Treasury on Rail. Let’s play a little game, shall we?

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NZ Treasury muppets

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Treasury’s latest ‘brain fart’ was this amazing story, which I repost, verbatim, from a Radio NZ report;

TDB Recommends NewzEngine.com

Close down rail, advised the Treasury

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Updated at 6:08 pm on 9 July 2015
Brent Edwards, Political Editor – brent.edwards@radionz.co.nz

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The Labour Party has accused the Treasury of being “nuts” for suggesting the country’s rail network should be closed because it costs too much.

In Budget documents released today the Treasury estimated the net social cost of supporting KiwiRail at between $55 million and $170 million a year.

In the paper the Treasury recommended the Government just fund KiwiRail for one more year while undertaking a comprehensive study to look at closing the rail company.

It said the study should be done publicly so that people were informed of the costs of running the rail network compared with any benefits it provided.

The Government rejected the idea.

Labour’s transport spokesperson Phil Twyford criticised the Treasury for even raising the suggestion.

“This proposal by Treasury for the Government to consider actually shutting down the rail network is just nuts and it shows that Treasury doesn’t really understand transport economics and they certainly don’t get rail.

“You know rail should be for decades and decades to come, it should be alongside the road system, the backbone of New Zealand’s transport system … To shut down, even to contemplate shutting down this valuable part of our nation’s infrastructure is barmy,” Mr Twyford said.

While government ministers rejected the idea initially they only intended providing money for KiwiRail for this financial year.

But a later paper reveals it agreed to a two-year funding commitment after the company expressed worries about its long-term planning if it had only one year of funding confirmed.

In its analysis the Treasury said rail had high fixed costs and it faced a challenge trying to reduce them.

It said the options for the business were to make relatively small changes to the existing network or significantly downsize it, including closing it altogether.

Another option was to shut down most of its operations but keep freight business for Auckland to Hamilton to Tauranga only as that part of the network carried most freight and covered most of its costs.

It warned KiwiRail posed considerable risk to the Government and was unlikely to ever be profitable.

“Treasury believes there is a net economic cost of continuing to fund rail at the levels required. The net social cost is estimated at between $55 million and $170 million per annum based on a national cost benefit analysis.

“Whilst some of the assumptions underlying analysis of this nature are subjective and some require further work to validate, Treasury believes that it will not change the conclusion that there is a net social cost of continuing to fund rail.”

It recommended a public study of the implications of shutting KiwiRail down so the Government could make the most informed choice possible.

Phil Twyford said he agreed there should be an in-depth study on the value of rail to the economy.

Mr Twyford said the fallacy in the Treasury thinking was that the rail system, including the rail tracks, should be run as a profit making business. Nowhere in the world did that happen.

He said the rail tracks were simply like the country’s roads and nobody expected the roads to make a profit.

A spokesman for Finance Minister Bill English said the Government had set aside $400 million for KiwiRail over the next two years.

“But before undertaking an investment of this size, it is appropriate that officials look at all options – including options for line closures.

“As we said in May, the Government is committed to a national rail network, but ongoing subsidies of around $200 million per year are unsustainable. The funding provided at the Budget gives the KiwiRail board a two-year window to identify savings and reduce the level of ongoing Crown funding required,” he said.

The craziness of this suggestion can best be illustrated if we make a few changes to the story, and re-post it;

Close down roads, advised the Treasury

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Updated at 6:08 pm on 9 July 2015
Brent Edwards, Political Editor – brent.edwards@radionz.co.nz

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The Labour Party has accused the Treasury of being “nuts” for suggesting the country’s roading network should be closed because it costs too much.

In Budget documents released today the Treasury estimated the net social cost of supporting National Land Transport roading at $3.891 billion a year.

In the paper the Treasury recommended the Government just fund roading for one more year while undertaking a comprehensive study to look at closing the National Land Transport Programme.

It said the study should be done publicly so that people were informed of the costs of running the roading network compared with any benefits it provided.

The Government rejected the idea.

Labour’s transport spokesperson Phil Twyford criticised the Treasury for even raising the suggestion.

“This proposal by Treasury for the Government to consider actually shutting down the road network is just nuts and it shows that Treasury doesn’t really understand transport economics and they certainly don’t get roads.

“You know roads should be for decades and decades to come, it should be alongside the rail system, the backbone of New Zealand’s transport system … To shut down, even to contemplate shutting down this valuable part of our nation’s infrastructure is barmy,” Mr Twyford said.

