Money for Something: major report published on political donations reform

With my colleague Lisa Marriott, I’ve just published Money for Something, a major report into the financing of political parties in New Zealand, and how it could be reformed.

The report can be found here, and its Executive Summary here.

Further information about the project can be found on the Victoria University of Wellington site.

The text of the Executive Summary and Summary of Recommendations are also below.

EXECUTIVE SUMMARY

The problem

Democracy relies on equality between citizens. When some people have greater influence on key decisions, or greater access to people who have influence, democracy is undermined. However, in New Zealand, over several decades, political parties’ memberships have waned dramatically, and income and wealth have become more concentrated at the top. Meanwhile the cost of campaigning has risen.

All this has made parties ever-more dependent on wealthy donors, leaving the door open for those donors to win favours in return. Our research highlights an accelerating pace of scandals caused by the movement of money between wealthy donors and decision-makers.

In this report we detail:

1. Parties failing to disclose hundreds of thousands of dollars in donations from industries whose fortunes the party could substantially influence;

2. Repeated instances of parties obscuring the sources of their funding, through sham donors, complex corporate structures and other methods;

3. Widespread acknowledgement that the current rules are being circumvented;

4. A sense that the system is “an accident waiting to happen”, overly reliant on individuals’ ethics rather than enforcement and with too many opportunities to get around rules;

5. Party leaders and MPs getting deeply involved in soliciting donations, heightening the opportunities for undue influence;

6. Donors acknowledging that their donations are to advance a particular cause or their own interests, rather than simply to “support democracy”, as is sometimes claimed;

7. A growing volume of corrupt appeals to political parties from would-be donors explicitly seeking favours in return;

8. Envelopes with cash being presented to party leaders at public events;

9. Political parties openly selling access to politicians to large donors;

10. Donors reporting that giving tens of thousands of dollars “makes it easier to get a meeting” with ministers;

11. Donors getting repeated home visits from prime ministers and party leaders, far beyond anything an ordinary voter could expect;

12. MPs intervening in citizenship applications and police investigations on donors’ behalf;

13. A long history of scandals that has resulted in just one successful prosecution;

14. Indications that the fear of upsetting donors may circumscribe parties’ policies, or at least a perception that this is so;

15. A widespread view that the Electoral Commission is badly under-powered when it comes to detecting donations fraud.

These issues are already significant and, if unchecked, could lead New Zealand to resemble a country like the US, where politics is permeated by money. Before the influence of money becomes entrenched, we should take precautionary action to ensure the integrity of our political system.

New Zealand is increasingly an outlier among developed countries, owing to its weak regulation of political donations. Compared to other nations, New Zealand has relatively little transparency about the sources of parties’ funding: most developed countries require donors to disclose their identity once they give over NZ$5,000 or even $1,500, but here the threshold is $15,000. Two-thirds of developed countries place limits on the very large amounts that can be donated to parties: New Zealand has none. Many countries allow donations only from citizens, not companies or unions: New Zealand imposes no such restrictions. In short, a wide range of tools that can enhance transparency and curb undue influence are largely unused in New Zealand.

This situation clearly causes public disquiet. Nearly three-quarters of New Zealanders distrust the current system of funding political parties. Polling presented in this report shows that, of the New Zealanders with definite views, between half and two-thirds want donations capped at $10,000-15,000. They also seek greater transparency.

However, for all the issues raised by big money in politics, it is not the case that parties should be starved of funds. As New Zealanders, we have a shared interest in political parties being well-funded, so they can develop thoughtful policies and communicate them to the electorate, in a vibrant political contest.

If, however, one party, or one side of politics, raises larger sums of money from big donors, it may be better able to get its message out to voters. Our research demonstrates significant funding imbalances between New Zealand political parties. And the international evidence suggests that more money, all other things being equal, means more votes. This allows wealthy donors an outsized influence over which political messages are most successful.

The solution

Based on evidence collected for this research, we argue that regulations should be designed so that, when political parties are seeking funds, they are encouraged to reconnect with the wider voting public. Party funding should be egalitarian, voter-centric, and generated where possible from a large number of small donations from ordinary New Zealanders, rather than a small number of large donations from the wealthy.

We argue that large donations should be more tightly regulated, to remove opportunities for undue influence, while preserving individuals’ freedom to support the party of their choice. We also argue that New Zealand should join its developed-country counterparts and provide greater state funding for parties. This can be done in a way that, as above, fosters a more engaged political democracy and enhances equality of political influence.

