NZCPR Weekly:

SABOTAGE OR OPEN DISCLOSURE?
By Dr Muriel Newman    

Irresponsible sabotage or keeping the market fully informed? As anyone who has followed politics closely will know, there is no doubt  that the coincidentally timed announcement by the Labour and Green parties to nationalise the wholesale electricity industry was designed to materially impact on the sale of Mighty River Power shares.

They could have announced the issue some months ago, before the float had commenced. Instead they chose to do so after the offer price range had been set and after applications had opened. Given the materiality of the radical proposals, the government had no choice but to suspend the offer, give those investors who had applied the opportunity to withdraw their share application, and restate the risks associated with the investment. It has in effect, derailed the offer by spooking investors.   

Last week’s policy announcement has also demonstrated just how reckless and selfish Labour and the Greens are. They are prepared to destroy private sector wealth creation and competitive free markets to advance their own political careers. Not only have they diminished the value of power companies, but they have sent a telegram to all overseas investors that New Zealand is a high risk country. Those investors will no doubt adjust upwards their risk return assessments and demand higher returns from any future investments they may make in this country. That may include overseas banks financing domestic mortgages.

Whether one likes foreign investment or not, the fact is that without it, there would be fewer jobs and less economic activity. While that will not hurt well paid politicians in Wellington, it will hurt workers and the families who rely on their incomes.

Mark Warminger, a Portfolio Manager with Milford Asset Management has quantified the potential damage of the Labour-Green proposal:  “...to save $700m per annum from our total electricity bill the direct and indirect costs of such a scheme would be in the order of the following; $2.5bn in additional debt servicing costs, $450m reduction in dividends, $4.5bn asset write-downs from State owned enterprises, $1bn of capital destruction of the listed power companies and a reduction of $100m of dividends per annum to New Zealand shareholders. In addition, there will be highly skilled jobs lost as power companies reduce capital expenditure and development. In the short term this will not be an issue whilst demand catches up with supply but by the time supply and demand are in balance it will be too late to add additional capacity in a timely manner. ”[1]

According to TV3 News, JBWere, a firm which manages $1 billion of client funds in our share market, has signalled that it and other investors will leave the New Zealand stock market if the state intervention signalled by Labour and the Greens becomes a reality: “The steps the Labour/Greens are suggesting, if enacted, are significant enough for JBWere to consider a reduced allocation to the local share market. We doubt we would be alone in making this judgment”.[2]

Labour and the Greens tried to justify their announcement by claiming that the electricity market is not working and that the cause is the failure of the reforms introduced by Max Bradford and the National Government in 1998. The facts, however, tell a different story as the above graph of annual increases in consumer electricity prices show. The latest round of price-rise problems were clearly caused by Labour’s re-regulation of the electricity market in 2002.

For anyone who does not understand just how disastrous it would be if Russell Norman were in charge of the highly complex electricity market, consider what our supermarkets would be like if he ran them too! This is no less illogical than controlling electricity pricing and not outside the realms of possibility given that the former Venezuelan President, the late Hugo Chavez, a hero of the Green Party, nationalised supermarkets in 2010 over accusations of price gauging.

That is not to say there are no problems with the electricity industry and the price of power – of course there are. The New Zealand Centre for Political Research has explored the issue often enough as we have tried to highlight the underlying forces that are driving power price increases. But never in our wildest dreams did we imagine the Labour Party would embrace the wacky ideas of the deeply socialist Green Party as their own on such an important issue. For Labour to do so shows how far they have drifted to the left – not even Helen Clark would have been so reckless. 

Within two days of the Labour-Green announcement, the sharemarket value of Contact Energy, Trust Power and Infratil had fallen by almost $600 million. That loss will be felt by mum and dad investors who have part of their retirement nest-egg squirreled away in such listed companies, as well as the 2 million New Zealanders who have KiwiSaver accounts. In addition, all New Zealanders will suffer a loss via the New Zealand Super Fund and ACC’s investment fund.

All New Zealanders will also lose out because this ill-timed missile will no doubt diminish the issue price of Mighty River Power shares. That means less money for debt repayment, hospitals and schools. In other words, it is sick people and children who will bear the brunt, which says a great deal about Labour and Green MPs.   

Labour and the Greens have justified their state control policy  by claiming they are concerned about the impact that the rising cost of power is having on households. What they of course don’t say is that they are responsible for much of that increase. During the nine years that Labour (supported by the Greens) was in office power prices increased by 72 percent. They have subsequently risen by 20 percent since National has been in office.

Two of the main reasons for the power price increases – as our own research over the last few years has shown – are the government’s energy strategy and the Emissions Trading Scheme.

Although New Zealand is a world leader in the production of electricity from renewable sources, in 2007 the Labour Government (and its Green support partner) launched a new energy strategy which required 90 percent of the country’s electricity to be generated from renewable sources by 2025. In addition, a 10-year moratorium on the building of new fossil fuel base load power generation plants was introduced. As a result, there was a massive switch within the industry towards more expensive ‘renewable’ electricity generation (windmills) which pushed up the cost of power. 

The Emissions Trading Scheme is another  green policy that was introduced the dying days of the Labour administration. Designed to penalise New Zealanders for the production of greenhouse gases, it has also pushed up the price of electricity by introducing a surcharge onto the stationary energy sector in 2010 that was estimated to increase the amount that consumers would pay for power by $400 million. At the same time, an ETS surcharge of 3.5 cents a litre was added to the price of fuel.

These ETS increases, which have worked their way through the whole economy to increase the cost of goods and services across the board, are the worst form of bureaucratic cost impost, since the benefits provided by the ETS are non-existent. The fact that the scheme remains in place is a testament to some misguided political belief that penalising New Zealand consumers and businesses is somehow going to save the planet.

