Fuck up fucks off

Having failed to attract more than a handful of votes in the National Party leadership contest, Steven Joyce is retiring from politics. Good riddance. While he somehow had a reputation as a "Mr fix-it", like Gerry Brownlee Joyce fucked almost everything he touched. He fucked up transport by starving the regions of funding to build pointless superhighways in Auckland for the trucking industry. He fucked up science and innovation by stealing funding from CRIs, then making them compete for it all over again as laughably underfunded "national science challenges". He fucked up tertiary education by limiting access to loans and allowances, creating a teacher shortage which is going to last for years. He fucked up economic development by signing a crony deal with SkyCity allowing them more pokie machines for an undersized and unnecessary convention centre. And he fucked up finance by being memorably unable to count during the election campaign. This isn't a record any politician should be proud of, and I am glad he's fucked off, so the only thing he can fuck up anymore is himself.

Steven Joyce is a serial liar

Over on Stuff, Vernon Small digs up the past, and points out that Steven Joyce is a serial liar:

July 2011: Steven Joyce attacks Labour's fiscal plan, saying it would leave a huge hole over the next 15 years and add $18.4 billion to debt.

August 2014: Steven Joyce claims reckless Labour spending of almost $18b.

Let's just say that even before this week National campaign manager and finance spokesman Steven Joyce has form.

By comparison with his attempts in 2011 and 2014 the "hole" he claimed to have found in Labour's 2017 plan – $11.7b – was relatively small.

His motivation is as clear as crystal: feed the view Labour is incompetent and that National is the only trusted steward of the nation's books.

Which is good reporting for reminding us of both the truth and Joyce's history of dirty politics. At the same time, it ignores the elephant in the room. Why does Joyce keep doing this? Because journalists like Small report it and give his lies a platform, allowing them to be effective. Their refusal to provide context or history until days after the fact makes them willing co-conspirators in Joyce's abuse of democracy.

Mixed messages

$10.5m funding boost for maths & science in schools, NZ Government, 27 November, 2013:

The Government is providing $10.5 million in additional funding for schools to raise student achievement in maths and science, Science and Innovation Minister Steven Joyce and Education Minister Hekia Parata announced today.

“Boosting the skills and achievement of our young people in maths and science are essential for their future careers and for New Zealand’s economic growth and prosperity,” Mr Joyce says.

“The reality is New Zealand needs more people with fundamental skills in science, technology, engineering and maths, or STEM subjects, and that is a strong focus of this Government.”

$199m boost for tertiary education and research, NZ Government, 15 May 2014:

$83.3 million operating funding of the increase will be provided for lifting tuition subsidies in science provision (8.5 per cent increase), agriculture (8.5 per cent), and selected health sciences (pharmacy 16.4 per cent and physiotherapy 12.4 per cent).

“Budget 2014 continues our focus on increasing funding for science, technology, engineering, and mathematics (STEM) subjects,” Mr Joyce says.

[...]

“Investing in science-based skills is crucial for innovation, productivity and growth in the New Zealand economy which is a key focus of our Business Growth Agenda.”

NZ's competitive edge needs outlined, Otago Daily Times, 19 Dec 2014:

More young people choosing agri-science careers and more scientists prepared to work with farmers are needed to maintain New Zealand's competitive edge, Ballance Agri-Nutrients science extension officer Jeff Morton says.

Mr Morton, of Napier, was invited to give the Levy Oration at the New Zealand Grasslands Association's (NZGA) annual conference in Alexandra last month.

''Often it is the farmer who comes through with an idea and the scientist who tests it, [and together] they make a pretty potent brew,'' Mr Morton said.

AgResearch confirms 20% of staff to go, Radio New Zealand, 24 September 2015:

AgResearch has confirmed it will axe nearly 20 percent of its staff during the next year.

The Crown research institute has confirmed it plans to axe 33 scientists and 50 technicians, as part of a restructuring to cope with a $5 million cut in funding.

