china deepens culture of corruption OPINION-EDITORIAL from avarua, rarotonga, cook islands Europeans here and around the world are about to experience what Polynesians discovered for themselves close to 200 years ago. What it’s like to be dominated by a foreign culture. Two centuries ago, it was Europe doing the dominating. White explorers, traders and settlers crushed centuries of Polynesian culture, religion and power within a decade or two of contact between the two societies. This time, it is China that will dominate. “In 2005, China used 26 percent of the world’s crude steel, 32 percent of the rice, 37 percent of the cotton, and 47 percent of the cement,” states Worldwatch Institute, a US-based environmental commentator. China’s explosive growth already causes alarm on shrinking oil markets, forcing higher petrol prices everywhere. Including here. As a nation, we know almost nothing about this emerging economic superpower. Or its equally large and rapidly expanding neighbour, India. Our politicians seem to have no concerns, welcoming one of them, China, with open arms. OPEN HANDS And open hands. Earlier this month, government announced plans for $4 million in China aid funding for new police headquarters. This is barely a year after the same amount was funded for a new court house. Less than a fortnight after publicly releasing the plans for the new police HQ, government secretly let in the first of dozens of Chinese workers to build it. No consultation has taken place. No one has been asked whether they want their police station built by the Chinese. Or what style they want it in. Or to what quality. Instead government appears to have approved plans for a Chinese style ‘cop shop’ and allowed workers to be sneaked into the country. It is avoiding questions from the daily newspaper. One official made sarcastic comments about critics “scared of their own shadows.” He may be right. RUST AND STINK However, without any response from government to questions it is perfectly reasonable for the media to raise the alarm bells. This is particularly so considering growing concerns about the quality of work in the last China project. Metal fittings are already rusting, marble slabs have cracked, the toilets are said to stink and may not even meet minimum building standards. Electrical services are said to have failed from the start requiring expensive repairs by local contractors. Official Chinese contractors approved by the Beijing government badly underestimated what was needed to finish the project and had to source local supplies. Workers were paid so little that they could not always afford to buy food for themselves. They were frequently seen out on the reef, collecting already scarce seafood. Some locals felt sorry for them and gave them fish or sold it cheap. China’s inability to ensure proper standards on one of its own aid projects raises serious questions about whether either country is getting full value for its money. WHERE WAS IT SPENT? Was the full $4 million spent on the court house? Or did some of the money end up going elsewhere? Could our justice system even be the scene of a crime? Government’s track record of managing state assets does not inspire confidence, either in preventing mismanagement or investigating corruption. Over the years, we have seen simple conflict-of-interest on a massive scale as with the Rarotongan Resort or outright fraud like the even bigger Italian hotel project. All these concerns are crumbs as to the real issues at stake here. Across the Pacific, there are complaints as feel-good projects like the courthouse open the door to ruthless competition. Not so much to inscrutable business mandarins as unscrupulous corporate thugs, including organised criminals. In Tonga, local retailers have been wiped out by Asian importers let in by a corrupt King. Similarly, downtown Suva is looking like a wannabe Chinatown, former aid workers later being caught up in a huge drugs bust. CORRUPTION In its 23rd annual State of the World report, for 2006, Worldwatch notes that India ranks 35th on a scale of 50 countries ranked by AccountAbility in its National Corporate Responsibility Index. China ranks 45th on the NCR index. “Both countries, like most other developing countries, are laggards in corporate responsibility,” reports Worldwatch. “Few domestic corporations in India and China are voluntarily increasing responsibility: in 2004, only 5 Indian and 11 Chinese companies filed reports that disclose aspects of their environmental and social performance, which is often a first step in increasing responsibility.” As any auditor knows, a lack of accountability can breed dishonesty. By failing to properly consult, China may be doing nothing but deepening a culture of corruption within both our political classes. Just like the Europeans before them. HISTORY As the latest edition of the Economist notes, China’s return to world dominance will be a return to a historic norm. India and China have, for millennia, been the base of economic activity. Global leadership by European powers is a relatively recent affair, boosted by the historically short-term benefits of the industrial and now technological revolutions. Worldwatch reports that so-called third world Asian countries are now using the same technologies, especially wireless communications, to “leapfrog” first world European nations. What took two centuries to achieve in Europe is being done in China in less than two decades. This should not be surprising for those who remember that China is the world’s oldest surviving civilisation. They’ve been challenged before. SURVIVAL Academics have been telling us for decades now that our future lies in Asia. Not because we might like to but, as Worldwatch figures make clear, because we have no other choice. As the Cook Islands get to grips with China, it will also pay us to remember that India lags not far behind. Despite our relatively well-educated population, there is little hope that we can match Asian efforts in high technology. Remoteness from large markets ensures that. Possible answers lie in the now stagnating offshore finance industry. Using the Asian example, communication technologies may also allow us to ‘leapfrog’ over first-world countries. Not in morally bankrupt ventures like tax-evasion, or even only slightly less suspect areas like “asset protection.” Emerging opportunities in environmentally-friendly, ethically evolved sustainable development markets offer the best hope. Not selling off our sovereignty for a few blankets and axes.
update '06 - what's in - what's missing
BACKGROUND - NEWS
Each year, around December or January, officials from the Ministry of Finance and Economic Management release the Half Year Fiscal and Economic Update.
It is one of three financial reports required by law from MFEM each year.
The other two are the Budget Policy Statement and, of course, the Budget itself.
Here, avaiki nius agency presents verbatim sections from the half year update, for readers to get an idea of government performance – from a government perspective.
It is a somewhat limited perspective, often missing details from various parts of our society, as it does this year with such social indicators as violent crime and theft figures completely ignored. Only motor vehicle accidents are listed under crime.
However the half year fiscal and economic update is not fantasy land, containing cautions and even criticism in places.
For example, MFEM officials note that their own Statistics Office are producing statistics that are simply not “plausible.”
What might make the updates more plausible is inclusion of comments from the official opposition.
For now, we have extracted comments from the official PDF document posted to the MFEM website, a format many internet newcomers have difficulty using.
We have put the various sections under headings to make it easier for casual reviewers, critics and supporters alike to zoom in.
For a copy of the complete report, go here.
update overview
economic growth
consumer prices
tourism
pearls
fishing
agriculture
offshore banking
imports and exports
banking and finance
assumptions
government update: an overview
where does government get its money?
what does government spend it?
what does the government owe?
what’s the government worth?
aid flows
specific fiscal risks
population
education
education – grade 4 performance
education – university entance passes
education - teachers
health - communicable disease
health - non communicable disease (NCD)
crime - motor vehicle accidents
economic update overview
After contracting in the March quarter 2005, the economy rebounded strongly in the June and September quarters.
