It's a very rare event when CAFCA find itself in agreement with Treasury but, on the subject of taxpayer handouts to the tune of hundreds of million of dollars to Hollywood studios, we most definitely are. Treasury thinks that the Government’s December 2013 sudden announcement of a deal to give tax rebates and subsidies to James Cameron and Fox Studios in order for them to deign to make the “Avatar”sequels in NZ is a waste of money – so do we; but we go further and oppose it also on political, as well as economic, grounds. It constitutes a race to the bottom, putting NZ into an unwinnable competition with numerous other countries and cities around the world that are also shouting “hello sailor” to the Hollywood limousine cruising their streets. Cameron can’t be accused of not having a sense of humour – the imaginary mineral that is lusted after in “Avatar” is called unobtainium. But, in the real world, Cameron and the old sly Fox have found that other people’s money, namely that belonging to NZ taxpayers, is very much obtainium, in large quantities, with no questions asked and no need to pay it back. In the words of the phrase we all learned as kids: the quick brown Fox jumps over the lazy dog. All the lazy dog wants is its belly rubbed by some Hollywood celebrities.

It has been suggested that Cameron is in a different category because he and his family live in New Zealand. True, but Fox certainly doesn’t (neither does Warner Brothers, Sir Peter Jackson’s studio). And Cameron himself is still defined as a foreigner in terms of the Overseas Investment Act. Meaning that he needs Overseas Investment Office permission each time he buys up another chunk of Wairarapa (over 1,500 hectares so far. See the May and June 2013 OIO Decisions in this issue for some of the most recent of his land purchases). Commentators have scratched their heads as to why Governments (whether National or Labour) fall over themselves to throw taxpayers’ money at filmmakers and Hollywood studios, which are the biggest transnational corporations (TNCs) in the global entertainment industry. One reason is definitely the Kim Dotcom factor – the Government has cravenly done the bidding of the American entertainment TNCs and the US government in their attempts to shut down the annoying billionaire gadfly’s Megaupload, and have Dotcom himself extradited to the US and doubtless jailed for the heinous crime of copyright violation. It has all gone horribly wrong for the Government at every stage of the process so far but that’s a whole other story.

Fox & Warners: Hollywood “Glamour”

The answer arrived at by those commentators is that it is because film is “glamorous”. John Key is particularly susceptible to “glamour”. By contrast, the likes of the Hillside railway workshops in Dunedin are definitely not glamorous (but merely productive) – the Government closed down Hillside in 2013, with attendant mass unemployment, despite a concerted campaign by unions and the city of Dunedin to keep it open. The unglamorous Hillside workers didn’t have Sir Peter Jackson and other movie industry heavy hitters lobbying the Government on their behalf. Indeed, Jackson is not very keen on workers – as part of the 2010 deal to appease Warner Brothers to ensure that the giant American TNC would condescend to continue to film “The Hobbit” in New Zealand, the Government not only gave them tens of millions of taxpayers’ dollars but also, just for good measure, Key got the labour laws changed so that anyone working in the film industry is now classified as a self-employed contractor, not an employee, which makes things a lot easier for the film industry employer, who now has no responsibility for things such as tax, annual leave, sick leave, ACC levies, etc, etc. All of that becomes the responsibility of the worker.

Both the “Avatar” and “The Hobbit” series are about imaginary worlds. But there’s nothing imaginary about the textbook examples of modern day corporate feudalism employed by the TNC movie studios and their creative front men Cameron and Jackson. The American studio bosses must be falling over themselves with laughter with the realisation that all they have to do to get their own way was to threaten to take their bat and ball and go elsewhere (a standard threat from TNCs, sometimes enacted, but much more often used as a bargaining ploy to extract concessions. It has been a standard tactic for decades from the transnational owners of the Bluff aluminium smelter, to cite the most high profile example). That is only “glamorous” in the same way that “The Godfather” series - another Hollywood blockbuster - made the Mafia “glamorous”. Warner Brothers won the 2010 Roger Award for the Worst Transnational Corporation Operating in Aotearoa/NZ, and John Key and his Government won the Accomplice Award for their ignoble role in the whole Warner Brothers/”Hobbit” affair. The judges wrote: “It has apparently given rise to a whole new men’s fashion garment in Hollywood – Warners of Wellington trousers. They have an arrow printed on the seat, and the words ‘kiss here’” (the full 2010 Roger Award Judges’ Report is at http://canterbury.cyberplace.co.nz/community/CAFCA/publications/Roger/Roger2010.pdf ).