The ETS was, of course, introduced after the Labour Government signed the Kyoto Protocol in 2002 and tied New Zealand to a binding commitment to reduce greenhouse gases to 1990 levels between 2008 and 2012 – even though the whole idea was completely barmy given that almost half of our greenhouses gases are produced by cattle and sheep. Once the Kyoto Protocol expired, at the end of 2012, New Zealand pulled out, but instead of disestablishing the costly ETS, National has left it in place – just like they left in place Labour’s unachievable 90 percent renewable energy generation goal in their Energy Strategy, instead of replacing it with a more sensible option.

Since Kyoto  expired, carbon prices around the world have crashed. In the European Union last week the price hit junk bond status - falling from nearly €30 a tonne in 2008 to €2.47 after the European Parliament voted against propping up the price. In 2011, the Swiss Bank UBS produced a report for investors claiming that the EU’s emissions trading scheme had cost the continent’s consumers €210 billion for “almost zero impact”.[3] Goodness knows what the ETS has really cost New Zealand – not just in the rising cost of power, fuel and all other goods and services (including a new surcharge on rubbish collection now that the waste sector has entered the ETS), but in the loss of jobs through businesses closing and relocating overseas;  such figures are almost impossible to find.  

But the carbon price crash is not the only change. Stalwart supporters of global warming are now starting to question the theory itself given that global temperatures have not risen for over 15 years, in spite of computer models showing that temperatures should be rising in step with carbon dioxide. They are realising that not only are the models wrong, but so too are the scary scenarios which the models generate. Even prestigious publications such as The Economist are starting to question the competency of climate models and the groups that promote alarmist scenarios. Certainly the public are becoming more sceptical, which is heartening, given the steady diet of doom and gloom that is being dished out by many media outlets.

This week’s NZCPR Guest Commentator is Professor Roger Bowden, an economist who has long followed developments in climate change and global warming theory. In his article Climate change and the social importance of scepticism, he explains how ideological intolerance is a major threat to an open society:

“Take global warming… It all looked convincing to me.  But the doubts started to creep in. As a mathematical modeller myself, I was uneasy about the faith being placed in the causal models. Given his outstanding mathematical modelling credentials, it was hard to dismiss the negative assessment of Freeman Dyson, of Princeton University, as out of date or over the hill. And at the outset I was just a little worried by the curve, which appeared to show that global temperatures were leading CO₂ rises, not the other way round.  And any unusual weather pattern, it seemed, was grist to the mill for the climate correctness industry.

“Moreover as an economist, the motives for professional capture became progressively more apparent. By that I do not mean just money, consultancy, or at one remove, government funding for me and my team. Scientists enjoy public attention and social importance just as much as the next man, or woman.  But I also became troubled by the intolerance of opposing views that had started to develop. Climate change and its mechanism became a 'done deal' in the media, as though no socially responsible person could possibly think otherwise.”

Professor Bowden concludes his article with a warning - that the suppression of dissenting voices by ideologically-driven bullies does society a real disservice. He also contends  universities in particular have a responsibility to remain open minded to the claims of sceptics, knowing that opposing views lie at the heart of critical thinking.

Without a doubt we should apply this same logic to parliament and politics. Dissenting voices in popular debates should be treated with respect instead of vilification. If we are to nurture an open society then it is crucial that all sides of an argument are encouraged to speak out. Those that do so should not be criticised nor ridiculed for expressing their view – that should be reserved for the bullies that attack them personally instead of addressing the issue!

THIS WEEK’S POLL ASKS: 
Do you believe the Labour-Green announcement was an act of political sabotage or simply keeping the investment market fully informed?  
Click HERE to vote                      

*Read this week's poll comments daily HERE                           
*Last week 99% of voters believe that the principles of the Treaty of Waitangi should not be included in a New Zealand constitution ... read the comments HERE

FOOTNOTES:
1.Mark Warminger, Rolling blackouts could be our future
2.TV3, JBWere predicts capital flight
3.Australian, Europe's $287bn carbon 'waste': UBS report
 

NZCPR Guest Commentary: 

CLIMATE CHANGE AND THE SOCIAL IMPORTANCE OF SCEPTICISM 
By Prof Roger Bowden    

“Early on, small cracks started to appear in the edifice of moral certainty on climate correctness, in the form of controversies about selective data quotation, or even data fudging. The Himalayan glaciers were not all retreating, the Antarctic sea ice was in fact growing, and so on.

“But a much larger crack developed as the first C21 decade passed. It became apparent that although CO₂ had continued its march upwards, it had left warming behind; since 1997 there has been little or no global warming. Credit for disseminating this finding goes to the UK Daily Mail, who promptly got into hot water for suggesting that the UK Met Office had hidden the light under a bushel. And a few months later, a team from Reading University showed that this had breached the 95% confidence band for the prevailing IPCC model. Or to put it plainly, there was only a 5% chance that the model was right.”  ... read the full article HERE 

___________________________________________________
New Zealand Centre for Political Research
PO Box 984 WHANGAREI
Ph: 09-434-3836, Fax: 09 434-4224, Mob: 021-800-111
muriel@nzcpr.com
www.nzcpr.com

To unsubscribe from the NZCPR mailing list, send this email - but don't forget to reply to the confirmation message. 
If you are having problems unsubscribing, please email admin@nzcpr.com with "Unsubscribe" in the subject line. 
To change your address please email admin@nzcpr.com with "Address Change" in the subject line, 
advising the new address to be added and the old one to be removed.

