Category Archives: New Zealand

AN ANXIOUS PARADISE. Crisis in New Zealand mental health services as depression and anxiety soar – Eleanor Ainge Roy * World in mental health crisis of monumental suffering – Sarah Broseley.

System neglects ‘missing middle’ of the population who face common problems.
50-80% of New Zealanders experience mental distress or addiction challenges at some point in their lives, while each year one in five people experience mental illness or significant mental distress.

A landmark inquiry has found New Zealand’s mental health services are overwhelmed and geared towards crisis care rather than the wider population who are experiencing increasing rates of depression, trauma and substance abuse.

It has urged the government to widen provision of mental health care from 3% of the population in critical need to “the missing middle” – the 20% of the population who struggle with “common, disabling problems” such as anxiety.

New Zealand has one of the highest rates of suicide in the OECD, especially among young people. In 2017, 20,000 people tried to take their own life.

. . . The Guardian

Also on TPPA = CRISIS

World in mental health crisis of ‘monumental suffering’, say experts – Sarah Broseley.

“Mental health problems kill more young people than any other cause around the world.” Prof. Vikram Patel, Harvard Medical School
Lancet report says 13.5 million lives could be saved every year if mental illness addressed.

Education Impossible, Poverty and Inequality, New Zealand’s Neoliberal Legacy – Principal of one of NZ’s most challenging schools.

‘I shut my door and burst into tears’.

I’ve travelled the world. I have seen hard and I have done rough. But this was something else. It was not how a school should function.

Very few of our kids were actually functioning as they should. It broke my heart every single day.

Our teachers are doctors, psychologists, counsellors, behavioural therapists, and, for a small part of their day, educators.

These are beautiful kids, they can be anything they want to be, they just need to know we believe in them.

At 9am on my first day as principal of a small primary school, I shut my office door and burst into tears. After just 30 minutes on the job, I’d been sworn at by a child, abused by a parent, and a teacher had threatened to walk out. It only got worse. I had kids breaking windows. There were four or five fist fights a day. The police were on call.

I’ve travelled the world. I have seen hard and I have done rough. But this was something else. It was not how a school should function.

The behaviour issues meant there was no such thing as learning. For six weeks, I went home crying every night and said ‘I’m not going back.’ But I did. Because nothing has ever beaten me, and I was furious that this was happening to our children.
I wrote a list of every child in our school. We identified all of their needs. Seventy five per cent of our kids had high-level health, wellbeing, behaviour or academic issues. Very few of our kids were actually functioning as they should. It broke my heart every single day.

So our staff meetings weren’t about appraisals or the curriculum, they were about survival. How do we get to day two? How do we get to day three? We had to go back to basics before we could even start teaching.
I began to understand what was going on in the community. In one family, the kids’ clothes were dirty because they had no power. In another, the fridge didn’t work, there were rats in the walls, and the ceiling leaked. Their kids were constantly sick. It was clear the landlord didn’t care: I suspected in his eyes they weren’t “good enough” people to have the house repaired.

Some kids weren’t at school because their parents had no money for petrol. The stress was immense, and there were a lot of mental health issues. Tough, then, to bring your child up with a lust for life.

When I realised that this was bigger than me, I reached out to everyone who could help. The kids lacked resilience. If someone said “boo” to them in the playground there was a fight, or someone was crying. So we ran programmes about friendship and anger management. The kids have learnt to brainstorm, and problem solve, and communicate. Now we don’t have fights. It meant that in term two, we could start teaching the curriculum.

We realised the other big issue was hunger. When you get to the bottom of why a kid is acting up, it’s often because they haven’t eaten anything that day. Now, with KidsCan’s help, I watch 15 to 20 kids sitting around the school’s breakfast table every morning, chatting over a hot meal of baked beans. It’s a really positive start to the day. They know there’s no shame in needing food, if anyone is hungry they can go into the kitchen and help themselves to snacks too.

The change is huge. They have energy. In term one we struggled hugely with exercise. Everyone would opt out. Now, every morning we pump the sound system and everyone walks or runs laps of the field to ready us for learning. They go for it! We don’t have a single kid that opts out of exercise now, because they’ve got food in their bellies, and that makes them feel happier and more secure.

The day we handed out KidsCan’s jackets and shoes was incredible, the kids couldn’t believe that someone would give them something. I’ve never seen them that excited. They said, “oh Miss, this is the coolest thing I own.” They literally walked higher and taller and prouder. The parents were gobsmacked; many said they just couldn’t have afforded them. And because they have that extra money, it seems the families’ out-of-school lives are better too.

In term one we were too terrified to take the kids out of school. But in term three I took them out to the zoo. We all wore our jackets and I said to them, “we’re a team, we’re a unit”. I could not have been more proud. It was an amazing day with not a single behaviour issue. I hardly see students in my office in trouble anymore. I see them for stickers, and pencils for good writing, and for a hug if they need it.

But caring for these kids does take its toll. Our teachers are doctors, psychologists, counsellors, behavioural therapists, and, for a small part of their day, educators. My biggest fear for our kids is that their needs are far greater than the Government recognises. They don’t understand what’s really happening in our schools. They’ve just been setting standards for kids, and comparing them as if they all arrive at school on an equal footing. They don’t.

These are beautiful kids. They just need to know we believe in them. Sometimes I’ll purposefully leave my class and put a child in charge. Once, one boy said “Miss, he’s the worst person to put in charge!”
I said, “No he’s not, I’ve picked him, and he’s going to do it, just you watch.” I came back in and everything was perfect.
We built that child up. He sat there with a full tummy, feeling warm, with us supporting him, all those things together create success. Many of the kids recognise they don’t have as much money as others, so they think they’re not as good as them. I want them to throw all that away and know they can be anything they want to be.

Stuff.co.nz

To sponsor a Kiwi kid in need for $20 a month, visit KidsCan

Inequality and Revolution – Bryan Bruce * An Analysis of ‘The New Zealand Way’ – Georg Menz.

Today inequality is an all too familiar word in our country and the coalition’s handing of the economy isn’t fixing it.

Why? Because it’s the same neoliberal approach the last National government took and the Clarke government before it .. going all the way back to David Lange and Roger Douglas who introduced this economic virus in 1984.

So how and when will things change?

Bryan Bruce . . . The Daily Blog

The New Zealand Way

Georg Menz

How did a country known for its progressive policies, its welfare state and its anti nuclear and environmental policies so quickly and emphatically embrace the tenets of Neoliberalism and the New Right?

New Zealand, in the 1980s, went from being one of the most regulated countries in the OECD to being one of the most deregulated.

. . . An Analysis of ‘The New Zealand Way’ – Georg Menz

“Out-Thatchering Mrs.Thatcher”. USER PAYS, NEW ZEALAND’S NEOLIBERAL CONVERSION, Rogerpolitics – Chris Trotter * An analysis of ‘The New Zealand Way’ – Georg Menz.

How did a country known for its progressive policies, its welfare state and its anti nuclear and environmental policies so quickly and emphatically embrace the tenets of Neoliberalism and the New Right?

New Zealand, in the 1980s, went from being one of the most regulated countries in the OECD to being one of the most deregulated. It underwent a very painful period of transition and adjustment during the reforms. Even now the beneficial effects are far from obvious. Market liberalisation has come at a very high social cost. Poverty and social inequality are rising. New Zealand presents a paradigmatic case of complete market liberalisation and the embrace of neoliberal doctrines.

With remarkable alacrity, the ideological and practical political infrastructure required to support the new economic regime was cemented into place. In the nation’s schools and universities; in it’s publicly and privately owned news media; in its local and national institutions, Rogerpolitics became the new orthodoxy. For the next thirty years it would not only inspire the design of the mechanisms by which political power is exercised, but also the moral justifications for their use.

Those New Zealanders born after 1984, New Zealand neoliberalism’s “Year Zero”, have absorbed the “free market” catechism practically without thinking.

Rogerpolitics does not believe that democracy is a market friendly form of government, and all Rogerpoliticians are expected to act accordingly.

New Zealand is a case study of a small country moving from strong isolationism to full fledged market liberalism. New Zealand policy makers concluded in the mid 1980s that isolationism was no longer a viable policy option. Instead, they turned their country into a laboratory of free trade and Chicago style Neoliberalism. Does this model have insights to offer to other small states?

Chris Trotter

“ROGERNOMICS” is political shorthand for the neoliberal economic policies introduced by Labour’s finance minister, Roger Douglas between 1984 and 1988. While most New Zealanders have heard of Rogernomics, nowhere near as many have heard of its inseparable companion, “Rogerpolitics”.

The term was coined by the New Zealand political scientist, Richard Mulgan, to describe the form of politics required to make sure that Rogernomics “took” in a country which, on the face of it, should have rejected neoliberalism out of hand. Had Rogerpolitics not been so successfully embedded in the key organs of the New Zealand state, then Rogernomics would not have lasted.

Critical to the success of Rogerpolitics was the widespread public disillusionment with the style of politics that preceded it. In New Zealand’s case, the principal target of the public’s hostility was the National Party Prime Minister, Rob Muldoon, and his highly interventionist economic policies – “Muldoonism”.

An additional factor in the public’s antipathy towards Muldoon was his facilitation of the extremely divisive Springbok Tour of 1981. In the eyes of younger New Zealanders, “The Tour” was proof of their elders’ unfitness to rule. The people referred to by the then prominent political journalist, Colin James, as the “RSA Generation” had, in the eyes of the “Vietnam Generation”, been confronted with a straightforward moral test, and they had failed.

Without Muldoon and Muldoonism; without the Springbok Tour; the hunger for a new way of managing the economy and running the country would not have been so acute. The proponents of neoliberalism, or “free market forces” (as the ideology was more commonly referred to thirty-five years ago) were pushing against an open door.

It was the same all over the advanced capitalist world. The interventionist economic policies that had played such a crucial role in generating the unparalleled prosperity of the post-war period had finally run up against the buffers of the capitalist system. Every attempt to reduce the rising levels of unemployment and inflation that were the primary manifestations of the system’s failure only ended up pushing them higher. Margaret Thatcher’s Conservative Party captured the growing sense of unease with its 1979 slogan: “Labour isn’t working.” The following year, in the USA, the Republican candidate for President, Ronald Reagan, summed-up the popular mood when he declared: “In this present crisis, government is not the solution to our problem, government IS the problem.”

In its essence, this is what Rogerpolitics is all about: getting government out of the way. If politicians, by interfering in the economy, only made things worse, then the obvious solution is simply to prevent them from interfering.

. . . Bowalley Road

A Model Strategy for Small States to Cope and Survive in a Globalised World Economy? An Analysis of the “New Zealand Way”.

Georg Menz, Department of Political Science, University of Pittsburgh

Can New Zealand indeed serve as a model for other small states?

1. Introduction

A major issue of concern to contemporary social scientists is the relative decline of the autonomy of the nation state. Traditionally, the nation state served as a useful unit of analysis for scholars in international political economy. It may no longer be a useful starting point. Advocates of the globalisation thesis argue that the nation state is losing much of its room for maneuver in public policy decision making. This is a result of trade liberalisation and deregulation, particularly of the financial sector; rapid technological advances in telecommunications and data processing, and the exponential growth of international trade and foreign direct investment (FDI).

As I will argue below, two opposite arguments about the impact of globalisation on small states might be put forward.

First, it would appear that small states are particularly affected by a loss of autonomy as a result of globalisation. Smaller states face a constrained choice of responses to the impact of the world economy on their own national markets. By virtue of their economic and political power, size and strength, smaller states dispose of a relatively smaller array of policy responses than larger states. They cannot hope to set the parameters of the global economy given their relatively small economies and limited political and military clout.

Small states are usually host to only a small number of transnational corporations and, owing to the size of their own domestic market, they are commonly not only dependent on exporting their own products, but also on importing raw materials from abroad.

Alternatively, the opposite argument might be made. Small states are particularly well prepared to deal with open markets because of their economic structure. For many European small states, a protectionist trade policy was never a viable option.

Katzenstein (1985), who is often credited for his pioneering work on “small states”, points out that these states, due to their dependence on both imports and exports, are committed to the cause of international free trade. Foreign trade typically makes up a large proportion of small state Gross Domestic Product (GDP). Small states also depend on occupying market niches with relatively highly developed technology in sections of the economy where they enjoy a comparative advantage in production or a technological lead over their competitors.

In this study, I seek to analyse how one small state has responded to the challenges of globalisation. Using New Zealand (NZ) as a case study, I will examine New Zealand’s remarkable reform process as one possible policy response to dealing with a globalised world economy. “Model New Zealand” has been heralded as a successful model of structural adjustment by international observers. Regardless of whether one accepts the normative component of this judgement, New Zealand presents a paradigmatic case of complete market liberalisation and the embrace of neoliberal doctrines.

Can New Zealand indeed serve as a model for other small states? I seek to critically examine the reform process and shed light on its intellectual sources, employing some of the insights generated by the constructivist approach in international relations. Can New Zealand be properly considered a success story from which other small states can learn? The country went from being one of the most regulated countries in the OECD to being one of the most deregulated.

I argue that it underwent a very painful period of transition and adjustment during the reforms. Even now the beneficial effects are far from obvious. Market liberalisation has come at a very high social cost. Poverty and social inequality are rising.

The economic data reveals an equally mixed picture. In 1995, commentators admired the “turn around economy” and observed that the initial hardship seemed to be finally paying off. After the devastating impact of the Asian crisis in New Zealand, this assessment seems questionable and premature. New Zealand has been able to successfully fill some market niches in cutting edge agricultural engineering. At the same time, however, extreme liberalisation also means strong dependency on foreign capital, as is especially true for New Zealand with its large current account deficit and high level of foreign direct investment. Dependency on highly volatile foreign capital can become problematic rather quickly, as New Zealand’s recession in the wake of the Asian crisis vividly demonstrates.

2. Small States and Globalisation

How should we conceptualise globalisation? And how is it affecting the policy choices of small states? The purpose of this section is to arive at a working definition of globalisation and to analyse its impact on small states.

Since academic discourse on this subject is of a relatively recent nature, it is perhaps unsurprising that no single coherent definition of the phenomenon has yet emerged. However, from the writings of those authors who are willing to acknowledge globalisation as a genuinely new phenomenon a common thread can be extracted. These authors argue that the nation state is losing its autonomy, or posit, as Susan Strange has done “the retreat of the state”. The state’s sphere of control is decreasing, as an array of new actors moves in to undermine the state’s formerly comfortable command of territorially based authoritys. Among those actors are international institutions, networks and, most importantly, private transnational and multinational corporations.

While the nation-state no longer seems able to command the same array of macroeconomic tools, obvious winners are international markets. Global financial flows of gigantic proportions play an important role in shaping and curtailing governments’ choices.

Following the wave of deregulation and market liberalisation, which commenced in the late 1970s, particularly in the financial sector, the state’s macroeconomic weaponry chest looks considerably less well-stocked today. No longer can a government simply rely on monetary policy to set its economy’s parameters: If it tries to increase the interest rate so as to curtail inflationary growth, this move will simply attract mobile foreign capital.

National fiscal policy is also affected by the increased mobility of global capital. Nation states cannot freely determine corporate tax levels, because what the market deems to be an excessive rate will only cause companies to invest in regions or state more amiable to their interests. Some analysts have gone as far as positing a global “race to the bottom” in which regions and indeed nations have to compete for corporate investment by lowering their environmental, safety, health and social standards and offering tax breaks and other incentives”. Regardless of state incentives, due to the decrease in strict regulation of the financial sector, global capital is much more uninhibited to move into and out of new locales at relative ease. Large volumes of money are on the move, “free to roam the globe looking for the brightest investment opportunities”.

There are two factors contributing to the relative ease with which large scale global financial flows are occurring today at an unprecedented rate.

Firstly, deregulation of the financial markets made short term foreign investment and portfolio investment much easier than before. Secondly, technological innovation, another important factor mentioned by Strange and Drachels, has meant that such transfers of financial capital can take place at an ever accelerating pace. Rapid advances in modern computer based technology allow for rapid and easy data processing and manipulation. The progress of telecommunications technology enables global dissemination of information at unprecedented levels of speed. In fact, I would argue that innovations in technology as such undermine the feasibility of the nation state’s regulatory capacity.

The dramatic increase in foreign direct investment (FDI) should also be mentioned, which is a relatively recent development as well. Investment of a given company abroad in means of production (factories, plants, refineries, etc.) is a phenomenon unparalleled in previous economic history and ought to be distinguished from colonial patterns of raw material extraction through subsidiary companies within colonies. Foreign direct investment in production facilities either seeks to elude protectionist measures by the host country or endeavours to exploit different levels of wages or social standards for production.

Thus, global trade is to some extent no longer the exchange of goods among companies from different nation states (taking advantage of Adam Smith’s comparative advantage in the production of goods), but instead has to be re-conceptualised as the intra company exchange of goods in various stages of the production cycle”.

Closely related to the issue of establishing a concisely specified definition of globalisation are questions of distinctiveness and uniqueness. Is the current degree of global economic interdependence and growth of trade dependency indeed a genuinely new phenomenon? Is there something that distinguishes the global exchange of money, goods and services today from exchange routes and networks in the age of Cecil Rhodes’ Imperialism, Marco Polo’s Asian expeditions, trans Saharan trade routes, or Roman trade with its neighbours? Perhaps so, some authors might concede, but they are less convinced that the level of current global interdependence and international trade is more than just a return to the pre 1914 levels of global interchange.

Different scholars emphasize different policy areas, which vary in the degree to which they are affected by a globalised world economy. Obviously, there are also different normative points of view arguing about whether or not globalisation is a phenomenon worthy of appraisal or condemnation, usually depending on the author’s political persuasion .

Based on this discussion, I propose to define and conceptualise globalisation in terms of the speed and regulatory ease of worldwide flow of capital. While it is important to consider the rapid growth of international trade in recent years as well, the latter component does not constitute a genuinely new phenomenon and therefore does not really deserve a new label.

At this juncture, it is important to distinguish between globalisation as defined above and internationalisation, that is, the increasing global interdependence based on growth of international trade.

How and in what way is globalisation affecting small states? While Katzenstein contributed significantly to research on small states, his work and that of others exploring small states in the literature dates back to the mid 1980s or earlier. At that point, the imminent pressures of globalisation had not yet received the same amount of scholarly attention as is true of today, since they were not as readily apparent.

As briefly alluded to in the beginning, two arguments could be advanced here.