However, it will add 18 new scientist roles and nine technicians in growth areas, for a net loss of 56 jobs.

So, the government spends tens of millions of dollars a year to try and encourage young people to pursue careers in science, while repeated CRI mass layoffs make it clear that there's no such thing. If you follow the government's signals and pursue that science degree (which in science means a PhD), you'll find that there's probably no job at the end of it, or that you're terminated mid-career and forced to move overseas or become a taxi driver (or spreadsheet jockey if you're lucky). And then they wonder why people are still choosing arts degrees...

SkyCity rips us off again

Remember Steven Joyce's cosy SkyCity crony deal? In addition to giving them huge changes in gambling laws in exchange for building an ever-shrinking convention centre, Joyce also forced TVNZ to sell them some prime Auckland land at a bargain basement price to build it on. Except, it turns out they're not building the convention centre on it, they're building a hotel. And now, they're planning to sell it:

The Auckland City Council has this morning announced that consent has been granted to SkyCity for the building of a convention centre. SkyCity have said today that they are looking at options for future running and ownership of the hotel which will be built on the former TVNZ site they were sold after they said they needed it for the convention centre.

[Emphasis added]

We've been scammed, people. The whole thing turns out to be a dodgy privatisation - property development deal. The question is whether Steven Joyce knew about it and sold us out, or whether he's utterly incompetent. But either way, he shouldn't be a Minister, and Parliament should be legislating to reclaim our land from these thieves.

A low R&D economy

The Herald this morning reports that New Zealand is near the bottom in global R&D spending:

New Zealand's world ranking for research and development spending continues to drop, despite increased incentives for companies to invest, according to a report by Grant Thornton, which puts New Zealand near the bottom of the table.

Paul Kane, spokesman for the global business consultancy, said the number of companies in New Zealand that expected to increase their spending on research and development had dropped significantly, with just 12 per cent of firms expecting to increase their spending in the next year.

"We're really at the bottom of the table, we're fourth from the bottom behind Estonia, Argentina and Russia, and we've been steadily dropping," Kane said.

Economic Development Minister Steven Joyce is in full denial mode, saying that this doesn't reflect what he's seen. From which we can conclude that he did not read his own department's Briefing to the Incoming Minister, which explicitly says (in bold, so the Minister won't miss it) that NZ's level of R&D investment is "low by international standards". Its also very clear about who is at fault:

While New Zealand is spending a lot more on science and innovation, our investment is still very low when compared with the small advanced economies. This is true in both absolute terms (the total that we spend) and in relative terms (the size of our science and innovation investment relative to our GDP). The 1.28 per cent of GDP New Zealand spends on science is well below the OECD average of 2.06 per cent. There are many reasons for our comparatively low science spend, although a significant portion of the disparity is due to our low investment in the business sector.

According to the BIM, the government wants to increase business-sector R&D spending. Perhaps the first stage to doing that is admitting that we have a problem, rather than trying to deny it.

"Improving"

End-of-Year process positive for Novopay, Steven Joyce, 17 January 2014:

Minister Responsible for Novopay Steven Joyce says a 100 per cent completion rate for schools involved in the End-of-Year process and an accompanying low error rate are tributes to the hard work done by school administrators and Novopay staff and contractors.

School payroll improving again, Steven Joyce, 26 March 2014:

“Pay Period 26 was back below the 0.5 per cent acceptable steady state error rate as defined by the Novopay technical review. Transactions volumes also dropped from around 30,000 in the previous pay period to 23,000. It shows the system is settling down again after the high volumes and high error rate of the last three pay periods connected to the Start of Year process,” Mr Joyce says.

School pay continues improvement, Steven Joyce, 23 April 2014:

The latest Novopay complaints reports confirm the system is settling back into a more consistent and steady state after the busy start-of-year period.

[...]

“The performance of the school payroll in Pay Periods 1 and 2 were back well within the 0.5 per cent acceptable steady state error rate as defined by the Novopay technical review and compares favourably with the same pay periods last year,” Mr Joyce says.

