Brian Rudman: Forget the facts, just spin the V8s

COMMENT

You might have thought a business-oriented city council, headed by a self-made multimillionaire, would know which way was up when it came to economic reports. But the Auckland City interpretation of the Auckland V8 street race economic impact assessment, suggests confusion reigns. Either that, or darker games are being played.

The confusion surfaced on June 23 when councillors, in voting to support the race, noted approvingly in their resolution "the economic benefit from having the Avesco V8 supercar street race is estimated to be between $40.2 million and $40.7 million per annum".

They had plucked these figures from a draft copy of the independent market economics report the council had received but not made public.

But just four sentences above, in his supportive report to councillors, Cameron Parr, manager of recreation and community services, had said the economist's report "highlights that there is an [annual] overall value add of between $40.7 million and $40.2 million" from the race.

This, despite all the warnings in the report about the errors of treating "impact" and "value add" and "benefit" as the same thing.

The mistake became apparent only when the report was made public last week and revealed that the net economic benefit would be between $2.7 million to $4.1 million for the city and $2.9 million to $4.4 million for the region, not the $40 million plus that had helped to sway the councillors' vote.

Regardless of this, the city spin doctors rushed off a press release last week incorrectly declaring "the event will grow the regional economy by $36.7 million in added value each time it is held".

To add to the confusion, the same press release also claimed "the race will generate an extra $48.5 million a year of added value for the regional economy".

What the V8 spin enthusiasts either failed to understand, or chose to ignore, was the advice in the report's fourth paragraph noting "economic impact", which is what the high figures record, "does not equate to benefit, since not all additional activity from the event can be counted as a benefit".

Report author Doug Fairgray is diplomatic about the misinterpretation, telling me "it's one of the things that often tends to get confused". By journalists perhaps. But by the biggest city council in the country?

Mr Fairgray outlines the difference between the two concepts in his report. "The economic impact (as value added) includes a component of benefit, but also measures additional activity. For example, if a retailer's turnover is increased by $1000 because of the race, then output is increased by the same $1000, and value added by say $500, but the benefit to the retailer (who had to buy the goods, and then spend time selling them) may only be $50 or $100."

He equates the economic benefit with the profits from the additional economic activity - or impact - produced. In the above example, that's the $50 not the $1000, the council would have you believe.

And before the John Bankses and Aaron Bhatnagars start mumbling about what would a lefty, anti-car-race, spoilsport know about economics, I will quickly hide behind their old mate, former Treasury economist Greg Dwyer.

It was he who, before the 2001 elections, prepared a cost-cutting paper for the winning Act Now - Citizens and Ratepayers team, and was subsequently retained by the victors to author the notorious belt-tightening Birch report.

Mr Dwyer tells me "the council's decision of June 23 appears to have been based on an assessment which mistakenly treats the economic impact of the event as its economic benefit. The economic benefit noted in the council's minute was ... at least nine times higher than the net economic benefit assessed in that report."

He says last week's council press statement saying the economy would grow by $36.7 million was incorrect. It didn't take into account that much of that money would be spent displacing other activity.

He suspects that even the $2.7 million to $4.1 million economic benefit figure is over-optimistic. "Market Economic's study provides only a partial analysis of the costs involved. It examines the effect on business activity of the event. The inconvenience and disruption to commuters, shoppers and other people is not assessed."

In addition, he questions, for example, the assumption that 70 per cent of those attending the event will use public transport and suggests the disruption and costs to business and other road users could be greater than predicted.

A careful reading of the report reveals the council's economic benefit claims are rubbish, based on a total misunderstanding - I'll be charitable - of the facts. And that's not my opinion. It's that of the professionals.

How far, you have to wonder, will they go to get their car race?