NZCPR Weekly:

WELCOME TO THE FUTURE
By Dr Muriel Newman    

One only needs look at the present to see what
New Zealand will be like in the future. The North 
Island will be known as Te Ika a Maui, the South Island as Te Waipounamu, and New Zealand as Aotearoa. Those who use water for commercial 
purposes will be charged “storage” because lakes and rivers will be known as vessels owned by iwi. Helicopter pilots hovering over mountains will be prosecuted for “offending” the sacred ancestors 
of Maori. Cultural groups will be flown around 
the world at taxpayers’ expense to accompany dignitaries. New immigrants will be required to undergo Treaty of Waitangi “awareness” training 
as a condition of their settlement. Treaty “education” in schools and the workplace will be mandatory. And there will be preferential race-based treatment for health, education, and all social services…

If a Treaty-based constitution becomes law this will be future New Zealand. Every law and every regulation will be tested to ensure preference is given to Maori. The outcome will be predictable – a two-tier society divided by race: a tribal ruling class dictating across-the-board race-based preference, with all other New Zealanders relegated to second class citizenship status. By all counts it will be an apartheid society.

This could never happen, you might be saying as you dismiss these comments as scaremongering. Yet a study published by Research New Zealand earlier this month shows just how close we are to this new reality.[1] The study, which was based on a telephone poll of 500 people between March 19 and March 26, asked whether Treaty of Waitangi principles should be incorporated in the New Zealand Constitution. 58 percent of respondents said “Yes”. Only 35 percent disagreed with the proposition. That is enough to change the future direction of New Zealand - and give strength to the Maori radicals who are intent on reclaiming New Zealand from the ‘colonialists’.  The poll had a margin of error of 4.7 percent.

You may well ask how it is possible that 58 percent of the population would want a Treaty based constitution? Two reasons. Firstly, the question was leading. It asked, “It is likely that a New Zealand Constitution would incorporate the principles embodied in the Treaty of Waitangi. In your view should the principles of the Waitangi Treaty be included in a New Zealand Constitution?” Had the first sentence of the question been omitted the result might have been quite different.

Secondly, in the absence of a full and proper debate on the issue, it is likely that many of those answering the question would have had no idea of the ramifications of a Treaty-based constitution.

The breakdown of the poll responses in the report shows that of the total 58 percent of respondents who voted in favour of a Treaty of Waitangi constitution:

- 61% were female and 55% male;
- 67% were 18-34 year-olds, 58% were 35-54 year-olds, and 51% were aged 55 & over;
- 57% were “NZ European/Pakeha”, 67% were “Maori/Pacific”, and 57% were “Other”;
- 60% earned under $40,000, 54% earned $40-$80,000, and 60% earned $80,000 or more
- 61% lived in the upper North Island, 51% in the lower North Island, and 59% in the South Island

This poll reveals how close minority interests are to changing race relations in New Zealand. Let’s not forget this agenda is being led by a minor Maori sovereignty political party that gained only 1.4 percent of the party vote in the 2011 General Election – 31,982 votes. A condition of the Maori Party entering into a coalition deal with National was a review of the constitution with a view to giving ‘effect’ to the Treaty of Waitangi.  The Maori Party’s goal was clear - a new constitution based on the Treaty of Waitangi as supreme law.

The Maori Party’s constitutional review was launched with the appointment of a Constitutional Advisory Panel in August 2011. Members of the panel were racially selected – a Pacific Island and an Asian representative, five Maori and five non-Maori. This significant over-representation of Maori on the panel is consistent with the move by Maori supremacists to ensure that the Maori voice or vote on official bodies is equal to that of non-Maori. That this creates a bias in official affairs, including those of the Constitutional Advisory Panel – a jack up in plain words - appears to be of no consequence to this government.

The panel’s public consultation and submission process, which started at the end of February, is scheduled to last until the end of June. That means an official consultation period of only 4 months out of the more than 2 years that they will have been in existence and being paid by taxpayers. No public meetings of the “town hall” variety are being held, only hosted meetings run by private organisations. Maori-only meetings are scheduled but non-Maori are not invited.

It is a low key approach designed to ensure the review “flies under the radar”. As a result, few New Zealanders are even aware of the review - as was confirmed by the Research New Zealand poll, which showed that two thirds of the respondents had not even heard that a constitutional review was underway. And of the minority that are aware of the constitutional review, few are likely to realise it is the brainchild of Maori radicals.

The truth is that there is no widespread public demand for a new constitution - a full Parliamentary Select Committee Inquiry in 2005 found that there was no constitutional crisis in New Zealand that needed to be fixed.

The Constitutional Advisory Panel has a new website and is calling for submissions. Nowhere on that website is there any explanation of what it would actually mean for New Zealand if the Treaty of Waitangi was inserted into a new written constitution. The best explanation to date remains the article, A Treaty of Waitangi Constitution, written by Canterbury University law lecturer and Independent Constitutional Review Chairman David Round for the NZCPR in which he outlines the implications of a Treaty-based constitution – see HERE.

This is how our constitution is described on the advisory panel’s website:

New Zealand has a constitution – it’s just not all written down in a single document. Our constitutional rules include legislation such as the New Zealand Bill of Rights Act 1990 and the Constitution Act 1986, foundational documents such as the Treaty of Waitangi signed in 1840 and established constitutional principles.

The submission questions then ask:

1. Do you think our constitution should be written in a single document? Why?
2. Do you think our constitution should have a higher legal status than other laws (supreme law)? Why?
3. Who should have the power to decide whether legislation is consistent with the constitution: Parliament or the Courts? Why?

Regarding the Treaty of Waitangi, the website states:

The Treaty of Waitangi is an agreement made between the British Crown and Māori chiefs in 1840. It enabled the British to establish a government in New Zealand and confirmed to Māori the right to continue to exercise rangatiratanga. The Treaty is generally regarded as New Zealand’s founding document and influences the relationships between the Crown and Māori. The Treaty is one of the factors that may be taken into account in law-making and public decision-making.

The questions then ask:

1. Thinking of the future, what role do you think the Treaty of Waitangi could have in our constitution?
2. Do you think that the Treaty should be made a formal part of the constitution? Why?

We have compiled a full list of the submission information and questions from the website HERE. We hope it will assist anyone who intends making a submission to focus on the matters that are of greatest concern to them.