Update on school pay performance, Steven Joyce, 20 May 2014:

The latest Novopay complaints reports show the school payroll system is maintaining a steady performance.

Pay Period performance steady, Steven Joyce, 25 July 2014:

Latest figures show the school payroll system maintained a steady performance for each of the last four pay periods.

[...]

“All four pay periods were well within the 0.5 per cent acceptable steady state error rate as defined by the Novopay technical review, which is pleasing,” Mr Joyce says.

Government-owned company to take over school payroll, Steven Joyce, 30 July 2014:

New Zealand's school payroll service will come under Government management in October of this year.

After lengthy negotiations, the Ministry of Education and the existing school payroll provider, Talent2, have settled both on the amounts payable by Talent2 towards the costs of remediating the Novopay service and a new operating model for the school payroll system.

The new model involves a new government-owned company taking over the operation of the payroll service, and Talent2 licensing the core Alesco software to that company.

So, after a year of relentlessly up-beat press releases about "improvement" and "progress", suddenly we're looking at a government takeover (and one which involves continuing to pay Talent2 $9 million a year for software which clearly does not perform to specification). So, were they lying to us all along? Or is it just that some Cabinet Minister's relative didn't get paid? Either way, how can we trust anything the government says about its performance?

This ought to be a warning against outsourcing: it doesn't work, and we end up paying to clean up the mess. Sadly, the government is unlikely to view it that way.

A closer look: Science funding

Another day, another announcement from the government of new science funding. They do a lot of these, all designed to create the impression that the government backs science and is increasing funding. But like so much of the government's PR (remember its 2009 "stimulus"?), it is a carefully crafted lie.

How do we know? Because a couple of weeks ago the government released its draft National Statement of Science Investment 2014-24. The hard numbers are on page 18, and they show science funding decreasing over the next decade, from $1410 million this year to $1374 million in 2024. And that's in nominal terms; once you account for inflation, the government's "big plan" for science is to cut its funding by 15 - 20 percent. As for today's "new spending", its money that they had already budgeted years ago, the amount of which seems to have actually been cut since 2011 (compare p 28 of that vs p21 of this year's Budget). But like roads, the same old money can be announced again and again to create the illusion of activity. And with science, that is all National cares about.

Parliamentary sovereignty trumps contracts

Skycity's New Zealand International Convention Centre Bill was reported back [PDF] from select committee today. But while the National majority on the committee recommended that it be passed with only minor amendments, Labour and the Greens made it clear that they would be repealing the bill and its regulatory concessions, with the backing of a Crown Law opinion saying they could do so:

A future Government would be able to scrap the SkyCity convention centre deal without paying any compensation to the casino operator, Crown Law says.

[...]

Advice to the committee from Crown Law says while the deal and the legislation can be scrapped by a future government, it would be liable to pay SkyCity millions of dollars in compensation.

However, a future parliament could also amend the legislation to remove the compensation provisions.

Crown Law warned the wording of any future change must be extremely clear, because courts are likely to interpret ambiguity in favour of the payment of compensation.

Steven Joyce is squealing at this prospect, warning that any attempt to revoke the deal would cause Armageddon and corporate sulking. But Parliament is sovereign, and businesses know that this sort of arrangement is subject to "political risk". SkyCity's been put on notice about what will happen when the government changes; if they continue with the deal and lose a packet on it, they have only themselves to blame.

As for Joyce, if he doesn't want future Parliaments to revoke his sleazy backroom deals, he shouldn't make them. Its that simple.

A rotten deal

How rotten is the SkyCity deal? So rotten that even treasury opposed it. In a January 2012 briefing on the government's negotiating position [PDF, p. 11; OCR version here], they laid out their very frank view of the proposed deal:

Treasury is not convinced by the cost benefit analysis for the NZICC. For example, New Zealand already attracts a disproportionate share of the international conference market. In addition, international arrivals for conferences have plateaued since 2005, despite increases in the number of international travellers arriving in the country. Taken together with the international evidence on the low net public benefit of conference centres, these considerations lead Treasury to doubt that an expanded conference centre in Auckland will attract significantly more international conference attendees.