While there are signs that the economy may have slowed somewhat in the December quarter, underlying growth remains sound. The two most useful data sources for monitoring short term movements in the economy are receipts of value added tax (VAT) and visitor arrivals.
VAT receipts are more closely related to the current level of economic activity than other tax receipts. In the March quarter 2005 VAT receipts were a modest 2.0% higher than in the March quarter 2004. However, receipts picked up very strongly from around the middle of the year. Between July and October 2005 (relating to economic activity in the period June to September), VAT receipts were 16.2% higher than in the corresponding months in 2004.
This indicates a very high level of economic activity over this period.
Additional flights into the country meant that visitor arrivals were very strong from March to August. In July, arrivals exceeded 10,000 for the first time ever, partly reflecting the impact of the Te Maeva Nui celebrations for the fortieth anniversary of self-government. High visitor numbers undoubtedly contributed to the very high level of economic activity.
The construction industry also contributed importantly to growth in the June and September quarters. The value of building approvals was some 21% higher than in the corresponding quarters in 2004, and sales of building supplies have been very strong. The banks also report strong growth in lending for construction, for both the commercial and residential sectors. The high level of construction activity reflects both reconstruction following the cyclones and new development.
The most recent data suggests a slowdown in economic activity. While most of this is seasonal, levels of activity appear to be slightly below corresponding months in 2004.
• VAT receipts in November 2005 (relating to economic activity in October) were 1.1% lower than in November 2004.
• Visitor arrivals have fallen slightly, albeit from a very high base. In the three months to November 2005, visitor arrivals were 3.6% below the corresponding period in 2004.
It is likely that economic growth will moderate from the levels experienced in the last couple of years. After growing very strongly since June 2004 as a result of lower airfares and additional flights, visitor arrivals are expected to grow more modestly in the period ahead. Nevertheless, and abstracting from seasonal factors, the short term outlook is for continued solid economic growth. Moderate growth in tourism and retail trade and continued strong construction activity are expected to underpin economic activity in the short to medium term.
Despite the sound underlying growth in the economy, two issues require special comment. First, economic activity appears to be becoming more seasonal. Greater reliance on visitors from New Zealand means that there is a stronger seasonal pattern in visitor arrivals, with arrivals concentrated from around March to October. This has flow on effects throughout the rest of the economy. Hence it appears that the economy is increasingly going through a flat period from around November to February. This highlights the importance of continuing efforts to attract more visitors from Europe and North America.
Second, discussions with the private sector indicate significant differences between large and small businesses. In both the wholesale and retail trade industry and the hotels and motels industry, the larger operators are generally experiencing solid growth rates and have sound balance sheets. However, many smaller operators appear to be struggling.
Despite steady growth in underlying demand, there appears to be an over-supply.
Smaller operators are finding it difficult to maintain market share and to adjust to the more seasonal nature of the economy. While such competition between operators is an inherent feature of market economies and contributes importantly to more efficient outcomes, it nevertheless imposes costs on individuals and families.
Despite these concerns, it is clear that the economy remains in a very sound position. The strength of the recovery following the cyclones highlights the resilience of the economy, and the indicators point to continued steady growth in the period ahead.
Complete report: MFEM, Half Year Economic and Fiscal Update
economic growth
The economy has enjoyed a long period of sustained economic growth since emerging from recession in the late 1990s, with an average growth rate of 6.2% between 1998 and 2004.
This is an impressive performance by international standards.
The dominant industries in the economy are wholesale and retail trade (23.1% of GDP in 2004), agriculture and fishing (15.1%), restaurants and accommodation (15.0%), transport and communi-cation (12.5%) and public administration (12.1%). Between them, these five industries account for around 78% of economic activity in the Cook Islands
With the exception of public administration, these industries have also been the dominant drivers of economic growth in recent years. The other four industries listed above contributed 89% of total economic growth over the period 1998 to 2004.
The most recent GDP data suggest a continued strong performance, with economic growth of 5.6% in 2004. This is higher than had previously been expected, but is consistent with partial indicators of economic activity. The main contributors to growth in 2004 were agriculture and fishing, wholesale and retail trade, and construction.
As noted previously, underlying growth in the economy remains strong. Indeed, the better than expected GDP figures for 2004 and strong economic performance in the June and September quarters 2005 have led to some upward revisions to the growth projections.
- • In the 2005-06 Budget, real GDP growth was projected at 2.5% in 2004-05 and 2.4% in 2005-06.
- • It is now estimated that real GDP grew by around 4.2% in 2004-05. Growth is projected at around 3.0% in 2005-06 before returning to a long-term growth rate of around 3.5% in the out years. GDP per capita measures the value of output per person, and hence provides a good measure of living standards. As discussed in section 3.1, there are a number of issues relating to the estimates of resident population. For this reason, the estimates below are based on total population rather than resident population.
GDP per capita was around $12,900 in 2004. Real GDP per capita has grown strongly during the recent period of economic growth. Between 1998 and 2004, it increased by an average of 3.5% per year, with real GDP growth of 6.2% and population growth of only 2.6% per year.
In 2004, however, real GDP per capita is estimated to have declined by 4.3%, with population increasing faster than economic growth.
Complete report: MFEM, Half Year Economic and Fiscal Update
consumer prices
With the use of the New Zealand dollar as the national currency, the long-term inflation rate in the Cook Islands tends to follow the rate in New Zealand.
The Reserve Bank of New Zealand (RBNZ) has adopted an inflation target of 1% to 3% on average over the medium term. Nevertheless, inflation in the Cook Islands tends to be more variable than in New Zealand, reflecting the narrow economic base and heavy reliance on imports. In year average terms, prices in-creased by 7.3% and 5.8% in 2000-01 and 2001-02 respectively, reflecting increased fuel prices. Since that time they have remained within the RBNZ range.
Preliminary data for the September quarter 2005 shows that consumer prices increased by 0.2% in the quarter to be 2.1% above the level in the September quarter 2004. The largest contributions came from increased fuel and electricity prices, with the household fuel and light sub-group con-tributing 0.7 percentage points and the motor fuel and oil sub-group contributing 0.4 percentage points to the inflation rate over the year.
The removal of most import levies from 1 July 2006 is projected to lead to a one-off reduction in consumer prices of around 2.2 percentage points, assuming that the reduction is fully passed on to consumers and that there are no compensating increases in other indirect taxes. Apart from this reduction, the projections assume as usual that inflation will increase by 2% per year over the medium term, the mid point of the RBNZ range.
The projections are based on stable exchange rates and world oil prices. Obviously, significant changes in these variables would affect the projections.
Complete report: MFEM, Half Year Economic and Fiscal Update
sectoral trends - tourism
The tourism industry is identified as the single most important sustainable income earner for the Cook Islands economy and measured by growth in visitor arrivals.