Based on Katzenstein’s research, one might argue that small states are actually particularly well prepared for a world of deregulated financial and trade flow. Since they have always been dependent on the international market place for the raw materials they imported and the export of the manufactured goods they exported, they had to be able to navigate the treacherous tides of the international marketplace from very early on. In fact, because of their status they had no choice other than to open up their economy. At the same time, they found ways to specialise in niche products.

On the other hand, the argument could be made that small states are but pawns in a game they cannot control nor even manipulate. The globalised economy finds small states in a particularly vulnerable position.

If we accept the premise that nation state lose some of their ability to manipulate their macroeconomic parameters, this must apply with particular vengeance to small states. They are even more vulnerable to the consequences of the rapid inflow and outflow of foreign short term investment. If governments of large countries can no longer counteract the speculative movement of the markets, this must be an even more unsurpassable challenge for small states.

Companies from small states cannot enjoy the advantages of the economies of scale, which a large domestic market offers. Small states are typically host to only a small number of transnational companies (TNCs), which are in a position to take advantage of deregulated international trade and investment opportunities. Their economies are made up by small and medium sized businesses, which run the risk of being taken over or run off the road by large foreign TNCs. The best these small and medium sized businesses can hope for is to diversify their customer base by gaining new markets abroad. However, they will cenainly be hard pressed to find products they can effectively and competitively market abroad owing to their limited resource basis for international advertising, marketing, and distribution.

New Zealand is a case study of small country moving from strong isolationism to full fledged market liberalism. New Zealand policy makers concluded in the mid 1980s that isolationism was no longer a viable policy option. Instead, they turned their country into a laboratory of free trade and Chicago style neoliberalism. Does this model have insights to offer to other small states?

3. Introducing the ‘New Zealand Way’

In 1984, the small South Pacific island nation of New Zealand gained worldwide attention by implementing the most comprehensive economic reform program of any OECD country to date. Within only a few years, New Zealand experienced a paradigmatic shift from neo Keynesiasism to New Right monetarism. It went from being one of the most regulated countries in the OECD to being the most liberalised and deregulated. In fact, neo liberalism found a much more zealous disciple in New Zealand’s Labour Party than is true for any other New Right leader. New Zealand “out Thatchered Mrs. Thatcher”.

A small remote island nation, over a thousand miles from its nearest neighbour Australia, it had previously been known for pre-empting its European cousins with progressive policies such as female suffrage in 1893, a comprehensive welfare system and a fervent environmental and anti nuclear policy. Now New Zealand stood at the forefront once again. This time, though, it overtook Western Europe on the right. It made headlines for a radical move away from Keynesian economics and the welfare state. Perhaps surprisingly, it was a Labour government, which under the stewardship of Prime Minister Lange and Minister of Treasury Roger Douglas jump started a radical programme of deregulation, market liberalisation and privatisation of state owned enterprises.

The OECD, The Economist, and other like minded apostles of the neo liberal New Right outdid themselves in praises for the blitzkrieg style economic reform programme which radically redefined the role and scope of government in New Zealand within a few years.

The reform programme included the deregulation of the financial sector, the removal of subsidies to producers, both in the manufacturing and the agricultural sector; the removal of tariffs on imports, a fundamental tax reform, a comprehensive restructuring of the public sector, a radical cut in the generous system of welfare provisions, a total remodelling of labour relations, and the corporatisation and privatisation of formerly government owned enterprises. The following table provides an outline of the reform program enacted in New Zealand between 1984 and 1994.

As can be seen above, the liberalisation programme occurred in two major waves. Under Labour Party guidance, from 1984 to 1990. the first wave of reforms was implemented. As Minister of Finance Roger Douglas played such a pivotal role in the process, the label “Rogermomics” is often applied to the reforms. These included industry deregulation, trade reform and capital market reform. Startling to many voters and academic observers, the National Party continued the reform programme, after it took over power from Labour in 1990. The second wave of reforms entailed macroeconomic stabilisation, corporatisation of state owned enterprises (SOEs), privatisation of SOEs, a comprehensive labour reform, and a fundamental restructuring of the welfare state.

As can be seen, the reform programme bears a striking resemblance with structural adjustment programmes commonly recommended for Third World countries.

The first steps of deregulation affected the financial sector. and included the removal of exchange rates and a floating of the New Zealand dollar. The government committed itself to a monetarist anti inflationary regime, by means of sustaining high interest rates and exchange rates. Price stability was enshrined as the overarching goal in the Reserve Bank Act of 1989, leading to what can be described as the “Bundesbank-sation” of the institution. Labour drastically cut down subsidies, abolished import licences, and began to phase out tariffs. It also opened up the economy to foreign direct investment. In fiscal policy, personal income tax for top earners was reduced significantly and a goods and services tax was introduced.

Government activity and the public sector as a whole were fundamentally restructured. Government departments were re-organised along corporate lines. In many cases, this meant transformation into SOEs and subsequent privatisation, in most cases to Australian or American companies. This corporatisation included government research facilities, hospitals, public housing, and universities.

As part of the second wave, the labour market was liberalised and the welfare state underwent severe cutbacks in scope and size. This translated into a full blown attack on the structural power of unions with the abandonment of collective bargaining imbedded in the 1991 Employment Contracts Act. At the same time, welfare benefits and eligibility were drastically curtailed.

This “big bang” reform program marked a revolutionary departure from the past. New Zealand has a long history of heavy state interventionism and government regulation. Barry Gustafson notes that:

“Manufacturers and wage earners were protected by import controls, and farmers were encouraged to produce and were protected from fluctuations in overseas markets by subsidies, tax incentives, and producer boards, responsible for the coordination of marketing of products. The banking system and value of the currency were tightly controlled.”

In fact, some of the economic measures pursued by its government were commonly associated with the State Socialist countries of the former Warsaw Pact such as tight controls on the circulation of currency, high tariffs, import quotas, and a central government agency co ordinating export policy. Government intervention has traditionally been regarded as beneficial and a cautiously modernising force.

Due to almost unlimited access for its agricultural products to its former motherland Britain, “England’s Garden” prospered throughout the 1950s and 1960s, boasting the third highest standard of living in the 1950s. New Zealand was able to provide its citizens a generous set of cradle to grave welfare provisions, universal health care and free access to education. Until the mid 1970s, unemployment was virtually unheard of.

Wage levels were set so as to guarantee a living wage “for a man, his wife and three children”.

The National Party government provided generous agricultural subsidies and managed the worldwide marketing of New Zealand’s agricultural products. Meanwhile, domestic manufacturing was protected from competition from abroad through high tariff barriers. The government willingly underwrote New Zealand’s continuing current account deficit by accumulating foreign debt. As delightful as life at the other end of the planet seemed, some troubling structural problems were already evident, such as the excessive dependence on the export of commodities.

In the 1970s these problems were brought to light as the global economy experienced meagre growth and high inflation. New Zealand was hard hit, exhibiting one of the lowest growth rates of any country within the OECD during the 1960s and 70s. There were a number of external shocks which New Zealand faced.

Firstly, main customer Great Britain joined the European Community, thereby becoming part of the Common Market for agricultural products. Though exceptional provisions were made to buffer some of the shocks for the New Zealand economy, this meant a sudden loss of New Zealand’s main market.

Secondly, in the wake of the oil crises of 1973 and 1979, New Zealand’s terms of trade deteriorated dramatically. Not only did oil prices rise exponentially, demand for commodities slipped. This hurt New Zealand’s economy badly, since its exports were still largely composed of wool, meat and dairy products. Notwithstanding a temporary boom in commodity prices between 1971 and 74, terms of trade deteriorated further throughout the 1970s and early 1980s. New Zealand’s unsophisticated reliance on agricultural products and its failure to diversify its export basis in time was beginning to backfire.

Thirdly, and related to this, in the wake of global stagflation, the Europeans were not alone in their hesitance to accept agricultural imports. A worldwide shift towards more protectionism occurred in the agricultural sector. This development continued to bedevil the New Zealand economy and only gradually came to an end.

Robert Muldoon, Prime Minister and Finance Minister between 1975 and 1984, attempted to address the economy’s sour performance by pseudo Keynesian methods. As part of the so called “Think Big projects”, he led an ambitious campaign to reduce New Zealand’s dependence on foreign oil imports and increase the domestic heavy manufacturing industry such as the steel industry in Northland. His macroeconomic policy was unfortunately poorly designed and inconsistent.

Though Keynes had called for state intervention to stimulate demand, this did not imply gross misallocation of funds to poorly planned projects.

Muldoon’s short sighted and ill advised course maneuvered unsteadily between heavy state interventionism, including the 1982 wage and price freeze, and cautious flirts with reforms. Essentially, this misguided lingering highlighted his lack of any real vision.

In 1984, the country underwent a severe economic crisis. Muldoon and his National Party had failed to offer anything more sophisticated than a simple wage and price freeze, while clinging on to an overvalued New Zealand dollar. Foreign debt had accumulated to a level of 40 percent of Gross Domestic Product (GDP), well in excess of what crisis ridden countries such as Mexico and Argentina had taken. In this situation, the National Party called a snap election on 14 July. Labour scored an overwhelming victory.

4. Why did it happen and why in New Zealand? Analysing the intellectual sources

“Government bad! Market good!”

Notwithstanding the economic malaise the country faced in 1983 and 1984, the dogmatic zealousness with which economic reforms were implemented by Labour Minister of Finance Roger Douglas and his small group of cohorts in the Treasury Department presents somewhat of a puzzle to the outside observer.

How did a country known for its progressive policies, its welfare state and its anti nuclear and environmental policies so quickly and emphatically embrace the tenets of neoliberalism and the New Right?

The simplest answer is usually provided by the defenders of New Zealand’s neo liberal experience. They are quick to point out that New Zealand faced with tremendous economic structural problems and facing a severe crisis and government bankruptcy had little choice. A small country cannot continue down a path of isolationism, but must accept to navigate the tides and the ups and downs of the global market.

This is, of course, hardly a satisfactory answer. The country still had other policy options, such as moving towards a more neo corporatist direction, as in Western Europe, or a much more gradual and cautious reform programme such as that in Australia.

A more satisfactory answer can be provided if we follow some of the insights generated by the constructivist literature in international relations. Scholars in this tradition have questioned the static structure-agent relation embedded in the neo realist paradigm and posit a more dynamic interrelation between the two. Since our environment is socially constructed and interpreted, actors respond to their perception of the environment. Constructivist scholars emphasise the importance of what states make of their situation. In this process of forming one’s perception, it is of obvious importance what types of intellectual frameworks inform the actor and to what extent these parameters can be manipulated as a result of the inflow and acceptance of ideas. There is now a burgeoning body of literature on the influence of ideas on policy makers. Scholars basing their work on these premises emphasise the diffusion of ideas through network channels. The results of a “cognitive evolution“ might thus disseminate worldwide.

Especially interesting is the suggestion that while ideas might be out in the open, they have to find channels of access to policy makers and are then usually adapted to circumstances and institutional configuration of individual countries.

However, we should remind ourselves, that the influence of ideas on actual policy makers, particularly those originated by academics, has been pointed out quite some time ago.

Keynes himself asserted in 1936:

“Indeed the world is ruled by little else than ideas. Practical men, who believe themselves quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.“

In the case of New Zealand, it seems fairly evident that the type of ideas and intellectual constructs embraced by Douglas and his associates at Treasury were imported from abroad, seeing that they constituted a revolutionary break with New Zealand’s state interventionist and later Keynesian tradition. Since the ideas behind the reform programmes were so alien to the New Zealand context, how can we account for this policy turn? Where, then, did these ideas originate?

In this context, the two major documents released by Treasury following the 1984 elections, Economic Management, and the 1987 elections, Government Management are informative to study. Economic Management was prepared by Treasury in a mere six weeks and provided the outline for the economic policies for the following six years. The spirit and at times even the letter of these documents betray their heavy indebtedness to the ideology of the New Right.

Most centrally, the neoclassical ideology of the Chicago School, the Public Choice writings and Austrian economics left their heavy imprints on the guidelines which were to dominate the New Zealand reform process.

A thorough summary of these intellectual sources would be well beyond the scope of this paper. However, one can adequately summarise these intellectual sources by pointing out the common themes stressed by these writers, namely a fundamental distrust in the state and a reliance on the market for the efficient allocation of resources and the greater good.

Or, to put it into slightly more acerbic terms, just as George Orwell’s pigs had chanted “Four legs good! Two legs bad!’ , so Friedman, von Hayek, Buchanan and their cohorts were chanting “Government bad! Market good!”

While New Zealanders profited over the decades from a benevolent state interventionism, Friedrich von Hayek, epitomising the Austrian school, portrayed the state as an inevitably power maximising leviathan, eager to clutch its paws around individual citizen’s liberties. Thus, the state was virtually guaranteed to intervene into an ever increasing array of individual liberties, thereby perpetuating a journey down a “road to serfdom”. The market, on the other hand, provides innovation and allows for creative discovery.

Chicago School economist Milton Friedman also strongly criticised government’s tendency to curtail an individual’s liberty. He postulated a minimalist role for the state. Only the unregulated market would provide for the most efficient price setting, send out the “right” signals, and thereby foster and encourage the activities of the utility maximising individual. Consequently, Friedman rallied against the welfare state and against any state intervention beyond a closely circumscribed array of public goods.

The sum of actions of rational, utility maximising individuals, on the other hand, would provide benefits for evelyone as the economy would move towards an equilibrium.

This semi religious belief in the invisible hand of the market in efficiently allocating resources and a general distrust in government was complimented by some of the Public Choice theorists, also originating at the University of Chicago as well as Virginia. Public choice applies some of the basic tenets of economics to political activity, arguing that bureaucrats, far from being benevolent altruistic and high spirited individuals, working in the interest of the greater public good, are really just as pettily minded profit maximising as anybody else. Thus, they attempt to maximise their department’s budget, size and scope.

How did Chicago influence New Zealand? What were the channels of influence along which these ideas travelled? And what characteristics of the domestic structure, emphasised by constructivists like Risse Kappen, nourished the implementation of the reform programme?

In this context, it is important to recognise the importance of channels of intellectual exchange with the United States. A number of Treasury officials had received their graduate training in the United States. To some extent, this mirrored the development in Latin American countries, particularly Chile and Mexico, where students trained in the US (the “Chicago Boys” in the Chilean example), applied with almost religious zealot the theories they had been indoctrinated with to restructuring the domestic structures of their home countries.

Similarly, many NZ Treasury officials had spent time at academic institutions in the US or had previous experience at such free market bastions as the World Bank or the International Monetary Fund (IMF).

We should mention in passing that many New Zealanders began to develop a negative self image of their own country as a sleepy backwater prone to old fashioned ‘boring’ Keynesian state interventionism. They were fed up with Muldoon’s heavy handed and fairly authoritarian paternalism.

In addition, we can point to at least two other intellectual sources.

First, there is the IMF. Schwartz points out that New Zealand’s reform programme bears striking similarity to the recommendations of the IMF for structural adjustment. New Zealand removed its wage, price and interest controls. deregulated financial transactions and phased out subsidies for manufacturing and agriculture. As mentioned previously, some NZ Treasury officials had professional experience at the IMF.

Secondly, it is certainly no coincidence that New Zealand launched its reform programme a mere five years after a similarly minded individual had ascended to power at 10 Downing Street. The former colonial power Great Britain still exerted an intellectual hegemony over New Zealand. Thatcher exhibited distrust towards the state and its role in the economy, initiating an expansive programme of privatisation and an extensive restructuring of the public sector. She also significantly curtailed the role of unions.

Meanwhile, in the United States, supply side economics and market liberalisation also carried the day after the election of Ronald Reagan in 1980. Reagan’s policies included measures such as deregulation, prominently in the field of telecommunications and airlines, “rolling back the state”, cutting down welfare expenditures, and enacting tax cuts, particularly at the top end of the income scale.

Following the constructivist research agenda, the particular domestic structures of a host nation also ought to deserve attention in an analysis of the impact of ideas on a given polity. In the case of New Zealand there are indeed particularities, in fact peculiarities which fostered the swift and rapid enactment of a comprehensive package of economic reforms. Two central factors merit our attention here.

First, as part of its colonial heritage, New Zealand had up until 1993 a Westminster style “first past the post” system and only two major political parties. In fact, New Zealand constituted a more perfect example of the Westminster model than the British motherland. Thus, once Labour had got hold of power in 1984, it commanded a comfortable absolute majority of seats. Political opposition thus had practically no way of manipulating the course of events. The same applies for the situation of the National Party after 1990. Because of the amount of power the executive could wield in this system, no checks and balances were in place to act as a dam against the blitzkrieg style policy making approach of Mr Douglas. Thus he and his intellectual companion in the Treasury Department were able to quickly enact their programme.

There was no second chamber of parliament, no effective opposition and no presidential veto to impede the onslaught of reforms.

Secondly, Treasury played a central role in the reform processs. In fact, it “became the principal initiator” and formed a “consistent, cohesive, intellectually convicted group” as Prime Minister Lange later recalled. It was able to do so owing to its “near monopoly position with respect to economic policy advice” within the “unitary, centralized structure” of the political system in New Zealand.

Because the reforms constituted such a radical break with the intellectual tradition hitherto pursued we must look abroad for some of the intellectual sources of the New Zealand sources. In this context it is enlightening to accept the premise of the constructivist turn in international relations and consider how ideas and norms can influence policy makers. The Treasury documents outlining the economic reform programme bear the heavy imprint of the Chicago school, the Austrian school and to some extent the insights of Public Choice. Based on the premise of a distrust of the state and placing faith in the invisible hand of the market, these theories shared in common their advocacy of relying on an unregulated market and a minimised state.

They made their way to New Zealand by way of intellectual interchange with the United States. A feeling of disdain towards Muldoon’s heavy handed authoritarianism, commonly yet falsely associated with Keynesianism helped usher in a paradigmatic intellectual change in New Zealand and a shift towards the free market ideas of Chicago. Domestic structures, such as a Westminster style political system, ensuring an absolute majority for one party, and the strong influence, which Treasury could exert, both contributed to the implementation of these ides in to practice.

5. A Model Strategy? Analysing the implementation of the “New Zealand Way”

In 1984, economic crisis mandated immediate action. Defenders of the reform programme argued that there was little choice to a comprehensive restructuring in light of the apparent failures of Muldoon’s pseudo Keynesianism. In any case, in the early 1990s “Model New Zealand” was touted in the international press as a success story and not only by the OECD. A never ending stream of international journalists, academics, and politicians descended perennially upon Wellington to explore what it was that had turned this small South Pacific nation into a “job creation machine”.