Treasury is also concerned about the social costs to increasing gambling in Auckland, balanced against which are the potential benefits of the NZICC, paid for through the concessions. As soon as the cost of building the NZICC are recouped by SkyCity, public costs will go only to private gain. Given the poor information on the value of the concessions, Treasury has strong concerns that private benefits to SkyCity will exceed public benefits to New Zealanders.

However, if Ministers wish to proceed with a contractual arrangement with SkyCity, Treasury considers that the difficulty of accurately assessing both the costs of the building and the revenue generated by the concessions will inevitably expose the Government to significant risks. These relate to both the information asymmetry between SkyCity and the Crown and costs to the Crown in respect of both negotiating the contract initially and then managing it over an extended period such as 25 years.

In short, the costs would outweigh the benefits, the latter would go solely into private pockets rather than being split fairly with New Zealand, and the government would get rolled in negotiations. On the latter at least, that is exactly what happened, with SkyCity making a deal in May 2012, then playing hard-ball and backing away from it, secure in the knowledge that they would gain further concessions now that John Key and Steven Joyce had put their personal prestige on the line. As for the former, Joyce claims that "We were able to prove Treasury was in the wrong on that one". But no documents have been released suggesting any such thing. Until those documents are released, we must assume he is simply making it up to cover his arse for making a poor deal and selling out New Zealanders.

Just irrational

No matter which way you look at it, this is just irrational:

The Government says it is difficult to estimate the social costs of the SkyCity convention centre deal but is nevertheless confident they will be outweighed by the benefits it brings.

In a recent briefing paper to his Cabinet colleagues, Economic Development Minister Steven Joyce says gambling law concessions including allowing SkyCity to increase gaming machine numbers "might lead to an increase in the number of people seeking help for problem gambling''.

But while Mr Joyce has received official advice on the issue, he told his colleagues, ``It is difficult to quantify the potential size of any such increase or its consequences, which could include financial costs, effects on employment, crime, personal and family impacts, and treatment costs for persons affected''.

Joyce has refused to release his official advice, claiming it is "commercially sensitive". That's nonsense. This information is not about SkyCity's business, it is about how that business adversely affects the public of New Zealand. And that is something we have a fundamental right to know. And if Joyce thinks we won't like it if we see it, that tells us everything we need to know about his shoddy, corrupt little deal.

(As for releasing the information only once the deal has been made, that is not how democracy is supposed to work. If this deal is made in our name, then we have a right to know the details and debate them fully before it is signed. Otherwise it cannot possibly be regarded as binding, and in fact should be immediately repudiated)

The education "market" is not a computer game

Earlier in the week, we saw Teritary Education Minister Steven Joyce trying to dictate who studies what at Auckland University. His aim was to correct the "market failure" by which employers can't find enough IT and engineering staff (by which they mean enough experienced IT and engineering staff willing to work for the pittance they are willing to pay). But his solution fundamentally misunderstands the role of education in the employment market.

Firstly, there are the obvious issues raised by Peter Fenwick: that there is a serious time lag involved:

If he gives an immediate instruction, with appropriate funding, it will take probably two years for institutions to plan and acquire staff and other resources for the increased intake, a further four years until they graduate and then a year or two until they acquire the practical work-place experience. Add another year if they do an industrially desirable conjoint or advanced degree. Thus it will be at least six years before we see any increased supply, certainly not next year.

Unstated: by the end of those six years, employers may have decided they want something else (or "persuaded" Joyce to grant special visa privileges to some favoured group of staff trained overseas, flooding the market and dropping wages through the floor). So there's significant uncertainty faced by students looking at studying such specialised degrees.