While government ministers rejected the idea initially they only intended providing money for  for this financial year.

But a later paper reveals it agreed to a two-year funding commitment after the company expressed worries about its long-term planning if it had only one year of funding confirmed.

In its analysis the Treasury said roading had high fixed costs and it faced a challenge trying to reduce them.

It said the options for the business were to make relatively small changes to the existing network or significantly downsize it, including closing it altogether.

Another option was to shut down most of its operations but keep freight business for Auckland to Hamilton to Tauranga only as that part of the highway network carried most freight and covered most of its costs.

It warned National Land Transport posed considerable risk to the Government and was unlikely to ever be profitable.

“Treasury believes there is a net economic cost of continuing to fund road at the levels required. The net social cost is estimated at $3.891 billion a year per annum based on a national cost benefit analysis.

“Whilst some of the assumptions underlying analysis of this nature are subjective and some require further work to validate, Treasury believes that it will not change the conclusion that there is a net social cost of continuing to fund roads.”

It recommended a public study of the implications of shutting National Land Transport down so the Government could make the most informed choice possible.

Phil Twyford said he agreed there should be an in-depth study on the value of roading to the economy.

Mr Twyford said the fallacy in the Treasury thinking was that the roading system, including the highways, should be run as a profit making business. Nowhere in the world did that happen.

He said the highways were simply like the country’s railways and nobody expected Kiwirail to make a profit.

A spokesman for Finance Minister Bill English said the Government had set aside $7.782 billion for roading over the next two years.

“But before undertaking an investment of this size, it is appropriate that officials look at all options – including options for highway closures.

“As we said in May, the Government is committed to a national road network, but ongoing subsidies of around $3.891 billion per year are unsustainable. The funding provided at the Budget gives the National Land Transport board a two-year window to identify savings and reduce the level of ongoing Crown funding required,” he said.

Barmy?

You bet.

The young folk at Treasury need to get out more often and engage in illicit drug use; binge drinking; and  random sex. It would be no more pointless than some of the gormless ideas they come up with.

In case anyone thinks that Treasury’s idea is remotely “clever”, consider the number of passenger trips by rail each year;

Auckland: 13 million

Wellington: 11.9 million

Total: 24.9 million

That is nearly 25 million extra car-trips on the road in both cities.

It does not take a bright young thing employed by Treasury to quickly realise the impact that would have on our city roads. In brief; Auckland and Wellington would grind to a halt. Our economy would collapse within a week.

We should be looking at ways to maximise use of rail, not canning it. Anything that takes cars and trucks of our roads is a major benefit to our economy and environment.

Perhaps I was wrong and there is illicit drug taking amongst some Treasury boffins. Someone has been at the marijuana cookie-jar. What other explanation can there be for this bizarre idea?

Addendum1

Road

The largest element of the Vote is the funding for roading ($3,891 million or 91% of the total Vote). This is primarily the funding for the National Land Transport Programme which is funded from road tax revenue collected by the Crown ($3,014 million or 71% of the Vote).

Vote Transport, Budget 2015

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References

Radio NZ: Close down rail, advised the Treasury

NZ Treasury: Vote Transport Overview

NZ Herald: Auckland rail passenger numbers top 13 million

Dominion Post: Record Wellington train use set to stave off fare increases

Previous related blogposts

Letter to the Editor – User Pays is not a very clever solution

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roads of national significance

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16 COMMENTS

  1. Hi . Frank . I really like your work but feel it was a low blow for the pot smokers. An example of a stoners idea’s is Steve Jobs and Apple. There are enough negative images around pot as it is.
    Perhaps if treasury spent time looking at returns the hemp industry could provide,( see Chris’s latest blog on TDB ) we wouldn’t be needing to dream up such barmy ideas.

  2. I can’t help but wonder if this is that classic political ploy. Seed the worst possible scenario in the minds of the public, & then announce a much less extreme measure. We then have the “Phew, they’re only closing down HALF the network” sort of public response. These tactics have worked a charm on the ignorant, fact-starved voters of this country. Hate to think how much other harebrained “treasury advice” we haven’t heard about.

