, which means a subsidy. The numbers employed at any one time have never reached 1000.

Hmm. Some of these big boys must really be worried about taking a personal hit in their over-inflated pockets! Of course, it's not really unprecedented - they talked themselves into a similar self-centered panic when the incoming 1999 Labour/Alliance government announced plans to repeal the employment contracts act. And I doubt that there's any more justification for the panic now than there was then.

The employment contracts act has since been amended to include the 90-day trial. That has certainly allowed employers like us to take a chance and employ people who would not have otherwise have been given the opportunity.

All it does is allow you to be lazy in your recruitment.

Well, Helen Clark obviously didn't agree with you since she put her Government into a sharp reversal of direction in 2001. But that will be nothing compared with the backlash these morons will suffer if they actually implement their nonsense.

A backlash from extreme right wing morons is not of concern. Move to Singapore...

Reminds me of The Sun's famous heading in the British parliamentary elections of the early 1990s.
"If Labour wins tomorrow, will the last person left please turn the lights out."
Oh yeah, the Tories stormed back into power two days later.
Now, if we can just get rid of the commie reds in the mainstream media (not you fellas at NBR, of course) we can all get back to business.

Yeah, let's bring back the camps, too ,for anyone who won't toe the new right line. You guys are so out of touch with reality now it's laughable. This is a shift back to the centre left, instead of being out on Roger Douglas's new fascist right that brooks no dissent.

... has lost confidence in leading businesses?

Consumers.

The following appeared in 'The Australian', May 2, 2013:

"Origin, which fronted the Macquarie jamboree yesterday, noted a Finnish energy think tank study, which found Victoria was the world's most competitive energy market with annual churn of 27 per cent.

"NZ was ranked second, followed by SA, Ireland, Qld, Britain, Texas, Belgium, the Netherlands and NSW.

"The Lithuanians, by the way, have almost zero churn, presumably a throwback to the Soviet-era 'get what you're given' mentality."

Perhaps Labour/Greens could respond?

And Victoria's energy market is regulated - with a conservative government limiting participants to ensure the most effective competition, with retailers and distributors having different overlapping territories, and with energy companies having to submit their financials to the Department of Treasury and Finance every year on a confidential basis to ensure there is no price gouging.

Oh to have the same for businesses and residential consumers here.

The average NZ family can't afford to pay the power bill as it stands.

And currently we have far more power being generated than we actually need. But prices are sky rocketing. So the supply and demand economics are completely flawed.

Then you're saying that the average family who can't afford to pay these inflated prices should have to pay more than they can afford, to teach them not to use too much power - even though we have an oversupply!

And on top of this you're saying that they should be greatful to have a job at all and the only reason they have a job is because power companies
have a real time electricity market.

This all smacks of BS. You want to maintain control of a money tap that helps you get rich while the average family get poor.

Get stuffed you greedy, moaning right-wing lunatics. It's a house of cards, start thinking sustainably or get lost. You won't be missed.

I've been trying to find out for a few days now --will the promised electricity price drop take place before or after the ETS increase?

I do not think it matters now if Labour and Greens; retract, do nothing, push ahead and implement (assuming they win in 14), push ahead and fail to implement. The investors who are a far bigger group than just NZ citizens will have already made up their mind that the political risk imposed by the centre left is significant.

The Labour and Green parties have effectively said, "if we do not like your industry, we are prepared to nationalize it". And what is even more distasteful is they are prepared to inflict capital losses on Kiwisaver funds, Private Super schemes, ACC investments, Cullen Fund, the list goes on and on, they are in some ways doing a Cyprus on the population of NZ.

I thought you and your friends were so confident you were right in your rants against Labour and the Greens that there couldn't be any possibility of Labour being elected with the Greens as a minority partner.
Does this mean you (and business investors) think that the public don't agree with you, that there might be very genuine concern about continuing high electricity prices (even under the Nats), and that you are ignoring their concerns and coming up with no alternative options to address them?

Competitive does not equate to fair.

Churn does not equate to low prices.

Supply far exceeds demand, so the price shouldn't continue to inflate.

Good to see some of these greedy bludgers squirm at the imminent change of government next year.

Let's see what you have to say after the next poll results and then after the election.....
"imminent change of government"? Reads like a Tui ad to me.

And so, how does your prediction of "the imminent change of government" look now, oh wise one?

This is the most unbalanced post I have read on NBR for a long time. You are obviously a troll or an employee of a company that subscribes to NBR, and which let's you use their subscription (I pay my own). Your comments show no understanding of how the retail price of power is actually influenced. Since you have access to NBR, I suggest you read the informative description of the electricity market by the CEO of the Electricity Authority in the last two days. You might actually learn something - like the impact on power prices of the long overdue investment in the national grid now taking place after years of Labour neglect while they ripped the biggest dividends they could out of the government owned SOE generators ans squandered it on socialist spending sprees.