Sky City: Casino Capitalism

What we’re talking about here is corporate welfare. Labour Leader David Cunliffe keeps referring to “crony capitalism”, which is not exactly the same thing but, still, it’s good that a Labour Leader uses the word capitalism in a critical sense after the Party’s decades of blind infatuation with it (although someone should tell the likes of Phil Goff that the Party line has changed, at least rhetorically). The phrase “corporate welfare” has become mainstream in this country; it’s not just groups such as CAFCA using it now. And there is no shortage of historic, current and ongoing examples. The most high profile recent case has been the Sky City Casino deal, namely that it will build a national convention centre in Auckland, with the trade off being the Government changing the law to allow it to greatly increase the number of pokie machines the Casino can have and lock that in for decades so that it can’t be reversed any time soon by a future Government. TNC casino owners and their political collaborators like to portray them “glamorous” (casino capitalism is close to the heart of the Government’s senior Ministers, none more so than John Key who made his personal fortune as an international currency trader), but, believe me, there is nothing glamorous about pokie machines, whether in the local hole in the hall pub or in Auckland’s Sky Tower (I’ve seen them in use in both). Sky City Casino is a finalist in the 2013 Roger Award. One nomination refers to the “current Key government essentially selling our laws in return for Sky City building an international convention centre” and to Sky City’s “ability to profiteer from others’ misery”. It concludes: “…Sky City is attempting to lock future governments into this dirty deal. (It) is pushing for draconian compensation provisions should a progressive Government decide that it is not OK to pay for a convention centre to be paid for by others’ misery”.

Chorus: Special Pleading

The corporate welfare deals with the Hollywood studios will primarily benefit the Wellington-based film industry and the Sky City deal is confined to Auckland. But the one with truly national consequences is that of Chorus. The Government thinks this one is “glamorous” – ultra fast broadband (UFB) via fibre optic cable will apparently have us all hurtling along the information super highway (remember that phrase? It was all the go around the same time as “the knowledge wave”). The only trouble is that New Zealanders don’t seem interested in becoming “glamorous”, with very, very few of us getting onto that super highway, preferring to happily trundle along the side roads on the existing copper wire network. Chorus is the Government’s preferred contractor to manage the UFB rollout and installation. From the outset the project has been heavily subsidised by the Government. Uptake by the public and business has been extremely sluggish and Chorus has talked of cutting costs by measures such as stringing the cable between power poles rather than putting them underground. Chorus has also cried poor because it says that its’ own quote for the job was under-estimated by around $300 million.

In December 2012 the Commerce Commission ruled that Chorus must cut its charges for broadband connections by more than $12, to $8.93, as of December 2014 – proof of gross overcharging and profiteering. Chorus and its friends in high places, including the Prime Minister, immediately started a campaign to reverse this ruling, saying that it would knock $170-$180 million off its earnings, if confirmed in 2013. Chorus gambled on getting the Commission to reverse the cuts or, failing that, getting Government intervention to fix things for it. The Government obliged, with a 2013 plan to price old copper and new fibre connections at about the same rate

In September 2013 a broad-based Coalition for Fair Internet Pricing was formed and launched its Axe The Copper Tax campaign, claiming that New Zealanders pay $12 per month too much for broadband because of the Government subsidy for Chorus. By this time the Government was saying that it would intervene with the Commerce Commission ruling and set a higher price for broadband, which would see taxpayers fork out an extra $600 million for copper and that extra money would be given to Chorus. Economic Development Minister Steven Joyce admitted that he had persuaded Vodafone not to join the Coalition. John Key was now saying that if the Commerce Commission’s lower prices were confirmed, Chorus “could go broke” which is palpably untrue. One business commentator described Key’s “extraordinary outburst” as “a bizarre panic attack about the value of its big fibre optic dream” (Chalkie, Press, 18/9/13, “Chorus Fence-Sits On Copper Pricing Options”).

