Convention Centres and Public Subsidy

Listener: 26 May, 2010.

Keywords: Business & Finance; Governance; Regulation & Taxation;

The row that has erupted over the proposed SkyCity convention centre in Auckland involves gambling, but there are deeper fiscal issues. But this is not a column about gambling, even though a study I was involved with found that pokies were the most damaging of all forms of gambling.

It is argued that New Zealand needs an international convention centre; Auckland is the only centre with the necessary associated facilities. But convention centres run at a loss. The profits go to other facilities, so – it is said – the economy as a whole benefits. If we are going to have a centre, there will have to be subsidies. The ideal solution would be for those who benefit to contribute to its cost, but it is hard to get them to pay, and so – it is argued – there needs to be some sort of public subsidy. (What’s that thing about privatising profits and nationalising losses?)

With the Government struggling to balance its books and a clamour from others demanding public funds, subsidising an international convention centre was not looking attractive. Then SkyCity proposed to Tourism Minister John Key that it would establish one in exchange for being given more pokie machines. That raises an interesting point: there will be a public subsidy but it won’t appear in the public accounts. That was a central problem with the Muldoon era. All sorts of support were given to businesses, and these did go on the books. Not only were there misgivings about whether this breached government protocols, but there were also deep concerns about the danger of corruption.

Corruption is related to the constitutional issue of how much politicians and public servants are accountable to the people. In many less well-governed countries, a major source of corruption is the issuing of licences. Overseas politicians have transferred millions of dollars to their personal bank accounts in the course of handing out licences.

That rarely, if ever, happens in New Zealand. (An exception may be the worry that those who contribute campaign funds to winning parties may get preferential treatment.) The reason is that we have had a record of public vigilance underpinned by parliamentary accountability and backed by a system of law and institutions that enable the monitoring of potentially corrupting transactions. The latest proposed extension is the lobbying bill put forward by Green MP Holly Walker.

There was sufficient concern about the possibilities of corruption under the Muldoon-era regime for there to be a raft of changes in the 1980s intended to prevent the most egregious possibilities. The Government can no longer give secret guarantees as happened with the Think Big energy projects – which ultimately cost taxpayers hundreds of millions of dollars. To have legal effect they must be reported to Parliament, and if they are significant, they appear in the annual Budget as a contingent liability (in one of the most interesting Budget documents). The granting of pokie licences in exchange for a convention centre will not appear in the Budget, although it manifestly involves a transfer of resources from public to private ownership (a privatisation). In contrast, a direct financial subsidy would appear in the Budget. That seems kind of wrong, doesn’t it – that the way a particular deal is structured depends on a quirk in the way the government accounts work?

A more rational procedure might be to auction off the pokie licences and use the proceeds to subsidise the construction of a convention centre. The Auckland casino may be willing to pay top dollar for the licences, but another consortium with a better proposition might get the go-ahead to build and run the place. But why then use the returns from the pokie tendering for the convention centre? Might there be more worthwhile projects, such as extending paid parental leave or whatever you fancy? Then again, why restrict pokie licences at all? Isn’t it to do with the consequences of problem gambling, not only on the welfare of New Zealanders but also on government spending to address the problems? That appears in the Budget as a cost.