But more fundamentally, Joyce seems to think that getting enough engineers is simply a matter of funding university places. While its part of the solution (in that it obviously sets a cap), it assumes that the employment market is between universities (who churn out graduates) and employers (who hire them). This is a fundamental mistake. Universities are simply intermediaries; the real participants in the market are the students. And they are not simply substitutable raw lumps of intellectual labour who can be specialised into whatever the Minister believes the market desires by manipulating course numbers. Quite apart from having their own opinion on what they want to do with their lives, they also have different talents. And they are not all suited to engineering and IT.

Bluntly, the reason so few people do these courses is that they are hard. Engineering is at the crunchy end of science, requiring serious mathematical ability. IT, whether programming or plumbing, requires a confidence with technology and the ability to wrap your brain around stuff that causes SAN-loss in most people. If you are an 18-year-old with middling grades at maths who views computers primarily as an appliance for using Facebook, then these courses are not the way to get good grades and therefore (so the logic goes) a good job. Oh, you might be able to learn, but its a risk, and at the end of it who wants to hire the B student? Better to do that BA or BCom instead.

Which takes us back to Fenwick: if the government seriously wants to increase the number of engineering and IT graduates, it needs to start in schools, and get people interested and confident with maths and science. And that's a much more complicated and longer-term project than Steven Joyce simply dictating graduate numbers as if its some sort of computer game.

Stinky

Yesterday's Question Time saw Phil Twyford table the evidence against Steven Joyce - evidence showing that the then-Transport Minister interfered in the Hop Card tender in favour of his mates at Snapper:

Documents released under the Official Information Act reveal Steven Joyce wanted to dump the Auckland integrated ticketing project soon after he was elected because he thought Snapper could do it instead, Labour’s Transport spokesperson Phil Twyford says.

Communications between the Minister's office and transport officials in the December 2008 to March 2009 period show Mr Joyce asking officials whether there was an out clause in the tender process, whether the project could be stopped, and why $100 million was being spent when Snapper could do it privately.

"From the moment he was elected Mr Joyce was itching to halt the integrated ticketing scheme, and allow Snapper to do it. Correspondence from Snapper two years later indicates he instructed officials to allow Snapper back into the project, after they had lost the competitive tender and against advice from officials.

Given the lobbying which occured, this is getting very stinky indeed, and the Auditor-General has been asked to investigate. Good. There should be no place in our democracy for this sort of backroom deal.

Inconsistent

Back in June, Phil Twyford asked Transport Minister Gerry Brownlee some pointed questions about his predecessor's apparent interference in the decision to allow Snapper cards to be used in Auckland. Brownlee's response was clear: there was no meeting with Snapper, and there was no interference. "Ministers have had no involvement in the decision to include Snapper in the integrated system."

Today, it turns out that there was a meeting, and the decision to include Snapper was "a policy decision rightly made by the Minister."

Pretty obviously, those last answers are inconsistent: you can't both have no involvement and be a policy decision properly made by the Minister. Which suggests strongly that Brownlee misled Parliament in June. But there's also a strong whiff of corruption as well. Someone met with a Minister (making sure to disguise it in the Minister's official diary), and suddenly the Minister instructs their department to open up a contract, letting them make millions of dollars (and then apparently millions more if they sue Auckland Transport for dumping them for non-performance). Its a perfect example of why we need transparency around lobbying - and why National fears it.

[Hat-tip: Sacha Dylan]

Faith-based restructuring

Last week, John Key announced that he was merging the Ministries of Economic Development, Building and Housing, Labour, and Science and Innovation into a new "super-ministry". So, how much will this cost? Labour's David Cunliffe asked super-minister Steven Joyce that question in Parliament today. The answer?

The specific costings for the items sought by the member are not available at this time.

Yes, that's right: the government embarked on a major, costly restructuring process, with no idea of how much it will cost. And yet they claim it will produce net savings. Obviously, its hard to take that claim seriously.

