The regional development bandwagon will roll on with Shane Jones restored as minister. Photo / Michael Cunningham
OPINION: The Public Purse is a fortnightly Herald column focused on the public sector and how taxpayer money is spent.
Officials’ briefing to the incoming Minister of Regional Development released earlier in the month touted some big numbers. The first one is 10: the Ministry of Business, Innovation and Employment’s (MBIE) regional development portfolio, created in 2017, is now responsible for managing 10 funds.
In general terms, each is its own pot of money, to which public, private and not-for-profit entities can apply for money shaped variously as loans, grants, underwrites and equity investment. Sometimes it’s been slushily doled out on ministers’ say-so, without an application or bureaucrats’ advice.
Most, like the Provincial Growth Fund and the Strategic Tourism Assets Protection Programme, are fully allocated, though payments are still flowing to recipients and ongoing projects across all the funds; others, like the Queenstown Economic Transformation and Resilience Fund and the Wood Processing Growth Fund, are still less than 50 per cent subscribed.
The $18 million Queenstown fund - which is supposed to help develop alternative industries to tourism – could be binned tomorrow without much consequence. It’s been around since 2021, and as of November last year, by which point it was supposed to be fully allocated, only $7.8m was earmarked and no funding was either contracted or spent.
In the six years to September, MBIE minions have invested $3.17 billion in the country’s regions (another $1.5b was contracted but not yet paid) - essentially everywhere that falls outside the main urban centres of Auckland, Christchurch and Wellington. There have, however, been notable and decidedly political exceptions like the $10.5m that went to Christchurch’s Riccarton racetrack.
In turn, the briefing said, central government regional funding has “unlocked” an additional $1.85b in co-investments “that would not have otherwise occurred”.
That’s quite a stretch. The list of projects fuelled by regional development funds reveals that local and regional councils, and the corporate entities they own, are among the largest sources of co-investment.
The suggestion that the councils’ money would not otherwise have been spent, and indeed would not have been spent in their own regions, is ludicrous.
So you can take with a grain of salt MBIE’s conclusion that for every $1 of direct investment made by the Government in regional development, at least $3 of additional expenditure was generated.
The counterfactual is undoubtedly that much of the co-investment, which counts as additional expenditure, would have been spent anyway, though possibly on different projects.
Officials used an input-output model - which estimates the effect of the initial investment on the economy by extrapolating direct, indirect and induced effects - to calculate that the $3.17b they invested generated an additional $10b in expenditure, including both co-investment and other direct and indirect spending that flowed as a result of the projects.
Another reason to treat the co-investment figure with caution is that, while the Government put up actual money for the projects it funded, recipients frequently made “in-kind” contributions: typically a figure derived from labour, the value of which was calculated on a per-hour basis.
In-kind contributions are easier to massage and manipulate than cash contributions and the knock-on value ought to be taken with a second grain of salt.
If we discount in-kind co-investment and strip out all local government funding, we could likely model a level of direct and indirect investment not readily distinguishable from, say, doling out money from a big sack in the country’s small towns, which also has an output value. Regional people would no doubt be pleased to spend the windfall in the usual way, on goods and services - food, cars, drugs, haircuts - which, in turn, would drive further production and consumption.
The overhead costs of bureaucratic policy development, administration and management would be nil.
We could pay a local economics shop to adjust the model for us, but we don’t really need to. Once we take a step back and look at the larger context, it’s clear that an even greater input-output folly eclipses these others.
MBIE claims - with no sense of irony - that all of this regional development has produced some 44,000 annual FTEs (fulltime equivalent jobs) over the period of funding - 2018 to 2023. Which is likely high, for the reasons cited above, but no matter.
As the Australian Government Productivity Commission put it in a note on uses and abuses, multiplier models assume that output can be produced in one area without taking resources away from other activities: the problem of supply-side constraints.
MBIE’s model simply ignores these constraints, such as labour, through a period when most economists reckon there were several years when the country reached full employment (everyone who wants a job has one) or close to it.
You don’t need to be an economist to understand that it is preposterous to talk about government-funded job creation over the last six years without mention of the broader economy in which private sector businesses were crying out for labour, shuttering production and curtailing growth plans for lack of it.
Not all of those unfilled jobs were in the regions targeted by MBIE. But plenty of them were - from Silver Fern Farms’ understaffed plants to the temporary and permanent jobs that went begging in orchards, vineyards and dairying.
Construction projects across the country, many of them taxpayer-funded, also struggled with labour shortages and related cost blowouts. Some continue to do so.
Yes, some regions have higher unemployment than others. But economies are served by the greatest possible degree of labour mobility. Discouraging this carries a cost.
Despite this, the regional development bandwagon will roll on, if for no other reason than the minister who established it as a condition of making Labour’s Jacinda Arden Prime Minister in 2017, NZ First’s Shane Jones, has now been restored to the post by National Prime Minister Chris Luxon. And through a Government coalition agreement promise of $1.2b for regional infrastructure, he’s about to shoulder a big sack of money.
Kate MacNamara is a South Island-based journalist with a focus on policy, public spending and investigations. She spent a decade at the Canadian Broadcasting Corporation before moving to New Zealand. She joined the Herald in 2020.
Expectations tempered around return to surplus in 2027/28.