Hawke's Bay Airport

The announcement suggesting the Hawke's Bay Airport upgrade was about to start, looked positive but was really more of a public relations exercise and photo opportunity.

Many people have been fooled into believing competition is arriving and they can expect lower airfares. In fact this is highly unlikely because those involved have decided to build a runway that is just 150 metres too short to be sure we get the services we really need.

Just why the runway is to be extended to 1750 metres instead of 1900 metres defies logic. Almost certainly it is guaranteed to fail.

Three of those claiming credit are the very individuals who have held the project up for the past 6 years. The Mayors of Hastings and Napier, and Airport Chairman John Palairet failed to act as they should have after being warned of serious shortcomings in the 2004 Pricewaterhouse report on the airport.

Instead they dithered inflicting tens of millions, perhaps even hundreds of millions of dollars of economic damage on the Hawkes Bay economy.

This is now showing up in depressed visitor statistics, subdued business activity and reduced spending power in our community as millions of dollars are unscrupulously syphoned out by excessively high air fares. The drop in visitor numbers is conservatively estimated to be costing the region at least $10 million a year.

We have lost many important employers over recent years and those remaining complain of both the high pricing and the inflexibility of Air New Zealand services.

Transport is essential to our economy. Air Transport essential for it to function efficiently. Some 400 000 people a year use air travel because of convenience, urgency, safety and practicability The fact numbers are down about 10% on 2 years ago delivers a clear measure on the true state of the Hawke's Bay economy.

No other airport in New Zealand attempts to operate jets from 1750 metres. While very limited services will be possible the slightly lengthened runway will impose restrictions that will make scheduled jet services less likely.

Those who loosely claim competition is just around the corner might like to explain just which aircraft will be able to operate commercially from the new runway.

One thing is clear the $5.5 million extension will not enable trans-Tasman services, ever.

While Airbus A320 jets as flown by Air New Zealand will have some capability to provide domestic flights, the airline has made clear their opposition to flying jets into Hawkes Bay. In the past they have gone so far as to threaten legal action to prevent development charges being imposed to finance a runway extension

Jetstar also operate Airbus A320 aircraft but look unlikely to fly here. So far they offer services only to the three main centres plus Queenstown. Since they have not opted to service smaller centres its hard to imagine why might they come to Hawke's Bay?

The third domestic carrier is Pacific Blue, who fly Boeing 737– 800 aircraft to the three main centres, Queenstown, Dunedin and Hamilton. They seem more likely to be interested in adding Hawke's Bay to their network. So, has Pacific Blue stated the runway will be of sufficient length for commercial operations?

At best we might see the occasional Air New Zealand charter or non scheduled flight in support of events such as the Rugby World Cup, but achieve little improvement in the outrageous pricing that is doing so much damage to Hawke's Bay.

It seems strange that both Mayors have been quite willing to sink more than 100 million dollars into conference venues, sports facilities and various attractions, all of which have been justified on the basis of attracting visitors, yet they have been so tardy in making Hawkes Bay more accessible.

The $7 million of ratepayers money poured into the Regional Tourism Organisation Venture Hawke's Bay might have been more usefully employed upgrading the runway.

We are the most inaccessible large population centre in the country, and the largest urban centre in the country not to have any sort of jet services.

We have allowed a barrier to be created that simply dissuades people from coming here, is a disincentive to new businesses being established, and allows monopoly pricing and services. We would not accept such an arrangement in telecommunications, energy, or for most other products and services, so why are we so apathetic when it comes to air services?

While the new runway will be inadequate it is better than nothing but on the basis of $5.5 million to build 450 metres another $1.8 million would build a 1900 metre runway.

Significantly this far less than the amount the board have always claimed.

Extending the runway is a one off cost. The worst that could happen is air services do not improve.

Compare this with the millions lost annually by other council operations such as the museum, Aquarium, Splash Planet, and the Opera House. Splash Planet alone has cost ratepayers $10 million in accumulated losses.