It is estimated that tourism expenditures generated some $108.5 million in 2004-05 which amounts to around 40% of GDP. Growth in visitor arrivals has averaged around 5.6% for the past 5 financial years with an 8.9% growth rate in 2004-05. This high growth rate is a result of the introduction of cheaper flights in June 2004 and additional flights from March-April 2005, although some of these flights have now been withdrawn. The New Zealand market expanded its share of visitors from 43% in 2003-04 to 50% in 2004-05, while the Northern Hemisphere markets have fallen from a 40% share in 2003-04 to only 32% in 2004-05. This squeeze in Northern Hemisphere markets actually dates from around 2002 and is due to the lack of direct flights, unavailability of seats from Tahiti to Los Angeles, and the strengthening of the New Zealand dollar.
There is also anecdotal evidence that tourism expenditures per head have declined as a result of this change in market share. Tourists from New Zealand are considered to spend less than those from the Northern Hemisphere. This has impacted on local outlets and thus trends in VAT revenues. Given that the most recent visitor expenditure survey was undertaken in 1991, an updated survey should be undertaken as a matter of priority to get a better handle on the yield from different markets and to guide policy development and marketing efforts.
The change in market composition has also led to greater seasonality in the tourism industry and the economy as a whole. Visitors from New Zealand tend to be concentrated in the period from around June to October. Whereas previously this was balanced by high numbers from the Northern Hemisphere between November and March, this is now much less the case. This is posing problems for the industry, particularly the smaller operators.
There has also been a shift in the type of product demanded by tourists. The larger resorts have generally achieved good yields, even though in some cases occupancy rates have been down or they have had to discount their rates. Holiday homes and backpacker accommodation have also done quite well. However, many of the smaller operators are struggling, partly reflecting over-supply in this segment of the market. Some smaller operators have undertaken joint marketing exercises or developed arrangements with larger operators for marketing and management. Restaurants have also reported lower sales with more visitors preferring self-catering style accommodations.
The most recent data indicate very high visitor numbers in July and August 2005, with monthly arrivals exceeding 10,000 for the first time ever in July. However, the last three months have seen a levelling off of previous high growth with arrival figures for the period September to November down 3.6% on the same period in 2004.
It is also more difficult to project short-term trends based on forward bookings. Access to internet bookings and cheaper flights have meant that lead times for booking holidays have been greatly reduced and that projections out further than three months ahead are no longer a good indicator of future occupancy. The outlook for the tourism industry is that growth will moderate to around 3.8% in the medium term, based on the average growth rate over the last ten years.
The Tourism Corporation is currently undergoing a re-branding exercise which is expected to provide a more long term strategic analysis and planning of destination marketing. Arrivals are projected to increase by 4.0% in 2005-06 and 3.9% in 2006-07.
Complete report: MFEM, Half Year Economic and Fiscal Update
sectoral trends - pearls
Pearl exports increased in 2004-05 by 84% to $2.9 million, confirming the steady recovery from the effects of the algae outbreak in early 2001.
Anecdotal evidence suggests a modest improvement in global prices, largely dictated by the French Polynesian market. It is also understood a number of small farmers have exited the industry and that the larger farmers have remained and stabilized. It is projected that there will continue to be modest growth in the industry driven by the larger suppliers, with higher volumes and slightly higher market prices.
There have been moves by Government to assist the industry to establish quality management and marketing systems, to enable Cook Islands pearls to improve their competitiveness on the global market in the face of increasing international competition.
Complete report: MFEM, Half Year Economic and Fiscal Update
sectoral trends - fishing
2005 appears to have been a relatively good year for the fishing industry.
Data on the total catch for January to June 2005 indicates an increase of 10.3% on the 2004 catch for the same period. However, seasonal highs occur around July to September, and complete data for this period in 2005 is not yet available.
High production costs due to labour and the rising price of fuel have also squeezed profit margins. (Note that catch data from the Ministry of Marine Resources is used in place of export statistics as it is deemed more reliable.) At present there are eight licensed fishing vessels operating in the Southern Group and fifteen in the Northern Group. Catch from the Southern Group is usually exported to the fresh fish markets in Japan (yellow fin tuna and swordfish), whereas the Northern catch is offloaded in American Samoa and tinned (albacore). Therefore the price per kilo for Southern Group catch is generally greater than the price for Northern Group catch. Moreover, the economic benefits for the Cook Islands are greater from the Southern Group catch because it is offloaded in Rarotonga.
It is understood that many smaller operators have left the industry because of the absence of economies of scale to absorb losses during low seasons as well as covering the increasing cost of operations. The remaining operators tend to be larger and to have more sustainable operations.
It also must be noted that there are problems of over fishing in the Pacific region. Addressing this will require effective action at the regional level. This will affect the viability of the fishing industry in the long term if catch is not limited to a sustainable yield.
sectoral trends - agriculture
The supply of agricultural produce on the market is difficult to quantify due to the large subsis-tence sector and lack of data on commercial production for the domestic market.
However, qualitative assessment by the Ministry of Agriculture provides a feel for market trends. The majority of agricultural produce is consumed domestically and is significantly affected by the tourism industry.
There has been a considerable quantity of vegetables on the market since the harvest season beginning around May-June. The cyclones in the early part of this year had only a minor effect on production. There have also been increases in the price of produce. This has been of benefit to growers, but may have increased the cost of living for some groups in the community.
In recent years the nono industry had emerged to be a viable export earner earning around $3.3 million in 2004 (31% of total exports). However, increased competition in global markets leading to falling prices has dramatically reduced the competitiveness of the local industry. It is understood that prices paid to growers have fallen from around 80 cents per kilo to around 50 cents, but that this is still well above the prices received by growers in other countries. Some growers have already left the industry.
High production costs and distance from export markets make it difficult for agricultural exports to be competitive except in niche markets, and even then it is difficult to maintain competitiveness if other suppliers are able to enter the market.
For this reason the major focus for the agricultural sector is and should remain on subsistence production and commercial production for the domestic market, rather than production for export.
Complete report: MFEM, Half Year Economic and Fiscal Update
sectoral trends - offshore sector
The offshore sector comprises trust companies focusing on asset protection and international banks offering a range of financial services.
The industry is highly competitive worldwide. While the industry had stagnated in recent years, the provisional removal of the Cook Islands from the blacklist of the Financial Action Task Force (FATF) in February 2005 has provided an opportunity to resume a growth path.
It is expected that modest growth will be experienced over the following years.
Complete report: MFEM, Half Year Economic and Fiscal Update
imports and exports
The economy is heavily dependent on imports of both consumer and investment goods to feed domestic demand.
Imports were around $109.8 in 2004-05, with 78% of imports coming from New Zealand. With very limited exports of goods, this has resulted in a large merchandise trade deficit averaging around $99 million in the past five financial years.