  3. Thanks Frank but I’m waiting for their next “idea” which should be to close down New Zealand/Aotearoa by applying the very same criteria they used in this shining example of classy tertiary edumacation…

    They’ll keep working away at these vital issues in Treasury, but in the meantime, to quote Douglas Adams, “…the secret is to bang the rocks together, guys.”

    They may get it yet…

  4. Oh come now Frank, a pot smoker is surely going to come up with something more creative than that?

    Apart from that one wee issue, I completely agree. The idea is barmy and short sighted.

    They don’t expect roads to make a profit, why should rail?

  5. Close down rail, advised the Treasury

    Frank, Chris, Martyn and friends, please firstly listen to this RNZ audio clip on rail between the main players in HB and Kiwirail.

    I will comment afterward below on it all.

    http://www.radionz.co.nz/audio/player/201761880

    Firstly our rail is important as roads are as another means of improving transport efficiencies using both as a modal shifts as all other countries are doing.

    So before any decision’s are made we now need to call for another Royal Commission of our National transport System.

    This is because the last one has been to long ago and we now need to revisit the issue seriously.

    Sadly it has been over 50 yrs ago since the last Royal commission into our whole transport system long ago during the 1960’s when they decided to deregulate the road transport industry remember Chris?

    This is so important to discuss before any rash decision is made here.

    KiwiRail on notice – what is its future? RNZ 10/7/15. Discussion with

    HBRC CEO Liz Lambert & HDC Mayor Lawrence Yule, & Kiwirail spokesperson Joanne Black.

    Our centre has today reviewed the statements made by all parties in the discussion of Kiwirail future prospects in our HB/Gisborne regions.

    The points raised essentially by most parties was that we have to find cost savings to make Kiwirail viable for the future when all Government funding is turned off according to Finance minister Bill English today.

    If Government has said is committed to a national rail service (according to KR Joanne Black) we then need to look at the demographics’ HDC Lawrence Yule points out for the longer term (50yrs)

    During Lawrence’s discussion he significantly points to the importance to the local economy by having both modes to offer for specific customers, and in the case of when the road is blocked in our difficult region, (as is the case today where the heavy snowfall last night closed the northern road network to Opotiki) he said.

    So to the funding to keep Kiwirail viable Kiwirail Ms Black cited KR was interested in local councils stumping up with some cash as they saw recently to keep the passenger service from Palmerston to Wellington alive as several councils contributed local ratepayers funding to secure this service she said.

    Liz Lambert also remarked HBRC has set aside $5.4 million in their planning also for this purpose to retain the viability of the Napier Gisborne rail services.

    So we now have to again take Lawrence’s idea as a forward move to firstly get the Ports Port of Napier & Eastland Port both talking together to plan the modal operations of land transport for the next 50yrs.

    We even would recommend the closer coming together of both regions councils to begin some real frequent forums of dialogue together to find a suitable long term plan for all regions for all their collective benefits.

    Generally a good show from HBRC, & HDC on this discussion and we thank all parties for their continued commitment to our both Regions.

    There still is the thorny issue of the (perceived) road costs not being actually paid by transport industry operators entirely and any argue that private passenger vehicles use the road also, it is in stark contract to the rail industry who now must pay all costs of maintaining the rail infrastructure;

    We offer a solution here. Place rail and road on equally the same footing.

    Why not make both transport options self funding for all their own share of their own infrastructure costs?

    As of at now there is large pot of road infrastructure funding that is paid out of the national road levies/tax account.

    This funding is now totally separate from commercial road operators costs/levies exclusively like rail is.

    On rail since 2005 when Government bought the rail there was a similar pot of money for rail infrastructure for ONTRACK.

    This funding has $200 Million in it for rail upgrades & maintenance but in 2010 when Kiwirail was turned into several entities the Ontrack funding bucket went into Kiwirails’ consolidated account and eventually disappeared into “Redirected” funding for other operations.

    Kiwirail lost their bucket operational infrastructure funding and now competes with other operational funding.

    As we were advised at a meeting with former KR CEO Jim Quinn that $650 million of Kiwirail’s One Billion went to Auckland’s’

    Private Passenger rail upgrade for Veolia Ltd to lease that corridor.

    We now see that perhaps we need to request that Central Government now structure both transport infrastructure links in the same manner to avoid distortions in the financial integrity of both modal operations for the next 50yrs as Lawrence rightly suggests we do plan for.

    Perhaps we can begin tolling roads for commercial freight companies due to the high freight carrying and high road wear?