Until the Research New Zealand poll was published, anybody who understood what a Treaty of Waitangi constitution would mean for New Zealand might have thought that there would be little public support since the consequences for the future would be so disastrous. As David Round puts it in his December article, “The Treaty could be used in every single situation we can think of as an argument as to why the law should grant special privileges to members of the ‘Maori race’, and why any law that does not do so is defective… A Treaty clause is an invitation to endless litigation, and a guarantee of eternal uncertainty and racial bitterness.” 

However, this poll highlights how trusting New Zealanders are and how naive they would be if they actually believe that their government would not introduce such fundamental changes to our democracy – if it meant staying in power. The public appear happy enough to go along with the idea that they might be helping to overcome “Maori disadvantage” - even though past grievances have been settled multiple times, and despite Maori tribes now being amongst the wealthiest institutions in our society (and now well resourced to further pursue their sovereignty agenda).

Do not despair – of course we are fighting back, but all we have is the truth behind us and the power of words. We have launched the Declaration of Equality as an alternative vision of the future – one based on equal rights with no special treatment based on race. Some 42,000 people have signed the Declaration, but to make a real difference we need many more. If you can help to spread the word and encourage more people to sign, then please do so.

One heartening result from the Research New Zealand poll was the fact that almost 80 percent of respondents believe it should not be up to the government to make constitutional changes – they believe that right belongs to the public. When asked “If a document called the ‘New Zealand Constitution’ emerges from the review, Parliament alone could decide whether or not to adopt it or a referendum could be held. Which of these would you prefer?” 79% said the decision should be made through a referendum, and only 13 percent thought it should be made by Parliament alone.

This week’s NZCPR Guest Commentator is Professor James Allan of Queensland University, a constitutional law expert and member of our Independent Constitutional Review Panel, who is a staunch advocate of the use of referenda as the main democratic means of bringing about constitutional change. In his article Changing an Unwritten Constitution, he picks up on a recent statement by the Prime Minister, “So when Mr. Key muses, as he recently did, that you couldn’t just change from a 3 year electoral cycle to a 4 year one on the basis of a 75 percent of MPs vote – that this less fundamental shift needed a binding referendum – it surely follows that the even more important and central issue of our constitutional arrangements themselves also need a binding referendum before there can be change.”

He continues, “So here is an out-and-out challenge to Mr. Key.  Be straight with the voters.  Announce that there will be no changes to the unwritten constitution that has served New Zealand so well without there first being a binding referendum.  Say it now; say it clearly; and stop people from fretting that some illegitimate process might be employed.” 

Until now, many of you who regularly read these newsletters will have been thinking to yourself that you don’t need to do anything because the Maori Party will never succeed with their plan for a Treaty based constitution that puts their personal ambitions above those of the nation. Well, I hope this poll has stirred you out of your complacency. Politics and democracy can deliver the best we can hope for as citizens, but it can also deliver the worst.

New Zealand is at a tipping point, brought about by MMP. The public now has two options – complacency… allowing themselves to be manipulated by a radical minority, or standing up for what they believe to be right. At the NZCPR we are doing all we can to stand up for equality and stronger democracy. We hope you will do so too.

For more information please visit www.ConstitutionalReview.org to sign the Declaration of Equality, put in a submission, volunteer to help, or donate to the cause.

*If you too are fed up with more and more race-based preference being thrust onto the country, then join us in saying you have No Confidence in establishment politics - click HERE for details.

THIS WEEK’S POLL ASKS: 
Should the principles of the Waitangi Treaty be included in a New Zealand Constitution?  
Click HERE to vote                      

*Read this week's poll comments daily HERE                           
*Last week 98% of voters believe that business activities carried out by charities that are unrelated to their charitable purpose should be taxed ... read the comments HERE

FOOTNOTES:
1.Research New Zealand, Review of the New Zealand Constitution 

NZCPR Guest Commentary: 

CHANGING AN UNWRITTEN CONSTITUTION 
By Prof James Allan    

“What is not respectable is to change New Zealand’s constitutional structures without giving New Zealand voters a say.  If some sort of written constitution were proposed, maybe one with the Treaty entrenched within it, then before that sort of outcome could have even a scintilla of legitimacy the question ought to be put to all of you...

“If any change to New Zealand’s unwritten constitution were to proceed without a binding referendum, my sense and indeed my hope is that the National Party would be obliterated as a political force in New Zealand.”  ... read the full article HERE 

___________________________________________________
New Zealand Centre for Political Research
PO Box 984 WHANGAREI
Ph: 09-434-3836, Fax: 09 434-4224, Mob: 021-800-111
muriel@nzcpr.com
www.nzcpr.com

To unsubscribe from the NZCPR mailing list, send this email - but don't forget to reply to the confirmation message. 
If you are having problems unsubscribing, please email admin@nzcpr.com with "Unsubscribe" in the subject line. 
To change your address please email admin@nzcpr.com with "Address Change" in the subject line, 
advising the new address to be added and the old one to be removed.

NZCPR Weekly:

CHARITIES UNDER REVIEW
By Dr Muriel Newman    

According to a survey carried out in 2010, New
Zealand ranked first equal with Australia as the
world’s most charitable nation.[1] The World Giving
Index, published by the Charities Aid Foundation
used a Gallup survey of 195,000 people in 153
nations to assess the extent of charitable activities.
It showed that 68 percent of New Zealanders had
given money to charity during the last month, 41
percent had volunteered time, and 63 percent had
helped a stranger. While the latest 2012 survey
shows that New Zealand is now ranked 4^th, behind Australia, Ireland and Canada, our charitable record is still impressive.

The Charities Commission prepared a snapshot of New Zealand’s charities sector in 2011.[2] It showed there were 25,785 registered charities spread right across the country that provide a wide range of services in all areas of community activity. 

