Is Rio Tinto NZ’s biggest corporate bludger?

Rio Tinto has turned into a massive corporate bludger.

They have stiffed taxpayers $30 million and Bill English and John Key let them.

Meridian Energy has resolved its negotiations with Rio Tinto subsidiary New Zealand Aluminium Smelters locking in the Tiwai smelter until at least January 2017 – with the help of a $30 million subsidy from the New Zealand government.

The deal, which has been a year in the making, will help clear the way for Meridian’s $5 billion float on the stock exchange – expected to go ahead before the end of the year.

Resolution of the negotiations has been viewed as essential for the Government to get a good sales price for Meridian because the smelter is a key customer of Meridian.

It also makes up around 13 per cent of New Zealand electricity demand and closure of the plant would have impacted power prices across the board.

Things are pretty bad for the government when David Farrar gives them a ticking off.

But bloody annoyed they screwed $30 million from the taxpayers as a subsidy. I think the Government shouldn’t have given them a cent. If the smelter closes, so be it. It is not the job of taxpayers to subsidise unprofitable industries.

If only David was as consistent with other corporate bludgers.

  • http://www.whaleoil.co.nz/ Petal

    I see your point Cam, but how is this different to giving the movie industry incentives to employ here and spend their money here? Where are the jobs? There they are. Not being lost.

    • Polish Pride

      it isn’t different. It is simply the Rights version of welfare. Does it keep jobs -yes but then the same argument can be made for Labours welfare. Beneficiaries spend 100% of their income with businesses that employ people.
      One is either for welfare in principle or against it.
      Whether it is the Rights version or the Lefts it still takes money from taxpayers.

      • The other Neil

        Your argument is one level correct, it is a subsidy, but hopefully a one off cost that I object to. As to it being the same as the ongoing cost of the welfare state, a 100% transfer that creates nothing other than a dead weight loss, you are so wrong I can’t even bring myself to explain.

        • Polish Pride

          actually you are incorrect on this for the reasons I outlined. It is not dead weight loss. As I stated beneficiaries do spend their money in businesses which in many cases will have a flow on effect that will enable some of those businesses to stay afloat. This is especially true in a recession. For other businesses, although they might easily remain afloat without the beneficiary spend, that spend will add to their net profit (which will of course go to business owners who in turn spend this money in our economy too). The additional demand for the businesses products or services will also lead to a need for the business to employ additional staff, hence job creation.
          This is only talking about Welfare and both the left and the right use welfare. They just use it differently.
          If you only look at this (Welfare), The left is easily shown to be the model that takes more from people to redistribute to others.
          If however you look at it from a wealth redistribution point of view then then the Right uses policy that arguably redistributes far more wealth than the Left does.
          Either way both the Left and the Right models in the current system are about redistribution of wealth from one group to another.

          • The other Neil

            The dead weight loss is the cost of undertaking the transfer payment. It is not costless for the govt to take money from me via taxes and transfer it to someone else. There is no value add in that process, hence it is a deadweight loss to society. You also pre-suppose that I and other tax payers would not have saved or spent the money and created a combination of jobs and capital for investment. Consequently the spending of transfer payments does not necessarily add anything to the economy at all. I don’t have any axe to grind on taxes and transfer payments be they social welfare or subsidies other than I think they should both be minimised. I do find your statement that that the right redistributed more than left to be factually lacking, unless you consider tax cuts to me a transfer? It is indisputable that over the last two government cycles (labour-Clark and national-Key) that government spending in all facets increased under labour. That the cost may have manifested under national due to global economic effects does not make them the cause.

          • Polish Pride

            No I haven’t pre-supposed anything I have simply outlined a key part of the two competing ideologies that are in play in our current political system and in many political systems around the world.
            The statement around the right redistributing more is evidenced by the current state of the world and policies that have helped us (the world) get to where we are. (no tax cuts are not a part of the argument). This is not all government either but it is made up of corporate welfare (already mentioned) and the watering down of Labour laws resulting in many workers getting less for an honest days work. Both of these policies and others (e.g. immigration policies) are designed to shift wealth from the working and middle class to corporate shareholders and along with a global economy, have been very successful at doing this.
            I am neither left or right. I do think the current system is foolish and that what is required is a system that goes a lot further to meeting the needs of all individuals 9which neither Capitalism or Socialism does) without redistribution of wealth as the basis for much of it in the real world.