Commonly, New Zealand’s relatively low unemployment rate was mentioned along with its economic growth rate as measured by GDP. In 1993, GDP grew by 4.8 per cent, by 6.1 per cent in 1994 and by 3.3 per cent in 1995. Employment grew by 2 per cent in 1993, 4.3 per cent in 1994, and 4.7 per cent in 1995. Meanwhile, unemployment declined from 9.5 per cent in 1993 to 8.2 per cent in 1994 and again to 6.3 per cent in 1995 (see also appendix).

Government was able to record a surplus in its budget balance, allowing it to enact a tax cut in 1997. The implication was, of course, that both developing countries and the advanced industrial countries could stand to learn a lesson or two from this powerhouse in the South Pacific. Slavish adoption of an IMF style structural adjustment programme seemed to have paid off for the Kiwis. An economy, which up until the 1980s had exhibited sluggish growth and still bore uncanny resemblance to a developing country owing to its heavy reliance on a large commodity sector, was now showing signs of remarkable growth.

Meanwhile, the advanced industrial countries of Europe were suffering no or slow growth while facing a pressing structural unemployment problem. There was considerable debate about liberalising the labour market and restructuring the public sector in order to be able to successfully compete in a global economy. New Zealand had enacted all these changes and seemed to be harvesting the fruits the reform programme bore. It had gone from being extremely regulated and protectionist to being the most ardent supporter of an unregulated market environment. New Zealand’s remarkable reform programme seemed to translate into impressive economic benefits. Thus, the country seemed well suited to serve as a model for coping with the challenges of globalisation.

However, a closer look reveals a much more mixed record. Upon closer inspection, it becomes evident rather quickly that the 1993-95 economic boom constituted little more than a temporary recovery from almost a decade of recession. Throughout the 1980s, the payoffs from the reforms appeared far from evident. New Zealand went through a drawn out period of extremely painful adjustments. On many indicators, such as employment, the economy is returned to pre 1984 levels only in the late 1990s. In the following section we shall examine the economic performance in more detail.

As I will point out, the country paid a very high price for its “success”. Both the social cost is chilling and the issue of loss of national autonomy is far from a purely academic concern for many Kiwis. Privatisation and economic liberalisation has meant that many economic decisions are no longer being made in Wellington, but in corporate headquarters in Australia, Britain and the US.

Due to its reliance on foreign capital both in the form of portfolio investment and FDI the country has made itself vulnerable to the whims of the international financial markets, as became painfully obvious during the Asian crisis. A genuine success is New Zealand’s cutting edge technology in the field of agricultural engineering. But overall, a sober analysis of the costs and benefits of the reform programme cannot lead to the sameenthusiastic conclusions of the international financial media.

Let us consider the economic side flrst. Throughout the 1980s, New Zealand’s macroeconomic indicators were anything but impressive. In fact, between 1985 and 1992 total growth across OECD economies averaged 20 percent, while New Zealand’s economy shrank by one percent. In both 1989 and 1991 GDP growth was negative. Between 1987 and 1991, the unemployment rate more than doubled from 4.1 to 10.7 percent, reaching unprecedented levels and exceeding the OECD small member countries’ average (see appendix 2 for further details). While labour productivity did begin to increase in 1986, this was mainly due to massive labour cutbacks and not even a consistent trend. In fact, between 1984 and 1993 productivity growth averaged only 0.9 percent.

While Muldoon’s practice of heavy borrowing from overseas was severely criticised, Labour actually continued this practice without passing down the benefits to NZ citizens. Both total public debt and public overseas debt continued to increase, the former reaching a record 80 per cent of GDP in 1987. Inflation continued to vex the economy until 1993, averaging 9 per cent.

In the short to medium term the reforms brought about the worst recession in New Zealand since the 1930s. The “reinvention” of government and the public sector translated into a massive rise of unemployment. A country in which unemployment was virtually unheard of now saw workers laid off by the thousands. Unemployment peaked up to record levels.

Yet after eight painful years of transition, the reforms finally seemed to pay off. In December 1991, inflation dropped to below two per cent. In 1993, the balance of payment deficit moved below two per cent of GDP and the government budget showed a surplus for the first time in fiscal year 1993/94. Real GDP began to grow again in 1992 and unemployment began to sink in 1994-95. However, unemployment was still well above pre 1984 levels and so was public debt. According to the OECD, real GDP in 1992 was still 5 per cent below the 1985-86 level. The GDP growth in 1993 seemed to have brought NZ merely back into a general trend of worldwide economic recovery.

In the meantime, New Zealand had become a dramatically different society. Before analysing the more recent development and the impact of the Asian crisis, it is worth shedding some light on the social costs of “Model New Zealand”.

New Zealand has always been proud of its social cohesion. A quasi social democratic commitment to social equality, equal wages and a welfare state had meant a stable, peaceful and socially cohesive society.

Now, as the commitment to “sleepy backward” Keynesianism went flying out of the window, so too, did the commitment to social equality. The income gap rose and as unemployment grew, so did social inequality. Despite a slight increase in productivity, real wages by 1999 had slightly decreased since 1985/86.

A lot of the growth in employment can actually be traced back to the growth of part time jobs which doubled from 200,000 to 400,000 between 1984 and 1995, while the number of full time positions decreased. These part time positions typically do not entail the same amount of benefits as full time jobs.

Following the first wave of corporatisation and privatisation, which lead to massive growth in unemployment, the National party, adding insult to injury, enacted a combined programme of welfare cuts and labour market deregulation in 1990/91.

Subsequently, poverty increased markedly. By 1991, 17.8 per cent of all New Zealanders lived below the poverty line, while the median income had declined by 19.2 per cent between 1982 and 1991.

Perhaps unsurprisingly, crime rates rocketed, violent crime increasing by 50 percent between 1982 and 1991, endowing New Zealand with the dubious distinction of having the third highest violent crime rate in the world.

New Zealand today has the highest youth suicide rate in the western world. For a country which is trying to portray itself as one of the few success stories in creating a bicultural society, Aotearoa New Zealand, the disproportionate rise in poverty and unemployment among its Maori and Pacific Island population presents at the very least a severe embarrassment.

Of serious concern is the emergence a two tier social stratification of society, which parallels racial lines and mirrors the unfortunate American experience. Symptoms of this development are the growth of urban ghettos in South Auckland and the growth of criminal youth gangs among Maori and Pacific Island youths.

Following the cuts in the welfare system enacted by National in 1990, real poverty emerged in New Zealand to a degree previously unprecedented. There was a rapid growth in the number of people reliant on soup kitchens and private welfare organisations. Furthermore, corporatisation and privatisation of the Housing Corporation has obliged this former component of the welfare state to raise profits. A logical result has been the steady increase in rents and sales of a number of flats. This policy accepted the eviction of the most needy, precisely those for whose purpose the system was created. This lead to the emergence of homelessness for the first time in the history of the country.

At the same time, the corporatisation of higher education has meant the introduction of steep fees for tertiary education. Government drastically cut its spending on the education sector. While New Zealand students previously were obliged to a nominal fee of approximately NZ$100 per academic year, rates increased to between NZ$3000 and NZ$20,000 by 1999. Student loans are available, but at market level interest rates only. At the same time, student allowances were cut both in size and scope. This has contributed further to social stratification and inequality. Meanwhile, the policy of privatisation and corporatisation was extended to cover the health sector with the better off being offered the option of buying into private health insurance schemes. Meanwhile. the quality and scope of public health provision is deteriorating.

In the medium to long term, the radical privatisation programme and liberalisation of the economy has made New Zealand extremely dependent on volatile international financial markets. Such dependency became readily apparent during the Asian crisis.

As speculators withdrew their money from the overvalued Asian currencies they did not stop and discriminate, thereby excluding New Zealand. The Asian flu rapidly spread to the country, plunging it into recession and causing a fall of the NZ dollar to below 50 US cents for the first time in eleven years. New Zealand’s Top40 share index followed the dramatic decline of its Asian cousins in late 1997 and again in June 1998. In a sense this was not surprising. seeing that New Zealand suffered from similar problems as Thailand did, namely a large current account deficit, caused by the large inflow of foreign capital. While superficially speaking, the situation might be seen as different from Thailand because a large proportion of the deficit was due to large sale FDI, foreign investors in East Asia had thought exactly that to be true of countries there.

It is clear that the negative impact of the Asian crisis also had to do with the extent to which Asian countries, such as Japan and Korea, had begun to replace Britain and Europe as main outlets for New Zealand products. Owing to the persistence of trade barriers to agricultural sectors, New Zealand farmers were glad to find customers in resource poor commodity importers such as Hong Kong, Singapore and Taiwan. The rise of the New Zealand dollar versus the currencies of most of its Asian trade partners inevitably made its products more expensive and thus less attractive. This also translated into losses in revenues from the tourism sector. Furthermore, since Australia toik 20.3 percent of NZ exports, some indirect effects also came to play a role.

The exposure of New Zealand’s economy to the international financial markets is so high because of a perpetual current account deficit. The external deficit to GDP ratio hovers between 6 and 7 percent, while the foreign liabilities amounted to 80 percent of GDP in 1998. This level of foreign debt was a record high for any OECD country. It makes New Zealand dependent on the volatility of the market. To some degree, this is a result of the policy of the private sector to accrue high levels of foreign debt, in order to finance investment so as to stay internationally competitive. Another large causal factor of the problem of a current account deficit is New Zealand’s radical privatisation programme, enticing overseas investors to invest in a country with a very business friendly environment and causing profits to be repatriated. The stock of foreign direct investment more than tripled between 1989 and 1994, now making up one quarter of the GDP. Whether this level of foreign direct investment can be sustained over a long term period now that key assets of the New Zealand economy have been sold off into private hands is, however, far from certain.

Regardless of whether or not one accepts the neoliberal premise that privatisation of public enterprises results in overall efficiency gains for the economy, for a small country such policy raises the non-trivial concern over real loss of sovereignty. Foreign control over New Zealand is anything but a purely academic subject. In 1995, foreign investors owned half the stock market, 40 per cent of government bonds, while foreign ownership of companies amounted to 33.6 NZ$ billion as compared to government assets of 30 NZ$ billion. Around 90 percent of the banking sector is foreign owned, primarily by Australian companies.

US, British and Australian companies profited from the wave of privatisations, buying up companies at relatively low prices, though NZ taxpayers’ money helped create the bulk of the infrastructure of these companies in the first place.

Major examples of privatisation include the sale of Telecom, Air New Zealand, Bank of New Zealand, New Zealand Rail, and the cutting rights for the states’ forests. At the same time, Asian investors bought up large shares of NZ real estate, both commercial property and forestry land. These developments led one NZ politician to comment that “we risk being transformed into sharecroppers on our land”.

With telecommunication, transportation, the financial sector, the energy sector and increasingly the natural resource base and urban real estate being turned over to foreign owners, constraints on the array of policy measures a NZ government can undertake are quite severe. In a small country, privatisation programmes run the risk of attracting predominantly foreign investors due to the small domestic capital basis. As the case of New Zealand demonstrates this can leave the “independence as a nation substantially undermined”, with decisions affecting the economic and political life of the polity being made in boardrooms in New York, London and Sydney and no longer in Wellington.

This also implies that for the sake of marginally reducing its debt levels, the NZ government has terminally abandoned its control levers over a large section of the economy, now no longer controlled by a democratically elected government, but rather by purely profit oriented private businesses. It has also given away valuable sources of revenue which are now used to maximise private sector profits. These profits, in turn, are being quickly repatriated to overseas locales. For a small country, following the ‘New Zealand Way’ there is a very real danger of turning into a banana republic.

However, while large scale enterprises where sold off to foreign buyers, New Zealand has been fairly successful in developing cutting edge products in a number of agriculture related technologies, thereby occupying specialised market niches. Companies specialise in high tech agricultural products and services, particularly geared towards the dairy and sheep farm industries. These range from technical equipment for livestock feeding to livestock genetics services. Companies have the advantage of profiting from high quality research and development conducted at the Department of Technology at Waikato University in Hamilton and the Department of Agricultural Engineering at Massey University in Palmerston North. High quality research in agricultural sciences is also being carried out on the South Island at the Animal Division and Food Sciences Department at Lincoln University in Christchurch. There are early signs of the development of a “cluster economy” in Hamilton where the university promotes the co operation with the regional Crown Research Institute (CRI) and the emergence of spin off companies commercialising in some of the fruits of the research activity. These are encouraging signs and indicators of New Zealand taking advantage of its experience, expertise, and technical know how to develop unique globally competitive leading products.

This is an indication of acknowledging and profiting from niche markets which other, larger countries are either unaware of or incapable of penetrating. However, we might voice some concern about the fact that these products are still related to agriculture. Thus, the economy’s reliance on this sector is sustained.

6. Conclusion: A Mixed Picture

New Zealand has launched an ambitious and comprehensive series of reforms, commencing in 1984. The country chose to respond to the challenges implied by a globalising world economy in a fairly radical fashion, moving from being one of the most regulated economies in the OECD to the opposite extreme.

This paper has analysed the New Zealand reform programme in a quest to explore its feasibility as a model for other small states in coping with the pressures of globalisation. It is commonly argued that increasing interdependence, exponentially growing trade flows and expanding foreign direct investment are undermining the nation state’s level of autonomy. More precisely, the nation state loses its capability to manipulate key macroeconomic tools and thereby effectively to control key parameters of public policy making. As my analysis has shown, the ‘New Zealand way’ presents a mixed track record. The fairly limited successes of the much heralded “Model New Zealand” have come at a significant cost. Unemployment, poverty, and social inequality all stand at unprecedented levels today in New Zealand. While some macroeconomic indicators have been stabilised, the short to medium term impact of the reforms has been devastating. The short term recovery of the mid 1990s faded in the wake of the Asian crisis.

New Zealand’s high level of foreign debt combined with an extraordinary level of foreign direct investment means that the country is highly exposed to the whims of the international financial market.

Owing to large scale privatisations, initiated in the mid 1980s as a measure to reduce foreign debt and in line with the neoliberal antistatist dogma, substantial sections of the New Zealand economy are now controlled by Australian, American and British companies. This leads to the repatriation of profits from NZ operations and a huge current account deficit. It also means that the NZ government has voluntarily abandoned its capability of controlling large sectors of the economy and has given away revenue generating resources.

The NZ government thus finds the range and effectiveness of its public policy options severely curtailed, not least due to the Fiscal Responsibility Act, the Public Finance Act and the Reserve Bank Act, all of which constrain the role of government in the economy.

It will be interesting to follow the further developments of the New Zealand economy. A current assessment of the reforms, however, cannot lead to an endorsement of any such package of measures for other small states. The costs are quite considerable, while the benefits of a policy of effective capitulation to the market seem fairly limited.

Journalists, policy makers, and academics will probably continue to flock to Wellington to study this most ambitious of all public sector reform programmes.

Yet a comprehensive candid assessment about the overall results of this programme leads to the conclusion that New Zealand in liberalising its economy has overdone it.

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The New Zealand Way. European Consortium for Political Research

The Waikino Tragedy, 1923. Murder in a small New Zealand school – Charles Anderson.

The little known story of New Zealand’s only school shooting.

“An officer found a detonator with a length of fuse attached to a package wrapped in newspaper. Inside were three sticks of the explosive gelignite, enough to destroy the entire school.”

There were cherry blossoms in the valley that day. They would have only a short period in bloom before their flowers fell off. They would have a short life and a quick death before the season began again.

Back then, in 1923, they always reminded an 8-year-old Joan Dobson of summer. Now they reminded her of something else. The blossoms came into use when the town needed decorations for a procession of people that snaked 500 metres down the dust road sandwiched between the sides of the Karangahake Gorge.

They were still in bloom several days after that when Waikino School was burned down. But it would be a year later until they came back when residents passed each other in the street but did not speak about why that school, which had stood alone atop a slope 100 metres above the Ohinemuri River, was shifted further down the hill.

October 19, 1923, was a Friday. School began at nine and would end at three. Joan and her two siblings made their way to class, scrambling up the winding boulder-strewn track that led to the schoolhouse, a white 20 square-metre structure built 15 years earlier. On warm, sunny days like that day they would have views right across the valley to the Owharoa Falls in the south and Mt Karangahake to the west.

Since the Victoria Battery was opened 30 years earlier, Waikino had sprung up into a profitable town that ran to the near constant thud of mined gold ore being pulverised into a saleable metal. It had the largest quartzcrushing plant for gold extraction in Australasia, capable of crushing more than 812 tonnes of ore a day into the consistency of sand.

It was a sound Joan enjoyed when she became older and began heading out to the best dance hall this side of Auckland. The thud was so loud that her parents would seldom hear her come home.

But as an 8-year-old, the challenge was getting to school on time. The headmaster, Robert Reid, though innovative with his teaching, was absolute about attendance. Several years earlier, a truancy officer had visited a local wood salesman, John Higgins, and slapped him with a fine for keeping his children home to work on his property.

Higgins had moved into the area 15 years previous after emigrating from Canada. He leased a plot of land and lived in a tent for a year while he built his house out of ponga. Then his chickens started dying. He blamed the neighbours.

His fences started to be cut and cattle would cross over on to his land to graze on his grass. He blamed his neighbours.

His workmates began to tease him as he spouted conspiracies about an ongoing personal persecution. “Mad John,” they called him. Then, two mornings before that bloody Friday, he found his mare dead in a paddock.

Two days later he loaded his cart, now pulled with only one horse, with wood and called for his son to walk beside him. He started for town. In his belt, Higgins carried with him a Colt automatic pistol and a package wrapped in newsprint.

Katie McGarry, then 13, walked the same road as Higgins and often passed him in the mornings. Sometimes he would offer her and her family rides to school in the cart. However, today, when she saw him coming towards them, she thought he looked white. “He was different somehow,” she said in the 1980s.

But still Higgins asked Katie how her mother, recently gone to hospital, was faring. He asked if she wanted a ride. Katie declined but called out goodbye as he rode off into town. Higgins did not turn around.

He rode the cart by the Waikino Tavern, which was then closed because of a dry vote, and stopped by the post office, where he told his son to drop the wood.

“Why here?” his son asked. “I don’t know, just tip it.”

“Who is the wood for?”

“It’s not for any particular person,” Higgins said. “Just leave it here. I’m going to see another man now.”

‘I’M HERE FOR REVENGE!