The total income received by the charities sector has increased substantially over the last few years from $6.1 billion in 2009 to $14.2 billion in 2011. The increase is driven by the growth in government grants and in the provision of services, with grants growing from $1.8 billion to $4.8 billion and service provision growing from $2.1 billion to $5.5 billion. Donations also grew from $0.6 billion to $1.05 billion, no doubt as a result of tax changes. Prior to 1 April 2008, the maximum refund available to individuals donating to charity was $630, which meant that only the first $1,890 of a donation received any income tax relief. However, that limit has been abolished so that all charitable and public benefit gifts up to the value of a person's taxable income now qualify for a tax credit.

The number of small charities with an income of less than $20,000 grew substantially between 2009 and 2010, from 5,014 to 8,781. Those with incomes between $20,000 and $100,000 grew from 3,442 to 6,066; those with incomes between $100,000 and $1 million grew from 2,950 to 5,173; those with incomes from $1 million to $20 million doubled from 718 to 1,430; and the number of charities with incomes of over $20 million, jumped from 37 in 2009 to 83 in 2010.

The sectors that received the greatest amount of charitable funding in 2011 were education, training and research, which received $4.5 billion, followed by health with $3.4 billion, religious activities with $1.3 billion, and social services with $680 million.

In 2011 New Zealand charities employed a total of 180,972 staff. Charities in the education sector employed 44,163 staff, those engaged in religious activities employed 38,729 staff, and those in the health sector 36,802 staff. In comparison, 448,295 volunteers worked in the charitable sector in 2011, with 110,762 volunteering in health, 109,246 in religious activities, and 36,403 in education. This shows the enormous contribution to community wellbeing that is made by volunteers.

The Charities Commission identified Auckland University as the largest charity in New Zealand in 2011 with combined income and assets of $2.3 billion. Tainui Group Holdings was placed tenth with $328 million. The Roman Catholic Diocese of Auckland Group is listed as the top charity registered as a group with income and assets valued at $793 million. The Ngai Tahu Charitable Group is listed in second place with a value of $762 million.

While the charitable sector makes an invaluable contribution to New Zealand’s social infrastructure, the sector is not without controversy. This is understandable given the taxpayer subsidies and benefits that organisations stand to receive if they are successful in gaining charitable status.

For some, the controversy is over whether their so-called charitable purpose is of genuine public benefit. The environmental activist movement Greenpeace is a case in point - it has been trying to gain charitable status since its application was declined by the Charities Commission in 2010. The reasons given for the rejection is that not only were they involved in illegal activities, but that two of their main objectives – promoting ‘peace’ and ‘disarmament’ – are political not charitable. Greenpeace appealed the decision to the High Court, which upheld the view of the Commission, but the Court of Appeal has now ruled that the Charities Registration Board should reconsider their application.

However, a co-founder of the Greenpeace movement, the Canadian ecologist Patrick Moore, responded by strongly opposing their attempts to seek charitable status: “I find Greenpeace’s latest attempt to seek charitable status in New Zealand via the Charities Registration Board to be ironic. My view is that the organization I helped found and lead during the 70s and 80s is anything but charitable today. Since I left Greenpeace, its members, and the majority of the movement, have adopted policy after policy that reflects their anti-human bias, illustrates their rejection of science and technology, and actually increases the risk of harm to people and the environment. Greenpeace has a zero tolerance for genetically modified food crops, even though this technology reduces pesticide use and improves nutrition for people who suffer from malnutrition. They are opposed nuclear energy, even though it is the best technology to replace fossil fuels and reduce greenhouse gas emissions while meeting growing electricity demand. Greenpeace also campaigns against hydroelectric projects despite the fact hydro is by far the most abundant renewable source of electricity. And the organization supports the misguided campaign against salmon farming, an industry that produces more than a million tons of affordable heart-friendly food every year. Greenpeace lost its battle in Canadian courts to hold on to its charitable status in 1999 when Revenue Canada found that the organization provided ‘no public benefit’. There’s no reason to reward Greenpeace’s misinformation campaigns with a subsidy from New Zealand taxpayers."[3]

The lack of information in the financial reports of many registered charities is another cause of controversy. The Environmental Defence Society, a professional activist group that pro-actively opposes development through the RMA and local authority planning process, is a case in point. In their 2012 financial statements they show that more than half of their $843,797 income is spent on contracted consultants, yet the only comment about exactly who received the $463,365, is a note to the accounts: “Payments have been made to Firm Ground Ltd (Raewyn Peart is a director), Taylor Partnership (Gary Taylor is a partner), Driven Events Ltd (Fiona Driver is a director), for services rendered to the society. Each are officers of the society. Payments were made on invoices supplied. Contracts were entered into by the board or delegated members with the contracting officers abstaining from voting. The premises are leased from Driven Events Limited which is a company owned by Fiona Driver, an officer of the society. The lease is on normal commercial terms. The three trustees of The Environment Trust; Gary Taylor, Fiona Driver, and Raewyn Peart are also officers of the Environmental Defence Society.”[4]

Dr Michael Gousmett, an independent researcher with an extensive background in the charity and non-profit sector, is this week’s NZCPR Guest Commentator. In his article Tax-Payer Subsidised Charities And Their Business Activities – Time For Change, Dr Gousmett reveals details of a number of the country’s major charities, arguing that there should be far greater accountability and transparency in the sector. In particular, he proposes that charities that operate commercial activities that are not related to their charitable purpose should be required to pay income tax, and those that fail to distribute their income should be required to pay an excess surpluses retention tax - along the lines of rules that apply in Australia and the US.  

