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”.