Higher patronage would help all these ventures and getting more visitors here will go along way towards increasing numbers.

A 1900 metre runway would allow both B737 and A320 aircraft to operate both domestically and to Australian East Coast capitals without restricting passengers. Airport profitability and cash reserves, mean the work can be done at no cost to ratepayers.

To most people it's a no brainer.

Elections Issues

The Mayors of Napier and Hastings have both signaled their intention to stand for fourth terms in this years local Government elections. Hardly a surprise since neither could earn near as much as they now do, doing anything else.

Its a winner takes all proposition. For the incumbents loosing means loosing everything. The $100 000 salary, the council supplied motor vehicle, expense accounts, and prestige.

The Mayor of Hastings appears especially concerned. He has already publicly identified me as a serious challenger, perhaps with some justification as 3 years ago I came within 4000 votes of winning, when totally unknown, and campaigning on a single issue.

I am now better known and recent favorable media publicity over the airport issue has been helpful.

It seems he has engaged the services of a Wellington Based polling company who are asking whether respondents think the Mayor is doing a good job, who did they vote for last time, plus what do they think are the major issues. Surely questions the Mayor should have been asking a long time ago but instead he has chosen to ignore opinion that was not aligned with his own.

My guess is the Regional Sports Park could become his achillies heel, as he ignored the protests of significant sections of the community, firstly over the sale of Nelson Park, then dismissed criticism over the location of the new facility.

Funding for the Sports Park appears to be in disarray. Donors are not queuing up to provide support and the council is hiding the extent of the shortfall. Kelt Capital were paid around $300 000 in the first year with little or no return. A new fund raiser has now been appointed. At a guess some half a million dollars has already been paid out, just trying to get money in.

It seems the $17.5 million realised from the sale of Nelson Park is all spent. The circus involving Higgins Construction being given $1.9 million of council roading contracts in return for a half million dollar donation towards the park, is not a good look.

While Unison and the Regional Council have chipped in $3.5 million towards the Vellodrome it must be remembered these are publicly owned institutions so those funds are not exactly donations but more like compulsory charges.

The only real voluntary contribution is the very generous donation from Hastings Pak and Save.

The Mayor of Hastings would like us to forget these difficulties and has decided to make the amalgamation of Napier and Hastings his primary election issue. Chances are it is not paramount in the minds of Hastings electors.

Unfortunately the Mayor of Hastings is not also the Mayor of Napier as well because the present Mayor of Napier seems to have a quite different view of amalgamation stating in the past week that she sees no benefit for Napier, in joining forces. My observation is she is supported my the majority of residents of Art Deco city.

So does the Mayor of Hastings know something none of the rest of us know? Is he in secret talks to have Government force an amalgamation against the will of one of the two parties, as effectively it has done in Auckland? Or is he hoping to include Wairoa and Central Hawke's Bay so the no vote from Napier can be overwhelmed.

Clearly he has ambitions to be the new Mayor of Hawke's Bay Super City. This however is unlikely to ever happen, not because there will be no amalgamation but because he is unlikely to gain the support of Napier voters who believe Hastings is a cot case with out of control debt levels.

Last election he captured 11 000 votes, about 55% of the Hastings total while the Mayor of Napier gained over 15 000 votes or 80% of the vote. If they were competing head on for the same job it is clear the Mayor of Napier has a head start of 4000 votes and would likely win.

Its a year since the Hastings Mayor first nominated amalgamation as the big issue so it seems strange there has been no proposal to have a referendum included in the up coming elections. Or does it simply acknowledge that the result will be similar to 10 years ago when the idea was soundly rejected by the people of Napier. In any case referendum allowing people to vote on the issue would take it completely out of the arena for this years elections.

Clearly having two cities plus a Regional Council is wasteful. Three chief executives, duplicated heads of departments, two Mayors and a Chairman plus a couple of dozen surplus councillors suggest there are significant savings on offer.