        • AnonWgtn

          Actually just factor the $30 mill into the share price partial sale.

      • Apolonia

        What Right? In NZ we have red-Labour and blue-Labour all spending other peoples money.

        • Polish Pride

          Yes but even Blue Labour still uses wealth redistribution. It just just has a foot in both of the camps described above

        • snakebit

          100% agree. I support national because there is no better party not because they are a good party. Give me some serious conservatives who keep their hands out of my pockets save some coin for roading and a military and they’d have my card..

      • johnbronkhorst

        Beneficiaries don’t create anything, now or in the future.
        Rio tinto will keep jobs here and offer the potential of expansion, more jobs, more tax paid etc when the market picks up. If they close, they will NOT return.
        Saying that, I don’t like it, but I see the pragmatism in it!

        • Polish Pride

          So you are saying they don’t spend the money they get in businesses owned by hard working individuals who employ others then John?

          • johnbronkhorst

            You really are stupid, aren’t you!
            Beneficiaries get their money from taxpayers. It doesn’t generate anything in the economy except a big tax cost to the economy. A tax money go round that COSTS the country money.

          • Polish Pride

            No John the fact that you struggle to grasp the most simplest of concepts amazes me. Those who are stupid often resort to insults as you do so frequently. It comes from not being able to express oneself clearly enough in the English language. Not your fault perhaps but you clearly don’t understand very much at all when it comes to how the economy works.
            Here’s a hint if you are going to state that it costs the country money say how. If you are talking about wages paid to public servants then please don’t bother because again we will simply be back at you not understanding how the economy works.

          • johnbronkhorst

            No it is you who don’t/won’t understand,
            As for public servants…they too, are a COST of running the business of govt., they are administration…they don’t CREATE anything they administer, what is created…by PRIVATE industry and taxed by govt..
            Public service wages and beneficiaries payments come from TAX on economic wealth generated. That wealth is generated by PRIVATE business. Tax is a semi necessary evil, to do the jobs individuals can’t do, nothing more and nothing less!

          • Bunswalla

            John you have to realise that PD is a serial troller, I can’t work out whether he’s just trying to be a wind-up merchant, or someone seriously deeply disturbed and – quite frankly – mental.

            He/she/it appears to have the most laughably outrageous superiority complex and it takes about two seconds for him to descend into ad hominem attacks as a demonstration of his intellectual superiority.

            Just like Pavlov’s Dog he appears as soon as I post something, and then tries to turn it around and blame me. It might be flattering if he wasn’t so clearly disturbed, and the little pile of drool on the carpet gives him away every time.

          • Polish Pride

            Still wasting your bosses time and money eh Buns? You are the only one who gets Ad hominem from me. But then for it to be ad hominem, you would have to have posted something of substance which you don’t, so it isn’t.
            I post……. and yet again you come running…. every single time without fail.
            Its like having my own little stalker :)

          • Polish Pride

            Ok John lets break it down because you are partially correct. The part that you are correct about is the immediate and obvious: ie. public servants are paid out of tax payer dollars.
            The part that is missing from your argument is the flow on and economic effects that come from them receiving their tax payer salary.
            example: lets say your business pays enough in tax to fund the salaries of 5 public servants.
            Now I too have a business and 4 of those 5 public servants take their salary (paid from your taxes and spend a large portion of that in my business. perhaps I am a car dealer and they each buy a car from me. Because of the increase in business I have received as a result of them (and others at the time too) buying cars from me I decide to hire another sales person.
            Had they not received their salary funded by you and bought a car from me, well I wouldn’t have hired the extra sales person.
            Now you can say that it was you who created it with your tax payer dollars in the first instance (which I suspect you may be).
            However if you were to remove the public servants from the equation (and you instead get to keep your tax) well then it is unlikely that you would have gone in and bought 4 cars from me now is it, and as such the new sales role would never have been created. So their decision (a purchasing decision) has at the end of the day created a new job.
            Last thing: please don’t mistake my laying out the workings of the system for support of it. I don’t support it. There are better systems (well one better system) that doesn’t need to take anything from you or anyone else for that matter. But unless people start to understand at a more detailed level how the economy works then nothing will ever change. You will still be rorted for your tax dollars to pay public servant salaries. You can swap you and I around in the above example if that helps.