This trade deficit is financed by a large surplus in trade in services, driven primarily by receipts from the tourism industry. The overall trade balance on both goods and services is estimated to have been approximately $46.0 million in surplus in 2004-05, compared with $23.0 million in 2004-05. This improvement is largely due to a 10.5% decrease in merchandise imports combined with a 10.7% increase in tourism receipts, although it must be acknowledged that tourism receipts are very difficult to estimate without an up to date survey of visitor expenditure.
With Government’s recent decision to remove import levies on most goods from July 2006, it is expected that imports may increase moderately over the medium term, very likely expanding the trade deficit.
Complete report: MFEM, Half Year Economic and Fiscal Update
education - university entrance pass rate
In 2004, 12 students (or 52% of senior students in the Cook Islands who attempted the University Entrance) achieved a result that was acceptable to enroll in tertiary level education.
This is a large improvement from the pass rates experienced in 2002 and 2003 (36% and 43% respectively) and indicates a continual upward trend in student pass rates. Nevertheless, this may reflect a lower number of students attempting University Entrance. The number of students studying at senior level 3 who are taking 4 to 5 subjects (7th form subjects equivalent) dropped by 33% from 18 in 2003 to 12 in 2004. The majority of students in senior level 3 were multi-leveled taking courses at Level 3 and Level 2 at the same time, a feature of the NCEA system, and therefore ineligible for either qualification NCEA Level 3 or University En-trance. 98 students were enrolled at senior level 3 being both multilevel and single level students.
Only 23% of the total students in senior level 3 were eligible to achieve NCEA Level 3 or Univer-sity Entrance qualifications.
Complete report: MFEM, Half Year Economic and Fiscal Update
education - university entrance pass rate
In 2004, 12 students (or 52% of senior students in the Cook Islands who attempted the University Entrance) achieved a result that was acceptable to enroll in tertiary level education.
This is a large improvement from the pass rates experienced in 2002 and 2003 (36% and 43% respectively) and indicates a continual upward trend in student pass rates. Nevertheless, this may reflect a lower number of students attempting University Entrance. The number of students studying at senior level 3 who are taking 4 to 5 subjects (7th form subjects equivalent) dropped by 33% from 18 in 2003 to 12 in 2004. The majority of students in senior level 3 were multi-leveled taking courses at Level 3 and Level 2 at the same time, a feature of the NCEA system, and therefore ineligible for either qualification NCEA Level 3 or University En-trance. 98 students were enrolled at senior level 3 being both multilevel and single level students.
Only 23% of the total students in senior level 3 were eligible to achieve NCEA Level 3 or Univer-sity Entrance qualifications.
Complete report: MFEM, Half Year Economic and Fiscal Update
banking and finance
The banking sector has experienced continued solid lending growth, with loans and advances growing by 16.8% over the year to September 2005.
Most bank loans are for personal services (39.1%), hotels ands motels (31.5%) and wholesale and retail trade (12.0%), and these three industries were responsible for just about all of the growth in lending over the year to September.
The volume of lending has been boosted to some extent by cyclone-related activity. Some loans were restructured following the cyclones and some businesses have upgraded following damage from the cyclones. It is expected that lending will continue to grow but that it will moderate somewhat in the period ahead.
Official data suggests that deposits grew strongly in the three months to September 2005, but remained around 2.8% lower than a year earlier. Discussions with the banks indicate that deposits are broadly stable. The level of deposits can fluctuate significantly in the short term as a number of businesses build up significant cash balances over a period of four to six weeks and then use it to purchase imports.
As noted in previous updates, the banking sector has had a negative net foreign asset position since December 2003. With loans increasing faster than deposits, the banks have been required to borrow on foreign financial markets to fund their domestic loan portfolios. Interest rates have also increased reflecting the higher costs of borrowing offshore.
The willingness of the banks to borrow offshore to fund domestic loans indicates their confidence in the Cook Islands economy as well as the absence of exchange rate risk because of the use of the NZ$.
Complete report: MFEM, Half Year Economic and Fiscal Update
assumptions underlying the economic forecast
The broad assumptions underlying the economic forecasts are generally outlined in the individual sections in the Economic Update.
The key assumptions are as follows:
• Real GDP is assumed to grow at 3.5% per year over the medium term, based on historical trends.
• Consumer price inflation is projected to increase by 2% per year over the medium term, the mid-point of the Reserve Bank of New Zealand’s range.
• These assumptions imply that nominal GDP will increase by around 5.5% per year over the medium term, reflecting growth in real GDP and inflation.
• In the short term, these variables are assumed to depart from their medium term paths in line with current economic conditions. Nominal GDP is projected to grow by 5.1% in 2005-06 reflecting slower than average growth in year average terms, and by 3.3% in 2006-07, the deflationary impact of the removal of import levies.
In terms of sectoral assumptions:
• Visitor arrivals are projected to grow by around 4.0% in 2005-06, with growth in the out-years projected to return to the long-term growth rate of around 3.8%.
• Pearl exports are projected to increase by 20% per year from the level recorded in 2004-05.
• Fish exports are projected to increase by 20% in 2005-06 from the relatively low level re-corded in 2004-05, and to stabilise at the 2005-06 level.
• Other exports; imports; bank deposits; bank loans and advances; and building approvals are all projected to increase in line with growth in nominal GDP over the medium term.
Complete report: MFEM, Half Year Economic and Fiscal Update
government update overview
The Government’s fiscal position remains sound.
The Government has run operating surpluses each year since 1999-2000. The supplementary budget brought down in September provided for an operating surplus of $1.8 million in 2005-06, down from the projected surplus of $3.4 million in the original 2005-06 Budget.
Events since the supplementary budget have significantly strengthened the fiscal outlook for 2005-06, with tax receipts considerably higher than expected in the five months to November 2005. The operating surplus is now expected to be $4.5 million in 2005-06, reflecting revised revenue projections.
Notwithstanding these favourable movements in tax receipts, it will be necessary to ensure a tight rein on expenditure in 2006-07. The decision in November 2005 to remove most import levies from 1 July 2006 will have an annual cost to revenue of around $6.3 million. In the absence of exemptions or increases in the rates applying to other taxes, operating revenue for 2006-07 is projected at $78.7 million. This is $0.6 million less than the revenue projections for 2005-06 in the supplementary budget (on which the current level of expenditure is based), or $3.1 million less than the current revenue projections for 2005-06. While this estimate is very preliminary, there would appear to be limited scope for increases in operating expenditure in 2006-07.
In terms of borrowings, previous updates have noted that Government debt is now at prudent levels. The commitment by the Government in the 1998 Manila Agreement not to undertake new commercial borrowings for seven years unless certain conditions were met expired in September 2005. This increases the scope for Government to borrow to finance high priority infrastructure projects. While there are some infrastructure needs that do not meet the criteria for donor funding, it is important to ensure that rigorous business cases are developed and transparent processes adopted for any projects funded through commercial borrowing.