This the most unbalanced post I have read on NBR for a long time. I know you are an intelligent man so why not acknowledge that there are some serious policy options to investigate and debate? Are you prepared to equally denigrate people like the CEO of Vector?

If these groups aren't grandstanding and seriously want to influence, why haven't they been in touch with either Labour of the Greens yet?

Oops. Trustpower and Contact shares rose on the sharemarket today.....

Hey , does the consumer have any say in this debate?

I know that a lot of us would be happy about a price cut in our power bills.

I know that I would use that saving to spend in some other area of the NZ economy, so what are the businesses complaining about?

I'm a business guy. Own a SME. Used to work in large multinational corporates. Believe in real competitive markets for most things. But NZ has few, if any competitive markets. Electricity "market" is not competitive. It's an oligopoly - a cosy club of suppliers.

I tire of paying a price for electricity that is 4 or 5 times the price my competitors pay in British Columbia. BC electricity is supplied by a regulated monopoly. BC Hydro earns a reasonable return on its equity and there's no shortage of generation. Go figure.

I also tire of business lobby groups in NZ that cannot analyze an industry or a situation without blind ideology. None of these lobbyists represent my business.

Yes I know the answer. I should relocate my business to a country which has a more sophisticated approach to input industries like electricity. And where the business lobbyists have at least a little grey matter.

BC is a state-owned monopoly and also has the lowest power prices in Canada, I think, so not the perfect comparison. Are you sure they are earning a fair rate of return and that taxpayers aren't subsidising? I don't know the answer. They also have the ability to import power from other states if needed or export if they have surplus. This has significant benefits for load balancing.

Also remember that generation is only 20% of your power bill so this plan will have minimal effect.

What is a shame we don't seem more of is industry groups organising group purchasing for their members. I think I read Grey Power was looking into this. NZICA has good discounts with the banks/insurance, etc, so why don't they have good discounts with one of the power companies. Likewise, the retail association or the hotel association, etc.

The Labour Party, at least, in their heart of hearts realise that this is a loopy policy, which is why Grant Robertson has stated that they have no intention of intervening in other markets.

They launched this policy in the middle of the MRP share float merely to sabotage it. By reducing the amount the government will raise from the float, they have stabbed the people of New Zealand in the back. Treasonous, really.

I am a business person running five retail stores and two export companies. I do not belong to business groups in general as they are most often mindless barking dogs for right-wing ideology.
If we do not have a balanced economy- ie, an economy that takes care of all of its citizens - then we do not have a community at all.
The current managers of our economy are throwing buckets of money at the well-off while begrudging the less well off even basic essentials to live - power. We never asked for our assets to be sold off to those who have the money to buy.
Shame on those who sell our assets and do not create wealth themselves.
Bravo to Greens and Labour for taking care of those who are not able to afford the huge margins charged by and made up by the power industry.

Hi everyone.

Ok, here's how it goes for me.

I'm voting Green/Labour in 2014. Why? Because they're offering me cheaper power. I'm in for that.

Just as I was in for tax cuts, so voted National in 2008. I know Cullen said tax cuts were unaffordable and National would have to borrow for them.

Tough. Not my problem.

And I voted for Labour in 2005, for cheaper student loans. Was that policy a 'bribe' to voters? Who cares? I took it. I'd be a fool not to.

Also voted Nats in 1996, ditto for tax cuts.

If there one thing I learned in the 1980s, courtesy of Douglas, Thatcher, and Reagan is that the only thing that counts is me and my family. Society doesn't exist, only the individual.

You guys want me to vote against cheaper electricity in 2014? Why?

Explain to me why I should vote against my self interests?

For the greater good of society? Screw that.

For the share market? Get real!! Why should I vote to put money into someone else's pockets???

For a profitable energy market? You're not listening! I don't care about companies being profitable or not. That's not my concern. I want the cheapest goods and services, end of story.

So if Labour/Greens want to give me cheaper power, they get my vote. Whether that's good for the economy isn't my concern. Just as it wasn't my problem that the tax cuts in 2009 and 2010 were unaffordable. NOT. MY. PROBLEM.

In 2017, if the Nats offer more tax cuts, whether we can afford them or not, I'll vote for them. And in 2020 (if I'm still around) and Labour wants to offer me something, I'll vote for them.

That's the marketplace fellas. The politicians bid for our votes and we take the best on offer.

Get used to it. Otherwise you're totally missing the point of the new order.