With regards to Ngai Tahu, he states: “What of the South Island based Te Runanga o Ngai Tahu (TRONT) and its Ngai Tahu Charitable Trust? To understand their financial activity, reference must be made to both the Charities Register and Ngai Tahu’s website. The Charities Register carries the combined group financial statements for the Ngai Tahu Charitable Trust, a group comprised of the Trust, Ngai Tahu Holdings Corporations and its subsidiaries and trusts.  This structure contains 38 limited liability companies, three trusts including the Ngai Tahu Charitable Trust, and a scholarship fund. There is also another set of financial statements on Ngai Tahu’s website which reports the summary group financial statements comprised of TRONT and the Ngai Tahu Charitable Trust, which is “extracted” from the audited full group financial Statements. For 2012, these financial statements reported revenue and other income from trading operations of $209 million, and a profit of $69 million before Maori authority and Australian taxation of $427,000. Distributions relating to tribal, runanga and whanau amount to $16.6 million, or 8 per cent of revenue, from an asset base of $658 million, yet the report by the chair and chief executive claims that distributions to TRONT totalled $26.26 million.  It is difficult to see where in the financial statements this figure can be found. Why also the need for two sets of financial statements?  By extrapolation between the two sets of financial statements, it appears that TRONT earned revenue of $8.2 million, not $26.26 million as claimed, and spent $10.8 million on what was described as tribal, runanga and whanau distribution ‘expenses’. Why then, with these levels of funding, are there reports of housing and poverty issues amongst Maori in Canterbury? 

“The TRONT report also discloses levels of remuneration in bands of $100,000. In 2012 there were 67 employees who earned $100,000 or more, at a total cost of $12.8 million, an 18.5 per cent increase on 2011 at a cost of $10.8 million. How then is it possible for an organisation which argues that it is a charity can pay its top three earners between $1.76 and $1.79 million, or 14 per cent of the remuneration paid to the 67 employees, with the top earner receiving between $680,000 and $689,999? In 2011 there were 61 employees who earned in excess of $100,000, with the top of the remuneration band being $499,999.  This suggests that the top earner received an increase in remuneration of 38 per cent, or a maximum of $190,000 in 2012. The simple question is, why? Excesses in remuneration are not unique to the for-profit corporate sector, as such figures now show.” The full article with many other revelations can be read HERE.

Last year the government launched a review of the charities sector with a view to improving financial reporting standards.[5] Research had identified many instances of poor quality financial reporting that was resulting in meaningless financial statements, a lack of transparency and accountability, as well as a number of questionable practices, such as not including donated assets, excluding donations from the income statement, and intentionally using obscure and confusing terminology to limit the effective use of the financial statements.

Some accountants working for larger registered charities were found to be pro-actively lowering charities’ assets or incomes to make them look poorer than they actually are, as well as keeping assets off balance sheets and not disclosing revenue – using such means as establishing an incorporated society to ‘run’ the charity and a separate charitable trust to keep assets and surpluses, excluding all fixed assets from the balance sheet, moving bank account balances off balance sheet when they get too large, and maintaining a separate grants spreadsheet.

They indicated that such practices might be at risk under section 260 of the Crimes Act 1961, which relates to false accounting.

As a result of their investigation, changes are being proposed whereby larger charities will need to have their accounts audited, with medium-sized charities required to have a review or an audit. The government is inviting feedback on the proposals, with submissions closing on May 17 – details can be found HERE

Added to concerns over the reliability of financial information is the fact that a BDO Not-For-Profit Fraud Survey 2012 found 86 percent of respondents agreed fraud is a problem for the sector, with 46 percent indicating that even a small fraud would have a major impact on their organisation.[6] It is clear that reform is called for.

Without a doubt, retaining public confidence in the charities sector is important. With that in mind, a tightening of the financial reporting rules to bring greater transparency and accountability appears to be a step in the right direction. That should include greater disclosure of disbursements, a clearer indication of the percentage of total income that is being used to fulfil the charitable purpose - and crucially, how that purpose is being met - and the imposition of a tax on all business activities carried out by the charities that are unrelated to their charitable purpose.

THIS WEEK’S POLL ASKS: 
Do you support the call for all business activities carried out by a charity, that are unrelated to their charitable purpose, being taxed?   
Click HERE to vote                      

*Read this week's poll comments daily HERE                           
*Last week 24% of voters agree that bank deposits should be guaranteed by taxpayers, while 76% were opposed ... read the comments HERE

FOOTNOTES:
1.Charities Aid Foundation, World Giving Index 2010
2.Charities Commission, A Snapshot of New Zealand’s Charitable Sector 2011
3.Patrick Moore, Greenpeace is not charitable – co-founder
4.Charities Register, EDS Annual Return
5.Ministry Economic Development, Auditing and Assurance for Larger Registered Charities
6.Charities Commission, Fraud Workshops

NZCPR Guest Commentary: 

TAX-PAYER SUBSIDISED CHARITIES AND THEIR BUSINESS ACTIVITIES 
– time for change 
By Dr Michael Gousmett    

“The problem with the charitable purposes exemption from income tax in New Zealand is that charities do not have to justify, in their annual reports or returns to the Department of Internal Affairs, what it is that they actually do for that privilege.  The income tax exemption is considered by the IRD to be a subsidy, a point with which many charities vehemently disagree.  As a consequence of the Charities Act 2006, charities in England and Wales now have to provide a written report to the Charity Commission, which is also made available to the public on the Commission’s website, of what it is that the charity does that provides a benefit to the public through their activities.  There is no such requirement in New Zealand, yet our charities should also be required to explain what it is that they do, with their tax-payer subsidised income, that is of benefit to the public.  Even religious institutions are required to do so in England and Wales.  Charities might object to this requirement as yet another bureaucratic burden, but that is a small price that charities should be required to pay in return for the privilege of being exempt from income tax. It also forces trustees to take notice of the organisation’s charitable purposes as described in the trust deed or constitution, and ensures that they work within those objects and not drift off into other ventures.  It is called accountability and transparency, which is why we have the Charities Act 2005. ”  ... read the full article HERE 

___________________________________________________
New Zealand Centre for Political Research
PO Box 984 WHANGAREI
Ph: 09-434-3836, Fax: 09 434-4224, Mob: 021-800-111
muriel@nzcpr.com
www.nzcpr.com

To unsubscribe from the NZCPR mailing list, send this email - but don't forget to reply to the confirmation message. 
If you are having problems unsubscribing, please email admin@nzcpr.com with "Unsubscribe" in the subject line. 
To change your address please email admin@nzcpr.com with "Address Change" in the subject line, 
advising the new address to be added and the old one to be removed.

