Debate on Crown Entities, Public Organisations, and State Enterprises — New Zealand Railways Corporation

I am pleased to rise on behalf of New Zealand First to call the Minister for State Owned Enterprises to account with regard to the performance of KiwiRail. Rail is a critical part of New Zealand’s infrastructure. Some of us in this House—some no small few, I would contend—will remember KiwiRail from the days when it was known as New Zealand Railways Department, when it was its own Government department, when sober administrations from both sides of the political divide took it seriously and afforded it the respect and the resourcing that reflected its importance to the nation and the economy. Even today, the shadow of its former self that KiwiRail has become still employs some 4,100 people. That number does not take into account the many people in support industries who owe their jobs to rail. But the National Government has made it clear that it does not care about the livelihoods of those people, just as it does not care about rail.

We can see this in a number of decisions that KiwiRail has made under the Government’s Turnaround Plan. The Minister for State Owned Enterprises, Tony Ryall, admitted last year that KiwiRail was unlikely to find the $3.85 billion needed from its own operating budget to finance the plan itself. This is why it has had to cut 300 jobs. This is why the Hillside railway workshops in Dunedin have been starved of work, run down, and hocked off, while the Napier-Gisborne rail line has been mothballed. The Government has an obligation to stump up with the capital if KiwiRail is unable to fund itself. The Government simply cannot cut and run when the going gets tough—not when an essential service provider like rail is at stake. There needs to be an emphasis on regional development and jobs, not simply bottom-line savings. The Government’s approach is reckless. It has no regard for the public good or social cost. This is a Government that would flog off the railways again if it could. It has an ideological disposition towards profit over people.

Some of the $158 million of extra spending on tourism in Budget 2013 could have gone to financing KiwiRail instead. Bringing in ever more tourists is all well and good, but we have to have ways of transporting them as well. Rail is the only sensible alternative we have to the ridiculously costly process of upgrading the Third World goat tracks that pass for State highways in this country. Some of the $158 million could have gone a long way to resolving the seemingly endless issues KiwiRail has with its Cook Strait ferries, which were bought on the cheap and are riddled with problems. Last week all three of them were laid up with breakdowns at the same time—three lame ducks, all in a row.

That $158 million will deliver no benefit to the people of the East Coast or Northland, where vital rail links are being mothballed. These are some of the most depressed regions in the country, and they need all the help they can get. Even in their depressed state, these regions are making a contribution to the economy, to our foreign exchange earnings, and that contribution needs to be recognised by the Government through investment in KiwiRail. The Napier-Gisborne line alone would have cost only $4 million to repair. The community and businesses on the East Coast have voiced support for the rail link, and they say they would be able to increase the amount of freight carried on the line in the future. Why not listen to the people who would be most affected by this decision?

The Turnaround Plan has also led to the compromising of public safety standards. Rotten sleepers from South America and rotten rolling stock from China—that is what this Government’s penny pinching has given us. Poor finish, second-rate welding, steel that, if rumour is to be believed, does not always even meet international standard ISO 9000 specifications, and wheel gauges that are not the right size and that are flogging out the inside of the tracks themselves—it is probably only a matter of time before someone dies as a result of it. What will they say then?

The decision to source locomotives and wagons from overseas has also been short-sighted, in that it has cost the country hundreds of jobs and associated economic benefits. Documents obtained under the Official Information Act show that the closure of Hillside could have been avoided, if only the Government had chosen to put New Zealand jobs and industry first. A difference of $6.4 million pales in comparison to the somewhere between $232 million and $250 million that Business and Economic Research says it would have added to New Zealand’s GDP. Quite apart from the inferior quality of locomotives and freight wagons imported from China’s Government-owned slave-labour sweatshops, when compared with the high standard that our own engineers and tradesmen produce, and the fact that the lower cost is a false saving—because these cheap, nasty imports will wear out and break down and have to be replaced many years sooner than their local counterparts—no one in Government seems to have calculated the cost of not building KiwiRail’s wagons in Dunedin. There will be unemployment. There will be the loss of skilled tradespeople, who will disappear to Australia, never to return. There is the loss of yet more of our wealth-generating manufacturing base.

KiwiRail is a shambles. It is poorly run, poorly managed, poorly resourced, and poorly regarded by a poor Government. New Zealand First’s report on KiwiRail is not a “Must do better.”; it is a “Go back and start again.” We sincerely urge the Minister to take this lesson on board and change track accordingly. Thank you.

We heard from KiwiRail at the Transport and Industrial Relations Committee, and looking at its financial report is very, very interesting. What we can see is that KiwiRail’s business is actually very sound. Freight volumes moved by rail have been increasing rapidly, even though overall freight has not increased over the past few years. So we have not had an increase in freight volumes moving around the country or into and out of the country as was anticipated, but on the rail we have seen a massive increase. This is good for our exporters. Recently I actually visited the Fonterra dry-store and cool-store at Wiri. Forty percent of Fonterra’s exports move through this store, and 95 percent of what moves through there comes in and leaves by rail. So rail is incredibly important for our exporters.

What also became very clear during the financial review is that KiwiRail is simply not able to deliver the full transport benefits that it could deliver, because the Government is not providing it with sufficient capital, although it has through the turn-round plan agreed to $250 million a year for a couple of years. But let us look at the transport budget. We have over $1 billion a year each year going on new capital expenditure, just on new State highways. The problem with these duplicating links in our State highways is that they have diminishing marginal returns. We already have a State highway network. It is working pretty well. We could have some cost-effective safety improvements that would result in great benefits, but putting in a duplicate link is not going to have a very good benefit for the transport system.