Polling carried out for this report shows most New Zealanders accept the idea of at least some state funding. Our modelling suggests the cost would be minimal, at around $6-8 million per annum. For an annual $2 per voter, New Zealanders could eliminate big money and its attendant opportunities for undue influence. In its place, a large number of small donations would ensure well-funded parties operated in a transparent system that merited citizens’ trust. Parties would be at least as well-funded as before, but their funding would shift significantly from large donors to small.

Our core recommendations are:

1. Donors’ identities disclosed when they give over $1,500;

2. An annual cap on donations at $15,000;

3. Donations allowed only from eligible voters, not organisations;

4. Stronger powers for the Electoral Commission to pursue donations fraud; and

5. A system of state subsidies for small donations, democracy vouchers to allow voters to allocate state-provided campaign funds, and lump-sum payments to all parties.

SUMMARY OF RECOMMENDATIONS

These recommendations must be seen as a whole, each of them reinforcing the other. Implementing one without the others could have negative unintended consequences.

Key Recommendation No. 1: The identity of all donors giving over $1,500 must be disclosed.

This would strike the right balance between ensuring privacy for donors of relatively small sums and increasing transparency for larger donors. The $1,500 threshold is chosen because it is approximately the sum that appears to buy access in New Zealand politics, is in line with global best practice, has public legitimacy, and would make donation-splitting (breaking a donation into several parts to disguise the true donor’s identity) much more difficult.

Key Recommendation No. 2: No individual may give a party more than $15,000 in a 12-month period.

Large donations clearly purchase access, on the evidence examined for this report, and may purchase influence. Soliciting large donations places party leaders in compromising situations and leads to an unhealthy familiarity between donors and politicians. It can also bias politics towards the interests of the wealthy as a whole. Accordingly we recommend that donations be limited to $15,000 per person, per party, per year. This threshold has public legitimacy and preserves the freedom to donate while enhancing political equality.

Key Recommendation No. 3: Only eligible voters can donate.

Voting in elections is a privilege reserved for citizens, and donating – which can profoundly influence the course of those elections – should be likewise. In addition, removing the ability to donate from corporations, trusts and other organisations would greatly enhance transparency and limit the scope of donation-splitting and other circumventions of donation rules.

Key Recommendation No. 4: The Electoral Commission should be given greater powers to detect donations fraud.

Currently, the exposure of donations fraud relies almost solely on whistleblowers, suggesting that cases are going undetected. The Electoral Commission is not currently empowered to detect wrongdoing, lacking many key powers. It should have the power to audit parties and demand to see documents, among other things. The act that it administers, the Electoral Act, should also be strengthened to limit the opportunities for donations fraud.

Key Recommendation No. 5: State funding should be introduced in the form of tax credits and democracy vouchers, plus lump-sum payments to smaller parties.

Since well-resourced political parties, able to train candidates and put forward considered policies, are part of the public good, there is a case for the state to provide modest extra funding to help them carry out their duties. This would also be necessary if the above curbs on donations limited their fundraising ability. Political parties should receive state funding, at a total rate of roughly $6-8 million a year, through tax credits (reimbursements) provided to people giving up to $1,500. Democracy vouchers, in which citizens are sent state-funded vouchers to spend on the political party of their choice, would be used to allocate approximately $4 million of campaign funding (formerly the broadcasting allocation) in election years. In addition, every party registering over 2% of the vote should receive a $100,000 annual lump sum, to defray costs imposed by the state and encourage a greater diversity of political parties.

Alternative: If democracy vouchers are seen as too experimental, the current broadcasting allocation should be revised and a pilot of democracy vouchers carried out.

Lightening the Load: the case for free healthcare in New Zealand

Lightening the Load, a report commissioned by the Association of Salaried Medical Specialists, sets out the case for removing the primary healthcare charges that form a barrier between people and the treatment they need. The cost of doing so, which would shift the burden from individuals to the general taxpayer, would be roughly $3bn a year, if dentistry is included. But this should be seen less as a cost and more as investment in our collective well-being, one that will reap large dividends in future. The report is available here.

Stuff: The half-hour trip that robs some Kiwis of 10 years

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Yesterday I embarked on the most depressing road trip imaginable. It began in hilly Wadestown, one of Wellington’s wealthiest suburbs, where serene white-painted villas, each one a picture of colonial confidence, fetch an average of $1.5 million at auction.