NZCPR Weekly:

PROTECTING THE BANKING SECTOR
By Dr Muriel Newman    

The banking crisis in Cyprus came as a sharp reminder to savers around the world that banks 
are not necessarily the safe havens they like to imagine. The plan to impose a 6.75 percent tax 
on savings up to €100,000 (NZ$153,000) and a 9.9 percent tax on savings above that was proposed 
by the Cyprus government as a way of raising the €5.8 billion they needed to find to qualify for a €10 billion International Monetary Fund bailout. 

However, politicians swiftly backed away from their plan to tax savings once they saw the depth of public fury.  

Under the deal finally agreed with the IMF, Cyprus’s second largest bank, the Laiki, will be closed. The Laiki Bank is 84 percent owned by the Cypriot government following a €1.8 billion bailout last year, with the balance held by private and institutional investors, including bank staff. All deposits of up to €100,000 will be transferred to the country’s biggest bank, the Bank of Cyprus, while €4.2 billion worth of deposits over €100,000 will be placed in a “bad bank” along with shareholder and bondholder funds, and will probably all be wiped out.[1]

The Bank of Cyprus will also undergo a massive restructuring to return it to a healthy state. Thousands of staff will lose their jobs. Shareholders and bondholders are likely to lose their investments and all depositors with funds of over €100,000 are expected to face losses of around 30 percent.  

Overseas divisions of these banks are said to have some protection – those that are incorporated in other countries are effectively separate entities and as subsidiaries operate under a different set of rules. Even those that are run as “branches” appear to have some measure of autonomy.

The biggest losers from the Cyprus banking crisis are undoubtedly Russian nationals. They are estimated to own over €20 billion of the €68 billion deposited in Cypriot banks, with many holding deposits of over €100,000. But with Cyprus having been widely recognised as an offshore finance centre and tax haven, the cost of having to rebuild their economy from the ruins of their banking system, will fall heavily on all citizens. The economy has effectively been crushed with debt levels already standing at 143 percent of GDP. Once capital controls are lifted, more money will flee the system and the economy will continue to spiral down.

The Cyprus crisis has served to focus world attention on banking systems and governments. Most people still regard banks as large safe deposit boxes, with little concern for the security of their funds. However, the reality is that bank deposits are risk investments – investors lend their saving to banks, who lend them on to those with inadequate savings.

But what the Cyprus government has also revealed is that when pressured by the terms of a bailout, cash strapped governments are not above dipping into the savings accounts of citizens for the purpose of gathering taxes. This incident is a sharp reminder – and a warning - of the extraordinary power of governments.

In Cyprus – and all European Union countries - bank deposits of up to €100,000 are safeguarded by a retail deposit scheme, which protects small depositors in the event of a banking collapse. That’s why savings of up to €100,000 have been exempted from the bank restructuring changes that were announced in Cyprus. Such schemes however, cannot protect depositors from government taxation; as Cypriots demonstrated, only strong public opposition can do that!

So what are the lessons for New Zealand from the banking crisis in Cyprus?

First and foremost the events in Cyprus have highlighted the importance of having a strong economy and a strong banking sector. While we could always wish for more rapid economic growth, on a global scale New Zealand is not doing too badly, and our banking sector is amongst the most highly rated in the world.

Secondly, it demonstrates the importance of having provisions in place to enable a country to cope with a banking crisis as swiftly as possible and in a way that minimises collateral damage.

Fortunately the Reserve Bank has been working on just such a scheme – Open Bank Resolution - which is almost ready for implementation. I asked Dr Don Brash, the former Governor of the Reserve Bank and this week’s NZCPR Guest Commentator, if he could provide some background information for readers. In his article Open Bank Resolution – better than bank closure or government bailout, Dr Brash explains:

“The reality is that while no bank is too big to fail, some banks are too big to close.  Why?  It’s not just that very large banks hold a huge portfolio of loans which keep the economy ticking over, and a huge volume of deposits, but mainly that all banks are closely linked through the electronic payments system.  Pull one of the major components of that payments system out and the whole system stops.  The damage which would be done to the whole economy would be absolutely massive.”

Dr Brash continues, “For more for than a decade the Reserve Bank has been working on how a distressed bank could be failed without being closed.  As I understand current thinking, if a systemically important bank were to get into serious trouble, its shareholders would lose all their money, its board and senior management would get fired, and bank creditors (including depositors) would have a small proportion of the money owed to them by the bank frozen – but with the bank continuing to operate under statutory management.” You can read Dr Brash’s full explanation HERE; more details on the scheme can be found on the Reserve Bank website HERE.

While any freeze on savings would be undesirable, it is important to look at the options. If a failing bank was allowed to close, depositors would almost certainly lose most of their savings - not to mention the huge damage a bank failure would inflict on the economy. Freezing savings - with a view to eventually repaying the deposits in full - is therefore seen as the lesser of two evils.

Other options, of course, involve government bailouts - but the cost can be crippling. Ireland’s government debt was only 25 percent of GDP before the Global Financial Crisis. It is now over 100 percent, largely as a result of bank bailouts. Deposit Insurance Schemes, of the sort that protected Cypriot depositors with savings of up to €100,000, are another variation, but New Zealanders have already experienced first hand the problems associated with such schemes.  