The problem for KiwiRail and the problem for New Zealand is that the National Government does not understand how a transport network works. If you invest in the rail network, that directly affects how the road network is used. In fact, our transport network is entirely full of cross-subsidies. So the line that we often hear from the Government that roads are user-pays and rail does not pay its way and is subsidised is completely erroneous and does not take into account the fact that we have massive cross-subsidies going on. This is clearest in the Government’s capital expenditure priorities. So the highways that it is prioritising, like Transmission Gully, could never be paid for by direct user charges. That is the reality. If you tried to fund them through direct user charges, the tolls would never cover the cost. So it is road users all over New Zealand who will be paying for a road that is used by only about 10,000 people, in the case of Transmission Gully, so that is a big cross-subsidy. But if we were going to take an economically rational approach to the transport network, what we would do is put the money in the projects that have the greatest benefit, and the next dollar that we spend on transport infrastructure would be on rail because it allows more efficient use of the entire transport network.

So, for example, already rail freight is paying for itself, despite the massive capital investment that is needed in New Zealand’s neglected railway system because of 10 years of privatisation. But the passenger service is making a very tiny loss of about $3 million a year. To put that into context, $3 million is probably the cost of one intersection or one roundabout. It is a tiny amount of money that might be put into the State highway network to get some safety benefits—supposed safety benefits. But if we were comparing it on an equal footing and treating rail as part of the transport network, we would take into account the safety benefits of moving more freight off the roads and on to the rail network. It has benefits for consumers, it has benefits for exporters, and it has safety benefits. It is an entirely economically rational approach that most countries around the world are taking.

If you look around the world, most countries are investing significantly in rail because it makes economic sense. It is highly energy-efficient and it would reduce the amount of money that the transport sector has to spend on oil to move things around. We are spending $8 billion a year on oil that we are importing, which is bad for our current account deficit. So investing in the rail network is good for our current account deficit, it reduces the dependency of our freight sector on oil and the vulnerability to high oil prices, and it reduces the amount of money that we have to spend on maintaining and improving the safety on the road network. This is an economically rational approach to transport that we do not see coming from the National Party, and it is really a lost opportunity. The Green Party would invest in rail.

We have just heard a supposed discussion, or lecture, on economic rationality, but I am struggling to see either the rationality or the economics in it. We have heard from the Green Party tonight that we just need more money in rail and that they will find it somewhere. An earlier speaker was talking about the Privacy Commissioner and saying we just need more money, and they will find it and put it in there. We heard from others in the Opposition that one way we will reconcile some of the economics is to move into a monopsony approach towards the electrical market because that will be good.

💬 Paul Goldsmith: Monopsony?

Monopsony. Have you not heard of a monopsony? We have to give you some education. It is a great word. On the one hand we have got all these extra expenses—[Interruption] Monopsony—yes, it is a great word. We have got all these ideas of all this extra spend, and yet we are hearing all these anti-approaches. We hear from New Zealand First that we have got to invest more, and then—

💬 Jonathan Young: It’s not their money.

Exactly. It is not their money, as my colleague points out. It is someone else’s money. It has been photocopied. It has been taken off someone. It is the “bribe people with their own money” approach, which we have seen before. We heard then from New Zealand First that we have got to put money in and then pursue uneconomic approaches. So we are going to buy rail systems, be it carts, or whatever. We are going to build lines that are uneconomic. And somehow that is rational economics—we are just going to keep putting more money in.

What I think is important is to move into context, because this Government has invested over $750 million—$750 million of New Zealand taxpayers’ money—into KiwiRail over the last 3 years. This Government has shown a very strong commitment to the rail network, over 10 years, to turn it round and to put it on its feet. Those of us who were there at the review heard that the board of the New Zealand Railways Corporation is working constantly, readjusting its numbers to move KiwiRail into a position where it can stand alone.

I suppose that is an element of where the National Party comes in, because we heard from Labour and the Greens that they want a hands-on Government. I said it before in another speech—they really want their hands on your wallet and around your throat. National wants to empower KiwiRail to be able to stand on its own two feet. You would think the Greens would be all about actually wanting to stand on your own two feet, because that is what National is all about—standing on your own two feet. Is that not good for the environment? [Interruption] They want to stomp on other people’s feet, as the honourable Minister points out. It is just crazy, crazy economics.

As I said, $750 million has been invested into KiwiRail, and this is investment we have not had for over 50 years. The board came before us and discussed what was occurring. The board noted, in respect of buying the new trains, and the new locomotives in 2010, which the Government facilitated, that it was 35 years—35 years—since such things had been bought. This is a Government committed to building up and strengthening KiwiRail, and we have got some great successes.

We know that freight is up. Julie Anne Genter is right. It works really well in some places. It works really well when the rail line runs past your business. But in this modern-day economy—not some sort of socialistic or communistic utopia—we live in a “just in time” dynamic where importers and exporters want to be able to move their products just in time. It means they want their product off the ship and brought to the supermarket just in time. They do not want it to be stored in warehouses, waiting for a rail network to go in that direction. It works well for elements of Fonterra. I notice, actually, that New Zealand Rail is working, I think, towards Darfield, to put in a rail line there. It is responsive. But once again we are coming back to a fundamentalism around the rail network—the idea that this is the only way that things are done. That is not the way the economy operates.

But I come back to the $750 million that has been invested in KiwiRail. We were told at the Transport and Industrial Relations Committee that we have seen a growth of freight in KiwiRail of over 25 percent. We have noticed that about 17 percent of the income for KiwiRail is through its Interislander service, and that is an increase of about $5 million in the last year. KiwiRail is building its capacity, it is building its strength, and it is doing that on good, rational economics. It is not making things up, and it is not engaging in economic or transport fundamentalism. It is good economic policy. You invest, and then you allow the board and its individuals within the company to work their best for all New Zealanders.

Report noted.

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