There are other opportunities for savings by combining various activities. I have previously identified Emergency Management as one such area. Another glaring opportunity is IT or information technology. All three councils operate their own computer systems with significant hardware costs and many support staff. All three have recently updated their systems at huge costs to ratepayers yet all three have systems that are apparently totally incompatible.

If the Mayor of Hastings wishes to reduce the cost of local government why has he not pushed harder to amalgamate at least some of the most wasteful services.

Its not too late for the issue to be put on the Ballot paper. Doing so might destroy the Mayors campaign plans but it would give the rest of us a clearer picture of where we stand.

Some months ago I commented on Venture Hawke's Bay.

This is the organisation that started out as Hawke's Bay Inc.

It was set up about 5 years ago when the Hastings District Council, Napier City Council, and Hawke's Bay Regional Council all agreed to provide a further $200 000 each a year on top of the $200 000 each then being used to help develop our visitor industry.

The purpose of Hawke's Bay Inc is “to foster regional economic development”

It took nearly a year to find a chief executive who lasted less than a year.

After a significant delay, a second chief was appointed. He too departed right on 12 months.

The third chief Janet Takarangi, formally of trade and Enterprise then got the job. She has now departed as well but this time it has been announced no replacement would be appointed.
During her time in charge the organisation changed it's name from Hawke's Bay Inc to Venture Hawke's Bay and at the same time governance and responsibility for providing funding was taken over by the Regional Council.

Incidentally if you look at your regional council rates demand you can see exactly how much you are paying through the targeted rate.

In spite of the changes the organisation seems unable to function as might be hoped.

For the current year spending is at least $200 000 over budget.

A TV campaign that ran in October also attracted much criticism as did a new web site.

Now I am no expert on Venture Hawke's Bay but I have had some concerns from the outset. As a board member of Hawke's Bay Wine Country Tourism, a voluntary organisation set up to represent businesses involved in the visitor industry I have a little bit of experience in dealing with Venture Hawke's Bay.

I always had reservations with the people involved. To me they have had neither the experience or qualifications necessary to advance our position.

Somehow local political involvement always seems a problem. Hastings Mayor Lawrence Yule clearly perceived a growing crises some months ago and resigned before the proverbial, hit the fan. Involving ratepayers has cost Hastings District Council at least $2 million.

It's now clear that in spite of some $7 million in total being spent, there is not a lot to show for it.

Three chief executives seems rather excessive. As each departed continuity has been lost so each new chief has had to start afresh.

Last time I expressed the opinion former Chairman Ross Bramwell was at least partly responsible but clearly he is not alone as over 12 months has now elapsed since his departure. The problems are apparently much deeper.

There is a need for a concerted effort to lift Hawke's Bay out of the mire, but before we even try to make a start we need to understand and accept our local economy performs near the bottom of all regions.

People are leaving the area faster than replacements are arriving meaning population growth is less than the rate of natural replacement, that is births over deaths.

Our population growth is only one third that of Auckland of Auckland and half of New Zealand overall.

We have high unemployment, low incomes, and poor health.

Our visitors numbers are less than 2 years ago.

Businesses leaving and not being replaced. Finding new businesses, new employees, and new opportunities is long term stuff.

Our economy is dependent on primary industries such as animals, forestry, apples and grapes and this is unlikely to change at least in the short term. While these are solid industries they are unlikely to give us the boost we need.

We must do very much better. Because if we do nothing things will just get worse. The problem is those in charge seem to have little relevant experience.

So how can we possibly move ahead when our political leaders only claim to fame is they have been political leaders. A former car dealer, school librarian, and a farmer are reasonable occupation but do not provide relevant backgrounds when it comes to driving the economy forward.

To my way of thinking they are far too comfortable, too well paid, and are over rated.

We have leaders with agenda's that have more to do with their own embellishment than bettering things for Hawke's Bay overall. Leaders also unwilling to stick their neck out and demand better things from government, but willing to waste huge amounts on projects that satisfy their egos while loading the community with millions of dollars of on going long term costs.