The Labour Government introduced a Retail Deposit Guarantee Scheme as a temporary measure on October 12^th2008 during the dying days of their administration. Since Australia had just introduced deposit guarantees, it was seen as a necessary step to maintain depositor confidence in New Zealand’s financial institutions during the worst of the Global Financial Crisis. A Wholesale Guarantee Facility was introduced a few weeks later on November 1^st to ensure banks had access to international funding markets. While the wholesale guarantee facility was closed down in April 2010, having issued 24 guarantee certificates covering $10.3 billion - and netting the government $290 million in fees - the retail deposit guarantee scheme was extended until December 2011.

According to the Auditor General, a total of ninety-six institutions were accepted into the Scheme - 60 non-bank deposit takers such as finance companies and credit unions, 12 banks, and 24 collective investment schemes. No banks accepted into the Scheme failed, and there was no run on the money in banks. No building societies or credit unions accepted into the Scheme failed.[2]

However, of the 30 finance companies accepted into the Scheme, nine failed, triggering taxpayer bail-outs. Some $2 billion was paid out to more than 42,000 depositors - the lion’s share being to investors in South Canterbury Finance, which had 35,000 investors and debts of $1.6 billion.

When issuing its Regulatory Impact Statement in September 2009 on extending the retail deposit guarantee scheme, Treasury noted that the scheme was having a perverse effect on institutional behaviour, creating distortions in financial and capital markets. These included “encouraging guaranteed depositors and deposit taking institutions to make riskier investment decisions since the gains from these riskier decisions will be accrued by the depositors and deposit taking institutions, while potential losses to depositors (of up to $1 million per depositor per institution) will be borne by the taxpayer”.[3]

Treasury goes on to define this as a “moral hazard” problem, and explains that as a result of the guarantee, “finance companies (which tend to be involved in higher-risk and higher-return lending) have grown their deposit books by approximately $880 million (19%) since the guarantee was introduced in October 2008. Before the guarantee, the deposit books of many finance companies were shrinking. In some cases, finance companies have used retail funding to replace their bank funding lines.”

The major failure was undoubtedly South Canterbury Finance (SCF), a finance company that grew far too quickly, and invested far too much of its funds in the risky property development sector. With the company reputed to have been in trouble as early as mid 2008, there are legitimate questions as to not only how it was able to gain approval for acceptance into the scheme in the first place, but also why it was able to enter the extended scheme on 1^st January 2010.

In an article in the Herald in September 2010, investment analyst Brian Gaynor outlined how, instead of using the Deposit Insurance Scheme in a prudent way to consolidate and reduce its exposure to risk, SCF took advantage of the scheme and the government guarantees to expand its speculative activities. It increased borrowings between 2008 and 2009 by $418 million to a record $2.1 billion, and increased its loans by $308 million to a record $1.7 billion. Meanwhile cash reserves, which stood at $322 million in December 2008, had plunged to $22 million by December 2009. Most investors wanted to pull out their investments before the end of the government guarantee period, with a massive 99.2 percent of the total borrowings worth $1.877 billion due to be repaid over the following 12 month period.[4]

In effect, New Zealand’s experience of retail deposit guarantee schemes gave new meaning to the expression ‘privatising profits and socialising losses’. Courtesy of taxpayers, investors in failing finance companies not only got their money back if the institution defaulted, but they also received the full interest due to them - even though they were being paid higher interest rates than normal to cover the higher risk they took when investing in finance companies rather than banks. Taxpayers were forced to bear the full costs of bad management practices by these companies.

In light of this experience, when deciding how to best prepare for a bank failure, the Reserve Bank explained that “The New Zealand Government has looked hard at deposit insurance schemes and concluded that they blunt the incentives for investors and banks to properly manage risks, and may even increase the chance of bank failure.”[5] The open bank resolution plan has been designed to avoid such pitfalls.

THIS WEEK’S POLL ASKS: 
Should bank deposits be guaranteed by taxpayers?   
Click HERE to vote                      

*Read this week's poll comments daily HERE                           
*Last week 95% of voters supported the appointment of Dame Susan Devoy as the new Race Relations Commissioner ... read the comments HERE

FOOTNOTES:
1.Economist, A better deal but still painful
2.Auditor General, Treasury: Implementing & managing Crown Retail Deposit Guarantee Scheme
3.Treasury, Regulatory Impact Statement – extending the retail deposit guarantee scheme
4.Brian Gaynor, South Canterbury and inevitable train wreck
5.Reserve Bank, Open Bank Resolution

NZCPR Guest Commentary: 

OPEN BANK RESOLUTION - better than bank closure or government bailout 
By Dr Don Brash  

“What is important is that banks cannot trade on the assumption that the government will bail them out if they make risky decisions, and that the costs of failure rest where they should – first and foremost on bank shareholders and their directors and senior managers, and secondly on those who chose to lend them money.

“It’s worth remembering that, apart from the short period during which the government guaranteed all banks, finance companies and credit unions during the Global Financial Crisis, and the extended period during which the government guaranteed all the trustee savings banks (until 1988), banks have never been guaranteed by the government in New Zealand.  That’s one reason why the Reserve Bank requires all banks to make available easy-to-understand and up-to-date financial information on their operations. ”  ... read the full article HERE 

___________________________________________________
New Zealand Centre for Political Research
PO Box 984 WHANGAREI
Ph: 09-434-3836, Fax: 09 434-4224, Mob: 021-800-111
muriel@nzcpr.com
www.nzcpr.com

To unsubscribe from the NZCPR mailing list, send this email - but don't forget to reply to the confirmation message. 
If you are having problems unsubscribing, please email admin@nzcpr.com with Unsubscribe in the subject line. 
To change your address please email admin@nzcpr.com with Address Change in the subject line, 
advising the new address to be added and the old one to be removed.