Hot Topic NBR Focus: GMO
Hot Topic NBR Focus: GMO
4 mins to read

Could the TPP become Key’s most embarrassing moment?

Government has moved from saying Pharmac wouldn't be compromised to saying it will but the taxpayer will fund the damage.

Thu, 30 Jul 2015

See also:  TPP and drugs: Douglas Pharmaceuticals lawyer sees fishhooks beyond patents

On Tuesday our Prime Minister admitted that the Trans Pacific Partnership (TPP) would raise the cost of medicines purchased through Pharmac.

The government has moved from saying Pharmac wouldn’t be compromised to saying it will but the taxpayer will fund the damage.

Mr Key is also asserting the trade benefits will make it all worthwhile – at the same time Tim Groser is saying that New Zealand has yet to secure any additional access for our agricultural exports. One of them is blowing smoke

Drug Money
Key has confirmed what many suspected all along – the price of any TPP deal would include longer and stronger patents around many of the drugs we use. This is the price of negotiating with the United States where the pharmaceutical lobby has a strong hold.

The PM has shifted to saying the TPP won’t impact on the money we hand over the counter at the pharmacy (the co-payment) but admits we may need to spend more of our taxes on drugs. His somersault could still mean a number of things:

  1. Pharmac faces higher drug costs with the same budget, so fewer drugs get subsidised. Ultimately this means that fewer Kiwis get treated with the money, so ultimately the ones that ‘miss out’ are the ones that are paying.
  2. Pharmac gets more money to fund the higher costs from elsewhere in government, possibly from the health budget. Again, someone loses out but it is less clear who that is.
  3. Pharmac gets new money. This would come through higher tax revenue, which might (if we are lucky) result from the extra trade we get through the TPP. This would be a true win/win.

Don’t worry – Government can pay
Let’s assume the last point is what the PM has in mind – the TPP generates more trade, which means farmers earn more, which means more tax gets paid. There are a number of assumptions that this rests on. Firstly, that the extra trade will materialise. We have no idea if this is the case, and listening to Mr Groser in the weekend there’s very good reason to doubt that – more on this below.

Secondly, will more trade result in increased tax revenue? That is not as simple as it sounds. Fonterra doesn’t pay much tax. For farmers the whole dairy industry is designed around chasing tax-free capital gain. Sure the industries that supply farmers pay tax, but will that be enough?

There is a need for some serious modelling on both the costs of the TPP to Pharmac and the likely trade and tax benefits to the country. The modelling needs to be arms length and independent to avoid a repeat of the farce that occurred with the recent climate change consultation – even the Cabinet paper acknowledged the numbers released publicly were wrong. These numbers are needed before any deal is signed, otherwise the public don’t know what they are signing up to.

The public also has to consider other potential downsides of the deal – such as the Investor State Dispute procedure. As we have discussed before, no trade deal is worth giving up our sovereignty for.

Will extra trade materialize?
The billion dollar question is whether the extra trade that is promised will even materialise. Murmurs coming out of negotiations suggest that the Japanese, Canadians and Americans are not budging on the key issue that matters to us – access for our agricultural products. These markets have traditionally been tough nuts to crack, particularly Japan which has had very high tariffs on food.

So why we are even bothering with this process – to be discussing such fundamental issues for our economy at the eleventh hour? It raises the question whether our interest in the TPP is really just part of a desire to be part of a club regardless or whether we actually win anything from this round. We’ve talked before about the geopolitical clash that TPP actually represents and New Zealand is trying to stay in the good books of both China and the US. If that’s all we are to get from this TPP affair, then the government’s acceptance of an agreement that Mr Groser has procured nothing from, could well be National’s most embarrassing moment. That’s how threatened New Zealanders feel by the ISDS aspects of this deal.

Gareth Morgan is a New Zealand economist and commentator who in previous lives has been business as an investment manager. He is also a motor cycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment. This post first appeared on Gareth's World.

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Could the TPP become Key’s most embarrassing moment?