The suburb’s inhabitants, who like its houses tend to be white, enjoy rich lives – and long ones, too. As Wadestown is in the wealthiest tenth of New Zealand neighbourhoods, boys born there will, according to official statistics, live to 85 on average, and girls to 88. I mention this because my road trip was, at heart, a meditation on one of the most basic and alarming forms of inequality known to humankind: the disparity in the time we have on this earth.

Life expectancy is shaped by many forces, including ethnicity: Māori live on average seven-and-a-half years fewer than Pākehā. That gap is closing, albeit so slowly that parity will not be attained until 2090. Worse still is the life-expectancy gap between rich and poor, which is not just large, but widening.

Every New Zealander carries with them a mental map of the country: the hills and valleys, the crenellated outlines of the coast. On that map can be overlaid something that public health specialists call an Atlas of Inequality. It is created by totting up the markers of poverty in each area: how many people are claiming benefits, turning off heaters to save power, wearing shoes with holes because they can’t afford new ones.

The volume of these shortfalls gives an area its deprivation ranking. In the resulting atlas, the least deprived are coloured off-white. Among them is Wadestown, its cadastral pallor recalling the Double Alabaster and Eighth Parchment paint-hues that adorn the suburb’s houses.

Public health experts often talk about social gradients, the way that health declines along with income. My trip was marked, too, by an unmistakeable slope. As I drove along the winding road from Wadestown, passing the private hospitals of prosperous Crofton Downs and the Ngaio residents walking their white poodles, through leafy Khandallah’s Empire-themed streets and down towards commuter-belt Johnsonville, I could see in my mind’s eye the Atlas of Inequality changing hue, shading from white into yellow-orange as the level of deprivation slowly rose.

In Johnsonville, the quintessential Kiwi suburb, modern and comparatively modest houses were selling for a mere $1m on average. Just 10 minutes into my journey, life expectancy had already fallen: boys born here might expect to live to 81, girls to 84, several years less than their wealthier counterparts.

From there I continued north, shadowing the train line down to sprawling Tawa, reportedly home to more churches than any New Zealand suburb. Like Johnsonville, it was a sea of yellow-orange zones of middling affluence, spotted with small islands of deprivation marked in the red that, in the atlas, denotes the most deprived tenth of neighbourhoods. Tawa’s life expectancy was, on average, fair, if a shade lower than it had been back down the road.

By the time I reached Porirua, crossing over the highway and entering the city’s east, the atlas in my mind was a blotch of angry scarlet. Islands of deprivation had become a sea. And life expectancy had plummeted, to 74 for boys and 78 for girls. From Wadestown to Waitangirua, in a trip that took just half an hour, 10 years of expected life had ebbed away.

As I sat in my car, parked outside Waitangirua’s strip of roller-door shops, I thought about all the barriers that society puts in the way of poorer families trying to live well. The racism. The underfunded schools. The health system that charges people to see a GP. The mouldy homes that send kids to hospital with respiratory diseases. The cost of a bag of oranges at the local superette ($4.90) versus a loaf of white bread ($1.90).

I thought about the way that poverty leaves scars – worse school results, damaged heart valves – that later affluence often can’t erase. I thought about how, in an interview, Porirua College principal Ragne Maxwell had described a community proud of its strengths, its whānau and aiga connections, but also habituated to people dying well before their time. “It’s a killer,” she had told me. “Poverty, in this community, is a killer.”

I thought, too, about how easy it is to ignore these disparities when they work to one’s advantage; how challenging – yet how enlightening – it would be for people to take that 30-minute drive, to widen their sphere of empathy.

And I thought, finally, about the urgent need to close such gaping disparities in a nation that still calls itself egalitarian. So many hopes, triumphs, joys – and yes, tears – are packed into a year; yet poverty robs people of 10 times that. We have only one life, and it is the most awful injustice that some get so much less of it than others.

Stuff: Climate and inequality – How a rising tide can sink the smallest boats

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The classic defence of economic inequality has always been that a rising tide lifts all boats: as long as the economy is growing, everyone will benefit, and it doesn’t matter that some benefit more than others.

Contemplating the threat of climate change, some commentators are now reversing this metaphor. As the world warms and storms become more frequent, smaller boats may be overwhelmed while larger ones emerge unscathed. A rising tide may, metaphorically, sink some boats.

Climate change is, after many decades of delay, being taken seriously by policy-makers. However, some academics believe the connections with economic disparities have not been sufficiently explored in New Zealand. “I can’t think of much in that respect at all,” says David Hall, an Auckland University of Technology climate change researcher – the possible exception being Auckland’s regional fuel tax debates, which emphasised the tax’s impact on the poorest.