          • johnbronkhorst

            You are even more ignorant than I first suspected!!!!
            The ONLY net tax payers are private income earners!!!
            Public servants get ALL of their income from the TAX that private income earners pay, which is calculated from the PROFITS made in PRIVATE companies!!!
            So it is PRIVATE earnings that funds public expenses. Effectively meaning that private companies have bought from THEMSELVES via the taxes they paid, that are then paid to beneficiaries and public servants who pay it BACK to where it come from via goods and services that they purchase!
            Simple really, but I understand you are not that bright!

          • Polish Pride

            So take them all out of the equation John take out all beneficiaries and public servants. Give them NOTHING.
            Now how many businesses have just closed?
            You look at it from the point of view of an ideaology and not simple reality.
            But lets run with your viewpoint for a second John.
            What is your solution? What is your System?

          • johnbronkhorst

            I knew you were stupid enough to make this argument!!!
            If no wages to public servants were paid or beneficiaries got NOTHING. TAXES would need to be less that HALF what they are now, private wage and salary earners and businesses would have HUNDREDS of dollars a week EXTRA in their pockets (more for businesses), their life styles would rise, they would spend more, putting more profit in companies accounts!!!
            Now, we can’t do away with govt. all together, BUT the smaller the better!!!!
            Thanks for making my argument for me!!!

          • Polish Pride

            See now I agree with you on Govt being the smaller the better. The problem is that if it is not done with the things I have outlaid above in mind then you won’t get to where you want to go. Instead things will simply descend into anarchy.

            There is one other point that is not necessarily true in your theory
            “their life styles would rise, they would spend more, putting more profit in companies accounts!!!”
            Not necessarily and only to a point. I and many of my friends in business have the lifestyle that they want, are happy with their homes, cars etc. This is despite all earning significantly more than what they did ten years ago. Yes they consume and spend for sure but their rate of consumption and spending doesn’t and hasn’t increased. Their bank balances have and their investment portfolios but that is about it.
            I am going to take a punt and guess that your business doesn’t sell direct to the public and if it does it is not those on lower incomes.

          • Polish Pride

            One more thing you said

            Now, we can’t do away with govt. all together, BUT the smaller the better!!!!
            In your opinion what are the things that we can’t do away with?
            i.e. what are the basic minimum functions of govt that we must retain to have a functioning society?

          • johnbronkhorst

            Defence, police, courts. pretty much everything else can be privately or at least semi privately!!

          • Bunswalla

            Perhaps some of the money they spend disappears into the black/grey market? Maybe the odd tinny or bet with the local bookie.

            Plenty of places for money to go other than “businesses owned by hard-working individuals” – I guess you don’t fully understand how the economy works.

          • Polish Pride

            No doubt it will but not all of their money will go there…. unless their entire diet is black market paua.
            Those people on the black/grey market also spend some of their cash in businesses to buy food, petrol, clothing.
            The same with the local bookie.

    • BobaJob

      That’s about an $8k subsidy per job per year. So on the balance – not a bad deal.

      • rockape

        Agree and how much are the government going to pay private companies to get people off the dole,$12 000 per placement. So this seems a good deal. Those workers are high payed $70 000 tax alone on that is worthwhile.

        • GazzW

          Totally agree – it’s just a cost of doing business.Petty cash in the overall scheme of things.

      • surfisup

        How can this be on balance when you ignore the other side of the equation?

        • BobaJob

          John Key is for it. Tim Shadbolt is for it.

    • http://keepingstock.blogspot.com/ Keeping Stock

      Dead right Petal; imagine the moaning from Labour and the Greens if all the Rio Tinto jobs, and the jobs of all who contract to them went.

      The Govt was on a hiding to nothing here.

    • Muffin

      I’m not a huge fan of subsidies, just like Cam, although in some cases I think the costs of not providing a subsidy will far out weigh the cost to government if they didnt.