With the expiration of the commitments in the Manila Agreement, the principles of responsible fiscal management in the Ministry of Finance and Economic Management Act 1995-96 will be important in ensuring continued fiscal stability. These involve:
• Ensuring that unless Crown debt is at prudent levels, operating expenses will be less than op-erating revenues (ie there will be an operating surplus).
• Achieving and maintaining levels of Crown net worth that provide a buffer against factors which may impact adversely on net worth in the future.
• Managing prudently the fiscal risks facing the Crown.
• Pursuing policies that are consistent with a reasonable degree of predictability about the level and stability of tax rates for future years.
This policy framework should serve to create the conditions for continued macroeconomic stabil-ity and encourage economic development led by the private sector.
Complete report: MFEM, Half Year Economic and Fiscal Update
government operating revenue
The 200506 Budget projected operating revenue at $78.9 million, comprising taxation revenue of $67.6 million and other operating revenue of $11.2 million.
This projection was revised upwards to $79.3 million in the supplementary budget, following an unexpectedly large dividend from Telecom. Taxation receipts so far in 200506 have been considerably higher than expected. In the five months to November 2005, receipts of the four main taxes were $3.1 million above budget. Receipts of value added tax (+$1.2 million), income tax (+$0.9 million) and company tax (+$1.8 million) were all well over budget, while import levies ($0.8 million) were below budget. These very strong tax receipts highlight the strength of the economy in the first few months of this financial year.
Nevertheless, it is too early to assume that all of these gains will be maintained throughout the financial year. This is highlighted by the experience of 200405. In the first five months of 200405, receipts were some $2.0 million over budget. However, between December 2004 and February 2005 receipts were more than $1.3 million below budget. Taxation receipts can fluctuate considerably from month to month, and the gains so far this financial year could be reduced considerably if we were to experience a number of low months. The anecdotal evidence of a slowdown in the economy in the last couple of months also suggests that taxation receipts may be less buoyant in the period ahead.
For this reason, MFEM has adopted a relatively cautious approach and revised taxation receipts for 200506 up by $2.0 million. Revenue projections have also been revised upwards by a further $0.5 million to reflect higher expected interest earnings, in part because of higher interest rates.
Taxation receipts in 200607 and future years will be significantly affected by the decision in November 2005 to remove most import levies with effect from 1 July 2006. This decision reflects a longstanding commitment by Government to remove levies and is consistent with obligations under the Pacific Island Countries Trade Agreement (PICTA).
It is estimated that in the absence of exemptions or increases in other taxes, the effect of the removal will be to reduce taxation receipts by around $6.3 million per year compared to what they would otherwise have been. This comprises $5.6 million in lost import levies and $0.7 million from lower VAT receipts.
It has been suggested that the removal of import levies will increase spending in the economy, thereby offsetting some of the loss in revenue. However, this is unlikely to be the case. Aggregate demand would only increase if government did not reduce its own expenditure. To ensure fiscal responsibility government expenditure would need to be reduced, and this would offset any increase in aggregate demand from higher consumer spending.
Projections suggest that total operating revenue in 200607 may be around $78.7 million, a fall of $0.6 million compared to revenue projections for 200506 at the time when the supplementary budget was framed.
In 200708 most components of operating revenue are projected to increase in line with nominal GDP less 1 percentage point.
This is broadly in line with historical trends.
Complete report: MFEM, Half Year Economic and Fiscal Update
government operating expenditure
The 2005-06 supplementary budget provided for operating expenditure of $77.5 million, an in-crease of $2.1 million compared with the original budget.
After a period of moderate growth between 2001-02 and 2003-04, budgeted operating expenditure has increased considerably in the last two financial years. After adjusting for changes in the clas-sification of some items, the 2005-06 supplementary budget provides for an increase in operating expenditure of some 14.3% compared with the 2003-04 supplementary budget. While the econ-omy has been growing strongly this is nevertheless a large increase over a two year period, and is unlikely to be sustainable over the longer term.
The removal of most import levies in 2006-07 will force a reversal of this trend. As noted above, operating revenue is projected to decline by around $3.1 million in 2006-07. Nevertheless, the decline is much smaller (around $0.6 million) when compared with the 2005-06 revenue projec-tions in the supplementary budget, on which the current level of operating expenditure is based.
It is too early to provide detailed estimates of the likely implications for expenditure in the 2006-07 Budget. Nevertheless, the projections assume that expenditure will be maintained at $77.2 mil-lion, around its current level. Even with no growth in expenditure, the operating surplus is estimated at only $1.5 million.
Preliminary indications suggest that after taking into account the stronger than expected taxation revenue so far this financial year and depreciation, this may be just sufficient to finance non-operating outlays such as capital expenditure, loan repayments and increases in reserves. Nevertheless, there will be limited scope for increases in operating expenditure in 2006-07. There is also clearly no scope to have another supplementary budget in 2006-07. If taxation revenue continues to exceed budget projections for the remainder of this financial year, there may be scope for modest increases in expenditure in 2006-07.
On the other hand, if the economy slows or there is a cyclone this season, it is very likely that expenditure would need to be cut. It will be a major challenge to limit overall government expenditure while increasing expenditure on core government services. There is considerable evidence that the education and health sectors are key drivers of economic and human development, and a strong case can be made for increasing funding. Issues relating in part to funding in these areas have recently attracted significant public comment.
At the same time, it is important that any additional funding is used effectively to achieve better outcomes for the community. The Ministry of Education has developed a draft 15 Year Education Strategy Document and has a sound framework for strategic planning. The Ministry of Health is currently developing a Health Strategy for 2006-07 to 2009-10. The 2005-06 Budget includes an allocation for a review to analyse the quality and cost-effectiveness of services provided by the Ministry of Health, but unfortunately this review appears to have stalled.
A review of the Cook Islands Police Service is expected to commence in early 2006. This review will analyse the performance of the Service and should give an indication of the level of resources needed to provide high quality policing that meets the needs of the community. Meeting necessary expenditures in critical areas may require increases in other taxes or revenues to compensate for the loss of revenue from import levies, reductions in government expenditure in other areas, or a combination of both.
Previous updates have also highlighted the prudent financial ratios established following the Ma-nila Agreement between the Government and Asian Development Bank. The most notable of these is that the ratio of wages, salaries and supplements to GDP for the general government sec-tor should be no more than the 2001-02 level of 13.4%. While formal commitment to this and the other ratios expired in September 2005, it is nevertheless a useful guide for policy-makers.