Internationally, researchers point to World Bank data showing that the wealthiest countries – including the United States, Canada, Japan and much of western Europe – account for just 12% of the current global population but 50% of all greenhouse gas emissions since 1850. Last year, the New York Times quoted Sonam Wangdi, chair of the 47-strong Least Developed Countries bloc, as saying: “We have contributed the least to this problem, yet we suffer disproportionately.”

Taking the global population as a whole, the top 10% of individual emitters, whichever country they live in, contribute nearly half of all carbon dioxide emissions. This data is derived by taking information on households’ consumption and attributing emissions to them based on the items they purchase. And as shown in this year’s World Inequality Report, compiled by a French-led team of economists, some social groups are already doing their bit for the climate – but others are making it worse.

The report argues that the per-person emissions of poorer people in rich countries have actually decreased in recent decades. If the world’s 2030 targets for cutting emissions are calculated on a per-person basis, effectively allocating each individual a carbon budget, the poorest half of the population in rich countries is already at or near those 2030 climate targets.

But, as the report notes, “This is not the case for the top half of the population [in rich countries].” Indeed, emissions for that group “have increased substantially” in recent decades.

These inequalities can be seen in Oxfam data that examine the disparity between emissions for the rich and poor in wealthier countries. Most notably, the richest Americans’ emissions are many times those of their poorer counterparts.

Emerging evidence suggests that similar patterns exist in New Zealand. According to the World Inequality Database, the average New Zealander’s annual carbon dioxide emissions are roughly 15 tonnes. For someone in the richest 10%, that figure is roughly 45 tonnes – three times higher. This fits with previous research showing that higher-income households tend to have larger homes, use more energy, catch more international flights, eat more meat and drive more.

Keeping up with the Joneses

It is not just that the wealthy emit more carbon, however: economic disparities themselves can contribute to climate change. A growing body of research indicates that the more unequal a country’s distribution of income or wealth, the greater its overall emissions.

One explanation for this phenomenon was advanced back in 2010 in the book The Spirit Level, by British scientists Richard Wilkinson and Kate Pickett, who argued that “a great deal of what drives consumption is status competition”. In order to maintain their social position and “keep up with the Joneses”, people spent more on material goods, inducing greater emissions.

That competition, in turn, became more important the larger the economic disparities between households. “As inequality increases status competition,” Wilkinson and Pickett wrote, “we have to struggle harder to keep up … inequality ratchets up the competitive pressure to consume.”

This argument has been corroborated by more recent research. Earlier this year, Chinese scholars found that greater wealth inequality leads to greater per-person carbon emissions. In more unequal societies, they argued, “The middle and lower classes are inspired to copy the consumption patterns of the rich, who tend to overconsume and prefer carbon-intensive products, such as central air conditioning.”

Inequality may worsen emissions in other ways. Some researchers argue that a more unequal society will have larger numbers of people living in poverty, who may feel isolated from mainstream society and oppose environmental policies that they see as either an irrelevance to their lives, an indulgence for wealthier voters, or simply an unfair imposition. These arguments are relevant to New Zealand, which had the developed world’s largest increase in income inequality between 1985 and 2005. The wealthiest 1% hold one-quarter of all assets, while the poorest half have just 2%.

Not only are the causes of global warming unequally distributed, the impacts will also be disproportionately felt by disadvantaged households. Globally, it is widely acknowledged – by a diverse cast of figures that includes Leonardo DiCaprio, the Pope and the World Bank – that the poorest will be most affected by rising sea levels, increased natural disasters and failing crops. As one international NGO, Global Citizen, reports, “Climate change is going to amplify the already existing divide between those who have resources and those who do not.”

In New Zealand, recent research shows that one child in 10 is both living in poverty and likely to be hard hit by an increase in natural disasters.

Save the Children’s Jacqui Southey says the many Kiwi families already unable to afford essentials “will struggle most in the face of extreme climate events” and will need extra support – such as emergency funds, shelter and food – when major climate events occur. Inequality and climate change are, on this reading, in a negative feedback loop: inequality raises emissions; higher emissions then lead to greater inequality.

Impact on Māori

Responding to these concerns, the New Zealand Government has endorsed the idea of a ”just transition”, in which the shift to a low-carbon economy protects the fortunes of low-income individuals, who may be more likely to work in carbon-intensive “sunset” industries. However, some academics fear the tools currently mooted to mitigate global warming are not in line with such ambitions.

