Negotiations for an Auckland convention centre between the Government and SkyCity set a dangerous precedent, says John Carran. You agree?

By John Carran*

Government negotiations around the SkyCity convention centre are not a storm in a tea cup. They set a dangerous precedent.

Arrangements like this, if they become common, risk denting the credibility of New Zealand's economic governance. This would have negative consequences for New Zealand's economic development.

Good economic governance is about the Government setting economic objectives to better society as a whole and acting in a way that achieves those objectives at minimal cost.

It has many different dimensions and involves complex interactions.

But at a high level, good economic governance is about the Government and its agencies strongly protecting property rights, and being competent, transparent and accountable in setting and achieving their objectives.

This is partly related to the quality of institutions and mechanisms established to achieve policy objectives, and partly related to the culture, values and competence of politicians and officials.

Good economic governance makes it more likely governments will set objectives and implement policies that benefit most New Zealanders because the consequences of bad policies will be more apparent and policy-makers will be held accountable for them.

It facilitates quality decisions by businesses and individuals because they don't have to deal with unnecessary uncertainty because of inconsistent or unclear government policies.

Good economic governance also reduces corporate and interest groups lobbying for government favours that divert efforts away from more productive activities.

And it reduces the scope for corruption in the system and encourages competent actions by government and its agencies. All these things lead to better use of people and resources, which in turn leads to better overall economic outcomes for the country.

New Zealand has traditionally ranked highly for good governance. Property rights are strongly protected, political and public institutions are highly transparent, and the bureaucracy is generally competent.

Transparency International and international agencies such as the International Monetary Fund and the OECD regularly praise New Zealand's transparency, quality of policy decision-making, and lack of corruption.

But the confidence people and businesses gain from good governance is easily lost and hard to win back. You only need to look at countries such as Greece and Argentina, among others, for evidence of this.

One area where the reputation for good governance is most easily lost is direct government assistance to industries and businesses by way of subsidies, tax breaks or regulatory dispensations.

It is here that government policies are most ad hoc, objectives are most confused, and processes are least transparent. Overseas it is the interface between politicians, government officials and businesses in the delivery of special industry favours that generates the most corruption, waste and incompetence.

It is the main reason why any theoretical benefits that might accrue from direct government help for businesses often never materialise.

Politicians often argue that governments need to be pragmatic about offering direct assistance to businesses.

They argue we should not be bound to rigid processes when "innovative" actions are needed to take advantage of opportunities to create growth and jobs.

This appears to be the attitude of Prime Minister John Key and his Government in relation to the SkyCity convention centre. On the surface it's a pragmatic way to take advantage of an economic opportunity in constrained financial times.

The National Government dealings with Warner Bros over The Hobbit movies and the last Labour Government's help for The Lord of the Rings productions fall into a similar camp.

The problem with this line of argument is that it relies on the conceit that over time the Government can be trusted to make wise business assistance decisions in the best interest of most New Zealanders without proper scrutiny and accountability from the public.

By not clearly setting out the criteria and expectations for assistance it creates uncertainty about what are and are not valuable opportunities.

This ad hoc approach also creates confusion about government policy intentions in the area of industry policy and the degree to which decisions can be influenced by lobbying and reciprocal favours.

Presuming that promised growth and jobs in the overall economy can materialise from such interventions (and this is debatable in many cases), the answer to taking advantage of opportunities is to institute clearer guidelines for when assistance is a good idea and the net benefits that must be expected before assistance is given.

When other policy objectives are traded off, such as with the pokie machine limits in the SkyCity deal, a transparent process must be set down to assess whether that trade-off is material, and if it is, whether the trade-off is worth it.

The decisions made must be within clearly understood parameters and seen to be objective.

And, importantly, there should be no place for direct political interference in business assistance decisions outside established processes.

Such interventions only breed suspicion that favours can be "bought" through lobbying and other non-transparent channels.

It's all very well to take advantage of opportunities when they are presented and avoid unnecessary bureaucracy. But what might seem like a minor circumvention of normal protocols or a pragmatic solution can escalate over time into more substantive and pernicious erosions of governance.

For the sake of New Zealand's long-term policy credibility it is more important to protect and enhance our good economic governance than be lured by short-term economic opportunities that deliver uncertain benefits.

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John Carran is a senior economist at Gareth Morgan Investments, although the views in this piece are his own personal ones.
This story was first published in the New Zealand Herald, and is used with permission.