Reid, known by his initials RTR, had been the headmaster of the school for the past eight years. That morning he had taken his two older children to school with him along with Pax his brown and white setter, who spent his days lazing in the yard.

The school roll was called and Joan and her sister, Ruth, dutifully replied to their names.

Despite their teacher Miss Kendon’s best intentions, the pair were already preparing for morning break, which was about 20 minutes away. The clock hit 10 minutes past 10 when Pax began to bark.

The dog had never made such a sound at school before, only occasionally knocking over a smaller student by mistake. Reid rose from his desk and went outside to see Higgins, six feet tall with tanned skin and a small moustache, walking up to the school.

The visitor did not seem to register the headmaster. He continued past him before murmuring: “I’m here for revenge.”

Joan looked out the glass window of her classroom door and saw Higgins standing with Reid in the corridor. Before long, the pair had disappeared into the headmaster’s study.

Reid closed the door, turned and saw Higgins standing before him with a pistol pointed at his stomach. He was rambling about being persecuted and about his animals.

Reid, unsure of what he wanted, suggested the pair go to the post office to call Sergeant O’Grady at Waihi police station to talk it over.

“You must be dense if you don’t know what I am here for,” Higgins responded. “I have come here to die but I’m not afraid to stand before my God.”

Reid suggested that, if he wanted to shoot someone, he should go down to the battery and shoot the men he was accusing of hounding him.

Higgins looked at his watch. “I’m wasting my time,” he said.

“You’ll have to shoot me before the children,” Reid replied.

“You leave me no choice,” Higgins said. “If you will have it, then take it.”

He squeezed the trigger and a bullet shot through Reid’s right shoulder and into his jaw.

The headmaster tried to shout a warning as Higgins made his way out of the door. But he couldn’t make a sound. Blood was filling his throat.

Joan heard a bang, like a blackboard hitting the floor, but the class did not take any notice. Miss Kendon went to the door and found Higgins.

He moved past her and fired two shots into the classroom. Joan saw the action but still, no-one seemed to know what was going on. “It was just too difficult to even comprehend,” she said.

Then Higgins turned, crossed the corridor and entered the other classroom. He seemed to be looking for particular victims, recounted Crown prosecutor Sir Vincent Meredith. Slates, hats and books scattered across the floor and children clambered to escape. Some tried to jump out windows. Some hid behind their desks, others tried to hide in cupboards.

Joan passed her headmaster slouched in the doorway of his office. All he could do was wave his arm toward the door.

Katie heard a bang but did not see the gun. She stood up to run but couldn’t. She looked down to see her stockings stained red with blood.

‘YOU WON’T HURT ME, WILL YOU MR HIGGINS?’

Kelvyn McLean, 13, sat at his desk. As Higgins approached him, the boy pleaded with him. He knew the attacker.

“You won’t hurt me will you, Mr Higgins? Remember I used to help you with your firewood.”

The first shot pierced his left leg. Kelvyn sprawled across his desk. He called out for his mother. A second shot was fired into his body.

The teachers had ushered the children to the bottom of the school grounds and told them to go home and tell their parents what had happened. Joan and her siblings headed for their grandmother, who could not believe them. But soon all the neighbours were gathering at a nearby crossroads. When the Stewart family arrived and asked where their son Charles was, nobody knew.

Back at the school, miners from the battery arrived. Some were armed with pea shooters, others had spades.

“What the hell do you want?” Higgins yelled from a window.

“If you don’t come down, we will burn the school down,” one of the miners shouted.

“Well then, let her go.”

Sergeant O’Grady and Constable Olsen from Waihi arrived soon after. They told Higgins to throw the weapon out the window. Instead, he started firing.

The men edged closer to the school and arrived near the study door where Higgins had barricaded himself in. One of the miners smashed in the study door and created a crack to peer through.

Higgins had pulled Reid, who was seemingly lifeless on the ground, into his cupboard and covered him in paper. He was talking about burning the place down.

Constable Olsen pointed his revolver though the split. Higgins spun around and fired a shot at him, striking him in the groin.

Moments later, O’Grady bashed in the door and found Higgins without his gun but with a knife in his hand.

”It’s all done,” Higgins said. He had thrown his gun out the window.

Police handcuffed him and brought him back through the throng of civilians who had gathered. As he was led out, one miner lunged and punched Higgins in the face. They took him outside and pushed him into a waiting police car.

Inside, doctors found Reid still alive, blood-soaked and in shock, but alive. Among the litter of .32-calibre shells on the ground, an officer found a detonator with a length of fuse attached to a package wrapped in newspaper. Inside were three sticks of the explosive gelignite enough to destroy the entire school.

Higgins spent the night in the Waihi police cells and appeared in court the next day. A few hours later he was on a train bound for Mt Eden jail in Auckland.

The two dead boys, Kelvyn and Charles, were buried in Waihi cemetery on Sunday. Joan and her grandmother spent hours making wreaths out of cherry blossoms. There were so many they almost hid the caskets completely. The procession through Waikino, led by two hearses, was half a kilometre long.

The next week a meeting was held to protest an Education Board decision to keep the school open. Children would be taught in the town hall while it was being cleaned.

Later that evening it was the battery workers who first saw the glow on the hill. The flames, fanned by a light breeze was consuming the schoolhouse. By 9pm, it was almost completely destroyed. It was obvious the fire was deliberate. But no-one ever spoke and no charges were ever laid.

Almost 90 years on, though, local Bev Stubbs thinks she knows who did it. It was someone close to the tragedy. Someone who lost their child that day. But she won’t say who. There is still a pain in Waikino that exists to this day. There were some things, she said, that you keep quiet about.

John Higgins was charged in the Auckland Supreme Court with two counts of murder and sentenced to death. He pleaded not guilty by reason of insanity. His sentence was later commuted to life imprisonment. He died in Avondale Mental Hospital in 1938.

Robert Reid never taught again. He retired to Auckland and died at the age of 92.

The four children who were injured recovered but Katie McGarry walked with a limp for the rest of her life; she died in 1987.

Whenever Joan Taylor (nee Dobson) sees a cherry blossom she still thinks of that Sunday in 1923.

This article was compiled from newspaper reports, court records, judge’s notes, interviews including with loan Taylor, one of the last remaining survivors and secondary sources, including an unpublished report by Graham Robb, who interviewed several locals involved in the incident.

Sunday Star Times, 2012

Jacinda Ardern is the very hero the global left needs right now – Van Badham.

“The signal this sends is that this is life in the 21st century.” former NZ Labour Prime Minister Helen Clark.

The achievement here is Ardern’s marriage of the old left economic programme with the new explicitness of identity politics and it resonates because it’s sincere. Failure to bridge these positions will doom all of us.

The future of the left is bright if it looks like Jacinda Ardern and Alexandria Ocasio-Cortes.

“The people closest to the pain should be closest to the power and they should pursue power, without shame.” Alexandria Ocasio-Cortes.

As social media birth announcements go, Jacinda Ardern’s handheld Facebook Live of herself and her newborn Neve Te Aroha Ardern Gayford is charming.

New Zealand’s prime minister introduces her new baby with radiant sincerity. She thanks her midwife and the hospital staff for their generous professionalism, and New Zealanders for their kindness and gifts. With a quick cutaway, she even jokes with the baby’s father about his “dad jumper”.

But as a political communication, the video is matchless. In an epoch overcast by growing shadows of reenergised rightwing authoritarianism, Ardern’s public hospital nativity offers a luminous symbolic affirmation of her leadership not just of New Zealand, but of the western electoral left.

The leader of the first Labour government in New Zealand for a decade shares the explicit left agenda for investment in health, education and climate action, public housing, social justice. Ardern’s pledge to build “a kind and equitable nation where children thrive, and success is measured not only by the nation’s GDP but by better lives lived by its people” is the ancient standard of our side.

Yet while recent celebrity left leaders have failed to win elections, or even nominations, Ardern gained the leadership of her party seven weeks out from an election, and she won.

She nearly doubled the Labour vote, wrangled herself into office with a complex multiparty coalition, and just passed a social democratic budget. Polls have held. The most recent gives her party and one coalition partner, the Greens, enough votes to govern between them. Her personal approval rating is a thumping 76%.

To understand why is to look beyond policy and into her representation of it. What distinguishes Ardern is her active embrace of what Walter Benjamin referred to as “the time of the now” and the diverse and complex identities of a community that no longer sees itself as by, for and of propertied, straight white men. Doing so shatters a traditionalism that imprisons the left even as much as it inspires today’s right.

Ardern is the first elected world leader to ever go on maternity leave. Of this, former NZ Labour prime minister Helen Clark noted:

“These are the kinds of practical arrangements working women make the world over, the novelty here is that it is a prime minister who is making them. The signal this sends, however, is that this is life in the 21st century.”

But the insight is enhanced by considering theorist Stuart Hall’s old observation that “Politics does not reflect majorities, it constructs them”. Local NZ commentator, Michelle Duff, lauded the events of Ardern’s maternity as a national achievement, writing, “Let’s just take a moment to appreciate that we, as a nation, have pushed the boundaries and created an environment where this can happen.” Clark said for New Zealand, this was merely “evolution”.

Observe, also Ardern who is Pakeha, not Maori meeting the British queen wearing a Kahu huruhuru: a Maori feathered cloak “bestowed on chiefs and dignitaries to convey prestige, respect and power”. It was a demonstration of a status conferred, and not stolen, and a representation of a New Zealand unafraid to show pride in its indigenous past even as it engaged in diplomatic pleasantry with its colonial one.

Little wonder that “the prime minister’s empathy with and interest in the indigenous people of New Zealand (is) improving relations between Pakeha [European] and Maori faster than at any other point in history,” a spokeswoman for Ngati-Haua, of the Tainui federation of tribes, has said.

In this case, the spokeswoman was responding to Ardern’s choice of “Te Aroha” as her newborn’s middle name, which refers both to a mountain where Ardern grew up and a Maori language word for love. “Everybody knows what aroha means,” says Ardern in her baby Video. Even though“everybody” doesn’t, every New Zealander certainly does. Ardern’s grasp of the local from giving birth in a public hospital, to announcing her pregnancy on Instagram is exemplary. The town of Te Aroha is planning a celebration of their namesake baby’s birth; plans are to paint its buildings pink.

The achievement here is Ardern’s marriage of the old left economic programme with the new explicitness of identity politics and it resonates because it’s sincere. Failure to bridge these positions will doom all of us.

Theorist Wendy Brown explained this in her 1999 essay of prophetic relevance to today’s particular political moment. Brown writes of a “left melancholy” as a state of wilful, purist political nostalgia, in which the left “has become more attached to its impossibility than to its potential fruitfulness, a Left that is most at home dwelling not in hopefulness but in its own marginality and failure, a Left that is thus caught in a structure of melancholic attachment to a certain strain of its own dead past.”

It’s hard not to see this melancholy in the celebration of electoral defeats as somehow moral victories, when across the world the present, visible reality for women, indigenous people, the LGBTQIA+ community, refugees and so many others is that electoral outcomes represent life and death stakes.

The alternative proposition is to remember “that the people closest to the pain should be closest to the power” and they should pursue power, without shame. This statement was quoted by the victorious Alexandria Ocasio Cortes, who delivered a shock upset to the established order when she won a Democratic primary in New York this week.

In a party where the top three positions are held by septuagenarians, commentator Dana Milbank saw Ocasio-Cortes’s election not as a disruption to the Democratic trajectory but an event of happy augury. “The emerging electoral majority that already dominates the party and will soon dominate the country,” he observed “is progressive, young, female and nonwhite. It is no accident that Ocasio-Cortez, a 28-year-old Latina, is all four.”

If today’s left is going to stand a chance against an ascendant, muscular right, my hope is that she and other avowed socialists emerging within her electoral generation eschew the stale temptations of left melancholy for energising examples of a visionary left that looks as different to its past as a pregnant woman in a feathered cloak does to a room of suited men.

“Strong men” of the right are now lining up governments from Italy to Turkey to the USA. The times of the now are ones in which we can construct majorities of a diversity they cannot and do not wish to represent.

We can hope the influence of Jacinda Ardern and Alexandria Ocasio-Cortes spread, or we can ensure that it does. The stakes for the marginalised remain life and death.

Could New Zealand’s economy survive a China crisis? – Liam Dann.

“The scenarios chosen are almost certain not to accurately reflect any future shock or combination of shocks that occurs.”

In July 2018 China’s economy falters sending shockwaves through the global banking sector. Commodity prices plunge and the world faces its first global financial crisis since the meltdown of 2008.

What happens next is pretty ugly for most New Zealanders, job losses, soaring mortgage rates, falling house prices and a sharp recession.

As a forecast it would be unnecessarily gloomy, although not implausible.

But the grim situation painted by NZ Treasury is not meant to be a prediction it is a model designed to offer a stress test of our economy under extreme conditions.

A Chinese financial crisis is one of three ”large but plausible shocks” modelled by Treasury in its 2018 Investment Statement, along with a major Wellington earthquake and an outbreak of foot and mouth disease.

So what happens next in the event of a Chinese economic meltdown?

The first thing that New Zealand would see is a dramatic fall in demand for our exports. The terms of trade drops 20 per cent. The value of the Kiwi dollar plunges 13 per cent.

For most New Zealanders that means the cost of imported goods, like iPhones, and overseas travel spikes.

But that’s not the really ugly bit.

Disruption to global debt markets would push local funding costs up by 3 per cent, Treasury says.

In other words interest rates would soar, bad news for homeowners who aren’t on fixed rates.

Treasury’s model sees this flowing through to sharp fails in property prices and on the sharemarket.

In fact they estimate the cost of the revaluation if assets and liabilities at $30 billion.

Nearly $20b of that would be due to a 40 per cent crash on the stock exchange both here and around the world, devastating news for KiwiSavers.

For homeowners the immediate price fall would be about 10 per cent, as we saw in the last GFC, survivable for most unless you are under pressure to sell.

But similar falls in commercial property and farm prices would put additional stress on the economy.

Meanwhile, the uncertain outlook would drive a decline in consumer and business confidence. Both retail spending and business investment would fall. Then firms would start cutting jobs.

Some 60,000 jobs would be lost in 2019, with unemployment spiking to 7.4 per cent the highest level since 1999. it is currently 4.4 percent.

The Reserve Bank (RBNZ) would attempt to ride to the rescue of course.

You could expect to see the RBNZ cut rates by half a per cent in its September review to 1.25 per cent, Treasury estimates.

The RBNZ would likely keep cutting over the next six months until the official cash rate was at, or near, zero.

From here the news gets a little better. And as we saw during the 2008 GFC the economy has the strength and flexibility to bounce back.

The rate cuts couldn’t prevent a recession in the March quarter of 2019.

But while demand for goods exports remains low, the depreciation in the dollar, means the annual value stays on target.

“Record low interest rates and an improvement in the economic outlook leads to a pickup in business confidence, driving a strong increase in business investment,” Treasury says.

Life would still be tough for workers.

“Employment growth and consumer spending remain soft throughout.”

In the final wash-up the financial downturn would cost the Crown $157b across five years.

Net debt would rise to 33 per cent of GDP after five years 15 per cent higher than 2017 forecasts.

But ultimately the economy would pass the test.

Treasury notes that these stress tests are designed to assess whether severe but plausible shocks could have impacts that are beyond the financial capacity to absorb, thus putting the provision of public services at risk.

“The scenarios chosen are almost certain not to accurately reflect any future shock or combination of shocks that occurs.”

New Zealand’s moose hunt: A century-long quest for a forest’s final secret – Charlie Mitchell.

The idea that moose roam the most remote corner of New Zealand has long been an urban legend. The New Zealand moose is no ‘Bigfoot’. It’s far more plausible than one might think.

It was listed on the map as “unexplored territory”. A dim cove in the mist, separating the fiord from the colossal forests that cloak the steep valleys of Fiordland.

The famous government steamship, the Hinemoa, had rescued shipwreck survivors in the sub-Antarctic and dropped supplies to the lonely lighthouses dotting the southern coast. But when it crept into the gorge at Doubtful Sound, past the waterfalls and the caves and the steep, rolling ridges, it had entered truly inhospitable territory.

Eight men stepped off the ship at Supper Cove, a small arc of sand at the end of the sound. More than a century earlier, Captain James Cook had anchored his ship, the Resolution, nearer the beginning of the fiord for repairs. Cook was struck by the feeling of utter isolation: ”In this bay we are all strangers,” he wrote in his journal.

The Hinemoa’s men hauled 10 large, wooden crates from the steamship, dragged them through the shallows and onto the sand. There were six females and four males, all less than a year old, about a metre and a half in height at the shoulder. The animals stepped carefully into the dim light.

They were here because the governor of Saskatchewan, Canada had received a request from New Zealand’s Prime Minister, Sir Joseph Ward, for assistance in complementing a grand vision: New Zealand as the world’s largest game reserve, collecting the Earth’s most prized, living trophies in one place.

The animals were duly caught in the frozen wilds and raised in captivity. They were fed cow’s milk from a bottle. They were docile and thought capable of surviving the treacherous boat trip across the world, through the tropics and into the cold, perpetual rain.

It was the beginning of autumn in 1910 and the air was thick with sandflies. When the animals stepped onto the beach, some were scared and returned to their crates, but the men upended the boxes and they toppled out. One animal, in a panic, attacked another, breaking its leg.

The men returned to the Hinemoa. They sailed back down the fiord, away from the darkness and the cargo they’d left behind.

And so the moose, young, small and afraid, were alone. They dissolved into the mist and the Fiordland bush, strangers in a strange land.

THE PAUSE OF AN ERA

One of the last verified photographs of a Fiordland moose, taken in 1952.

There are millions of trees in Fiordland, and Ken Tustin, a biologist, had them all to choose from when setting up his surveillance network.

He’s had cameras in the bush for more than 20 years, hoping they will capture a glimpse of the ghosts of the forest. As the years progressed, so did his cameras his latest ones automatically triggered upon sensing movement, taking photographs of deer, possums, and the occasional tramper. The cameras took many thousands of photos and videos, weathering some of the world’s harshest conditions, where it rains 20 days a month and tremendous storms emerge from the quiet, rattling the trees and turning paths into creeks and creeks into torrents.

He caught one on video, once. In 1995, the deer like animal wandered into frame; The camera was in time-lapse mode so the image was blurry, but the animal’s shape was distinctive. It was nearly black and had a curved back, a thick neck and a beaked nose, swaying through the bush with the lumbering gait of a large animal, unlike a deer but suspiciously like a moose.