Writing earlier this year, AUT’s Hall and Massey University’s Robert McLachlan warned that simply imposing a price on carbon through the Emissions Trading Scheme (ETS) – akin to a flat-rate tax for every tonne of carbon emitted – would disproportionately affect poorer households.

“Emissions-intensive goods constitute a higher proportion of household spending for low-income households,” they wrote in the journal Policy Quarterly. “With fewer resources, lower income households will have lower ability to change behaviour or invest to reduce their exposure to emissions prices.”

Hall and McLachlan also noted that Māori “are disproportionally exposed to this regressive impact". Along similar lines, a 2021 ETS consultation document suggested that putting the price of carbon up to $100 “would increase the weekly spend of low-income households by 1.3% while raising the weekly spend of the highest income households by just 0.5%”.

A price on emissions, Hall adds, is also unlikely to change the high-polluting lifestyles of wealthier New Zealanders. The costs they would pay through the ETS “would be marginal for wealthier people – I don’t think they will take any notice”.

That’s not to say that the rich are all bad news when it comes to the climate. “Wealthier people, by making consumption decisions around purchasing electric vehicles and making their own homes energy self-sufficient, will be contributing to the economies of scale for some of those new technologies,” Hall says.

Wealthy early adopters, in other words, drive prices down for everyone else. They may also help build support for collective infrastructure like EV charging points. “They can use their wealth for the collective good,” Hall says.

Revenue from the ETS could also be distributed to lower-income households, in what is sometimes called a “climate dividend”. Some commentators, meanwhile, are arguing for measures to reduce economic inequalities directly – and, in the process, generate revenue for pro-environmental policies like free public transport.

Jo Spratt, Oxfam Aotearoa’s communications director, views this as a potential win-win. For instance, a windfall tax, levied on supermarkets and other companies enjoying “excess” profits, could be used to support lower-income households and implement climate-friendly policies.

“Tax is one of the most powerful tools we have to fight inequality,” Spratt said in a statement earlier this month. “Excess profits and windfall tax revenues can help tackle the biggest challenges of our times, like the explosion in inequality and the climate crisis.”

Hall, meanwhile, believes that as the impacts of climate change become ever starker, wealthier New Zealanders may be asked to shoulder a greater share of the response. Taxes on luxury items and emissions from long-haul flights – currently given a free pass by the ETS – may well be put on the table. “I just think that’s quite likely,” he says.

This article was published with the support of Boomers for Real Climate Measures, a charity that pays for research into climate change solutions. The charity took no part in writing or editing the article.

Stuff: Democracy may be in trouble, but the answer is more of it, not less

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There’s a middle-class fantasy of authoritarianism that I hear more and more these days, and which needs to be stopped in its tracks.

One premise of this fantasy is that democracy has failed us: people are stupid, politicians short-sighted, and between them they’re ruining the planet. Climate change is out of control, nuclear war looms.

Another premise, separate but related, is that democracy is fine as an ideal but has been catastrophically captured by elites – principally, at the local level, by old white home-owners who swamp consultation meetings and block anything vaguely progressive, be it cycleways or denser housing.

But whether the economic elites or the masses are to blame, either way the answer is, apparently, to make our democracy less democratic: to have, as much as possible, the “experts” in charge. This is why I call it a middle-class fantasy: the “meritocratic authoritarian” sought in this scenario is not an abrasive populist, a Mussolini or a Trump, but a coterie of well-educated, sensible, far-sighted people who – just by chance! – have identical social backgrounds and views to the people articulating this dream.

According to the 2020 World Values Survey, nearly four in 10 Kiwis (38.5%) think it would be good to have “experts, not governments, make decisions”. And you can see this impulse play out everywhere.

Earlier this year, Wellington city councillors, apparently afraid that well-off locals would delay progress through the courts, tried to slash public input into their next District Plan, empowering unelected commissioners and leaving residents largely powerless over key calls on infrastructure, hazardous substances disposal and significant natural area (SNA) designations. Most of this Government’s centralising reforms take some power from local communities and hand it to technocrats.

On environmental issues, some greenies bizarrely argue that the Climate Change Commission should be empowered not just to recommend low-carbon policies but to mandate them. Since climate change will require us to rethink the way we eat, move around, build houses and pay taxes, this would hand control over almost every aspect of our lives to eight unelected technocrats.

Let me say at this point that I understand the concerns underlying this middle-class authoritarianism. Not all is well with democracy; some of the above-mentioned dangers are real. Increased economic inequality has left certain people much better resourced than others to participate in public processes – and more confident in doing so. But the answer must be to improve democracy, not scrap it.