    The toll can be adjusted to the wear and repair costs generated so thereby self funding our roads?

    Private vehicles then can their costs of their wear of the roads by using the IPENZ estimated costs in their road use costing report.

    The last IPENZ report shows that of both road & rail costing of contributions from each transport mode;

    Rail pays 77% of their total cost of maintaining the rail.

    Private road users pay 66% of their cost of maintaining the roads.

    Truck transport pays 54% of their cost of maintaining the roads.

    These figures may change as the demographics change over time.

    Either both modes use equal cost structural mechanisms such as the” Pot” of funding or we find another type of similar equal funding vehicle for both modes.

    The attached IPENZ review warns that careful consideration must be made when deciding closure of rail as often it is not later reversible.

    http://www.productivity.govt.nz/sites/default/files/Sub%20025%20-%20IPENZ%20Submission_0.pdf

    2.4 RAIL

    IPENZ is supportive of the Government’s Turnaround Plan for KiwiRail to upgrade rail infrastructure and rolling stock to help increase New Zealand’s economic productivity and growth. IPENZ also recognizes that elements of the network are uneconomic and may need to be closed. The decisions to close particular lines need to be taken with care – these decisions are often irreversible, and closure can erode wider network profitability. Line closures also impact on other components of the supply chain such as ports. Page 6 of 8

    3. EFFICIENCY OF INTERFACES BETWEEN COMPONENTS

    Question 57. Should decisions on investments in ports and in the associated infrastructure links to ports be left to the judgements of the individual suppliers of the separate components? Or would some sort of overall strategic plan provide useful guidance and some assurance that complementary investments will happen?

    The major regional councils undertake multimodal transportation modelling and planning and these play a major part in designing the transport networks in metropolitan areas. This modelling includes specific localised freight analyses. Modelling is a sophisticated planning tool that uses a range of criteria to design and future proof (through scenario testing) a desirable and integrated transport network. Through this process the network can be designed to seek to achieve a range of objectives including those enabling regional economic growth, the efficient use of public capital, affordability, improving accessibility, and minimising environmental impacts.

    Therefore a regional transport plan that recognises the freight supply chain’s interdependent components, developed in an inclusive way, can provide a context for development by both public and private infrastructure providers, and are a valuable tool for assisting with commercial investment decision making.

    Similarly the Ministry of Transport undertook the National Freight Demands Study in 2008. This provided valuable information on existing and future freight demands.

    Thus information and analysis by public agencies can be very useful for the private sector.

    An interesting suggestion in the 2004 Infrastructure Stocktake recommended to Cabinet the concept of “facilitated discussions” between by central government, local government and private sector and infrastructure users and providers. This could be effective in bringing together the common issues – freight infrastructure development is driven by similar growth demands.

    4.1.1 Pricing.

    Many argue that if the prices are right (including externalities and the cost of capital), this will drive economically efficient outcomes. Each of the transport modes have different environmental impacts – noise, water quality, air quality and pricing mechanisms could capture these differences. The Ministry of Transport undertook the Page 7 of 8

    Surface Transport Costs and Charges study in 2007 but this did not extend to sea transport. In theory pricing would place all transport modes on a level playing field. The Productivity Commission should consider whether improving pricing signals is feasible across all modes in the medium term. It seems that there is increasing acceptance of toll roads, but any form of congestion pricing or road network pricing would appear to be some years away.

    4.1.2 Neutrality of public funding

    Roads and rail are often competing modes for the freight business and this raises the problematic issue of the different government support for road and rail to meet the demands of the growing “freight task”. Recognising the issues with implementing pricing mechanisms, the Commission must consider whether Government (and local government) funding mechanisms are neutral and do not favour one mode over the other.

    Further, commercial disciplines, investment decision making and financial reporting mechanisms (including balance sheets) are not applicable to the roading network. As a result of this and the acknowledged difficult funding allocation issues, there are inevitably cross subsidies between light vehicles and freight transport

  6. A source wrote an article on bicycle lanes everywhere,suggesting they are to be means of keeping people contained in their home areas to be easily controlled. no cars in future,? Now no trains.
    It sounds far fetched but with the draconian rules this government is setting up, not beyond reason.
    This cycle way system is being set up all across America,the ONE WORLD ORDER is preparing for the future.
    The trade deals being enacted is the elites way of controlling our sovereignty,why not lack of transport to restrict travel?
    WINZ want to know every detail of peoples lives to discourage them from applying for unemployment,why not keep tabs on everyone to prevent travel to other areas for work, that way we have no options
    to get money making people live in poverty.
    Maybe theres a light at the end of the tunnel,the BRICS alliance is going forward, and will be an option for progress in competition with America (read corporations).
    9×7= 63 captcha comment correct

    • 1000% ELLE, it is the only thing that seems to explain the reckless closure of our future options for alternative Land transport options.