It was too blurry to convince everyone, though. The camera was a “monstrous arrangement,” Tustin says, powered by car batteries and primitive by modern standards. It took a photo every four seconds and would only record video when the animal came close, which happened just as it moved out of frame. Since then, the cameras had caught nothing.

Having failed to capture his target, Tustin decided to retire his cameras late last year.

“That’s it. The end of an era”, he told the local newspaper.

“Well, the pause of an era.”

More than a century after the animals disappeared into the forest, the strange tale of the Southern Hemisphere’s only moose population has entered the realm of New Zealand folklore. The moose have encouraged intrepid explorers seeking sizeable bounties and inspired tall tales told in southern pubs.

There have been blurry photos and stray hairs, suspicious droppings and sinister hoaxes. The gossip circle of the West Coast bush still spits out the occasional story of huge antlers glimpsed in the dark, or a strange, cloying smell disrupting the thick smell of deer.

What there hasn’t been is clear, undeniable proof that the descendants of those 10 moose still roam the forest somewhere in the mist, even as the body of circumstantial evidence has continued to grow.

“We’re just talking about a remnant population, hanging on by the skin of their teeth”, Tustin says in an interview.

“The scale of Fiordland is just monstrous. They’re not living in the open, and there’s very few people who frequent the places under the canopy.”

On its face, it sounds completely implausible. A fully grown Canadian bull moose would be 6ft tall at the shoulder and weigh 350kg, roughly the size of a large horse, with giant, sprawling antlers. How could one creature that size, let alone dozens of them, remain unseen for more than 60 years?

But moose are famously elusive, and the Fiordland bush is a uniquely superb landscape for disappearing. Legendary hunting guide Jim Muir, who hunted Fiordland moose in the 1920s and 1930s, once said he could tell a moose was just metres away by its tracks, but he could not see it through the trees. They are silent and solitary and move like shadows.

“They’ve got all the senses that make humans seem rather clumsy,” Tustin says.

“I can think of half a dozen times where I’ve been within a step or two. You can smell them and you’re surrounded by sign… You feel the hair stand on the back of your neck. Out of all those years, only half a dozen times.”

He began his search for moose in the early 1970s at the behest of his then employer, the Forestry Service. During their 70 days in the bush, his team found a cast antler, what was then the most convincing evidence of a live moose in decades.

At the time, he believed the moose would soon become extinct, they would struggle to compete with deer for food. But shortly afterwards, helicopter deer hunting became popular and mass deer culls greatly reduced the population. It was a respite for the moose.

In the time since, Tustin has spent the equivalent of several years in the bush, much of it joined by his wife, Marg, searching for moose. Although he took his cameras down, he is not capitulating: He had been trying to track one particular moose since 2002, which he believed roamed through Herrick Creek every July up to about 2011. It stopped leaving physical signs, leading Tustin to assume it was dead. The cameras were pointless.

He still ventures into the forest for weeks at a time, despite his advancing age, hoping to map the route of another moose.

“I’m 72 now, which is a pain in the arse, being this old,” he says.

“It’s demanding, and I like it like that. If it was soft and easy you wouldn’t feel you were having such an adventure. I’m still on the case. Maybe not with the same intensity as a few years ago, but we’re still out there.”

‘FOLLOW YOUR NOSE’

The sheep farmer was tramping through the forest when he smelled something unusual, a cloying, honey-like scent, clinging to the wind. An animal, but not a deer, and not any of the plants familiar to him from his previous expeditions into the bush.

Steve Jones had a tarpaulin and a week of food, but chose to walk on. The sun was sinking and the hut was some ways away. He realised later what he had sensed: The elusive moose, likely bathing in a small stream near him in the Hauroko Burn.

“There was a moose not 200 metres upwind from me, and I walked on,” he says. He had ignored his own advice: “Follow your nose”.

The Australian has made several trips to Fiordland in search of the moose. His quest began when he picked up a copy of Australian Deer magazine in the 1990s, which featured a photo of famed Hastings moose hunter Eddie Herrick carrying a bull moose’s head on his back, trudging through the creek which now bears his name, where many historical moose sightings took place.

Only three moose trophies were ever obtained in New Zealand; two were shot by Herrick, including the first bull moose killed under licence, in 1929. One of the moose was old and weak and missing one of its legs, likely as a result of gangrene, it was thought to be the original moose that had broken its leg in a panic 20 years earlier.

Jones recreated that trip, an arduous slog through the wilderness. He enjoys the enormity of the landscape, the sense of wilderness: “It is somehow deeply reassuring and invigorating to be alone with all that silence, moss and vastness,” he says in an email.

He says it wasn’t the first time he had come close. On one trip, he was crawling through a stream when “something very large and dark surged up and thundered off in a cloud of spray further up the stream, giving me just the barest glimpse of it”, he recalled.

It was not a bull, as he could not see its antlers; he followed it to a patch of sand, where he saw its large, fresh prints. The animal ventured into a swamp, where he circled it for an hour, catching occasional glimpses of its leg through bush. He had his gun but refused to take the shot and so was conquered by the coming darkness.

“It simply could not have been anything else,” he says.

“I would never shoot at something I could not see clearly, it would be dangerous and unethical. I’m glad I didn’t though as they are rare and special and it would have been just a waste.”

Jones, who has hunted deer for more than 40 years, has detailed his years long hunt for the moose on his blog. Like others who have gone searching, he says the evidence is unmistakeable: Only a moose could feed on branches three metres high, leave footprints that large.

Around this time every year, Jones yearns for Fiordland. He plans to come back next year to finally capture a moose on camera. He says he has a strategy, which he declines to reveal, but may arrange helicopter supply drops ahead of time so he can stay in the bush for some time, searching.

He’s not sure if he would make the photos public; He seeks personal, not public triumph.

“The herd might be better off if I did not publicise it, so they might just be enlarged on my wall”.

The way we punish crime adds to our prison bill – Julia Fyers.

Only the US has more of its population locked up per capita than New Zealand. Opting for more home detention would save a lot of money.

New Zealand has the second highest rate of imprisonment in the world. The only country with more of its population behind bars per capita is the USA and they’ve acknowledged it’s a problem. We are on par with third world countries with our population of prisoners.

This should be a source of great international shame for our country. Importantly though, the problem is not crime, it’s punishment.

Penal populism drives the social and financial disaster that is our prison problem. Criminal justice policies have escalated wildly in response to voters’ supposed desire for increased punishment of crime.

As tax payers, how our money is being spent should be of importance to us. The costs of running New Zealand’s 18 prisons are enormous. The public need to know the actual cost of prisons and imprisonment, and make an informed decision on whether a “tough on crime” stance is worth it.

Here’s some numbers: The operational cost of keeping one person in prison for one year is in excess of $120,000. Currently, we have 10,695 prisoners. This means the cost of our prisons is more than $1.28 billion a year.

Then there are the added capital costs of building and maintaining prisons. To give one recent example, the proposed expansion to Waikeria Prison is forecast to cost $1 billion.

Perhaps more importantly though, there are the inter-generational health and social costs of having a system that doesn’t work.

It is a common misconception that prison deters crime and that the best approach to offending is to “lock them up and throw away the key”. Lobby groups such as the highly unsensible Sensible Sentencing Trust appeal to that sentiment.

Thankfully, current sentencing laws don’t make this possible (much to the relief of the New Zealand taxpayer). Inevitably, prisoners are released back into the community.

However, in addition to the costs of incarceration, further avoidable social and health costs occur after release. Convicted criminals have the stigma of a criminal record, potential media attention around their offending and a gap in their employment history.

Although the Government spent $181 million on prisoner reintegration in 2017, it is unsurprising that, after 12 months of release, 31.2 per cent were back in prison.

We can’t stop crime, but we can change the way we punish it.

Two thirds of prisoners have addiction issues which remain untreated in prison. Rehabilitation programmes in prison don’t work because they are not transferable to a community setting.

Prisoners are released with $350 from Winz, no job, no home, no transferable life skills and nowhere safe to go. It doesn’t take a rocket scientist to work out what is likely to happen next.

.

If we want to make our communities safer, we need to give offenders the tools they need to stop the cycle of crime.

Compare the cost of all this to the cost of keeping one person on electronic monitoring for one year around $40,000.

Home detention is no walk in the park. You are confined to the perimeters of your property 24/7. As your sentence progresses, you may earn the right to attend drug and alcohol counselling for a couple of hours a week or to go to the gym for two hours a week.

Besides that, you are confined to the four walls of your home. Towards the end of your sentence, you may be allowed four hours of social leave a fortnight. Some electronic monitoring has the capability to alert probation if drugs (including alcohol) are being consumed. Your every move is monitored by a GPS tracker.

Another benefit of this type of sentencing is that the offender is able to work, if he or she is lucky enough to find a supervisor to vouch for him. This means actual reparation can be made to victims, as opposed to $2 per week from a prisoner. Community sentences have the benefit of allowing an offender to stay within society whilst ensuring the public are kept safe, at a fraction of the price.

To deter crime, people need tools that enable them to reconnect with society. Downsizing prisons will free up money to be redirected to where it will help reduce the continuing cost of people who have been damaged and marginalised by the prison system. Remember, one third are back in prison within 12 months of release.

Addiction causes crime, and the opposite of addiction is connection. Offenders need to be reconnected to society with jobs, social inclusion, positive relationships and help with the issues that caused them to offend in the first place.

Decreasing the prison population will not increase crime or risk to public safety. It is time to stop the nonsense, end the war on drugs and create evidence based policies. Rather than more prisons and prisoners, increased management of electronically monitored offenders could help reduce recidivism. An extension of clean slate legislation could remove the stigma which can prevent an offender’s economic reconnection.

You wouldn’t buy a billion dollar house if it was eventually going to fall off a cliff, so why are we willing to make an investment that we know is going to fail?


Julia Fyers has a masters degree in law and is a legal researcher, working on issues of human rights and drug and prison policy reform.

Ring-fencing Rental Losses. An officials’ issues paper – NZ Inland Revenue Department.

Prepared by Policy and Strategy, Inland Revenue, and the Treasury.

March 2018

Background

The Government has committed to a number of policy measures aimed at making the tax system fairer and improving housing affordability for owner occupiers by reducing demand from speculators and investors.

One of these measures is to introduce loss ring fencing on residential properties held by speculators and investors. This means that speculators and investors will no longer be able to offset tax losses from their residential properties against their other income (for example. salary or wages, or business income), to reduce their income tax liability.

Current settings

Under current New Zealand tax settings tax is applied on a person‘s net income. We do not generally ring fence income and losses from particular activities or investments. This means that there is generally no restriction on losses from one source reducing income from other sources though there are some exceptions to this general treatment.

Investment housing is currently taxed under the same rules that generally apply to other investments. This means that rents are income. and interest and other expenses (other than capital improvements) are deductible. Capital gains on sale of the property are not taxed unless the property is on revenue account. This could be, for example, because you are in a land related business (for example, a land dealer or developer), bought the land for resale, or sell the property within the bright line period of either two or five years (depending on when you first had an interest in the land). Most rental property investors hold their property on capital account and are not subject to tax on the capital gain.

While rental housing is not formally tax favoured. there is an argument that it may be under taxed given that tax free capital gains are often realised when rental properties are sold. The fact that rental property investors often make persistent tax losses indicates that expected capital gains are an important motivation for many investors purchasing rental property. While interest and other expenses are fully deductible, in the absence of a comprehensive capital gains tax not all of the economic income generated from rental housing is subject to tax. There is therefore an argument that. to the extent deductible expenses in the long term exceed income from rents, those expenses in fact relate to the capital gain, so should not be deductible unless the capital gain is taxed.

Aim of the proposed changes

The introduction of loss ring fencing rules is aimed at levelling the playing field between property speculators/investors and home buyers. Currently investors (particularly highly geared investors) have part of the cost of servicing their mortgages subsidised by the reduced tax on their other income sources, helping them to outbid owner occupiers for properties. Rules that ring fence residential property losses. so they cannot be used to reduce tax on other income, is intended to help reduce this advantage and perceived unfairness.

Officials are interested in feedback on the suggested changes outlined in this paper.

How to make a submission

Officials invite submissions on the suggested changes and points raised in this issues paper. Send your submission to who.webmaster@ird. govt.nz with “Ring fencing rental losses” in the subject line.

Alternatively, submissions can be sent to:

Ring fencing rental losses

Deputy Commissioner, Policy and Strategy Inland Revenue Department

PO Box 2l98

Wellington 6l40

The closing date for submissions is 11 May 2018.

Submissions should include a brief summary of major points and recommendations. They should also indicate whether it would be acceptable for Inland Revenue and Treasury officials to contact those making the submission to discuss the points raised, if required.

Submissions may be the subject of a request under the Official Information Act l982, which may result in their release. The withholding of particular submissions, or parts thereof. on the grounds of privacy, or commercial sensitivity, or for any other reason, will be determined in accordance with that Act. Those making a submission who consider that there is any part of it that should properly be withheld under the Act should clearly indicate this.

Summary of the suggested changes

The proposed loss ring fencing rules will mean that speculators and investors with residential properties will no longer be able to offset tax losses from those properties against their other income (for example, salary or wages. or business income), to reduce their tax liability. The losses can be used in future years. when the properties are making profits. or if the person is taxed on the sale of land.

A summary of officials’ suggestions for the design of the loss ring fencing rules is set out below. These design issues are discussed in more detail in the chapters that follow.

Property the rules will apply to

It is proposed that the loss ring fencing rules will apply to “residential land”. We suggest that the rules use the definition of “residential land‘” that already exists for the bright line test which taxes sales of residential land bought and sold within either two or five years.‘

The rules would not apply to:

A person’s main home

A property that is subject to the mixed use assets rules (for example, a bach that is sometimes used privately and sometimes rented out)

Land that is on revenue account because it is held in a land related business (that is, a business of land dealing, development of land, division of land or building).

Portfolio basis

It is suggested that the loss ring fencing rules should apply on a portfolio basis. That would mean that investors would be able to offset losses from one rental property against rental income from other properties calculating their overall profit or loss across their portfolio.

Using ring-fenced losses

Under the suggested changes. a person’s ring fenced residential rental or other losses from one year could be offset against their:

Residential rental income from future years (from any property); and

Taxable income on the sale of any residential land.

Interposed entities

Under the suggested changes, there would be special rules to ensure that trust, company, partnership, or look through company cannot be used to get around the ring fencing rules. It is proposed that such an entity will be regarded as “residential property land rich” if over 50 percent of its assets are residential properties within the scope of the ring fencing rules and/or shares or interests in other residential property land rich entities.

Where that is the case. it is suggested that any interest a person incurs on money they borrow to acquire an interest in the entity (for example, shares. securities, a partnership interest. or an interest in the trust estate) would be treated as rental property loan interest. The rules could then ensure that the interest deduction is only allocated to the income year in question to the extent it did not exceed the distributions from the entity (deemed rental property income). any other residential rental income, and residential land sale income. Any excess of interest over distributions, rental income, and land sale income would be carried forward and treated as “rental property loan interest” for the next income year.

Timing of the introduction of the rules

It is proposed that the loss ring fencing rules will apply from the start of the 2019/20 income year. The rules could either apply in full from the outset, or they could be phased in over two or three years. We are interested in feedback on which of those approaches should be taken.

*

Property the rules will apply to

Under the proposed changes, the loss ring fencing rules would apply to “residential land”. The rules would use the definition of “residential land” that already exists for the bright line test.

Definition of “residential land

There is already a definition of “residential land” in the Income Tax Act, which is used for the bright line test which taxes sales of residential land bought and sold within two years. It is proposed that the loss ring fencing rules apply to land within that definition with the exceptions discussed below. Using the definition already in the legislation would avoid the additional complexity of having different definitions for different rules.

“Residential land” means:

Land that has a dwelling on it

Land for which there is an arrangement to build a dwelling on it

Bare land that may have a dwelling built on it under the relevant operative district plan rules.

However, “residential land” does not include:

Farmland

Land used predominantly as business premises.

“Residential land” is not limited to land in New Zealand it would extend to overseas land. This means that losses from overseas residential rental investments could not be offset against other income in New Zealand.

Apart from the exceptions below, the rules would apply to all residential land, whether or not it is currently rented out. including bare land. This is because the proposed rules are aimed at levelling the playing field between residential property speculators/investors and people looking to buy their own home or land to build a home on.

Main home

The proposed loss ring fencing rules will not apply to a person’s main home. This is to ensure that a person who has a boarder in their main home, or who rents out a spare room occasionally, would not have to apply these rules, which are primarily targeted at residential investment properties. The meaning of “main home” would be the same as for the bright line test, which has a main home exclusion.

A person can only have one main home at a time. If someone has more than one residence, their “main home” would be the one they have the greatest connection with. That would be determined by looking at factors such as:

The amount of time the person occupies the dwelling;

Where their immediate family live;

Where their social ties are strongest;

Their use of the dwelling;

Their employment, business interests and economic ties to the area where the dwelling is located; and

Where their personal property is kept.

Trusts

A significant number of family homes in New Zealand are owned by family trusts. The definition of “main home” would therefore ensure that a home owned by a trust can be regarded as a main home.

Like with the bright line rules, we suggest that a dwelling owned by a trust only be considered a main home (so not subject to the loss ring fencing rules) if it is the main home for a beneficiary of the trust. provided that a principal settlor of the trust does not have a different main home.

This restriction would ensure that trust ownership cannot be used to claim multiple properties as main homes. and so not subject to the loss ring fencing rules.

Mixed-use assets

The existing definition of “residential land” in the Income Tax Act would also include holiday houses that are sometimes used privately and sometimes rented out. However, many such properties would be subject to the mixed use asset rules, which already provide for the quarantining (or ring fencing) of losses where there is low income earning use of the asset.

We suggest that property subject to the mixed use asset rules should be scoped out of the rental loss ring fencing rules, because the mixed use asset quarantine rules will cover most if not all mixed use asset losses. We are interested in feedback on whether property subject to the mixed use asset rules should be outside the scope of the loss ring fencing rules.

Revenue account land in dealing, development, subdivision and building businesses

Land that is held in certain land related business is on revenue account. so the profits on sale are taxed. This applies to land held in dealing, development, subdivision, and building businesses.

At balance date, taxpayers in these businesses are likely to have a number of properties on hand, though they may not be currently rented out.