To its credit, the Commerce Commission resisted the very unsubtle political pressure and, in November 2013, ordered cuts in wholesale broadband prices from December 2014, which could see an average $10 per month saving for households. Chorus’ response was to say that the income shortfall may lead to it being unable to complete the UFB project – that is nothing but blackmail. For its part, the Government started talking about bailing out Chorus with loans or partially renationalising it. This led to criticism from media outlets usually sympathetic to both Big Business and the Government. For example, the New Zealand Herald editorial (6/11/ 13; “Govt Must Bite The Bullet On Copper Pricing”), and the Dominion Post editorial (9/11/13, “A Chorus Of Disapproval”). They are both worth quoting. “Chorus….may have thought the Government would prove malleable if the worst came to the worst. That was certainly the case for many years with Telecom, its former parent” (Herald). “There is a term for this sort of behaviour. It is special pleading. It is a practice New Zealanders are all too familiar with. The old Telecom made an art form of it as it persuaded successive governments to preserve its privileged position in the telecommunications market…If Chorus cannot complete the job it has undertaken to do, there are other companies that may be able to step into the breach. If not, the opportunity may exist for the Government to resume ownership of a network it should never have relinquished. Just as Transpower, the operator of the national electricity network, is not a fit candidate for privatisation, so the telephone lines network should never have been privatised” (Dominion Post). You know things have come to a pretty pass for the Tories when the likes of the DomPost are calling for renationalisation.

And, to add insult to injury, Chorus’ new whizzbang UFB service isn’t that good. It’s too slow (Press, 12/11/13, “UFB Results Another Worry For Chorus”). Better broadband speeds are delivered by smaller companies involved in the UFB rollout – one of them being Enable, the Christchurch City Council-owned company doing it in Christchurch. Chorus continues the worst features of the old Telecom, from which it was split in 2011 (as a touted “solution” to those worst features). It strives to preserve a monopoly; it grossly overcharges and tries every trick in the book to keep those inflated prices, including special pleading to its backer and accomplice, the Government.

MediaWorks: Tax Dodging

Corporate welfare can take different forms, not simply involving handing over taxpayers’ money or changing laws. It can also involve tax dodging. For example, look at MediaWorks. I detailed that case in Watchdog 133 (August 2013, “Artful Transnational Tax Dodgers: Squeeze Them Until the Pips Squeak”, http://www.converge.org.nz/watchdog/33/01.html). “One of the highest profile Australian-owned companies being prosecuted by IRD is MediaWorks, the owner of TV3 and a string of radio stations, which is being pursued for $22m in avoided tax dating from the 2002-04 period. The case had reached the Court of Appeal, which had decided in favour of IRD. MediaWorks was owned by private equity company Ironbridge. In June 2013 it was put into receivership but with an ‘unusual restructuring deal’ that ‘appears to free (MediaWorks) from a potential $22 million obligation to the Inland Revenue Department…Michael Stiassny of Kordamentha (the receivers) said the potential obligation to Inland Revenue taxes will be ‘left behind’ in the changeover’ (New Zealand Herald, 17/6/13, “Taxpayers May Cover MediaWorks Tax Bill”, John Drinnan).