The ratio is projected at 13.1% for 2005-06, slightly below the level in 2001-02. Nevertheless, in dollar terms personnel costs have increased by around $8.3 million over the period. Clearly, some growth in personnel costs over time is necessary to enable the public service to attract and retain high quality staff.
However, there is evidence that in some government agencies, excessive personnel costs as a result of overstaffing are squeezing the operating budgets. It is important that Heads of Ministry look at this issue to ensure that they are using their resources efficiently to achieve the desired outputs and outcomes.
Complete report: MFEM, Half Year Economic and Fiscal Update
government debt
government debt
Government debt is projected to fall to around $96.0 million by 30 June 2006. This compares with around $200 million prior to the Manila Agreement in 1998.
The level of debt was $97.0 million as at 30 June 2005. The projections assume draw downs of $4.0 million on the Asian Development Bank loan for cyclone rehabilitation, partly offset by loan repayments of $2.7 million. The debt has also fallen when denominated in NZ$ as a result of favourable exchange rate movements, particularly against the Euro and Japanese Yen.
Around $45.0 million of the debt is owed to SACE, a finance company owned by the Italian Government, in relation to the failed Sheraton Hotel project at Vaimaanga.
Net borrowings after taking account of advances to public enterprises and loan reserves are projected to be $72.9 million by 30 June 2006, or around 25.8% of GDP. Nearly all of the debt is concessionary.
The Government has not taken out any new commercial loans in recent years. As noted previously, it made a commitment in the Manila Agreement in 1998 not to undertake new commercial borrowings for seven years unless Crown debt was at prudent levels. Since that time, the only new loans have been two concessionary loans from the Asian Development Bank.
The seven year period expired in September 2005. In any case, Government debt is now at prudent levels. There is therefore scope for resuming commercial borrowing for critical infrastructure projects.
The Government has recently received confirmation of technical assistance to be provided by the Asian Development Bank to develop an environmentally sustainable infrastructure master plan. The plan will cover a 20 year period and will enable the Government to develop ports, harbours, airports, roads and other critical infrastructure in a phased manner in partnership with aid donors. While major infrastructure projects on the Outer Islands are usually able to attract donor funding, this is generally not the case on Rarotonga. Hence some commercial borrowing will be necessary.
Nevertheless as noted in previous updates, any new commercial borrowing should be undertaken cautiously and subject to a number of conditions:
• Rigorous business cases should be developed before any projects are considered for commercial funding, and contractual arrangements should be transparent and contestable.
• As much as possible, the costs of servicing the debt should be met through user charges. There has been a reluctance to implement user charges in the past, but they are critical to ensuring that the debt service burden is sustainable.
• Where user charges are not feasible, commercial borrowing should only be considered where debt servicing costs can be funded from within the Government’s operating revenue.
Complete report: MFEM, Half Year Economic and Fiscal Update
government net worth
Net worth is the difference between Crown assets and liabilities.
Under the Ministry of Finance and Economic Management Act 1995-96 Government is required to achieve and maintain levels of net worth that provide a buffer against factors that may impact adversely on net worth in the future.
Net worth is projected to reach $106.2 million by 30 June 2006, compared with an estimated $96.1 million as at 30 June 2005. The projected increase reflects the following factors:
• The projected operating surplus for 2005-06 of $4.5 million.
• Increases in fixed assets and infrastructural assets funded by foreign aid, estimated at around $7.2 million. Foreign aid is not included in the operating statement, but capital assets funded through aid appear on the Crown balance sheet.
• Gains from the revaluation of the Government debt of $2.4 million, based on exchange rate movements for the period 30 June to 30 November 2005.
• Write-downs of assets damaged in the cyclones. Such write-downs are assumed to equal the value of draw downs of the Asian Development Bank loan for cyclone recovery, estimated at $4.0 million.
Net worth is expected to continue to increase in the out years, reflecting projected operating surpluses and aid-funded capital expenditure.
Complete report: MFEM, Half Year Economic and Fiscal Update
aid flows
Aid flows in recent years have averaged around $12 million, excluding aid from the People’s Republic of China.
On average, around two thirds of this aid comes from New Zealand and Austra-lia. The other major donor is the European Union. Total aid in 2005-06 is estimated at around $24.1 million. This reflects a number of large additional payments:
• New Zealand is providing additional funds of $3.0 million to support a cyclone recovery programme.
• Australia is funding a ‘one off’ life extension programme for the Cook Islands Police Patrol Boat Te Kukupa to extend its useful life another 15 years at a cost of $3.5 million.
• The People’s Republic of China is also expected to provide $4.0 million, primarily for a new police station.
The New Zealand and Australian donor funds were harmonised with effect from 1 September 2004. This co-funded programme is managed by NZAID and is expected to provide aid of $12.4 million in 2005-06. In addition to the cyclone recovery fund, the main sectors to benefit are edu-cation ($2.9 million), outer islands development ($2.0 million) and human resource development ($1.9 million).
Aid is generally received in the form of technical assistance, training, equipment and infrastructure.
Complete report: MFEM, Half Year Economic and Fiscal Update
specific fiscal risks
There have been no further developments with regard to the $14.5 million lawsuit filed against the Government regarding the Government’s shipping policy.
The Government does not anticipate that any payment will be made as a result of this claim. However, it will continue to include the maximum amount as a contingent liability.
The Government also holds NZ$4.5 million in uncalled capital shares, comprising shares of $1.7 million in the Asian Development Bank and $2.8 million in the Bank of the Cook Islands.
Complete report: MFEM, Half Year Economic and Fiscal Update
population
Considerable concern has been expressed about the apparent decline in the resident population of the Cook Islands in recent years as a result of people moving overseas.
The resident population is defined as people intending to reside in the Cook Islands for twelve months or more. Hence, it includes foreigners working in the Cook Islands and their families, so long as they intend to stay for twelve months or more.
The resident population was estimated at around 15,000 in the 2001 Census, down from 18,100 in the 1996 Census. The most recent official estimate put the resident population at 12,400 in June 2005. Based on these figures, it would appear there has been a further decline in the resident population of some 2,600 since the 2001 Census.
However, there are significant issues with the official figures. It is easy to measure the total number of people arriving in and departing the Cook Islands. But separating them into visitors and residents is much more difficult. The current approach relies largely on what people list as their permanent address when arriving and departing the country.
This leads to anomalies in the data. For instance, the official figures imply that there were some 7,800 visitors in the country in June 2005 (i.e. the difference between the total population of 20,200 and the resident population of 12,400).
This is not plausible.
Based on data on visitor arrivals and average length of stay, it is estimated there were really only around 2,300 visitors in the country at this time.
The Ministry of Finance and Economic Management (MFEM) has made some rough recalcula-tions of resident movements by estimating the numbers of visitors in the country and subtracting these from the total population. Based on these estimates, the resident population has actually in-creased by around 2,100 since the 2001 Census.
