Matthew Hooton: Let's say no to Rio Tinto's tantrum

Tiwai Point smelter. Photo / Supplied

COMMENT:

If tantrums are rewarded, toddlers learn to throw them again. The same is true of multinational companies.

Yet again, the Tiwai Point aluminium smelter claims it will be forced to close unless it gets another taxpayer handout.

Its management says that while it made a $220 million profit last year, the price of aluminium has since dropped 25 per cent so it is now losing money.

As usual, the threat comes with suggestions that closure would slash Southland's GDP by 6.5 per cent, cut exports by $600m and cost 1000 high-paying jobs in Invercargill, which would presumably also crash its property market.

In turn, shutting the smelter would cause a surplus of electricity in New Zealand, so the Huntly power station would close too, devastating that Waikato town.

We've heard most of this before. This time, to add to the sense of drama, the smelter's majority owner, Rio Tinto, has revealed it has sent a "closure team" to Bluff to plan for the shutdown.

Local National MP Sarah Dowie has been nicely co-opted, warning that the smelter is not bluffing this time.

Prime Minister Jacinda Ardern also went on the public record last December, talking about the importance of the smelter and pledging her support when she re-opened a potline that added 31 tonnes of production capacity.

The smelter has every reason to believe that her Government will respond to the threats of closure the same way as John Key's and Helen Clark's.

It took enormous political will after 1984 for the Lange Government to dismantle the inherently corrupt system of subsidies, protection and corporate welfare constructed by the Muldoon regime and its predecessors — but its reward was a bigger share of the vote in 1987 to an extraordinary 48 per cent.

By and large, the Bolger Government maintained a hard line against corporate welfare. Its commitment to letting the market allocate capital helped annual economic growth rise sustainably above 4 per cent in the mid-1990s so that it became plausible to imagine New Zealand re-joining the world's richest nations over the next decade.

Even Winston Peters ran an orthodox economic policy as Treasurer from 1996 to 1998.

Jacinda Ardern talked up the smelter's importance when she visited Tiwai Point last year. Photo / Getty Images

The corporate-welfare cancer returned in 1999 when the Alliance's Jim Anderton was appointed to the newly created role of Minister of Economic Development.

Sadly, this was not a mere ceremonial title to keep Clark's coalition partner happy, but came with a "jobs machine" and new Ministry of Economic Development which later became the core of Steven Joyce's Ministry of Business, Innovation and Employment.

Anderton can perhaps be forgiven. His Alliance Party stood unashamedly for the restoration of New Zealand's pre-1984 Polish Shipyard model. Less forgivable — especially those from the National Party — are the Ministers of Economic Development who have followed him, each one worse than the one before. As if to establish this rule beyond doubt, the incumbent is Labour's Phil Twyford.

By the end of the Key-English-Joyce era, the Taxpayers' Union estimated that $1.6 billion was being spent annually on corporate welfare, or $931 per household. With the advent of the Provincial Growth Fund, it may now be approaching twice that.

To be fair to Rio Tinto, which made a profit of around $22b last year, its shareholders have received only a tiny slither of this.

As bad or worse than the actual handouts are the behavioural effects across the economy of the explosion of government intervention.

The assumption has again become that close relations with the Government of the day are more important than the commercial integrity of projects when seeking government contracts.

The easiest way to secure regulatory relief, a dollop of cash to drop straight to the bottom line or other commercial advantage is through side negotiations or media stunts rather than following formal processes.

The classic example remains the NZ International Convention Centre scandal, for which Joyce and Gerry Brownlee blame each another. That fiasco is notorious only because we know so much about it thanks to the subsequent Auditor-General's inquiry.

No such sunlight has yet been shone on the current Government's administration of the transport portfolio or the Provincial Growth Fund, and Wellington has become so used to unusual dealings that it probably never will be.

On this path lies the type of corruption and misallocation of resources that leads to poor economic performance, social incohesion through the rise of a commercial-political elite, and worsening inequality.

Will Prime Minister Jacinda Ardern cave in to Rio Tinto's tantrum. Photo / File

Getting off this path to South America requires a Government to one day step up and abolish the apparatus of the corporate-welfare state and restore the integrity of decision-making processes.

Making an example of Rio Tinto would be a start.

In reality, no further subsidy would genuinely make a difference to a company that makes $220m one year and a loss the next based on swings in the commodity aluminium price, and which faces remediation costs of several hundreds of millions of dollars should it decide to close.

Despite Dowie's advocacy and Ardern's public offer of support, Energy Minister Megan Woods is so far saying all the right things. But this is a Government still stung by the damage it did to the Taranaki economy with its surprise oil and gas exploration ban. Is it really going to risk inflicting worse damage on Southland and Huntly in an election year by standing firm?

For its part, the National Opposition seems more interested in the perverse effects of handouts on welfare beneficiaries than on the culture of the corporate world. As yet, it appears to have no inclination to call time on the corporate-welfare machine it presided over and expanded through its last nine years in office.

We can only hope that one of the benefits of the Prime Minister being the parent of an 18-month-old is insight into where her Government caving in to another tantrum will lead. And once again, NZ First's so-far unstated position may be pivotal. Is it really going to subsidise the profitable offshore owners of a loss-making local operation?

- Matthew Hooton is an Auckland based public relation consultant and lobbyist. He has previously worked for Rio Tinto on seeking relief from the emissions trading scheme. These views are his own.