This is simply faith-based policy. The business-geniuses of National wouldn't be allowed to run a business this shoddily - their shareholders wouldn't let them. So why do we let them run our government in this way?

And more cronyism

Charles Finny works for Saunders Unsworth, the National Party's pet lobbyists. He was in the news a couple of months ago after it was discovered that his mate Murray McCully had given him $54,000 for an untendered research contract. And now, thanks to Steven Joyce, he's been appointed chair of Education New Zealand.

Again, I'll be scrutinising this appointment to see if it followed the proper process. But from here, it looks like yet another crony appointment, National using public money to help out its mates.

More on Mediaworks

The Mediaworks story is in the news today, with articles in both the Herald and NBR. In both cases though, I'd take serious issue with their take on things.

Firstly, John Drinnan's piece in the Herald says that the deal was intended to stave off problems with MediaWorks' capital structure. What he doesn't mention is the sections of the reports stating clearly that that capital structure was imposed on them by the company's foreign owners, Ironbridge, who had loaded the company with debt to fund its takeover. Also unmentioned is the overall conclusion of MED officials based on the Deloittes' modelling: that the company was profitable in the long-term, that it had other options, and that it did not need our money.

Meanwhile, the NBR's Matt Nippert relies on MediaWorks insiders to finger Gerry Brownlee as the culprit behind the loan [paywalled]. Brownlee was certainly involved in pushing it to Cabinet, but the fundamentally the timings don't work. According to the article, MediaWorks successfully met with Brownlee after their August 9 meeting with Key. But the paper trail clearly shows that Joyce had made the crucial decision to negotiate (and laid down the parameters of the deal) back in July. After that, it was just a matter of working out the details (5 payments or 6, 11.25% or 13.25%?). Brownlee's support may have been essential at Cabinet, but he wasn't the prime mover here.

Nippert also makes the same mistake as Drinnan, highlighting concerns about capital structure while ignoring the conclusions about underlying profitability drawn from their own books. But then, that's the entire story in nutshell: a business sticking its hand out and demanding money, while all the evidence shows that they do not in fact need it.

Putting the fear into Cabinet

So, if MediaWorks didn't need our money, how did they manage to walk off with $43 million of it? It boils down to one thing: fear.

In early October, despite advice from his department that assistance was unnecessary, Steven Joyce sought permission to take an urgent paper to Cabinet to gain approval to negotiate a "one-off" restructuring of broadcasting licence fee payments. The Cabinet paper gives the following justification in its executive summary:

The new option recognises a worsening of trading conditions in the recent economic recessions hat has reduced cash flow from advertising revenue. One of the major licensees (MediaWorks Ltd) has broken existing banking covenants, as the gearing by its offshore parent company Ironbridge Capital Ltd was arranged in better market conditions.

The first sentence had been thoroughly debunked by Deloittes' financial modelling. As for the second, this is the first time it has been mentioned. It is not mentioned in any of the weekly briefings to the Minister. It is not mentioned in any of the other briefings. And its not mentioned anywhere in the main body of the Cabinet Paper itself. Instead, there's some other details about MediaWorks' problems:

Details of an interim restructure arrangement for MediaWorks by its parent company Ironbridge have been provided to MED officials. According to Ironbridge, one of the conditions of this arrangement is the banks' requirement that licence payments be spread over a five to six year period. Ironbridge states that MediaWorks cannot fund the payment over a shorter timeframe. Mediaworks is seeking a decision on the spreading of licence renewal payments before 31 October this year, as this is the date by which MediaWorks is required to present its longer term financial restructuring plan.

(Emphasis added)

But broadcasting licence payments in New Zealand are not normally spread over a five to six year period - they're an upfront lump sum for a tradable property right. MediaWorks apparently made its bankers a promise it couldn't keep. As for why its the government's problem, there's this bit on "risks":

If no action is taken, there is a risk that some RBA members will default on the payments...

