The Post: Sorry, conservatives, there is no magical money tree

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As an English literature grad, Finance Minister Nicola Willis knows a good phrase when she sees one. So it was no surprise this week to hear her attack her opposite number, Barbara Edmonds, for supposedly believing in “a forest of magical money trees”.

The prompt for this bon mot was Edmonds’ refusal to commit to paying the ostensible $12.8b cost of restoring the pay equity settlements that the Government so brutally and illegitimately swept away last year. The phrase “magical money trees” thus assumes its place in the pantheon of Willicisms, alongside the “cosy pillow fight” she thinks the big four banks are having as they rack up mega-profits without actually competing with each other all that much.

Yet what has her Government done to stiffen bank competition? Essentially zip. Contra the principles of good literature, function has not followed form. To employ a different metaphor: there is political theatre aplenty here, but rather less substance.

Willis isn’t wholly wrong, though, about Labour’s pay-equity dilemma. The party is rhetorically committed to lifting injuriously low pay rates in taxpayer-funded, female-dominated industries, but can’t say where it will find the money.

Nor, given its commitment to only minimal tax increases, is it clear how it would do so. National isn’t the only party with a potential non-alignment between rhetoric and reality.

One weakness in Willis’ argument, however, is that because the Treasury cannot or will not show its working, no-one outside the institution knows if the $12.8b figure is kosher.

There is also, to deploy yet another literary term, a wider irony here, because it is Willis’ side of politics who currently show the greatest faith in the existence of magical money trees.

For some years now, right-wingers have insisted that the government is running out of funds, and the only solution is for individuals to pay for more things from their own pocket. Privatisation and user-pays will somehow increase our means as a nation, magically allow us to afford more nice things.

But simply shifting the burden of payment from government to individual – from taxation to user-pays – doesn’t create extra money. It doesn’t enlarge our means. It just changes the method of payment.

Take public-private partnerships (PPPs), which enable governments to avoid borrowing money upfront for a hospital or other edifice. Instead, a private-sector consortium borrows the cash, carries out the construction, and gets gradually repaid by the state as part of a 30-year maintenance contract.

This is supposed to allow our “cash-constrained” government to deliver more infrastructure, but in fact does nothing of the sort.

For one thing, companies always pay more to borrow than governments do, because they’re at greater risk of default. So, where a government might pay $30m in interest charges on a $1b building project, a company might easily pay $40m.

And of course it recoups those extra costs from the government when it gets repaid. Using PPPs, in short, actually reduces our means, compared to the tried-and-tested method of government just paying for things itself.

PPP proponents claim that such costs are offset by the preternatural efficiency of private-sector consortia, but evidence for this – what’s the phrase? – somewhat magical view is in short supply. The Transmission Gully PPP, with its famously poor chip seal, is a case in point.

In truth, the only “advantage” of PPPs is that they allow governments to briefly look like they’re borrowing less than they really are, because the consortium pays the upfront cost. Again, they’re all appearance and no substance.

Any increased reliance on private healthcare – whether full-scale user-pays or just contracting-out operations – would also suffer from magical thinking. The public health system may be creaking. But user-pays would not just be a disaster for poor people: it’d also be colossally inefficient.

In the privatised American health system, where every profit-driven hospital and insurer fights each other and tries to refuse patient claims in order to raise revenue, the money wasted is greater than the entire budget of Britain’s National Health Service. The wasted funds would also cover the healthcare costs of every American without insurance.

Nor is there any evidence that contracting-out operations will work well. Far from magically creating money, in short, the private sector will often waste it.

The right’s habitual response is that our government is already at the limits of what it can tax and borrow, so we must look to user-pays. But our overall tax rates are far lower than those of more economically successful European states. Meanwhile, Treasury boss Iain Rennie, no-one’s idea of a spendthrift leftie, recently pointed out that our government debt levels are “low” by global standards and the state should be borrowing more to rebuild hospitals.

Privatisation and user-pays, in short, are anything but a magical money tree, despite what some conservatives may think. Indeed they look much more like a nightmarish money pit.