      The excuse Greedy NatZ are using in their phoney Treasury report was that “they cant afford rail???

      So at the same time they give millions to Saudi dessert sheep farmers and more for a flag referendum at that same time??????

      By Ken Adachi

      http://educate-yourself.org/nwo/nwopopcontrol.shtml

      The Illuminati’s idea of Population Control falls into two broad categories:
      1. Limiting the size of human societies and monitoring/controlling the movement of individuals within that society, and
      2. Intentionally reducing the bulk of the world’s population through GENOCIDE via the introduction of population slaughter, orchestrated conflicts, and lethal bioengineered disease organisms introduced via vaccines and other means of external transmission.

      http://educate-yourself.org/nwo/populationreductionIcke.shtml

      ,

  7. Wonder how much profit the trucking companies would make if we charged them for the full costs of the damage that they do to the roads rather than having them subsidised by private cars…

    Wonder how that would stack up against rail which already doesn’t get to hide it’s subsidies?

    Then there’s the real economics that Treasury seems to have lost sight of. Which of the two uses less resources? Trucking or Rail? Rhetorical question. We already know that rail uses less resources. It uses less people, less fuel (especially when electrified from renewable power generation), less land and of course, rail has less accidents and causes less environmental damage (especially when electric).

    Treasury has mistaken finances for the economy and assumed that the purpose of the economy is financial profit rather than providing for the people who actually live here. The only thing that will come from such blatant mistakes is the maldistribution of the countries scarce resources.

    • Yes Draco T Bastard,

      All true, and if we had hillside engineering shops in Dunedin today making rolling stock and overhauling locos we would show the strength of low cost running of rail also.
      I became a Certified Auto electrician in 1964 and went to Turangi to begin work on the power project then.

      In Turangi we had a marvellous workshop to repair maintain and manufacture all manner of machinery then all under a National Government of Keith Holyoake so this was real National giving pride to our Kiwi tradesmen in that time to make it all work as rail did.

      Napier & Gisborne had wonderful large engineering shops also so we were trained on the job so we were developing great skilled tradesmen during a National lead Government.

      We don’t have the workshops or training bases like this any more and we are very much worse for it all.

      Trucks now will need lots of imported parts to keep them going so with the sagging dollar trucking will become expensive more then rail so we are stuffed if Treasury don’t wake up their stupid ideas.

      Thanks for the feedback mate.

  8. If I had to guess, I’d say they are trying to sow the seed for the idea of privitisation, a lesser of the two evils as an alternative to closing it down.

    When are these idealists on the right going to wake up and realise that user pays actually costs them more than tax cuts? When privatisation of infrastructure such as this is allowed, obviously to be profitable, transport costs will increase for businesses that use the service. Businesses think they will just pass the additional cost to consumers, but when prices are too high, consumers won’t buy. It’s a vicious, twisted, sick, circle. When everything winds up being cheaper to import it, and no business in New Zealand is viable, perhaps we may finally get a change in government.

  9. @ Cleangreen

    What did these “great skilled tradesmen’ do beyond working for a Government owed semi-commercial enterprise that cost millions of dollars of taxpayers money every year?

    Did they go on to create great engineering companies that brought in hundreds of millions of dollars worth of export income?

  10. Even Richard Prebble is saying that Treasury is wrong on this:

    The cost is huge. The OECD says the annual cost of traffic congestion in Auckland is $1.25 billion. An incomprehensible figure but most Aucklanders can put the cost into personal terms. The cost to me is that today to be sure of getting to a meeting on time I have to drive up to Auckland the night before.

    What will happen to our roads if the freight that now goes by rail has to travel by road? The treasury says that is not a problem. Road freight pays Road User Charges that meets the full cost of roads. If road freight volumes increase then treasury says that will automatically fund new roads.

    While the math is correct the answer is wrong.

    He’s still wrong but nowhere near as wrong as Treasury.

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