“’The National Party's relationship with big entertainment firms is back in the limelight, with Prime Minister John Key talking down the prospects of recovering MediaWorks' $22 million tax debt. Key told Parliament… he did not expect Inland Revenue would recover a $22 million IRD debt ‘because the company is fundamentally broke’. The banks - led by Westpac - have written off $600 million of debt, seen off the former owner private equity company Ironbridge Capital and handed the assets to receivers at KordaMentha. New Zealand First Leader Winston Peters is on the front foot on the tax debt. He harked back to the Government scheme that provided MediaWorks with a $43.3 million loan so that it could pay for its radio frequencies to stay on air, which led to allegations of cronyism.

“’That deal - uncovered by the Herald in 2011 after it was obscured behind a highly opaque press release - was a lifeline for MediaWorks. At that time Steven Joyce, then the Minister of Economic Development, was in the gun. Joyce made his fortune by selling his radio stations to MediaWorks several years ago but he resiled from the Cabinet decision that approved the lifesaver deal for MediaWorks. In 2011 the Government relationship with MediaWorks came to the fore when RadioLive allowed Key and his office to take over the afternoon show for an hour, in what was effectively a pre-election promotions show. As for the loan, the Government insisted it was a deferred payment scheme, MediaWorks was charged an 11.3% interest rate and it has since been repaid. But the impression has lingered that MediaWorks was treated as a special case and that like SkyCity and Sky TV it has a good rapport with the Nats and their opposition to regulation’ (New Zealand Herald, 17/6/13, “Taxpayers May Cover MediaWorks Tax Bill”, John Drinnan)”. At the time of writing, the status of IRD’s thus far successful court case against MediaWorks is unknown. In September 2013 MediaWorks was reborn as MediaWorks Holdings, primarily owned by foreign private equity firms and banks.

Rio Tinto: NZ’s Biggest Bludger

Of course, when it comes to corporate welfare, the daddy of them all, the textbook example, the biggest bludger in the country for many decades, is Rio Tinto and its Bluff aluminium smelter. It dates back to the 1960-72 Holyoake National government and has run rings around every New Zealand government since, whether National or Labour. CAFCA summarised the 2013 chapter of this endless book of shame in an August press release entitled “Blackmail And Corporate Welfare: Government Plays Monkey To Rio Tinto’s Organ Grinder”. “So, Rio Tinto is not going to close down its Bluff smelter as it threatened to do a few months ago (and has threatened to do every time it feels that its charmed existence in New Zealand is going to become less cushy). Instead, it has condescended to keep it open - but only guaranteed that until January 2017.

“And, having rejected the Government’s offer of a taxpayer subsidy a few months ago (because that offer wasn’t for a long enough period), it has now condescended to accept a ‘one off incentive payment’ of $30m of taxpayers’ money. The icing on the very big cake for Rio Tinto is that the threat to close a few months ago was a tactic to pressure Meridian via the Government over its power price contract, on which the ink was barely dry and which only took effect in January (2013). So, now it has ‘negotiated’ a new rate (secret, of course, like the smelter’s power price rate always has been for half a century), but one which Tony Ryall says returns ‘the price of power paid to around pre-2013 levels’. In other words – the Government has wiped the new, higher power rate which Meridian had taken a year to negotiate.

“Rio Tinto commenced its blackmail of the Government knowing that it held the aces – Meridian (was) next off the block in the Government’s underwhelming garage sale of public assets (it was partially sold later in 2013). If the smelter closed, that would have wiped Meridian’s biggest customer, the smelter being the country’s single biggest user of electricity, and left the Government working out what to do with a surplus of electricity, fully one sixth of the total output, and no further excuses not to cut the exorbitant rates charged to domestic consumers by the profit-driven electricity market. Power prices might have had to go down! Heaven forbid – there’s no profit in that for the power companies and no big fat salaries and bonuses for their CEOs. That would ‘send the wrong signals’ to the all-important market.

