Richard Prebble's
Letter from Wellington
Monday, 04 February 2002

Health Crisis

The Auckland District Health Board has been advised by its lawyers, Buddle Findlay, not to sign the Crown Funding Agreement because to do so could make board members and management personally liable under the Health and Disability Act 2000. The Act, which set up the elected health boards, states that boards "must have regard to the interests of creditors".

The Auckland board's estimated deficit this year is $72m. Legal advice is that it's breaching commercial banking covenants and is effectively insolvent. Signing an agreement where there's already a $13m known shortfall, exposes board members.

The government has told the board there is no more money. It has directed all health boards to settle nurses' pay claims within 2 percent and warned that higher pay claims won't be funded. The Canterbury board is increasing its debt to meet nurses' demands. Even Labour supporters on the boards are nervous of signing Crown agreements that breach commercial covenants and the law.

Sentencing and Parole Reform Bill

This 170-page Bill will dominate Parliamentary debate this year. Here are some questions on crime. 1. Violent offenders must now serve two-thirds of their court-imposed sentence. What proportion of their sentence does the new Bill require offenders to serve - 100 percent, 80 percent, two-thirds, or less? 2. Are crime levels in New York three times those in New Zealand, twice as high, about the same, or are you safer in New York? (The answers are at the end of the Letter.)

Some Black Thoughts

Richard Prebble, in his State of the Nation speech, was optimistic about the prospect of a US economic recovery. Interest rate cuts take more than a year to kick in and Alan Greenspan's first cut was 12 months ago. But there's a more gloomy scenario. There's never been an economic boom in history that hasn't been followed by a recession. This is because in boom times there's over-investment in capacity. In the US, companies didn't just over-invest in the dot coms. There's over-investment in every sector. In Japan, despite interest rates being effectively zero, the economy has been in recession for a decade. The Japanese economy still has excess capacity.

American investors have been told that shares out-perform all other investments - which is true over the long term. But shares can under-perform for long periods. After the 1929 crash it took 20 years - until the 1950s - for shares to reach their '29 level again. The NZ share market still hasn't recovered from 1987.

The proportion of household assets in shares in America is the highest in history. The share boom created the wealth effect and the consumer boom. The current US recession is relatively minor. But if shares drop in value to historic P/E levels, American households will get burnt.

The 1929 crash was really due to banking failure - and banking failure is holding back the Japanese recovery. The Letter knows smart investors who have taken their money out of the share market.

Dr Cullen is about to invest $2 billion a year in overseas equities. They say when bell boys start investing, it's time to get out. When politicians invest - panic.

Polling Research

The Letter has learned that Labour's polling shows voters like ACT's new ideas and agree with ACT's opposition to politically-correct, race-based policies. What to do? Call all ACT ideas "lunatic" and ACT's colour-blind policies "racist".

Helen Clark did both last week. With no research, the government increased the refugee quota. ACT asked: "Are refugees selected according to who is on the TV news? Why do some nationalities never get accepted? Surely the government should have principled, consistent selection criteria?" Clark replied that's "lunatic" and drew parallels with pre-war anti-Semitism. The Labour government in the '30s rejected Eastern European Jewish refugees because they were too well qualified and might threaten our professions.

The Letter is waiting for a journalist to ask the PM how many of the millions of Jewish refugees from the former Soviet bloc have been admitted to NZ in recent years.

ACT Party Conference

The party political year starts with ACT's conference at the Crowne Plaza Hotel, Auckland, on the weekend of March 15 to 17. One of the key speakers is Rob McLeod who headed the McLeod Tax Review 2001.

This is a coup for ACT. McLeod has made no public presentations on the report which Michael Cullen tried to bury in five minutes. The report makes findings that neither Labour or National liked - for example, it says a flat tax is best and, for just $2 billion the top company and individual tax rates could be cut to 28 cents - below Australia.

McLeod is one of NZ's top tax experts and has had unparalleled access to Treasury data, so at the conference it will be interesting to hear what he really thinks about tax. You can register for the full conference or just McLeod's presentation - you don't have to be an ACT member - at www.act.org.nz/conference .

Apology

A press secretary for the Leader of the Opposition has advised the Letter that a member of the National Party media unit was on call throughout Christmas/New Year - and has sent us an email of the roster to prove it. The Letter accepts we were wrong and we apologise. We're sorry the press gallery didn't know the National Party was working .

Answers to Crime Questions

1. In the Bill, the time violent offenders must serve is reduced to one-third of their sentence. A rapist sentenced to nine years will be able to get out in three years.

2. According to research by the Parliamentary Library, you are more likely to be mugged, raped, assaulted or burgled in any New Zealand city than in New York. Because of American gun laws you are more likely to be murdered in the US but all other crime is lower than in New Zealand. To read the research, the Bill, and ACT's response, see www.act.org.nz/goffbill.)

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