A Ministry of Business, Innovation and Employment mandarin’s intervention on the issue of the $3 billion Provincial Growth Fund’s job creation raises further questions about public service neutrality and propriety. This follows hard on the heels of the IRD’s constitutional transgressions.
The NZ Herald yesterday yesterday drew attention to the conflict with two observations:
- National’s Paul Goldsmith says only 54 jobs have been created from funded Provincial Growth Fund (PGF) projects so far.
- Regional Economic Development Minister Shane Jones told Parliament late last year that 9000 jobs had been created.
The Herald proceeded to check out the MBIE website which shows more than 10,000 jobs are expected to be created as a result of Provincial Growth Fund (PGF) announcements made last year.
Seven thousand of these – almost 70 per cent – are estimated to come from just one project: The East Bay of Plenty Regional Development Project Implementation.
According to the Herald:
This project was allocated just under $240,000 for “funding a position to manage and report on 65 key economic development projects”.
That 7000 jobs estimate is based on a feasibility study provided to the Provincial Development Unit, which oversees the PGF, by the Ōpōtiki District Council.
A spokesman for the unit said funding a feasibility study helps to refine the scale and scope of projects so job creation is able to be estimated with “greater precision”.
But as Goldsmith points out, it doesn’t take a rocket scientist to understand that a feasibility study into a potential project is not the same as creating real jobs.
“It is frankly insulting that Shane Jones expects New Zealanders to believe that one project costing just $237,000 for someone to investigate the viability of a long list of potential projects will create 7000 jobs – or 70 per cent of what MBIE are claiming will be created.”
The Herald notes that the 10,000 figure includes jobs which are expected to be created as a result of PGF spending, as well as jobs created as an indirect result of the fund.
The data does not include all of the PGF announcements, such as the almost $200 million for supporting Māori landowners and boosting employment in the regions, announced last week.
It does not provide a real-time update of job-creation numbers because it was compiled as a response to written questions throughout much of last year.
Newshub’s Tova O’Brien last week reported that the PGF has created only 54 jobs and spent just $26.6 million of its $3 billion. This means…
Even with just 3.4 per cent of the funding paid out, each job is costing the Government about $484,000.
Paul Goldsmith, National’s spokesperson for Economic Development, was scathing; Jones was dismissive.
“Despite all the hoop-la, the press releases, the high-vis jackets, the tens of millions of dollars, what have we got for it so far? Fifty-four jobs.”
“I accept that the projects are going to take a while to fully establish, but Paul is exaggerating,” was Shane Jones’s response.
The Taxpayers Union entered the fray to dispute Newshub’s report that the PGF has created 54 jobs – it said this was false, because it doesn’t account for the jobs lost due to the taxes required to fund Shane Jones’ handouts.
Taxpayers’ Union spokesman Louis Houlbrooke says,
“Paul Goldsmith is being too generous to Shane Jones. Robbing successful businesses of profit to fund uneconomic political projects does not create jobs. In fact, it destroys them.”
The question was one of opportunity cost: how many more jobs would these funds have created if they were left with taxpayers to spend at businesses of their choice?”
Jones has been comparatively non-combative (at least for him) about the disputed employment figures.
But a ministry big-wig went out to do battle on the minister’s behalf in a press release on February 5 headed Provincial Growth Fund creating jobs in the regions.
The Provincial Growth Fund (PGF) is on track to create thousands of jobs [our emphasis] says Robert Pigou, the Head of Investment Management at the Provincial Development Unit.
“As the administrators of the Provincial Growth Fund we welcome scrutiny of our work and discussion about the impact the PGF is having in New Zealand’s regions,” Robert Pigou said.
“The Provincial Growth Fund will create jobs in the regions, but job creation does not happen overnight. An expectation otherwise fails to appreciate and understand the fundamentals of project delivery and the fact that work takes time to scale-up.
“Funding is announced in principle, after which contracts are negotiated and applicants work to secure their co-funding requirements. In some cases this may take up to six months. Only then will the project receive any funding from the PGF.
“The Provincial Development Unit is proactively releasing information about the work we are doing, including key measurements like jobs created. These figures are updated as we receive new information and analysis – for example as projects ramp up delivery. We caution against the selective interpretation of this data without taking into account wider context.”
Pigou outlined what the Provincial Growth Fund is committed to do and declared it was the ministry’s duty (“as careful stewards of public money”) to ensure the investments lead “to sustained and meaningful outcomes (including increased jobs) in our regions”.
For many projects this means funding feasibility and business cases to test assumptions and to ensure these projects are primed for further funding.
Then he said:
“Initial work done by applicants as part of their submissions to the Provincial Development Unit shows that over 10,000 jobs may be created as a result of PGF investment. This includes jobs created in the construction and delivery of projects, and across the wider economy.”
Pigou subsequently told the Herald the statement had been released to provide “clarity” around how the PGF was structured.
He said he was not able to say how many jobs had been created because of the PGF last year, as he “did not have that detailed information yet” but said it would be higher than 54.
Eric Crampton, chief economist with The New Zealand Initiative in Wellington, has chimed in on his blog to argue:
It isn’t nuts to run forecasts of expected employment from projects that haven’t yet gotten started, but this kind of accounting doesn’t seem right.
Crampton also questioned Pigou’s intervention and the ministry’s 10,000 jobs expectation based on the estimates of PGF project applicants.
He referenced the ministry:
“When applicants outline their project, they include an estimate of the number of jobs to be created both directly through the project and indirectly, as a result of the investment.”
For larger-scale projects, such as the $40 million to expand the TranzAlpine service, financial modelling by an independent economic firm has been used.
Crampton says he would expect Shane Jones to advertise numbers based on the job creation estimates provided by folks seeking grants from him – “he is a retail politician”.
More important, he would expect a neutral and impartial public service to be more sceptical about claims made in the applications and not use them to tally up big numbers for posting on the ministry’s website.
“And that makes me a bit nervous about what the heck is going on over there more generally.
“It’s always been a mistake to try and sell this stuff on short-term job creation numbers. The point of the fund, as I’d understood it, was to get infrastructure and other bits in place for longer term development in the regions. There are better and worse ways of trying to do that – a pile of loans to business that no commercial outfit would take a punt on isn’t a great idea, but getting better infrastructure in place so that regions that don’t have a strong enough economic base can have a fair go – that’s not crazy.
“So I think it was silly to advertise this stuff as aiming at lots of jobs quickly.
“That said, it is a bit odd to count as current benefits the estimated increase in jobs that might transpire if a bunch of other projects that haven’t yet been funded all panned out as well as expected by the folks pitching the projects. I haven’t seen the underlying studies, but if the Herald’s description is accurate – it’s an odd way to do things. It’s fine to base expected numbers on projections from studies, but we might have expected the basis to be a bit stronger than that.”
Furthermore, Crampton hopes there are sufficient checks in place in the bureaus vetting these projects and approving them, making sure that none of them would cause problems for any of our international agreements around subsidies, and making sure that there’s sufficient probity around the projects.