“Rio Tinto continually does this in the knowledge that it has always been deemed ‘too big to fail’ by the succession of Governments, both National and Labour, that it has effortlessly outmanoeuvred for 50 years. It pays a top secret super cheap price that is not available for any other user and all it does is export electricity from NZ in the form of alumina, while being subsidised by all other electricity users. This Government is a big fan of market forces for the mugs, and corporate welfare for the transnationals such as Warner Brothers, Sky City and MediaWorks (and Chorus and Fox Studios). But Rio Tinto is in a class of its own as a transnational corporate bludger, head and shoulders above the rest, and has been for many decades. This latest handout is in addition to the massive taxpayer subsidy it has been receiving continuously for  50 years, in the form of the Manapouri power station built with public money for its exclusive use (and let’s never forget that men died building that); and the  cheapest and most secret power price rate in the country bar none.

“Rio Tinto won the 2011 Roger Award (and was runner up in 2012, 2009 and 2008). The 2011 Roger Award Judges’ Report concluded that the company has a 50 year history of ‘suborning, blackmailing and conning successive New Zealand governments into paying massive subsidies on the smelter’s electricity; dodging tax, and running a brilliantly effective PR machine to present a friendly, socially responsible and thoroughly greenwashed face to the media and the public. The extremely detailed Financial Analysis reveals that the smelter’s claimed benefits to NZ, namely annual export earnings of ‘around $1 billion’ are, in fact, overstated by four fifths. The full, damning, 2011 Roger Award Judges’ Report can be read at http://canterbury.cyberplace.co.nz/community/CAFCA/publications/Roger/Roger2011.pdf. The 2012 Judges’ Report is more succinct: ‘…it has us by the balls and has continued to squeeze ever since. It is corporate welfarism, but somehow doesn’t attract the same vindictiveness as the sickness beneficiary’.

“In short, it is a liability to New Zealand, not an asset. This smelter constitutes a crime against the people of New Zealand and has done for its entire existence. In the national interest, it must be closed and the sooner the better. Meantime, the Government (was able to) proceed with its sale of Meridian (remember that, ‘Mum and Dad investors’, you’ve already paid $30m of your own money before you get granted the privilege of buying something you already own), and the issue of the future of the smelter can be put off until January 2017. But, wait – 2017 is election year. What a coincidence. Rio Tinto will keep the blackmail script handy for that. This must be the only sideshow act where the monkey feeds the peanuts to the organ grinder”.

The smelter is the odd one out in the corporate welfare examples I’ve detailed – it might have been seen as “glamorous” by the Tory halfwits of a half century ago (dams! power stations! smelters! aluminium, the metal of the future! let’s call it “Think Big”!) but it’s all incredibly passé now, and has been for decades. Aluminium is seen worldwide as a sunset industry and Rio Tinto recently tried, unsuccessfully, to sell the Bluff smelter (whether genuinely or not is another question. Everything is a negotiating tactic for this most cut throat of TNCs). The smelter is a dinosaur from a bygone age (you know, like railway workshops) which has been subsidised by the NZ taxpayer from Day One. As far as its Southland workers and contractors are concerned, it has been calculated that it would be much cheaper to give every one of them several hundred thousand dollars each, send them all home, and close the smelter.

Bloodsucking Parasites

This is a Government that is a firm believer in robbing the poor to pay the rich - it lavishes corporate welfare on transnational corporations (which it defines as the deserving rich) whilst grinding the faces of beneficiaries and low paid workers (whom it stigmatises as the undeserving poor). So, in a country with record growth in child poverty, homelessness and food banks, we have a Government prioritising Hollywood studios, casinos, media moguls, telecommunications companies and the aluminium smelting branch of one of the world’s biggest mining corporations (to give just the examples of corporate welfare that I have detailed). John Key is Santa Claus for the transnational corporations, with the difference being that he and his Government ensure that every day is Christmas for the TNCs. If this is “picking winners”, then by definition, the great majority of the New Zealand people are “losers”. It is a completely unsustainable and inequitable way to run an economy, let alone a society. As a first step, the country’s biggest bludgers need to be named and shamed, and exposed for what they are.Bloodsucking parasites.