As the legendary American political scientist Robert Dahl pointed out decades ago, expert rule would work only if those experts knew what was good for the public, wanted to implement it, and were able to do so. But the textbook rule-by-expert examples are the vast tower blocks built in postwar America and Britain, which planners had decided were where ordinary people “wanted” to live.

Destructive of pre-existing communities, unfriendly and often fundamentally unliveable, many of these tower blocks had to be torn down within years. The knowledge of experts is always constrained by their discipline and indeed their background, invariably an elite one.

Climate-change activists indulging in a little light authoritarianism should also consider that the evidence is not on their side. In the Intergenerational Solidarity Index, a measure of how well governments consider the interests of future citizens, nearly all the top performers – 21 out of 25 – are democracies. On the flipside, autocrats fill 21 of the 25 bottom spots.

Of course, democracies could work better. The rest of the world could emulate the Welsh Assembly, whose future generations commissioner speaks up on behalf of those not yet born, and whose advocacy helped halt a sweeping road-construction programme that would have turbo-charged emissions.

We can surely find ways to engage the public early and well, so that infrastructure is built quickly but also democratically. We can prevent elite capture, too. For all around us are the green shoots of a new, bottom-up democracy.

In Auckland, Watercare and the Koi Tū Centre have just run a citizens’ assembly in which 37 residents, picked to be demographically representative of the city, spent time deeply discussing future water source options, landing eventually on recycling wastewater for drinking. This process used experts the right way: as guides for the residents, not as their masters.

In Porirua, Ngāti Toa is working with others on a talanoa and wānanga-based system that would likewise empower residents to lead local decision-making. And the Future of Local Government Review, which reported last week, contained countless ideas for reinvigorating democracy and ending the participation imbalance.

Letting communities allocate some council funds directly, lowering the voting age, a greater role for iwi: we already have the ideas we need to make democracy work better. And we should get on with implementing them, rather than indulging in fantasies.

Spinoff: How to hide a million dollars in politics

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According to the official records, David Zhang had donated $8,000 to the Labour Party by buying an overpriced piece of art at auction. So it was something of a surprise when he stood up in court and said, “I do not like the Labour Party. I’d rather burn money than give it to Labour.”

Zhang’s comments were just one darkly comic moment in the long winter of cases in which people connected to National, Labour and New Zealand First went on trial for trying to hide the sources of those parties’ funding from the public. And now that the cases have concluded (pending appeals), and some defendants been convicted, it is time to take stock of a political finance system that appears wide open to abuse, and reflect on how it might be reformed.

The first court case, which wound up in July, concerned the New Zealand First Foundation, set up as a fundraising vehicle for Winston Peters’ centrist party. It solicited large sums from wealthy New Zealanders, and took in nearly $700,000 in what were, on the face of it, donations. Most of the sums were over the $15,000 threshold at which, under the Electoral Act, the donor’s identity must be publicly disclosed. Many of the givers thought the money was going to New Zealand First, and the foundation used the cash to pay the party’s bills. These were, in substance, donations: sums the New Zealand public should have known about, so that they could see who was funding the party and be on the lookout for favours being paid in return. This is the basic premise of our transparency laws.

In this case, however, the defendants – who have name suppression – were acquitted, partly on the technicality that, in law, donations are sums given directly to a party or to people “involved in the administration of the affairs of the party”. The defendants, in the judge’s view, were administering the foundation, not the party itself. This ruling suggested that unlimited sums could be anonymously channelled to parties through related entities: a loophole so large you could drive Winston Peters’ bus right through it.

To further underline the law’s weakness, the defendants weren’t even charged under the Electoral Act, which lacks sufficiently strong penalties and, in some cases, the kind of offences that would cover such activities. Convoluted charges under the Crimes Act were filed instead. What’s more, many donors admitted to the Serious Fraud Office (SFO) that they had split their very large donations into sub-$15,000 tranches, routing those sums through the bank accounts of friends, family members and companies and trusts they controlled, in order to keep their (the true donor’s) identity secret. (As the foundation wasn’t disclosing the donations anyway, this was an unnecessary precaution.) Yet they weren’t prosecuted, for reasons that remain unclear.

In the winter’s second big political case, the judgement in which landed earlier this month, the SFO finally got a conviction.  The trial revolved around three Aucklanders: wealthy businessman Yikun Zhang and his associates, twin brothers Colin and Joe Zheng. All three were found guilty of concealing a $100,000 donation from Zhang to National by splitting it into sub-$15,000 tranches and routing them through other people’s bank accounts. Colin Zheng was also found guilty of concealing Zhang’s identity as the donor of another $100,000 to National, and Joe Zheng was convicted of lying to the Serious Fraud Office (SFO).