It is proposed that residential rental or other losses could be used against taxable land sales to reduce the taxable gain to nil, with any further unused losses remaining ring fenced to future rental income or taxable income on land sales. While taxpayers in the business of land dealing, development of land, division of land, or building may have losses in respect of properties on hand at balance date, those losses being able to be used against income from other sales or rental activity in the year would mean that their businesses would be unlikely to be disadvantaged by the ring fencing rules. In most cases the income from their sale or rental activity would be expected to exceed their losses.

However, in any overall loss making year, we do not consider it necessary to ring fence losses for land held in these businesses. There is not the same concern about any of the deductible expenses in relation to land in these businesses relating to untaxed gains, as all of the businesses’ land is on revenue account. Therefore, we propose that the ring fencing rules not apply to land that is on revenue account because it is held in a land related business. This would enable taxpayers in these businesses to use losses arising in any year against other income for example within their corporate group (as they are likely to be companies).

Property owned by companies and trusts

There is an argument that the loss ring fencing rules should apply only to individuals (that is, natural persons), and not to companies or trusts. This argument could be made because company losses are effectively ring fenced inside the company, as are losses in a trust.

However, such an approach would leave open the possibility of individual speculators or investors operating through a company or trading trust, holding their residential properties in that vehicle, and offsetting the losses against their labour income. It would also mean that a family trust holding residential rental property and also some other investments could offset rental property losses against income from the other investments. For example, it would not be fair for a professional operating through a company or trust to not be subject to the ring fencing rules where another person operating as a sole trader would be.

It is acknowledged that there may be some compliance costs for some corporates that own some residential property incidentally to their business. However. it is considered that limiting the ring fencing rules to individuals would significantly undermine the fairness of the rules. For this reason. we suggest that the ring fencing rules should apply to all taxpayers, not only to individual taxpayers.

Portfolio basis

It is suggested that the loss ring fencing rules should apply on a portfolio basis. That would mean that investors would be able to offset losses from one rental property against rental income from other properties calculating their overall profit or loss across their portfolio.

The alternative, a property by property basis, would mean that each property would need to be looked at separately, with losses on one not able to be offset against income from another.

A property by property approach would be stricter than a portfolio approach, achieving the highest level of ring fencing. However, it would add complexity, as losses would need to be tracked separately for each property. Moreover, a property by property approach may just result in taxpayers with portfolios re balancing their debt funding to avoid having loss making properties (or at least minimising the extent to which any particular property is loss making). That response to the rules applying on a property by property basis would be inefficient. and may mean that this approach may have no real advantage over a portfolio approach adding considerable complexity and increasing compliance costs for no real gain.

Also, a property by property approach may be seen as unfair in that if a taxpayer has two properties and breaks even on the ponfolio overall, the taxpayer’s tax position would depend on whether they break even on both properties or make a gain on one and a loss on the other.

We therefore suggest that the ring fencing rules apply on a portfolio basis. so a person with multiple properties would calculate their overall profit or loss across their whole residential portfolio.

Using ring-fenced losses

Under the suggested changes, ring fenced residential rental or other losses from one year would could be offset against:

Residential rental income from future years (from any property); and

Taxable income on the sale of any residential land.

Most residential rental investors are not subject to tax on the sale of their investment properties under current tax rules. However, in some circumstances. the sale of a residential rental property may be taxed under one of the land sale rules in the Income Tax Act or the taxpayer may have taxable income on the sale of other residential property (not rented out). This could be the case, for example, because the taxpayer is in a land related business (for example, a land dealer or developer), bought the land for resale, or sells the property within the bright line period of either two or live years (depending on when they first had an interest in the land).

Under the suggested changes. where a taxpayer sells a property that is subject to the ring fencing rules (that is a residential property) and the sale is taxed, any ring fenced losses the taxpayer has could be used to reduce the taxable gain on sale to nil. Any remaining unused losses would stay ring fenced, and could be used against any future residential rental income or taxable income on other residential land sales.

There is an argument that in the case of a property with ring fenced losses that is taxed under one of the land sale rules on disposal, the losses should be able to fully utilised (that is unfenced) at that point. and be used to offset any other income of the taxpayer. This would reflect that all of the economic income from the investment has been taxed (the rental stream and the capital gain), and that the investor should not be penalised for making an overall loss on the investment.

However. if the rules are to apply on a portfolio basis, as suggested, allowing accumulated losses to give rise to a tax loss on a disposal subject to one of the land sale rules would create risks. For example, it would enable a portfolio investor to sell a property that has made a small capital gain within the bright line period. offset that gain with ring fenced losses from across their portfolio, and apply any remaining losses from the portfolio against other income. While there are ring fencing rules in relation to the bright line test, they only apply to deductions for the cost of the land, not other costs.

Enabling taxpayers to sell their lowest capital gain makers within the bright line period and access what might be substantial portfolio wide accumulated ring fenced losses would significantly undermine the credibility of the rules.

For this reason, we propose that where a disposal is caught by one of the land sale rules, ring fenced losses should be allowed to be used only to the extent they reduce the taxable gain to nil, with any further unused losses remaining ring fenced.

Structuring around the rules

There are two main structuring opportunities that we have considered, creating specific rules to deal with. These concern interest allocation and the interposing of entities.

Interest allocation

We have considered whether specific interest allocation rules are required, as without them investors may be able to structure around the loss ring fencing rules. For example, this could be done by reorganising funding so that business assets other than rental properties are debt funded, and rental properties are equity funded to the greatest extent possible.

However, interest allocation rules would add substantial complexity and compliance costs. Because money is fungible, it is very difficult to attempt to match borrowings to particular investments (tracing). Stacking rules (for example, allocating debt firstly to ring fenced investments) may be seen as unfair. And pro rata interest allocation between assets that are subject to the ring fencing rules and those that are not would require regular valuation of assets.

If interest on any loan that was secured by a residential property was included in the rules, this would create issues for many people who use their rental properties to secure loans for their businesses. This would impact on small and medium business’ access to capital. In addition. many arrangements could be even more difficult to apply interest allocation rules to, as revolving credit facilities are often used to fund both a rental property and a business.

We do not propose specific interest allocation rules because of the considerable complexity and compliance costs they would add, which would be particularly onerous on smaller taxpayers.

Interposed entities

Under the suggested changes, there would be special rules to ensure that a trust, company, partnership, or look through company cannot be used to get around the ring fencing rules. These ownership structures are referred to here as entities for simplicity.

Otherwise a simple way to get around the ring fencing rules would be for a taxpayer to interpose an entity to hold a residential rental property, and borrow money to invest in or acquire an interest in the entity. For example, a taxpayer could borrow money to buy shares in a company, which uses those funds to buy a residential investment property. Because the money is borrowed to buy shares, the individual taxpayer would be able to claim deductions for the interest on the borrowings. and offset those amounts against other income sources.

However, if the taxpayer had used the borrowed money to purchase the property directly themselves, the interest expense would be attributable to the residential rental investment, not shares, so would be taken into account in determining whether the person‘s residential rental activity was profit or loss making. And if the rental activity was loss making. losses would be ring fenced under the proposal rules.

This simple mechanism is illustrated in figure 1.

A suggested approach to dealing with interposed entities is to specifically define when such entities would be “residential property land rich”. It is proposed that this would be the case where over 50 percent of the entity‘s assets are residential properties within the scope of the ring fencing rules, and/or shares or interests in other residential property land rich entities.

The rules could then treat dividends, interest, or distributions from the entity as being “rental property income”, and treat interest on borrowings to acquire an interest in the entity (for example, shares. securities, a partnership interest, or an interest in the trust estate). as “rental property loan interest”. The rules could then ensure that the interest deduction is only allocated to the income year in question to the extent it did not exceed the distributions from the entity (deemed rental property income), any other residential rental income, and residential land sale income. Any excess of interest over distributions, rental income, and land sale income would be carried forward and treated as “rental property loan interest” for the next income year. This would mean that losses from rental properties would not reduce the tax on other sources of income.

This suggested approach is illustrated in figure 2.

We are interested in feedback on this suggested approach to preventing the simple interposition of an entity to get around the ring fencing rules.

Timing of introduction of the rules

It is proposed that the loss ring fencing rules will apply from the start of the 2019/20 income year.

The rules could either apply in full from the outset, or alternatively they could be phased in over two or three years. If the rules are phased in, this would be done by reducing the proportion of losses that could be used to offset other income over a two or three year period, until no losses could be used to offset other income sources.

For example, if phased in over two years, 50 percent of residential investment losses could be used to offset other income in 2019/20, and no offsetting would be allowed in 2020/21.

Tax law changes are not usually phased in. But this possible approach has been suggested to allow affected investors more time to adjust to the new rules, or to rearrange their affairs before the rules apply in full. However, we note that phased introduction of the rules would result in some additional complexity.

We are interested in feedback on whether the loss ring fencing rules should apply in full from the 2019/20 income year the simpler approach or be phased in over two or three years.


First published in March 20l8 by Policy and Strategy. Inland Revenue, PO Box 2198. Wellington, 6140.

Ring-fencing rental losses an officials” issues paper. ISBN 0-978-0-478-424454

Australia has lost its compass for the world, we should look to Jacinda Ardern for inspiration – Thom Woodroffe.

Australian values are neither clear nor consistent. If we want to make a difference in the world, we should follow New Zealand’s lead.

Of all the Generation X world leaders elected in the last few years, think Justin Trudeau in Canada, Emmanuel Macron in France, and even the 31 year old Sebastian Kurz in Austria it is New Zealand’s Jacinda Ardern who has the firmest sense of what kind of country she wants to lead on the world stage.

Just four months since taking office after a decade of conservative rule, and while trying to carefully balance the views of three parties in government, New Zealand is already showing signs of regaining its trademark standing as a small but confident, principled and creative presence internationally. And Australia should take notice.

“Foreign policy is perpetually a balance between interests values. But too often it is easy to focus on the security and economic imperatives of the first and forget the second, or not realise that the two are inextricably linked.

Australia used to be the gold standard for charting the right course. Our foreign policy in the 1980s and early 1990s was characterised by Gareth Evans’ concept of being “a good international citizen” which he used to say was about “no more and no less than the pursuit of enlightened self interest”. Our crafting of the Cambodia Peace Plan and the Canberra Commission on the Elimination of Nuclear Weapons were two clear examples, as was our opposition to apartheid. But these were pursued within a wider understanding that our future prosperity and security was in Asia and we also needed to cement a role for ourselves in the region, not least through our founding of Apec.

If anything, New Zealand wore their values even more strongly on their sleeves, famously sending a ship with a cabinet minister on board to protest at the edge of a French nuclear testing site in 1973, and then in 1985 refusing entry to the nuclear powered USS Buchanan (which unfortunately caused the breakdown of their involvement in ANZUS).

But it is important to remember this was driven by the people. These are clearly the days Ardern longs for. Speaking on Tuesday before travelling to Australia she said, “Being a child of the 80s affected me in many ways and that included international events. Rather than just reading about the impact of apartheid in South Africa for instance, or nuclear testing in the Pacific, I saw instead each of these issues through the lens of our response. They weren’t history lessons, they were lessons in our values, what mattered to us, and that our size bore no relation to the impact our voice could have.”

Ardern also said that she wants the next generation of Kiwis to see their country standing up for what it believes in on the world stage. And her announcement this week that her foreign minister and deputy, Winston Peters, will also take up the ministerial title and mantle of nuclear disarmament is one of the first manifestations of that. He will push for the early entry into the landmark treaty on the prohibition of nuclear weapons, which Australia opposes despite a long history of leadership on the issue at all levels. The campaign group that just won the Nobel Peace Prize was founded in Melbourne after all.

Ardern’s focus on climate change, what she has called her generation’s nuclear-free movement will be another. In December she said New Zealand would explore a new visa category for climate affected Pacific Islanders, and this week Peters announced at the Lowy Institute in Sydney that New Zealand would “reset” its engagement with the region taking a cue from the eloquent case put at the same lectern by Australia’s own Richard Marles last November. Indeed, it is telling that next week Ardern will visit the Cook Islands, Niue, Samoa and Tonga before she has been to the United States, China, Japan or Europe, New Zealand’s four largest trading partners besides Australia.

Admittedly, Ardern’s strategy to embrace the Asian Century and shore up relations with the United States and others is less clear and here Australia excels as Malcolm Turnbull’s reception in Washington last month demonstrated. But otherwise it seems, we have lost our own compass for the world.

While most people singularly and somewhat naively focus on international aid as a measure of a country’s global heart (where, all told, we have gutted more than $11bn in recent years), there are countless other examples, not least the fact that despite taking up a seat on the UN Human Rights Council this week, our international reputation continues to suffer as a result of the treatment of asylum seekers on Manus and Nauru, and because of a lack of progress on reconciliation (a point Kevin Rudd made in these pages this week). And for all the money we spend on peacekeeping, we don’t spend a dime on peacemaking.

Even in recent years when we have become exercised about particular matters diplomatically like our opposition to the death penalty there is a tendency for us to only stand up for these values as they apply to those who hold an Australian passport.

Take for example the case of Andrew Chan and Myuran Sukumaran in 2015. Former Liberal MP Phillip Ruddock argued at the time that our calls for clemency probably would have been received more powerfully if we had consistently made representations on behalf of the hundreds of Indonesians on death row in the Middle East. And if anything, we should have used their tragic executions to start a new regional push against the death penalty starting by trying to reduce the number of crimes that carry a death sentence and pushing for its removal for some crimes, with greater transparency on these executions in the meantime.

Put simply, when our values and what we stand up for are neither clear nor consistent, we cannot expect others to respect them. This was something New Zealand learnt in the 1990s when its principled opposition to a French resolution on Haiti at the UN allowed it to weather any impact to its bilateral relations, a far cry from John Key’s assertion in 2015 that sending troops to Iraq to fight Isis was simply “the price of the club”, referring to the Five Eyes intelligence network.

Unfortunately, last year’s Foreign Policy White Paper didn’t give you any sense of what as a country we believe in, or what we want to do. Understanding what we believe in as a nation, what we are good at, and what upsets us is central to crafting an effective foreign policy.

Penny Wong put it well recently when she said in a Fairfax interview that “to me, fundamentally, foreign policy is about your place in the world and how you see Australia in the world. Having a sense of what your purpose is as important as the day-to-day management.” We may be good at the latter, but we cannot expect to make much of a difference if that is all that we do.”

Either way, values are not the monopoly of any one particular side of politics, or even one country. If we want to make a difference in the world, we should watch closely what happens in Ardern’s New Zealand.

Thom Woodroofe is a UN Representative with Independent Diplomat, a non-profit diplomatic advisory group. @thomwoodroofe

The Guardian

New Zealand Neoliberal Corruption. Citizen Thiel – Matt Nippert.

Peter Thiel is an internet oligarch who believes in a stateless world free of regulation or limits on human endeavour. He made millions on PayPal, and billions on Facebook.

He lobbied New Zealand Cabinet ministers and public servants, presenting himself as our exceptional angel of venture capital.

He was secretly granted citizenship, but within months of his “solemn vow” appeared to move on. He has barely seen since and has recently been buying up real estate while selling down his local technology investments.

What remains are his boltholes in Queenstown and questions over whether political pressure played any part in his granting of citizenship.

Thiel declined to be interviewed for this story, but issued a brief statement about the saga saying, “I believe in New Zealand”, and noting that he’s invested $50 million in New Zealand tech companies.

This story is, instead, based on dozens of interviews and hundreds of pages of documents sourced under the Official Information Act.

This is the story of Citizen Thiel.

PART ONE: CRUSH

It was 1995 when Peter Andreas Thiel first visited New Zealand. He was 28 and the German-born naturalised American was yet to found a single company. The billionaire-to-be would have been indistinguishable from the hordes of middle-class tourists also enjoying the thrills of Queenstown.

Thiel was drawn to the region’s adventure tourism industry at least partly out of his disdain for government regulation. In his only local public speech to date, at an Auckland University conference in 2011, he spoke of his white-knuckled ride on the Shotover Jet as being among “all the crazy things you can do in New Zealand that you can’t do anywhere else, risky things that are probably not allowed [elsewhere]”.

Thiel — now worth $3.7 billion and with deep links to Western intelligence agencies, the Trump administration and the Silicon Valley firms dominating the internet — seemed, in 1995, to still be in search of a purpose. Around this time the Stanford graduate changed jobs from judicial clerk to securities lawyer to derivatives trader.

Three years later he’d find that purpose, co-founding online payment company PayPal to set himself up to make a small fortune that he’d later leverage into a large one.

According to his 2012 book Zero to One, his purpose is more than making money and extends to escaping limits of both the human body and social rules. An interest in lifespan extension (including transfusing blood from the young), musing whether freedom was compatible with democracy, and support for artificial island habitats free from the constraints of traditional government and laws have led critics to caricature him a Bond villain for the internet age.

PayPal: Co-founded by Thiel in 1999, he made $75 million when the online payments firm was sold to eBay in 2002.

And, as with most caricatures, underneath lies a grain of truth. Thiel says in Zero to One that his first company sought to do far more than simply make online transactions easier. “PayPal had a suitably grand mission — the kind that post-bubble sceptics would later describe as grandiose. We wanted to create a new internet currency to replace the US dollar.”

Zero to One sketches out Thiel’s vision of technology enabling a world post-government, and is broadly shared by PayPal’s other founders — a group of young men who grew into a new generation of technology oligarchs.

Elon Musk went on to create Tesla and SpaceX; Reid Hoffman started LinkedIn; Steve Chen founded YouTube. As their influence grew this crew would become known as the “PayPal mafia”.

While the other members of the PayPal mafia were spreading their wings and priming their rockets in the United States, Thiel took a short detour and sought to formalise his relationship with New Zealand.

His application included two years of tax returns, the disclosure of two reckless-driving convictions in February 2000 (officials ruled these were minor and wouldn’t count against his application), and a schedule of assets as part of a listing of his net worth.

Thiel made more than $1 billion from a 2004 investment of $750,000 in Facebook. While he’s since cashed out his shares, he still serves as a director on the social media giant’s board.

Incomplete redactions show Thiel was by this point rich from PayPal — sold to online retailer eBay — but not yet super-rich. His declared net worth at this point ran to only nine figures. His $750,000 punt in 2004 on a small start-up called Facebook was yet to level him up to the realm of the world’s billionaires.