      Like this case, a 30 mill subsidy over 4 years, is $7.5 mill per year, divide that over the 1200 direct employees of the smelter and you have $6250. if say half end up on a benefit of say $800 per week then that years subsidy would have been spent in the first 3 months give or take.

      This still doesnt take into account the other 2000 indirect contractors and employees, or the loss in sale price of meridian.

  • Jman

    So they use our taxes to keep power prices higher. Talk about playing into labours hands.

    • rockape

      If RTZ had not resigned a deal what would that have done to the value of meridian energy. The NZ taxpayer would have lost how much. That would be lost, if the asset was sold or written off its value even if it wasnt,the cost, a lot more than 30 million.

  • The other Neil

    Labour would have paid too, but the “cost” of a reduced sales price is a Crown/taxpayer balance sheet issue, which would have been offset at least by the reduction in electricity prices, which would have flowed through the whole economy. The $30m is just a direct cost to all tax payers.

  • cows4me

    This isn’t fair, I thought farmers were the biggest bludgers?

    • rangitoto

      You will have to up your game cows4me. The bludger business is tough these days. ;)

    • Polish Pride

      It does seem rather unfair given you fellas generally wait for extreme weather events (drought, floods) before sticking your hand out.
      These fullas have merely said our business isn’t profitable.
      Maybe you should try that approach then hen they knock you back say it was good enough for Rio Tinto.

  • rockape

    I look at it from the point of view of NZ inc never mind the social cost of redundancy. 30 million investment in an area where unemployment would be hard to counter. On the plus side taxes and GST from the workers,from the company and the savings over even just 4 years comes to 100s of millions. Makes financial sense to me.

    • blairmulholland

      Southland is the most prosperous and affluent part of the country! They have thriving primary produce industries down there. If there’s any part of the country that could withstand losing a subsidised business and bounce back, it’s Southland.

  • rockape

    I am mainly for free market with a big however! If it is costing us money to stay with our principlals then sod the principals. I think,and its been proved in the UK and US, that regional subsidies are a good idea to move industry away from Auckland and out to the areas that need developement.

  • surfisup

    This is a terrible decision made by an economically ignorant government.

    Business failure and creation is a vital part of a modern economy. Tiwai point is a uneconomic operation tying up resources that could otherwise be directed to more productive activities.

    No no no!!!!

    • mark

      You are of course correct. It is a perfect example of Bastiat’s theory of the Seen and Unseen.

      Unfortunately good economics is usually bad politics and vice versa. This however seems to have managed to be bad of both.

      • Lou

        And that has Bastiat spinning in his grave.

        Now if we can connect him to a generator …

        • mark

          Transmission costs too high!! Just hook up some Green party spinners in parallel. The whole country would light up like a roman candle!! =)

  • Lou

    As I see it – there are three things at play – keeping the electricity prices stable, sell a part of Meridian and protect Southland jobs.

    - Electricity prices would have dropped because of oversupply. We have a “market” remember LOL. And competition in the lucrative electricity market would increase with a loss of tax.
    - Meridian partial sales return would have been smaller – less roads for Auckland
    - Jobs would have been lost – additional load on the welfare system

    If the total impact to the economy was more than the $30m spent – great decision.

    If you can prove it was less – bad decision.

    • Muffin

      Can you imagine the bleating from the left if they had let the workers fall on the scrap heap for a measly 30mill

      • Sponge

        Just what I was going to say. A no win situation for the govt.

  • Anonymouse Coward

    Meridian has a distribution problem. Their factories(power stations) are in the South Island, the main market for what they produce is in the North Island.

    The recent upgrade of inter-island HVDC will help to partially overcome this. If the upgrade turns out to be a success then Meridian can renegotiate with Rio Tinto good and hard when the deal comes up again.

    The principal weakness of the HVDC link is the reliability of the Cook Straight cable.

  • Hazards001

    A worn out 30 yr old smelter. So when Jan 2017 comes then what?

    Meridian Energy will be in the hands of private shareholders that paid top dollar for it in an artificial economic environment created solely for it’s sale.

    Rio Tinto will return to the government with hand out again asking for more as it’s still not viable to keep it’s ageing plant open.

    They will be turned down, close the plant and piss off back to Aussie. Result? Everyone out of work and shareholders in the Meridian buy up sitting on over priced shares.

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