MediaWorks operates both radio and television services. If it were to default on its current licence renewal obligations, or move to liquidation, there is potential of a wider destabilising effect in both sectors. The television business has a higher profile domestically and internationally, and there could possibly be some commentary on New Zealand's overall economic position.

In case that wasn't enough, the one-page summary prepared for the Cabinet Economic Growth and Infrastructure Committee hyped the threat even more:

If no action is taken, there is a risk that some RBA members, including the two major networks (MediaWorks and The Radio Network), will default on payments. This has the potential for destabilising effects in the radio and television industries.

Finally, the supplementary paper when it actually reached Cabinet on 19 October claimed that

at least one of the radio companies may have experienced a credit downgrade

Clearly, the entire New Zealand broadcasting industry was under threat, and the government had to Act Immediately to Save It!

But this is the first time that any of this has been mentioned. Its not mentioned in any of the earlier briefings. Its not mentioned in the weekly updates to the Minister. its not mentioned in any of the emails around seeking approval or drafting the Cabinet Paper. Reports of communications with MediaWorks show them as quite relaxed, facing a "non-critical" banking deadline on September 11 (when they would have to pay interest), but asking for a decision by October 31 to meet Ironbridge's restructuring deadline. There is no suggestion anywhere in this advice of a possible default, let alone of liquidation. But regardless of where it came from, it was persuasive; Cabinet rubberstamped the deal, and MediaWorks (or rather Ironbridge, because they're the major beneficiaries, with their extortionate dividend stream secured) laughed all the way to the bank.

Mediaworks didn't need our money

I've scanned in more documents about the Steven Joyce's Mediaworks bailout. The key one today: A September 2009 briefing by the Ministry of Economic Development on Mediaworks' financial position, titled RBA Licence Renewal Payments: Modelling of Options.

When the RBA had originally asked for a bailout, MED had modelled their costs and concluded that they didn't need the money. After Steven Joyce had decided he would proceed anyway, they asked Mediaworks and The Radio Network, the two biggest players, to open their books, and commissioned Deloitte to update their model. Their conclusion was that the companies were under some financial pressure. However,

the base case modelling suggests that, in the absence of any further deterioration in financial performance, the licence purchases at the prices contracted with the Ministry should be affordable without compromising the longer term financial viability of the companies.

This conclusion does not change, even for the worst-case scenario modelled. Each entity remains profitable (albeit at reduced levels) with interest cover nevertheless being tight against the assumed capital structure.

Deloittes did note that if revenue declined, the companies would be in trouble (a statement of the obvious), but that their underlying profitability was sound. They recommended a wait and see approach and reviewing the situation closer to when the payments were actually due. The Ministry noted that the companies had known about the need for these payments for a long time, that they had plenty of options available (e.g. asset sales, cost-cutting, or injecting capital) if they needed money, and noted a lack of evidence that such options had been explored before going to the government for a hand-out. They concluded:

Considering the above, the Ministry still does not see a strong case for the Government to accede to the RBA's request, a move which would place the Government in a credit-financing role in lieu of the existing market mechanisms. It is recommended that no further consideration will be given unless suitable evidence was provided by the affected broadcasters that all alternative avenues have been adequately explored.

This advice was ignored. Two weeks after the briefing was given, Joyce wrote to John Key seeking permission to bring an urgent paper to Cabinet on the issue. The letter made no mention of the modelling at all, and accepted at face value the RBA's claims that its members were too poor to pay, despite their books showing that the opposite was the case.

Crony Capitalism III

On Thursday evening, TVNZ revealed that Communications Minister Steven Joyce decision to bail out his former company Mediaworks with a $43 million soft loan was contrary to all advice from his officials. My copy of these documents (obtained under the OIA) arrived over the weekend, and I've been going through them. And they show that the story is, if anything, worse than TVNZ suggests.