But in the end, only a relatively small slice of wealth was needed to nudge Thiel’s application over the line. The points-based visa he sought awarded him eight for his age — young migrants being preferred — and four for business experience. Applicants are allowed to pump up their score by setting aside funds to invest and awarded one point per $1 million. Thiel was just one point short.
Correspondence from his advisers talked about the possibility of investing the required million into vineyards or property, and Thiel himself indicated on his application form he had a particular interest in the South Island.

Damper Bay: His $13.5m purchase of a 193-hectare section on the shores of Lake Wanaka first brought Thiel’s citizenship to notice as his new status meant the deal did not require Overseas Investment Office approval.

As it turns out, that $1m tagged for investment ended up stashed in a term deposit for the required two years. And, of all the financial institutions in all the places he could have chosen to park this money, documents show he opted for the National Bank’s provincial branch in Whanganui.

The choice of an out-of-the-way bank seems to speak to Thiel’s tightly-guarded privacy. Bank workers in Whanganui — hardly a tech mecca, with an agricultural economy and population of barely 40,000 — would have been unlikely to pick their new client as an offshore dotcom multimillionaire.

This preference for discretion didn’t end there. In a New York Times opinion piece explaining why he was bankrolling defamation action against a gossip site he stated: “The defense of privacy in the digital age is an ongoing cause.” Last year his lawyer lobbied New Zealand’s Department of Internal Affairs to redact information from material released under the Official Information Act.

And, shortly after news of Thiel’s surprise New Zealand citizenship broke in January 2017, Jeremiah Hall of San Francisco’s Torch Communications acknowledged questions for Thiel about the issue.

“I’ll be back in touch if we have any comment,” he said.

He did not get back in touch.

In the 12 months since, the Herald has 10 times asked questions of Thiel — about his citizenship, his shrinking holdings in Kiwi software firm Xero, why he appears to have ghosted New Zealand, ties between his firm Palantir and local intelligence agencies, and even the celebrity classic, “What do you think of New Zealand?” And 10 times he again did not get back in touch.
But on the eve of publication of this story — a year and a day after questions were first asked about this saga — Thiel broke his silence with a short statement.

“I believe in New Zealand, and I believe the future of New Zealand’s technology industry is still underrated. I look forward to helping it succeed long-term.”

Thiel has stayed in touch with the country with short visits every few years, but it was around the 2008 United States presidential election that he took a serious focus on Middle-earth.

Thiel’s horse in United States politics at this time wasn’t nearly as successful as Trump would be eight years later. He’d initially backed Ron Paul for the Republican nomination, and after the libertarian outsider tanked in primaries he switched to party candidate John McCain. But McCain also tanked and Democratic candidate Barack Obama swept into the White House.

John Key: Thiel was enamoured with the National government, and met the Prime Minister in 2010 to expound on his plans to boost the New Zealand tech sector.

Where one window to government closed in 2008, another opened. Days after Obama’s victory, a fresh-faced financier named John Key took control of the Beehive. Thiel liked what he saw.

Rod Drury, whose cloud software company Xero is the biggest winner from Thiel’s brush with New Zealand, says his keystone shareholder was then disillusioned with the United States.

“If you know Peter, and if you’ve tracked him for years like I have, he was always into small government. He really likes that, compared with the US at the time, we were pretty much a free-market economy, fairly lightly regulated. You can imagine the affinity he’d have with that,” he says.

Rod Drury: Xero founder and chief executive Drury counted Thiel as one of his earliest and most significant investors.

Drury acknowledges a closer examination of the National Party’s platform would likely see them placed on the left wing of the Democratic Party, but he says Thiel was more interested in the general direction the country seemed to be going.

This affinity escalated into a courtship that would see multiple meetings with Cabinet ministers, lawyers from a high-end law firm shuttle from Auckland to Wellington to lobby Internal Affairs, and bold statements made about rerouting rivers of Silicon Valley capital and the establishment of a high-tech incubator in Auckland.

By the end New Zealand — or at least some officials in Internal Affairs — were smitten. But even Drury acknowledges we may have been naïve.

PART TWO: COURTSHIP

Thiel came on heavy in the two years ahead of his audacious and ultimately successful bid for citizenship in 2011. He visited the country three times during the period in a whirlwind of lobbying, business deals and public relations.

He met no fewer than four senior members of the Cabinet — including the Prime Minister — to present his case for turbocharging New Zealand’s tech industry, arranged his first business investment (five years after first being granted an investment visa), started buying real estate, and gave his first and, so far, only interview with New Zealand media.

The formal part of his bold quest saw his lawyers Bell Gully travel from Auckland to Wellington in late 2010 to hand-deliver a letter from Thiel to the Minister of Internal Affairs with his truly exceptional request.

“In the course of pursuing my international business opportunities, my travel, personal philosophical commitments and benefaction, I am happy to say categorically that I have found no other country that aligns more with my view of the future than New Zealand,” Thiel wrote.

“It would give me great pride to let it be known that I am a New Zealand citizen.”
The letter was accompanied by a note from his lawyer making it clear his client’s application would require the Minister to exercise rare discretion under “exceptional circumstances” rules, as Thiel was not intending to live here and sought unprecedented “citizenship at large”.

“Mr Thiel’s principal place of residence cannot be described in the context of the ordinary rules,” Thiel’s lawyers said.

In mid-2010, Thiel had incorporated Valar Ventures, a limited partnership which he said in his letter was intended to “become an active player in New Zealand’s venture capital industry”. The fund’s name is a reference to the mythical beings who created the world in The Lord of the Rings. Its first major target was Xero.

The accountancy software company was floated in 2007 and, three years on, the local sharemarket still didn’t know what to make of this ambitious company burning cash which saw profitability as only a medium-term objective. Its share price was languishing close to its $1 launch.

Drury, the company’s energetic founder and chief executive, says Thiel’s representatives came knocking in early 2010.

“They came to our offices, we met them a few times, they seemed impressed. So we took distance out of the equation and said, ‘Well, shall we come up and meet Peter?’”

That trip to San Francisco to pay homage to Thiel’s court was, recounts Drury, “one of the most exciting meetings that I’ve had”.

Drury says he doesn’t share Thiel’s libertarian views but is laissez-faire when it comes to ideology.

“They’re quite intense those guys, those PayPal guys. They’re really seen as royalty in the global tech scene. And he’s incredibly bright, and he’s always been a contrarian. He’s one of those people [who will] always stretch you,” Drury says.

Recounting the mood at the time, Drury conveys the impression of a starstruck nation.

“Everyone was so excited to see him. I think we were so flattered that someone of that status in the technology industry was even interested in New Zealand.”

In October 2010, Xero announced Thiel had tipped $4m into the company.

Drury describes this development as a “massive deal” that was instrumental in growing his company into the multi-billion-dollar business it is today — and said Thiel began looking locally, unsuccessfully as it turned out, for more Xeros.

During this period Thiel seems to have made a conscious effort to court the new National Party Government, meeting Key, Finance Minister Bill English, Minister of Economic Development Gerry Brownlee and Minister of Science Wayne Mapp.

Bill English: The then-Finance Minister also met Thiel in May 2010, but officials say no records of what was discussed exist.

English confirmed a May 2010 meeting, but said no records of what was discussed existed. Official Information Act requests to the Prime Minister’s Office regarding the meeting with Key were not answered — but the then-Prime Minister told Parliament in 2013 he’d met Thiel on “a few occasions” and described the relationship as “cordial”.

In early 2011, Thiel’s camp made contact with the New Zealand Venture Investment Fund (NZVIF), seeking to partner with the taxpayer-funded body to invest further in local tech firms.

NZVIF staff also made the pilgrimage to San Francisco that August, and a deal was inked in December to set up a $40m fund. Of this, Thiel was supposed to kick in $15m and the Government $20m, with Stephen Tindall and handful of other smaller local investors making up the difference.

Crucially, the deal included a generous buy-back clause, allowing Thiel and his private-sector partners to split losses with the Government if the fund tanked, but collect all the profits if it did well. The clause had been standard in NZVIF deals — intended to encourage the development of local venture-capital markets — but its inclusion with the Valar fund would later raise questions in Parliament and help see the clause retired from use.

While this was being finalised, Nathan Guy replied to Thiel’s letter, advising him to submit a formal application to officials who would draft a report for the Minister’s consideration.

That report from officials highlighted his connection to ministers, especially Key. Thiel wasn’t just giving a talk at Auckland University that June, he was “presenting at a conference in Auckland in July (along with the Prime Minister)”. Thiel didn’t just donate $1m to the Christchurch earthquake recovery, he made a donation “facilitated by Mark Weldon, chief executive of NZX, on behalf of the Prime Minister”.
Thiel stated an intention to help establish a technology incubator in Auckland and set up a landing pad in San Francisco to assist New Zealand companies breaking into the United States.

Largely on the basis of these non-binding intentions, that single earthquake donation and the relatively modest $4m invested to date in Xero, along with another — failed — Pacific internet cable company, officials concluded he was an exceptional philanthropist and investor and recommended his application be approved.

“It is interesting … I think the Minister may go for it,” one official emailed to another at the time.

Gerry Brownlee: The then-Minister for Economic Development also met Thiel during his whirlwind of government lobbying in 2010.

Peter Dunne was Minister of Internal Affairs when news of Thiel’s citizenship broke a year ago, but he was not at the time of the application. He wouldn’t have gone for it.

Speaking from his Khandallah home, Dunne admits he initially didn’t know who Thiel was when the news broke. But after becoming aware he was a “person of significance”, Dunne immediately reviewed the citizenship file. His copy, of course, was unredacted.

Now retired and transitioned from his trademark bowties to an open-necked collar, Dunne is relaxed and frank in saying he is unconvinced by the case made by officials.

“I looked at the documentation the Minister would have received, which basically said, ‘These are the facts and, by the way, we recommend it’. I thought, ‘I can’t quite see how you to get to this conclusion on the face of the fact he’d been in the country only 12 days.’”

The 12 days became a minor national scandal for some when it was belatedly revealed — after having been initially redacted at the request of Thiel’s lawyers until the Ombudsman forced its release — and showed the billionaire had failed to meet even 1 per cent of the typically required 1350 days of in-country residence in the five years prior to being granted citizenship.

Information released by Immigration NZ shows his fleeting appearances during this period were typical. In the three years after he was awarded his investor visa in 2006, he spent six days in New Zealand. In total, during the 16 years prior to Guy awarding him a passport, his combined stay in the country amounted to fewer than five weeks, or around the same length of stay as a single visit by an typical backpacker.

Not a Dunne deal: Peter Dunne, Minister of Internal Affairs at the time Thiel’s citizenship became public, says questions remain over his predecessor’s decision.

Dunne’s opinion of Thiel’s bid is: “Give me citizenship: I want the passport, but don’t expect me to put in an appearance.”

Asked what he’d have done if he’d been in the chair in 2011, Dunne said: “To me, had the application come across my desk for consideration, I’d have said no.”

But he wasn’t the one occupying the Minister’s office. That was Guy who, in the days after his decision was revealed a year ago, pleaded ignorance.

“I don’t recall this specific application,” he said.

Dunne is unable to understand Guy’s decision to approve Thiel’s application. “I can only speculate. As I say, the documentation gives no clue. Whether it was the prospect of investment from Mr Thiel, or whether there was some form of political pressure, I don’t know.”

For its part, Internal Affairs denied their former minister’s suggestion that its advice was subject to political interference. “The Department is satisfied that it tendered robust information and advice on what the minister of the day had to weigh up in making a decision on whether or not to grant citizenship.”

The senior official who wrote the recommendation in 2011 has since retired from Internal Affairs and moved to Australia. He did not return repeated calls or emails from the Herald.

With a signature, Guy approved Thiel’s request application on June 30, 2011, and a month later, in a private ceremony at the New Zealand consulate at Santa Monica in California, the technology billionaire swore on the Bible to become Citizen Thiel.

An award of citizenship is effectively permanent and is granted without subject to conditions. It allows voting and residence rights and the ability to run for office, and can only be revoked under extreme circumstances.

Thiel’s lawyer used almost religious language in explaining how important his client considered this moment.

“Mr Thiel has advised that citizenship is irrevocable. It is the public recognition of a hallowed bond. For that reason and others, he is prepared to make this solemn allegiance to thereby embrace and contribute to the life, history and culture of New Zealand.”

PART THREE: GHOSTING

With passport in hand, the eye of Citizen Thiel began to wander almost immediately.

Six months after the Santa Monica ceremony that had made him a citizen, the mission listed on Valar Ventures’ website — which had previously billed itself as having been “founded to help grow New Zealand into a hub of technological progress” — was rewritten to remove references to the country that had just gifted him his new nationality.

Valar was instead given a global mandate and would go on to make investments in Brazil and Australia. The fund invested in precisely one new company locally after 2011 — retail software firm Vend. The investment used funds from a mixture of private and public sources through the NZVIF joint venture.

While publicised numbers around Thiel splurging capital locally look impressive — $4.5m initially in Xero and Pacific Fibre, $15m into the NZVIF partnership, another $22m into Xero in late 2012, with tens of millions more in 2013 — the headlines overlap.

Thiel’s initial $4.5m in local investments was included in the NZVIF deal as his initial contribution. The latter Xero and Vend investments also included co-investors and government cash from its matching contribution to the NZVIF partnership.

And this partnership fund itself languished and didn’t even meet half its billed potential — the NZVIF joint venture was initially touted as worth $40m, with Thiel contributing $15m — but he ended up tipping in just over $7m.

Thiel’s financial structuring uses multiple entities, and the terms of venture capital deals are notoriously secretive with hard numbers and details of third-party investors not made public, so the extent of his investment into local tech companies is difficult to confirm and has been redacted from official documents.

A spokesperson for Thiel said the billionaire’s total investment to date in local tech firms was $50m.

Meanwhile, offshore, Thiel was running into some challenges. His hedge fund Clarium Capital Management lost the house on a large and wrong bet on oil supplies collapsing. Outside investors fled and by 2011 it was one-twentieth the size of its peak with barely a couple of hundred million of Thiel’s own capital remaining.

But all was not lost. Facebook was edging towards a public listing that would allow Thiel to exit and crown one of the most spectacular deals of the internet era. The $750,000 investment he’d made in in 2004 was largely cashed out following the 2012 IPO for more than $1.3b.

If Thiel was growing increasingly distant from New Zealand, Xero’s Drury says he still noticed the halo effect from his celebrity shareholder. “It’s always hard to measure these sorts of things absolutely, but having Peter involved was a massive deal for us.”
Thiel sat for a time on the company’s US advisory board as it sought to break into the world’s biggest market, and provided introductions to new partners and investors in Silicon Valley.

Drury: The Xero founder says Thiel’s involvement was crucial in turning his company into a multi-billion-dollar business.

When Thiel became involved, Xero was loitering on the start-up crossroads to success or failure and had a share price of just $1.50. The company’s stock went on to pass $40, and the company is now one of New Zealand’s largest with a market capitalisation in excess of $5b.

“Look back to 2010. It was an incredibly important time for us and he provided a huge amount of value. And now, at 1.2 million customers, 1800 staff all over the world? That was a key time. We’re incredibly grateful for his support.”

The support for Xero — from which various Valar vehicles would make hundreds of millions of dollars in capital gains as the share price surged — is the most tangible legacy of Citizen Thiel.

Re-reading Thiel’s letter today, with the benefit of hindsight, it seems other non-binding claims made during his bid for citizenship are less fulfilled. Valar Ventures has been inactive in this country for years. Its New Zealand website resembles digital tumbleweed. The Auckland technology incubator never eventuated. Thiel’s touted involvement with the San Francisco landing pad for Kiwi companies reportedly ended once his three-year sponsorship deal expired in 2013.

The Herald could find no other charitable giving by Thiel in New Zealand since that $1m earthquake appeal donation and, given the opportunity to provide details, Thiel’s representatives did not respond.

And in hindsight, that million-dollar donation doesn’t seem entirely selfless. It occurred while officials were mulling Thiel’s application, and the application explained the donation in such a way to avoid it being seen as an attempt to influence decision making.

Thiel: A speech at Auckland University in 2011 remains the sole public appearance Thiel has made in New Zealand.

“Our client has been approached on behalf of the Prime Minister to play a role in the offshore initiatives in relation to the Christchurch Earthquake Fund. It is anticipated there will be publicity about this. This has arisen subsequent to the original application, such that its context is unique to the circumstances. Our client was anxious to avoid it being considered in any manner relative to the merits of this application,” his lawyers wrote in March 2011.

A month later that anticipated publicity for the donation did indeed occur, the result of self-promotion by proxy. Wide local coverage of this selfless act of charity was triggered by a press release: From Bell Gully on Thiel’s behalf.

And claims Thiel would use citizenship to act as an ambassador-at-large seem like mere pillow talk. In a widely reported interview with Business Insider, Thiel described New Zealand as a “utopia”. This interview also occurred during the citizenship application process, and Bell Gully quickly forwarded this clipping to Internal Affairs officials.

The Herald has been unable to find any public statements by Thiel promoting New Zealand since.

Tim Hunter, columnist for National Business Review, noted in February that Thiel and Valar had been distant from these shores in recent years.

“Looking back, it seems Mr Thiel’s love affair with New Zealand is less intense that it was when he was seeking citizenship,” Hunter wrote.

Even New Zealand’s Ombudsman, the statutory neutral arbiter for making decisions on government information, seemed perplexed about the case when compelling Internal Affairs to confirm Thiel had been in the country only 12 days in the qualifying period prior to being awarded citizenship.

“In Mr Thiel’s case, there had been and continued to be public disquiet that the minister granted him citizenship in circumstances where his connection to New Zealand was not publicly known and, even in hindsight, was not obvious.”

PART FOUR: BOLTHOLE

News of Thiel’s surprise citizenship — overnight he became New Zealand’s second-richest man — came as his profile in the United States reached its zenith.

In January 2017, Thiel was serving on newly elected President Trump’s transition team, after having been an early backer of the outsider candidate. He’d spoken at the Republican Convention and donated $1.5m to Trump’s campaign, with the biggest cheque coming during the candidacy’s lowest ebb — in the days after the release of the infamous Access Hollywood “Grab ’em by the pussy” tape.

Trump connection: Thiel’s support for Trump continued after the election, including organising a summit of tech leaders during which he was seated next to the president-elect.

His move into mainstream politics — having previously backed fringe libertarian candidates — caught those who knew him both here and in the United States by surprise. “We were all surprised that he was so into Trump. But it was consistent with his contrarian and small government point-of-view,” says Xero’s Drury.

Hard news about the extent of Thiel’s involvement with the Trump administration has been hard to come by.

