Councils are licking their lips over a lolly scramble of free government money for “shovel-ready” projects.
Of course, there is no such thing as free money, so alarm bells should start ringing for any rational observer. We need to take a closer look at this before we, the taxpayers, are mortgaged for a generation.
There is some economic merit in such a stimulus package. Shovel-ready projects are supposed to be those projects that councils had on the books but did not quite meet the cost-benefit requirements to get started. In effect, the government is helping councils lower the standard of fiscal responsibility in order to get the post-covid economy working again. Accepting lower returns is better than higher unemployment.
Based on the limited information released to the public, councils are expected to “partner” the government and “use their balance sheets” (i.e. borrow to fund the projects). Assuming “partner” means a 50-50 split, councils are being enticed into significant debt, but it still looks like a good deal.
And it is a pretty good deal for the government. Their 50% share recovers 15% immediately through GST. Furthermore, GST is charged on the rates used to repay council borrowing – a tax on a tax. This oft-forgotten fact means that any council which thinks it can spend your money better than you can is wrong.
Add PAYE for the workers and deducting possible unemployment benefits should see the government break even. OK for the taxpayers.
Ratepayers should also benefit from subsidised projects.
But looking at the list of projects submitted by councils for funding, the alarm bells get louder. The lolly scramble nature of the funding means councils have put forward projects of highly dubious merit, sidestepping all the normal checks and balances, with no business cases and no consultation in the mad rush.
As a typical example, Hamilton City Council has applied for $103.5 million to develop the city’s natural gully networks. Even if the government chips in half, that’s $52 million new debt.
The application has vague notions that it will “build a stronger understanding and appreciation of biodiversity” and “the pathways create another attractive aspect to Hamilton”, but there is no mention of any measurable return on the “investment” that will enable the council to repay the debt.
It simply becomes another burden for the ratepayers.
Justification is provided by an accounting claim that every dollar spent will be multiplied in the economy to 3-4 dollars. This is because the workers will spend their income at other local businesses, who will also spend their income and so forth.
However. it ignores the fact that every dollar taken from ratepayers to repay the debt is not spent at other local businesses and so forth, thereby contracting the economy in a greater proportion thanks to the aforementioned 15% GST.
Further analysis deepens the disappointment. The term “shovel-ready” refers to the make-work schemes of the Great Depression, where large numbers of labourers with shovels were able to earn enough to survive. Times have changed, and the shovel-ready projects of today are much more reliant on machinery than labour. The new infrastructure projects will employ a handful of digger operators, meaning good returns for the machine owners but not much impact on unemployment. The hospitality and tourism workers who need jobs are not going to get them.
There is a reason for the checks and balances. There is a reason for proper business cases and consultation. One would hope that the government carefully reviews the applications and rejects the dubious projects. But it is an election year, so the money is going to be dished out by the politicians, and the ratepayers are getting sh*t shovelled on them.
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