Interestingly, the estimates suggest that resident movements are strongly influenced by economic conditions. While the resident population fell sharply during the recession of 1995 to 1998, it has increased during the period of strong economic growth since 1999. It would therefore appear that the best thing the Government can do to encourage more people to stay in or return to the Cook Islands is to enable greater economic opportunities through sustainable economic development.
One important caveat is that the resident population includes all people intending to reside in the Cook Islands for twelve months or more, regardless of ethnic origin.
In the 2001 Census there were around 980 residents who were not of Cook Island Maori origin. While the number of foreigners has almost certainly increased since then, it is not possible to quantify the increase. Hence it is not clear how many residents are of Cook Island Maori origin, and how this number has changed over time.
It is important to improve the statistics on the resident population. The Statistics Division has taken a number of steps to try to get a better handle on movements of residents, and Ministry of Foreign Affairs and Immigration has recently computerized its database.
However, it will not be possible to get accurate data until the next Census in November 2006.
Complete report: MFEM, Half Year Economic and Fiscal Update
education
The Cook Islands has a total of 33 schools (primary and secondary). 76% of these are public schools with 42% on Rarotonga.
In 2005 there were 4573 enrolments at schools in the Cook Islands. 2840 were on Rarotonga and 1733 on the Outer Islands. Overall 2005 enrolments have decreased by 1.3% in comparison to 2004. This largely reflects a 2.9% reduction in Outer Island enrolments mainly from the Southern Group (excluding Rarotonga).
The Secondary School level makes up the majority of this de-crease and is reflected in the reduction of senior retention rates by 4.3%. Rarotonga enrolments have only decreased slightly by 0.2%.
Complete report: MFEM, Half Year Economic and Fiscal Update
education – grade 4 performance
Grade 4 Diagnostic Tests in the three main areas; Maori, English and Mathematics, evaluate academic progress at the primary school level.
As seen in figure 3.2, there was a concerning sharp reduction in the average collective Grade 4 results in the 3 main areas in 2004. In 2005 results increased overall but remain under 50% (considered the minimum passing grade for any test) across the board.
Overall results in English have improved by 3.1% points in comparison to 2004, although there were very slight reductions in Maths and Maori results.
Overall Maori results declined by 0.01% points in comparison to 2004 results. There has been a continual decline in Maori from the Northern Group in the level of results since 2003. This is balanced out by improvements in results from Rarotonga and the Southern Group.
Mathematics results have been declining since levels achieved in 2003 (51.7%, 2003). 2005 results had declined slightly by 0.52% points in comparison to 2004 results. Improvements in mathematic test results were experienced on Rarotonga and the Northern Group, however the Southern Group, which was previously achieving over a 50% averaged result in mathematics, have fallen by 3.8% points to below the pass mark.
English results improved by 3.1% points in 2005 as stated above. Although the outer islands re-main well under the pass rate, significant improvements have been experienced in these regions in 2005. Rarotonga continues to marginally improve and has remained above 50% over the past 6 years.
Complete report: MFEM, Half Year Economic and Fiscal Update
education - teachers
There are currently 282 teachers servicing 33 schools across the Cook Islands of whom 84% are Cook Islanders.
92.6% of teachers have a certificate in teaching, however only 20.6% have a degree qualification in teaching. The student teacher ratio has remained the same over the past two years leveling at 16.2 students per teacher. There have been very slight reductions in this ratio in the outer islands; however the overall ratio has been balanced out by slight increases in Rarotonga.
The ages of teachers vary, however the largest cohort is those aged between 35 and 39 with the second largest cohort being those aged between 55 and 59. Females continue to dominate the teaching profession being 75% of total teachers.
Complete report: MFEM, Half Year Economic and Fiscal Update
health - communicable disease
Acute Respiratory Infections and Influenza are the main Communicable Diseases reported by the Ministry of Health making up 61% of total reported cases of selected notifiable diseases in 2004.
Other significant notifiable diseases are skin sepsis, gastro diarrhea in both children and adult, asthma and pneumonia. The data provided by the Ministry of Health suggests that following the cyclones early this year, there has not been any significant outbreak of Communicable Diseases in the northern group.
The data does show that the number of reported cases for influenza, phenomena and asthma in Rarotonga for June quarter 2005 was higher than the number reported in any previous quarter.
Complete report: MFEM, Half Year Economic and Fiscal Update
health non communicable disease (NCD)
health - non communicable disease (NCD)
Prevalence of NCDs (Hypertension and Diabetes) reflects the health habits of a population.
Official data show 2004 Total Prevalence of NCD Cases has increased 5% over the year and now makes up 20.3% of the total resident population (using official data).
Note that much of the increase in NCD cases originate from the outer islands. Most outer islands economies have limited development opportunities and are heavily reliant on public sector sup-port. Whereas, Rarotonga is the centre of the economy and reaps most benefits from private sec-tor development. There is a large outward migration of the working age group in the outer islands to Rarotonga or further overseas causing an aging population prone to NCDs and thus the outer islands make up 52% of total Hypertension & Diabetes cases for the Cook Islands.
The number of NCD cases is growing more slowly on Rarotonga. This may be because of the benefits of an improved economy providing awareness of more healthy lifestyles and more afford-able access to healthy foods.
By contrast, the outer islands see a continual increasing trend in NCD cases as expected with an aging population.
Complete report: MFEM, Half Year Economic and Fiscal Update
crime - motor vehicle accidents
crime - motor vehicle accidents
The number of patients admitted to hospital due to transport accidents has decreased since the high level experienced in 2002.
85% of the cases reported in 2004 involved motorcycles. 38.5% of reported cases for 2004 were alcohol related and 77% of these cases involved 15 – 34 year olds with 9% of alcohol related cases resulting in death. Over 1500 new vehicles were registered in 2004, 72% being motorcycles.
Although the figures provided above represent only those whom are admitted to hospital, it is assumed that there are many minor accidents not needing medical attention and with an increasing number of vehicles on the main island it is thought that road goers are becoming more at risk of being in a motor vehicle accident.