Why they so badly wanted to conceal Zhang’s identity was never fully explained, though the SFO did note that he had eagerly sought, and received, an official Honour (MNZM) from the National government of the time. Ironically, the disgraced former National MP Jami-Lee Ross, who had solicited donations from Zhang and whose allegations of wrongdoing sparked the whole trial, was cleared of all charges, owing to the state of his mental health at the time.

When the SFO had been following up Ross’s allegations, though, they found that Zhang had also donated to Labour. Following that trail led to charges against him and the Zheng brothers – heard in court simultaneously with the National charges – of conspiring to conceal another $35,000 donation. Zhang had paid $60,000 for five artworks that Labour had valued at $25,000, the balance counting, the SFO argued, as a donation.

The payment was again disguised, this time by the Zheng brothers falsely claiming that five members of Auckland’s Chinese community had bought one artwork each at a silent auction. One of them was the above-mentioned David Zhang, whose anti-Labour views – and insistence that he had never bought a painting in his life – underscored the SFO’s case.

For all that, the defendants were cleared of the Labour-related charges, essentially because of an SFO mistake. The agency had failed to independently value the artworks, raising the (very slim) prospect that the paintings might actually have been worth over $45,000 and therefore Zhang’s donation (the difference between his payment and the artworks’ market value) would have been less than the $15,000 that needed to be declared. Two Labour Party defendants were also cleared of charges, on the basis that, although they had clearly provided false statements about the donations, they might simply have been misled by Zhang and the Zheng brothers.

What can we conclude from these two cases? Clearly the law is inadequate. The government has said it will close the New Zealand First Foundation loophole, but it may need to go further. Penalties for breaches may need to be strengthened, and the law may need a general “anti-collusion” offence to catch donation subterfuges the law can’t specifically anticipate. 

It is clear, too, that the concealment of donors’ identities, via donation-splitting, is widespread. Stopping it altogether is difficult, but greater transparency would help. So the government may need to go beyond its current plan to lower the threshold for disclosing a donor’s identity from $15,000 to $5,000. Even at that level, a donor of $60,000 could hide their identity by splitting the sum among 12 people; at, say, $1,500, they would have to involve 40 people in the conspiracy, significantly raising the chances of being ratted out or otherwise detected.

It is also worrying that these cases were brought to light only by whistleblowers – albeit strange ones, in Ross’s case – and not by tough, systematic inspections by regulators. Such haphazard methods of discovery leave ample room for more offending to go undetected. 

And indeed the trials remind us of just how weak our regulatory agencies are. The SFO, though basically in the right, made rookie mistakes. The police appear to be generally reluctant to take donations-related cases, perhaps because those cases are so intensely politicised. Meanwhile the Electoral Commission, which should be the first agency to detect wrongdoing, has almost no ability to do so. It receives donation summaries from political parties, but cannot check whether the summaries match the party’s own internal records, nor whether those records themselves are reliable. It can compel neither documents nor witnesses.

The consequence is that party funding often remains opaque; the public is kept in the dark. Across the two cases, something close to $1m was given to political parties from people whose identities would, absent whistle-blowers, have remained secret forever. And this winter’s cases are just two in a long line of donations scandals that have, until the National-related convictions, resulted in precisely zero successful prosecutions. One partial success does not greatly change the overall impression that the country’s electoral laws, and its system of enforcement, are both in need of serious repair.

Stuff: National's new social plan goes back to the future - but is that a bad thing?

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I was in a Victoria University auditorium on Wednesday, listening to National MP Nicola Willis outline her party’s resuscitation of “social investment”, when I turned and saw Bill English sitting a few rows back. His face wore its usual quietly confident smile, as it had when he was prime minister.

Back to the future, then: for it was precisely English’s ideas that Willis, the party’s deputy leader, was reviving. English pioneered social investment, as National uses the term: a quest to minutely evaluate ​government​ programmes so that ministers can sift what works from what doesn’t, and transfer funding from the latter to the former.

In its earliest incarnation the scheme became, unfortunately, an excuse for kicking people off benefits. Once the boffins had calculated the lifetime cost of keeping someone on the dole, forcing people off it could be celebrated as a reduction in the state’s “forward liability” – regardless of whether those people then resorted to crime, fell ill or died.