The problem of debt

Over the past few months there has been a growing awareness of the problems caused by debt . Greece was near the point where lenders considered the country could not pay the interest, let alone repay the capital on its huge borrowings.

Government borrowings exceed the total annual output of the economy. Earnings especially from tourism have been hit especially hard.

The size of the debt problem has necessitated a massive trillion dollar bailout by other more financial European countries, plus the IMF.

Greece is not the only problem in Europe. Portugal, Spain, Italy and Ireland are also on credit watch.

The problem is simply, too much borrowing.
Debt is always a burden though normally manageable. Interest must be paid to the lender and eventually the amount borrowed must also be paid back. If there was no debt there would be no mortgagee sales, no bankruptcies, no sovereign debt issues.
With Greece far too much money ended up being wasted on social agenda's. So instead of adding to their productive capacity it simply propped up unsustainable programmes that might have made people feel good in the short term, but did nothing to grow the economy in the longer term.

Companies also get into trouble borrowing too much. Feltex was a classic example of getting it wrong and they went broke because the housing market slowed down in Australia and carpet sales slumped.

Closer to home the Hastings District Council is engaged in a spending binge. It started innocently enough with $6.2 million borrowed to build Splash Planet. This amenity was supposed to be self funding but patrons have failed to reach more than about half the numbers forecast, so losses totalling about $10 million have resulted.

The only way to make up the deficit is for the council to find the money. For council read ratepayers.
If that money had not been lost council would have been $10 million better off and that might have been available for other uses such as to fixing up the footpaths . Or it could have been left in ratepayers pockets.

Four years ago about the time when council debt started taking off some $15 million was spent upgrading the Opera House. While there were some generous contributions from local business ratepayers still contributed close to 10 million dollars.

Operating losses already amount to a further 3 to 4 million dollars.

Now the Hastings District Council is developing the new Sports park in Percival road. The cost seems likely to be $60 – 70 million. Though Nelson Park yielded $17 million after the site was cleared it seems clear work to date has exceeded this so ratepayers are already funding the shortfall.

While there have been some generous contributions from Unison and the Regional Council towards the proposed Vellodrome more than $10 million is still needed.

As Council debt has grown in the same period it is clear the Sports Park is contributing to the problem.

For the record Hastings District Council debt is forecast to grow to over $100 million up from $37 million in 2006. That's nearly triple the Debt in just 4 years and more than total annual council income from rates and fees.

The chances Sports Park will be self funding are near zero.

We are not yet a cot case like Greece though we are on a greasy slope. Its so easy for politicians to justify borrowing to fund pet projects, and so difficult to find the means to repay it when the time comes. Inevitably it is the little people who end up paying for the extravagances.

RSE workers

During late summer and early Autumn Hawke's Bay has an influx of people from Pacific Island nations such as Vanuatu and Samoa who come here to work on our Orchards during the fruit picking season. They are known as RSE workers. RSE stands for Recognised Seasonal Employer.

The scheme was introduced about three years ago as a result of growers having major problems getting the labor needed to get their crops off the trees, during the short window for optimum quality for each variety.

The money they earn helps them to provide better lives for their families back home, where it might well take a year to earn the same as a months wages here. But the benefits are far from one sided.

The contribution these people are making to the Hawke's Bay economy is huge. In the years before the scheme was set up growers might be limited to two picks, then have to abandon perfectly good fruit on the trees because later maturing varieties were ready to pick. Not any more. Every salable last apple can be harvested.

Since the bulk of on orchard costs such as pruning, spraying and rates have already been paid for, the economics of growing apples improves significantly.

The extra output then creates more work for packhouses, transport shipping companies and anyone else involved in the horticultural industry.

Orchardists love them because they are here to work. They aim to take as much money home as they can so there is no unexpected absenteeism following pay day, no turning up late, just committed enthusiastic workers. Some are now returning for their 3rd season creating a growing pool of experienced workers.