In lieu of Thiel talking, fevered rumours have swirled in the American media about what role he plays in United States politics. He’s been variously reported: having soured on Trump; being considered by Trump as a candidate for the Supreme Court, intelligence director or ambassador to Germany; being suddenly concerned about technology company monopolies; and running for Governor of California.

But as Drury notes, despite the reports, there’s been little resulting evidence to underlie the above claims. Thiel is neither Trump’s man in Berlin nor suddenly seeking to regulate the likes of Facebook (of which he remains a director).

“He’s been relatively quiet since all of that [the US election]. I keep a really close eye on that stuff, and he don’t seem around that too much anymore.”

In a twist, Thiel also may have been ghosted — a slang term for the practice of ending a personal relationship by suddenly and without explanation withdrawing from all communication — himself. Michael Wolff’s explosive book Fire and Fury has him telling a fellow billionaire that, despite being forewarned Trump was prone to outrageous flattery and hollow promises, he’d taken the bait and now found himself on the outer.

“He absolutely was certain of Trump’s sincerity when he said they’d be friends for life — only to basically never hear from him again or have his calls returned,” Wolff writes of Thiel.
His sudden elevation to the centre of politics in the United States occurred as Thiel appeared to be busy trimming his remaining business exposure to New Zealand.

In October 2016 he activated the buyout clause in his NZVIF partnership — requesting his public partners keep this news secret — seeing him book a gain conservatively estimated at $30m from his contribution of $6.75m, while NZVIF was left barely breaking even.

The clause had been a feature of all NZVIF deals, and its original purpose to was to encourage new local venture-capital firms to invest in nascent start-ups. Its use by Valar — a savvy international operator which effectively went all-in on a single listed company — caused some concerns within the Government over what exactly it had got itself into.

A 2014 government-commissioned report into NZVIF said the deal with Thiel “creates some difficult optics where, in the Valar Ventures example, the taxpayer is offering an American billionaire a loan at less-than-market rates”.

The buyout led to finger-pointing in Parliament over who was accountable for the one-sided deal, and has cast serious doubts over the future of the fund as whole.

But Thiel wasn’t done cutting his local links. In the middle of 2017 he cashed out of his flagship New Zealand investment in Xero, with Crunchbase now listing the company among Valar’s exits. According to available records, Thiel’s only remaining local equity investments of note are small — recent valuations put it as worth a few million — stakes in Vend and e-reader technology creator Booktrack.

Drury sees Thiel’s subsequent ghosting as more a lack of opportunities than any misrepresentation. Despite boosters, with only four million people the New Zealand economy is on par with a mid-sized city internationally and our technology industry is nascent.

A flying visit by Thiel to New Zealand in December to visit an Auckland gallery gives some credence to an alternate explanation. The venue, on Karangahape Rd, was home to The Founders Paradox, the latest work by artist Simon Denny, with the ideas of Thiel as a central focus.

According to art critic Anthony Byrt’s notes accompanying the exhibit, Thiel’s hardcore libertarian and Lord of the Rings-inspired world-building fantasies — along with his position at the apex of the technology ecosphere — have seen him become “one of the most influential thinkers in the world”.

(Asked by another gallery visitor what he thought of the exhibition — including a large rendering of himself as a blue-skinned knight fighting the forces of fair elections and democracy — Thiel reportedly said: “It’s actually a work of phenomenal detail.”)

Denny’s work paints New Zealand as a stepping stone — and safe haven — for powerful technologists seeking to escape government limits on human activity.

A crude description of this attraction for New Zealand came last year in The New Yorker where Reid Hoffman, the co-founder of LinkedIn (and a member of the so-called PayPal mafia) said the country had become shorthand for apocalypse insurance in Silicon Valley.

Boltholes: Fellow PayPal founder Reid Hoffman has described New Zealand as a preferred hedge for Silicon Valley tycoons concerned about the collapse of the United States.

“Saying you’re ‘buying a house in New Zealand’ is kind of a ‘wink, wink, say no more’,” Hoffman says.

Drury says this trend started after the September 11, 2001, terror attacks on the US and hasn’t slowed, and considers Thiel as part of it.

No other Silicon Valley hedger has quite gone to the length of Thiel, however. Internal Affairs figures show the libertarian internet tycoon is the only businessman in at least the past six years to have secured citizenship despite neither living nor intending to live here.

Drury is aware of the controversy his one-time shareholder has caused, but says the episode was worth it.

“So, maybe we were all a little starstruck back then.” he concedes.

“My view is these people are net contributors, even though they’re not here all the time. I sort of joke, ‘If you can give me a 10-pack of passports, let me flick ’em around’.”

Dunne, however, is unimpressed by Drury’s enthusiasm, saying the Thiel episode raises issues about both how citizenship was obtained and how much the country values its passport.

“It’s a transparency issue,” he says.

“As far as I can tell, having been granted citizenship, Mr Thiel has been conspicuously absent ever since.”

Thiel’s presence in recent years appears to have been primarily related to real estate. An unexpected quirk in the tale of Citizen Thiel is how, despite his reputation as an investor with a Midas touch, he seems to be one of the few people to lose money in New Zealand’s recent frothy real estate market.
In 2011 he bought a striking four-bedroom Queenstown holiday home constructed with Swiss granite and known locally as the “Plasma Screen”, due to its expansive windows, for $4.8m.

Six years after he purchased the house, the local council assigned it a capital valuation of only $2.5m. Thiel similarly lost $200,000 on a Parnell property he bought in 2010 and sold two years later.

The value of the land that brought him to public attention in New Zealand — a 193ha block of former Crown leasehold farmland on the shores of Lake Wanaka — is also intriguing.

Bought by Thiel for $13.5m in late 2015, the previous owners had tried — and failed — over the previous decade to subdivide the section. Council planners said the site was classed as an “outstanding natural landscape” and it was unlikely they would approve consents for any more than the single building already present.

Real estate agent Graham Wall told the local paper while the land itself — rolling scrub hills — wouldn’t seem out of place on the Desert Road, Thiel was immediately sold on its isolation.

“You turn up there with a jaded billionaire from San Francisco and it’s, ‘Oh my God, I could have a house here and not see anything except lakes and mountains — the best thing on Earth and for $10m!’”

For now council records show this land appears to be being banked. In the two years since Thiel made his purchase, no resource or building consent applications have been filed.

Exactly what is intended for the land at Damper Bay is unknown, but Thiel has built at least one physical bolthole in this country.

According to building consent records, his Queenstown Plasma Screen holiday home last year suffered a serious fire, causing more than $500,000 in damage. Building consents for the repairs filed with the Queenstown Lakes District Council in May show Thiel took this opportunity to rebuild and repurpose a walk-in closet.

Plans now describe this nook as a panic room.

NZ Herald

‘World’s finest walk’: New Zealand’s Milford Track being spoiled by tourist hordes – Eleanor Ainge Roy.

Epic trail in the wild south was once a path to inner peace but popularity has trampled its tranquillity.

Dawn is hours away on a cool Fiordland night but the packed bunk rooms of Clinton Hut are seething with activity. Tramping boots stomp against wooden floors, bunks creek as their inhabitants fling their bodies around, and an urgent, sleep-fogged crescendo of angry whispers is building in the gloom.

“Shhhhhh,” hisses someone from a top bunk, directing their wrath towards the noisy hiking party who like to tramp in the dark, the New Zealand bush enveloping them in a silent black cloak.
“Shhhhh!” hisses another low voice, from the other side of the hut. “It is against the rules to be so noisy!”

The day before 40 strangers had set off from the tourist hub of Te Anau, full of energy and wearing fresh socks. Final flat whites were sculled at overpriced cafes and out-of-office signatures attached to emails.

In a soft, grey drizzle typical of this remote corner of New Zealand, trampers of varying abilities heaved 20kg packs on to a speedboat proclaiming “Adventure starts here” for the 40-minute journey across Lake Te Anau to the start of the world-famous Milford Track, in Fiordland national park.

Milford has become synonymous with beauty, a 54km, four-day tramp through beech forest, over glacier-fed rivers and up the climatic MacKinnon Pass, an alpine crossing more than 1,100 metres above sea-level.

100 years ago the Spectator magazine declared Milford “the finest walk in the world” – and the name has stuck.

There are nine “great” walks in New Zealand, with Milford the jewel in the crown. But as its popularity has surged so too have fears from New Zealand trampers and conservationists that the pristine natural environment is being spoilt by the hordes of tourists drawn to its beauty and supposed tranquility.

Last year, nearly 120,000 people hiked the great walks; a 12.4% increase on the season before and nearly 50,000 more than a decade ago.
Nearly 8,000 walk Milford in the summer season, which is booked out again this year, and has raised hut fees from NZ$54 to NZ$70 a night. If you choose to tramp privately with Ultimate Hikes, you’ll be paying between NZ$2,000 and $3,500 for your wilderness experience, which includes booze, three-course meals and “total comfort in the last place you would expect it”, according to the website.

Contractors preparing the tracks over the winter season say they’ve barely finished clearing the native bush of human faeces and toilet paper in time for the next deluge of hiking boots about to descend.

“On some of the great walk tracks, you find poos and toilet paper just littered down the side of the tracks,” a contractor told Radio New Zealand. “It’s disgusting.” It is now harder to book a walk on the Milford Track than it is to see Justin Bieber or Adele live in concert in Auckland.

Ross Harraway, 74, has been a Department of Conservation hut warden on the Milford Track for nearly a decade. At close to seven feet tall, Harraway looks like Gandalf the wizard, and in the evenings moves silently through the beech trees with a staff, explaining the local flora and fauna to visitors. “A lot of people aren’t interested in what is around them anymore, that’s what I’ve noticed,” says Harraway, talking to the Guardian from his cosy warden’s hut over a cup of billy tea.“

They are ticking off their bucket list and getting through it as quickly as possible. They have their headphones in, head down, get up on the pass [Mackinnon], take their photos and the tick is over. People do have a lot of different reasons for doing it … but increasingly, people do it because it has become a bit of a status thing. ”Gerard Emery decided to tramp all of the great walks after seeing them advertised on an Air New Zealand flight. He tramps with old friends and they dine lushly every evening – steaks, tin mugs of whisky and creamy puddings for dessert.

Like many trampers, Emery hits the great walks to enforce a digital detox in his life, but he’s been surprised by how few New Zealanders walk the famed tracks any more – and how crowded and tetchy the huts have become.

These days, 67% of trampers on the great walks are foreigners. “My latest adventure is to do the nine great walks, and this is number six of the nine,” says Emery outside Mintaro Hut, where he’s gone to escape the cacophony inside at dinner time.“

I am quite disappointed there aren’t more Kiwis on here … there should be a hell of a lot more Kiwis walking on these tracks; we see very few.” John Kapeleris, an Australian, didn’t get interested in tramping till middle age. He is walking the Milford alone, a solitary, slightly aloof figure who strides ahead of the 40-strong group to try and be alone in nature, no easy feat when there are more than 90 people walking each section of the Milford each day, plus guides, hut wardens, maintenance workers and chopper pilots flying in supplies.

Kapeleris, who booked his Milford walk in 2015, tramps as a way to detox from his intensely urban life; the office-block job, suburban home and long daily commute in Brisbane, Australia.

“For me it is an appreciation of what there is in the world other than urban life … it’s an escape. You can get away from the routine of work, the routine of commitment, the routine of obligation,” he says.

Last season, tickets for the Milford sold out within 90 minutes of being released. Mary, a vet nurse from Australia, tried for three consecutive years to secure a spot on the track. Last year – her fourth attempt – she set her alarm for midnight on the day tickets were released and was successful.

“Its become a highway, a conveyer belt,” says a Department of Conservation worker on the track, who didn’t want to be named. “People come here looking for meaning, searching for some sort of solace. But the bush doesn’t just give that up. In the huts there’s so much squabbling and showing off. To me, Milford isn’t about tramping anymore, at least, not how Kiwis know it. ”

On day three, the 40-strong group rise in the dark after a disturbed night, in which a man who snored loudly was yelled at and booted down to the kitchen.

“It made me feel really self-conscious,” he tells the Guardian later. “I felt ganged up on.”

The climb up Mackinnon Pass is graded but challenging, and swaths of low cloud blow over the mountain, obscuring the view and bringing stinging spits of rain to frozen cheeks.

Along the way you pass signs designated as “Safe stopping areas” and “Bus stops”, and as your thighs begin to ache the beech trees thin and eventually disappear, giving way to mountain buttercups, alpine daisy’s and gentian.

The peak at the top of the pass – 1,154m – brings a brief and united merriment to the disparate and at times fractious group. Selfies are snapped, proud couples embrace and the paying hikers are presented with mugs of hot chocolate and biscuits from their guides.

Soon the wind picks up and the temperature drops dramatically, prompting walkers to slog on to the Mackinnon Pass Shelter, which is split in two – a gas ring for the public walkers, and hot drinks, biscuits, blankets and warm clothes for the Ultimate Hikers.

At the shelter, briefly, there is peace. The clouds sweep north to reveal golden tussock tumbling into the Arthur Valley below, and kea soaring from Mt Balloon to Mt Hart, and Mt Hart to Mt Eliot, their cries piercing and prehistoric in the fleeting reprieve of silence.

Then, another cry, different. A whirr, a bashing, a mechanical stirring of the crisp alpine air. A chopper soars up the valley, swooping down to land outside the shelter. Has someone fallen, been injured – is this a medical evacuation?

A guide from Ultimate Hikes runs out to greet the chopper, carrying a sack in his hand, bent low to avoid the chopper’s blades. Quickly, he throws the bag in the chopper and grabs a similar bag from the pilot; the entire exchange taking less than a minute before the chopper shoots directly upwards and rushes back down the valley.

“What’s in the bag?” I shout to the guide, as he runs to his clients in the shelter, where heaters and steaming mugs of Milo are fogging up the windows.

“Blankets,” he shouts back. “Clean blankets – we’ve just had them washed.”

The Guardian

Passing panorama: New Zealand’s glory from a train window – Susan Grossman. 

It’s 8.15am on the dot and with one mellow toot the TranzAlpine passenger train is off on its journey from Christchuch to Greymouth. As we rattle through the flat and fertile Canterbury plains we are soon climbing up steep gorges in the foothills of the Southern Alps, the backbone of South Island. Below, I can see the startling blue water of the Waimakariri river valley. Pink and blue lupins line the tracks along with rows of pines.
The railway covers 223km, tracking its way over four viaducts and through 16 tunnels, taking four and a half hours to Greymouth on the west coast – a tad faster than the stage coaches that took two days to get food across to gold prospectors in 1866. The stage coach was once known as “The Perishable” because of the fruit and vegetables it used to transport along the way.

It’s a very different story now the train has reached its 30th anniversary year. The carriages are modern, with wide, non-reflective windows, wifi and a running commentary in Mandarin and English. The seats are spacious and windows panoramic, perfect for enjoying the wide-screen scenery – from the pastoral Canterbury plains, through forest and lowland rivers, up to tussock sheep stations. The landscape we pass through from the comfort of our carriage tells the story of New Zealand’s prosperity. There are defunct coal mines, stubbly hillsides and saw mills, while the temperate rainforest is dense with native pines, beech and conifers – the same ones used by the Maori to make their traditional canoes.

Two hours into the train journey we arrive at Arthur’s Pass, where, through rolling white mist, we can just about spot snow-capped mountain peaks. This pass, the highest over the Southern Alps, was used by Maori hunting parties long before the railway was built. We approach the 8.5km Otira tunnel, completed in 1923; up to 18 trains a day still climb up and down its 1:33 gradient, transporting coal from west to east. Even now it’s a hazardous process preventing locomotives from overheating and shutting down. The train stops while our duty manager uncouples the carriages to get us through safely.

Soon after, we are in Greymouth, a town known for its hunting and jade-mining past, and also the end of our journey. You can while away an hour or two on a tasting tour at the local brewery or a visit to Shantytown to learn about gold mining. But for most visitors it’s a setting-off point to see the spectacular Fox Glacier, a 13km-long maritime glacier on the west coast that is perfect for ice-climbing and walking. Instead, I stop for a pie and a cup of tea in a local cafe and an hour later start the return journey back to Christchurch.

There, in New Zealand’s third-largest city, badly damaged by the earthquake of 2011, I am surprised to see hoardings and bulldozers, and the cathedral still propped up on splints. When British settlers arrived in 1880, Christchurch was destined to become a model of class-structured England, with churches rather than pubs, and land owned by gentry with English-style gardens.
The earthquake fortunately had little impact on the botanical gardens. Here, the smell of eucalyptus and mock orange wafts through avenues of trees while visitors take a leisurely punt along the Avon river. Creative Christchurch survives in the “container city”, where pop-up shops and banks do business. Cycleways have helped the revival, but those who live there are frustrated with the slow progress of its regeneration.

I head to the Heritage Hotel, a historic local government landmark which now offers 32 stately suites, “Italian renaissance palazzo style”, each with state-of-the-art kitchens. A sweeping central staircase and long corridors remind me of the grand hotels in London’s Park Lane. From Christchurch, I fly back up to Wellington and then I am off again, this time on the Northern Explorer train that runs from Wellington to Auckland and takes 10 hours.

Completed in 1908, after 23 years of construction, it is New Zealand’s longest-running passenger service. My journey starts at 8.55am, rumbling through the heart of the North Island and an ever-changing landscape of baize-green hills with folds like origami and gorges plunging into turquoise lakes. As we cross the Wellington fault line, Kapiti Island, a predator-free bird sanctuary, sits slumped in the Tasman Sea like a giant jelly baby. Photographers pile into the open-sided observation carriage, greedy to capture every vista.
By lunchtime we reach a stop named National Park, where some passengers get off to trek the Tongariro Alpine Crossing, New Zealand’s oldest national park and a World Heritage area. The rest of us stay put and enjoy lamb shanks and mashed potato with a glass of Brancott Estate Sauvignon Blanc.

We reach Hamilton at 4.30pm, a small land-locked town on New Zealand’s longest river, the Waikato. I disembark to catch a bus to Rotorua, well known for its geothermal activity and Maori culture. The bad-egg smell of sulphur that greets me is no deterrent. My final destination, the Polynesian Spa, offers mud wraps and a Priori Coffeeberry Yoga Facial for $179NZ (£95), but I decline. Instead, I steam in mineral pools overlooking the lake, and admire the sunset. What better way to unwind after New Zealand’s two most scenic railway trips?
Way to go.

The Guardian