I'll be gradually scanning the relevant documents and putting them online (so more links will appear in this tomorrow). But here's the core story:

• Radio Rhema writes to Steven Joyce pleading poverty over their long-expected bill for broadcasting rights, and asking for a concession. Joyce responds that he "do[es] not see it as appropriate to deal with these sorts of requests on an individual basis" and points out that the government is short of cash too.
• The Radio Broadcasters Association writes to Joyce on behalf of its members asking for its broadcasting fees to be spread over the term of the licences, effectively a return to annual fees. The Ministry of Economic Development hires Deloittes to analyse the financial situation of broadcasters and concludes that

  the modelling has shown that the current contractual payments will affect the profitability of the broadcasters, but all but the most pessimistic scenario sees that operations remaining viable based on the financial assumptions made. [That scenario assumed the broadcasters would remain unprofitable until 2030 - I/S]

  The Ministry does therefore not see a strong case for the Government to accede to the Associations request, a move which would place the Government in a credit financing role in lieu of the existing market mechanisms.

  In English, that translates as "they don't need the money and should piss off".
• Followup advice from MED, in response to "anecdotal information that the trading position of at least one of the main broadcasting companies has deteriorated", repeated this conclusion, and warned of the danger of the RBA lobbying other Ministers.
• According to the Herald, that is exactly what happened: the RBA lobbied and lobbied until they found someone ignorant enough of the situation to agree to their demands: the Prime Minister. But the documents show this to be false. Key met with Mediaworks CEO Brent Impey in early August, but Joyce had already asked MED to present him with options for deferred payment in July. On July 30, a week before Key's meeting with Impey, he wrote to the RBA informing them of this decision.
• Over August and September MED negotiates with the RBA, and gets major broadcasters Mediaworks and The Radio Network to open their books. A further analysis by Deloittes on the data again finds that they do not need the money: the payments will affect profitability, but they can afford it. Alternative payment options make only a marginal difference. The real problem is the capital structure imposed by their foreign parent companies - a problem entirely of their own making. Despite this, negotiations continue.
• In late September MED realises they need Cabinet approval for a change in policy and push through an urgent Cabinet paper. The paper highlights the modelling showing the deferral is unnecessary, but introduces the threat of Mediaworks defaulting on its licence payment and going into liquidation. Cabinet is scared into line. Mediaworks laughs all the way to the bank.
• Six months later, in May 2010, MED realises that the deferred payments are a loan and therefore require the approval of the Minister of Finance [link to come]. The advice Treasury gave him on this will be fascinating...

So, this isn't just a case of Steven Joyce giving taxpayer's money to his old company - its a case of Steven Joyce giving taxpayer's money to his old company when the modelling showed they did not need it, and scaring his Cabinet colleagues into line with a scare story about TV3 imploding - a threat he knew to be false. Its crony capitalism and corporate welfare, all rolled into one, with a side-dish of lies and incompetence. This is how Steven Joyce, the heir apparent to John Key, operates. And its not a pretty picture.

Crony Capitalism II

Steven Joyce's decision, highlighted last month, to bail out his former company MediaWorks with a $43 million soft loan smelled pretty bad already. Now it smells worse. Last night TVNZ revealed that the loan was initially denied after consistent advice of Treasury and the Ministry of Economic Development, but granted after former MediaWorks CEO Brent Impey personally lobbied the Prime Minister.

In the documents obtained by ONE News, the Ministry of Economic Development said it "does not see a strong case" for the loan, and warned the deal will "carry a financial risk" for the government.

Treasury said the loan would effectively see the government "acting as a bank" and taking on additional risk.

[...]

Initially Communication and Information Minister Steven Joyce said "no" to the deal. But then the former head of MediaWorks went lobbying, taking the matter higher.

Brent Impey talked to the Prime Minister during the TV3 Telethon, asking for payment to be deferred for radio licences. And eventually Cabinet approval was given.

So personal networks trump considered government advice. This is not how our government is supposed to work. Instead, its just crony capitalism. And we should not tolerate it in New Zealand