Increasingly they are put up in permanent facilities such as budget motels where they are warm and dry, and where meals can be properly organised.

They pay around a $100 a week for accommodation. This income has made a huge difference to many accommodation providers at a time when our visitor industry is not doing all that well. Those providing this accommodation also describe them as top people, law abiding, polite, and a pleasure to have.

Paying for accommodation is just the start. In addition to the food they consume while living here they buy clothing, shoes and a whole range of other products to take back with them. One item that has proved very popular this season is solar cell power systems.

Each worker must be injecting a minimum of $200 a week into the Hawke's Bay economy, a total equal to at least half a million and perhaps as much as one million dollars a week, for 3 to 4 months. This has to be at least a partial explanation retail turnover statistics especially for Hastings have remained strong over the recession.

The gains don't stop with their work and the money they contribute. This money ends up with the families of these workers, without the ticket clipping deductions by officials and bureaucrats that is common with direct Government to Government aid. Help ends up where it is needed.

It is clearly a win - win – win situation. It can't get much better than that.

GST

Though not yet officially announced, this months budget looks likely to include an increase in GST from 12.5 to 15.0%.

It is clear we are being softened up with promises direct rates of income tax will be reduced at the same time.

Personally I feel cynical when I hear these arguments.


The same line was used in 1986 when 10% GST introduced and perhaps there was some truth in the promise because back then the maximum marginal rate introduced by Rob Muldoon was 66%. Lets hope we never get back to such incentive destroying levels, though I think Helen Clarke would have liked to have done so.

We also had to contend with sales taxes which were often around 20% for things like automotive parts and certain appliances. GST certainly removed many anomalies that existed at time. For instance the same item used for automotive uses was taxed but the same item used for something else was not.

The problem is new taxes are simply ratcheted up when ever there is a problem. Within 2 years new Finance Minister David Caygill solved his problems by increasing GST from 10% to 12.5%

In 1999 when Helen Clarke became Prime Minister the maximum marginal rate of personal tax was hiked up to 39%. No balancing reduction in GST of course. It was claimed only a small number of high earners would be affected. Nine years later a substantial number of workers found them selves on the maximum rate.

Now we are being spun the same old argument supporting a rise in GST so direct taxes can be lowered so there is an incentive for people to work, so there is less incentive for tax avoidance and so on.

One new element this time is the argument we need to be competitive with Australia who we are told might reduce direct taxes to 30% the same rate as company taxes. Australia has a maximum marginal rate of nearly 50%, plus capital gains tax so the fears seem unfounded. seems to have been forgotten. We are almost certainly loosing people to out neighbors cause of incomes, and lifestyle not taxes.

Of course the obvious question is: What is to stop some future Clarke/ Cullen type government increasing tax rates to 40% or more again? The only way to stop this happening is for a multi party commitment and that is highly unlikely.

Another argument wheeled out is how much lower our GST is than say Europe where it is around 20% .The Comparisons are always selective of course. In the USA there is no GST, just state sales taxes which are typically around 5% the mark.

In Australia GST is only 10% with exemptions for quite a few items such as non processed foods, medical expenses like doctors visits and the like. If Government is truly concerned about comparisons perhaps we should just match their GST rate.

The PM promises no one will be worse off.
Irrespective of his intentions I think there will be plenty of people who are worst off. Number one on my list is superannuates. National super is based on average wages (currently 66 percent of the net average wage) not costs so even if there is some sort of boost to super this will likely not be permanent unless super levels are set at a higher fraction of wages.

One of the most onerous effects will be the effect on peoples savings. If you have managed to put aside some reserves for major purchases unexpected expenses or retirement then on the day GST is increased the purchasing power of those savings will reduce by 2.5%.

Imagine a young family saving for a brand new house. On the day GST increases a $400 000 house suddenly jumps in price by $10 000. If they have managed to save $100 000 for their deposit then those saving will suddenly decrease in purchasing power by $2500.

It is almost a form of legalised theft.

