Corporate welfare is an enormous barrier to entry for entrepreneurs who have innovative and competitive new ideas, but don’t have the same political clout as established businesses. The New Zealand Taxpayers’ Union (NZTU) has called for an end to corporate welfare for years, and its recent study, “Welfare Bums: Adding up the cost of corporate welfare in the 2016 budget,” examines the burden that government subsidies place on New Zealand’s taxpayers.
“Despite having a nominally centre-right government led by Prime Minister John Key, corporate welfare in New Zealand continues to grow, now resting at NZ $1.36 billion (US $952 million) — a significant burden for a country with a population of only 4.7 million,” said Jordan Williams, executive director of NZTU. “The paper explains that the year-on-year burden of corporate welfare equates to over NZ $800 (US $560) per household.”
Report highlights include the example of KiwiRail, which has received NZ $3.53 billion of taxpayer money since 2008. The nationalized rail transport operator adopted a “Turnaround Plan” in 2008 as the primary selling point for receiving such a lofty bailout, but the plan has since been abandoned despite continued taxpayer subsidy of the failed business, which is now valued at a negative NZ $1.545 billion after NZ $14.1 billion in write-downs.
“A company with revenues of about $700 million a year will take a long time to repay a $3.53 billion in life-support since 2008,” writes Jim Rose, research fellow at NZTU and author of the “Welfare Bums” study. “A total of $5.3 billion has been spent since the taxpayer got back into the rail business in 2003 with the purchase of the land underneath the railways and then Tranz Rail from Toll Holdings for $690 million. The Minister of Finance now acknowledges that KiwiRail will never be self-sustaining. Taxpayers will never see their money back.”
The report also examines how government subsidies have expanded since 2013 into co-funding technology start-ups and commercial ventures. Rather than relying on government handouts, entrepreneurs need to back their ventures with their own capital, the study explains, in order to find and develop the most innovative and promising ideas. When governments gamble with taxpayer money by funding start-ups, they begin arbitrarily picking winners and losers in the market.
“The research shows that if all of the government subsidies for pet industries and trendy technologies, which are identified in the reports, were abolished, New Zealand could cut company (corporate) tax rate from 28 to 22.5 percent,” Williams said. “It is all too easy for politicians to sacrifice their fiscal conservative principles to pick winners. Too often, so-called fiscally conservative politicians hand out taxpayer money to favored businesses or industries on the basis that it gets them a few minutes of prime-time media. The Taxpayers’ Union efforts are ensuring that voters know the costs.”