Complete report: MFEM, Half Year Economic and Fiscal Update
tim tepaki – cook islander of the year 2005
OPINION - EDITORIAL by jason brown, editor, avaiki nius agency Tim Tepaki is our Cook Islander for the year 2005. For better – or worse – no other Cook Islander had as big an impact on the lives of as many Cook Islanders as the Wellington-based property developer. To his supporters, and there are many, Tepaki is a hero. Most tourism operators see Tepaki as the country’s best chance yet to inject some fresh energy into the industry. His enthusiastic promotion of the long-stalled Italian hotel and a new related project in Aitutaki to go with it excites many with the potential for high-end tourism. Many residents praise Tepaki as the man who promoted law change with the potential for putting higher value on their main asset: the land under their feet. CONFIDENCE Tepaki initiated introduction of the controversial Unit Titles Bill as a way of getting the Italian hotel restarted. It was aimed at allowing investors the confidence they can make sales room-by-room if the hotel cannot be sold as a one-off opportunity. An early draft of the law was changed to make sure that freehold sales above an expiring lease do not interfere with landowner rights underneath it. New laws under the Unit Titles Act are not just confined to the Italian hotel project, however. It also now applies to the whole of Rarotonga, with talk of outer islanders also wanting in on the action. Unlike earlier changes to land laws, such as those a quarter of a century ago allowing lawyers into the land courts, the Unit Titles Act may benefit “the little people” as well as “big” ones. VISIONARY And this, says Tepaki, is the point. He says the new law makes investment in the Cook Islands more attractive, creating opportunities for Maori Cook Islanders to enter into business as equal partners rather than head overseas and join the dole queues or work on factory floors. There is no doubt Tepaki is a visionary. He thinks big, talks big and, for many people, walks big. Passage of the Unit Titles Bill through an approving Parliament is proof of that, say supporters. Like anyone who sets out to achieve big things, of course, Tepaki has his critics. CRITICS He was attacked for bringing in what many felt was the biggest change to Maori land laws since the Cook Islands Act of 1915 guaranteed a lease-only system. Not being able to buy land freehold has been criticised by development ‘experts’ as holding back national progress. Many Maori Cook Islanders are fine with that. They do not want to see all their best land sold to foreigners forever as has already happened to Maori, Maohi and Maoli in Aotearoa, Tahiti and Hawaii. Especially when there is only 264 square kilometres of it, less than half of that on Rarotonga. PRESSURE On its own, the Unit Titles Act does not erode the country’s leasehold system. But it is a step away from that ideal, and may in future increase development and investment pressure on landowners to consider further law changes towards freehold sales. Which is why Tim Tepkai is our Cook Islander of the Year. Not so much for what he has or hasn’t done in property development – as for proving how easily one man can change our entire system. Tepaki is, after all, a minor player on the property development scene in New Zealand. DOUBTFUL Critics point to his own website, heavy with ‘artist’s impressions’ – paintings in other words – rather than actual photos of real-life finished projects. His much-boasted association with the Investor’s Forum looks good at first glance but includes a few doubtful characters, including property boosters of the get-rich-quick variety, as already reported on this website. In the homeland, Tepaki splashed out big on media coverage, sponsoring live broadcasts of a wide range of sporting events, especially rugby, and getting highly favourable ‘news’ items in return. Fawning headlines and biased TV items by the occasionally unreliable Pitt Media Group may have impressed the Investors Forum, but they did little to convince critics of Tepaki. HOW DID HE DO IT? Somehow however Tepaki was able to convince landowners, public servants, and an entire elected parliament including the opposition, who, incredibly, attacked critics, even after the bill was passed. How did he do it? Perhaps just by sounding confident. Photos in the Pitt’s weekly newspaper, the Cook Islands Herald, showed many of the island’s elite celebrating with Tepaki after passage of the Unit Titles Act 2005. Not many little people there. By comparison more than 1,000 people signed the petition against the original draft of the Unit Titles Bill, with over 100 more coming from Aitutaki, where the petition started. For these and other reasons, selection by avaiki nius agency of Tim Tepaki as Cook Islander of the Year 2005 could be controversial. LEADERSHIP For 2004, by comparison, the writer nominated Director of Audit Paul Allsworth and Solicitor General Janet Maki for Cook Islanders of the Year. Their steady block-by-block building of good governance to protect the interests of taxpayers big and small was and is inspiring. Uncovering corruption and successfully prosecuting cases in open court continued during 2005, confirming their contribution. It would have been easy to nominate them again. Pausing perhaps only to include behind-the-scenes leadership by deputy police commissioner Maara Tetava, a career officer, not a political appointee like his boss. Their team building is in the national interest and a good cause. WHY AN AWARD? Not so easy is the example set by Tim Tepaki. What after all, is the purpose of an annual award? Some see them as opportunities for some harmless promotion, a way of highlighting achievements. There is a place for those kind of awards. Not here though, not in the news world. Here, awards of this sort should never be a popularity poll, a kind of political beauty contest. To use an overseas example, Time won points for honesty as early as 1939 when it nominated Adolph Hitler as an example of fascist dictatorship impacting the world. By 2001, Time had become sufficiently cowed by quasi-fascists to nominate the globally unknown mayor of New York for his performance during terrorism attacks – rather than the politically incorrect Osama bin Laden who caused the attacks. Time magazine lost its nerve, and lost respect for failing to challenge its readers with an uncomfortable reality of the times. BEST AND WORST No such luck here at this news agency. At worst, Tepaki is an example that exposes a crisis in the legislative process – how easy it is to change laws of the land even in the face of deep concerns and formal public opposition. Those concerns centre not just on potential threats to the leasehold system, but how freehold unit titles may intensify development, leading to further problems under our poorly enforced environment laws. One cheeky environmentalist offered immediate congratulations to Tepaki when the new redrafted law was passed. In doing so, she challenged lawmakers to support old laws, not just new ones. It is this kind of fresh never-say-die thinking this country needs. OPPORTUNITY At best? It is interesting to note that it was mostly women leading public debate on the Unit Titles Bill, another positive to emerge from a male dominated society. At best, Tepaki’s enthusiasm for a fresh future in tourism development should, as suggested by environmentalists, also serve as an opportunity for urgent system change. As well as enforcing old laws, we need greater checks and balances for new ones. One of the easiest ways to protect the public interest would be to introduce good governance processes similar to New Zealand and other countries. A petition of 10 per cent of registered voters could trigger a referendum on any subject people feel strongly about. Unlike New Zealand, we could make the referendum binding. HOW IT COULD WORK An independent – and permanent – good governance commission could register voters and monitor their referenda. The commission could fairly and reliably inform the public about the issues at stake, in both languages, and make sure that public sentiment is actually reflected in legislation presented to parliament. Reintroduction of the National Development Council would also serve as a starting point for public concerns and as an early testing ground for visionaries like Tepaki. NDC members would come from all parts of our society, and oversee appointments to crucial leadership positions like the governance commission. Only by improving governance can we slow down mass migration, by giving people the confidence to keep their own land under their feet, rather than voting with them. CONGRATULATIONS All that belongs to the future. For now, Tim Tepaki deserves our congratulations for pushing through the biggest law change of 2005. Or, if his critics prove correct, of the last century. In doing so, and regardless of the many doubts surrounding his projects, he deserves recognition for achieving what he obviously believes in. It is an example even his critics can learn from. Actually, especially his critics.