Only way to ensure no one worse off will be a 2.5% government top up of all private savings. Let see if Prime Minister John Key believes his own rhetoric and makes sure no one is worse off by finding the money to do so.

Government Spending

The allocation of most Government services such as police, hospitals and social welfare is based on population tweaked a little to reflect specific regional differences.

However there are some areas of Government spending where the playing field seems far from level, and where Hawke's Bay seems to miss out rather badly.

The first of these is Government funded institutions.

For instance there are universities in Auckland, Hamilton, Palmerston North, ( Palmerston North also has a teachers training college ) Wellington, Christchurch ( where there are two universities ) and Dunedin. These are hugely beneficial to local economies through the employment of many well paid staff, as well as through general spending.

Local economies are also boosted by student spending, especially those students attracted from other parts of the country or from overseas.

Where there is a university the population is likely to be better educated giving these areas a competitive advantage when trying to attract new businesses. Undoubtedly lack of a university is one reason why we rank poorly for the number of people with tertiary qualifications.

We are the largest major centre in the country without a university. Many of Hawke's Bay's young people must travel outside the area to obtain skills and training. This is a huge drain on theirs, and their families finances, and extracts vital spending out of our own economy.

Military bases are another important boost to some areas, but not Hawke's Bay. Palmerston North is clearly a winner with two. An air base at Ohakea, and a major Army Base at Linton. Auckland also gains with an air force base at Whenuapai, plus the Navel facility at Devonport.

Of course the big winner from Government spending has to be Wellington as the capital city, where not surprisingly incomes are the highest in the country.

Some areas also seem to get a very generous share of Governments spending on one off projects. Te Papa museum in Wellington was built entirely with Government money and a major part of its annual running cost is also met by Government.

Helen Clark generously promised some 190 million dollars to upgrade Eden Part for the Rugby World Cup when she was Prime Minister. An upgrade that will provide huge long term advantages over other parts of the country when competing for major events in the future.

The present Government has thrown in another $20 million for a half share contribution to purchase Queens Wharf in Auckland to provide a giant party centre for the rugby world cup with more on promise.

Infrastructure spending by Government is also significant. Hardly a week goes by without an official announcement of some major new public works somewhere in the country.
Wellington looks likely to get a billion dollars to build a new motorway through transmission Gully to the north of the city, one of the seven roads of national significance to be given funding priority.

The new Victoria Park Viaduct & Tunnel Project in Auckland is expected to cost over $400m and there are several other huge roading projects proposed for our largest city.

Only a few years ago Tauranga was given a 250 million dollar harbour bridge as part of the deal to gain Winston Peters support for the minority Labor administration.

Commuter rail systems in our two major cities are also being upgraded at tax payers expense. Double tracking of the line north of Wellington and extending the electrification to Wakanae will cost $90 million.

These are all important projects which could not proceed without Government funding but Hawke's Bay seems to be missing out.

With 150 000 people Hawke's Bay is about 1/10th the size of Auckland. On a per capita basis we might expect to get about 1/10th as much as Auckland and perhaps a quarter to a third as much as Wellington. It doesn't seem to happen though.

For instance the $190 million spent on Eden Park equates to $19 million for McLean Park. Well as I recall we got just $2.1 million.

So who is responsible for this sad state of affairs?

Well I blame the politicians starting with our local Mayors and Councils. Compared to the endless string of demands coming out of Auckland we seem to insist on nothing.

For instance our two Mayors let the Crown refuse to contribute to the airport upgrade , when there was a legally binding agreement that specified Government was to pay half of any development costs.

Of course both our Mayors seem to have developed separate but parallel career paths in Wellington so perhaps their willingness to compromise Hawke's Bay's interests are understandable.

I think we also have a problem with our Parliamentary representatives. In spite of having up to five MP's including two cabinet ministers living locally until recently we seemed to have no effective voice.

Unless we start getting a better share of meaningful Government spending we can expect our local economy to continue performing poorly.