Although by 2017, when English lost power, social investment had moved on from these brutal beginnings, the left’s instinctive hostility to it was entrenched.

In government, Labour initially renamed it “investing for social wellbeing”, then dropped it altogether.

This strikes me as a partisan mistake because, for all its flaws, social investment’s core idea is sensible – progressive, even. Implicit in the quest to find out which public services work best is the belief that public services work.

Indeed, social investment is compatible with the view – which I hold – that the positive effects of many such services are vast. Just think about last century’s immense progress in people’s health and literacy, much of it thanks to services delivered by the state.

Social investment is neither so revolutionary nor, for all the partisan rhetoric, so different from the Government’s much-touted “well-being” agenda. This reflects the basic sameness of modern politics, full of numbers but short on bold actions.

Both well-being and social investment are data-driven attempts to measure how well a given programme scores on multiple domains important for people’s happiness. Well-being spreads its net wider (100-plus indicators and counting), while social investment is better at modelling costs and benefits. Well-being offers a more holistic goal, social investment a sharper idea of how to get there.

The two approaches are compatible. And if Labour hadn’t dumped English’s baby, it would have a clearer story to tell about its use of taxpayer dollars.

Instead National can easily argue – with some justification – that Labour has good vibes but spends money badly, and that the well-being agenda remains amorphous. Social investment, which sounds compassionate but promises to allocate funds wisely, strikes at that weak spot.

It has, though, potential shortcomings. How might a National government avoid them? My advice, albeit unasked for, is as follows.

First, don’t use it as an excuse to cut spending. If, as seems likely, evaluations identify vast swaths of schemes with positive impacts, National ministers would have to fund them accordingly.

Second, drop this strange idea that philanthropists could provide social-investment funding for state schemes. If private money helps determine whether or not someone receives a core social service, that’s a wildly inappropriate privilege for the wealthy. And if we want more funds for social programmes, we should simply ensure millionaires pay more tax.

Above all, don’t let data become god. Social investment could lead ministers to fund only small projects whose benefit-to-cost ratio can be clearly established. But what happens when the data are patchy, or non-existent? Sometimes you just have to do what you know is right.

And what of the more sweeping schemes whose impact defies measurement? As the data journalist Keith Ng has written, a social-investment approach might have led the US not to reform civil rights in the 1960s, because life chances for African-Americans didn’t improve until years later while racial violence worsened in the immediate aftermath. Visionary, long-term public action can transform lives and generate ripples of improved well-being that no spreadsheet could ever capture.

Likewise, targeting sounds smart, but sometimes universal schemes – with their lower administrative costs, avoidance of stigma, and lack of demeaning hoops for applicants to jump through – can work better. And National would have to listen to communities to ascertain what “works”, rather than assume government datasets hold all wisdom.

Finally, accept that politics will intervene. At Wednesday’s lecture, I asked Willis if, as a committed social investor, she could explain the benefit-to-cost ratio of her party’s policy of banning gang patches in public, something I suspect is a net negative because it further alienates an already troubled cohort.

Looking like she didn’t much appreciate the question, Willis replied: “We have no idea.”

Populism trumps data, in other words. And English might have sympathised. He, after all, talked ceaselessly about social investment, but in 2017 was forced to run on a platform that included boot camps for teen offenders – an initiative that, research had already established, simply did not work.

Stuff: Sacrificing 50,000 workers on the altar of inflation is madness

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It sounds like a Pacific island, but is actually a crime scene. Welcome to Nairu, the Non-accelerating inflation rate of unemployment, a seemingly innocuous term that symbolises all kinds of damage to well-being and to working lives.

On Wednesday, in the latest salvo of the cost-of-living war, the Reserve Bank lifted the official interest rate at which banks borrow from 3 to 3.5%. If, the theory runs, banks in turn charge customers more to borrow, companies will cut back on spending and inflation will be curbed.

Which is all very well – except that one of the ways in which companies retrench is they sack thousands of staff.

Last month economists were candidly discussing the “need” to cull 50,000 workers. Contemplating the Reserve Bank’s options, ANZ chief economist Sharon Zollner argued: “To beat inflation, they require some people to lose their jobs. That’s a comms challenge right there.”

A comms challenge is one way to put it: unnecessary suffering might be another.

Part of the problem is symbolised by the Nairu, a concept used to identify, in the words of Australia’s Reserve Bank, “the lowest unemployment rate that can be sustained without causing wages growth and inflation to rise”.

Leaving aside the special genius it takes to frame wage growth as a bad thing, the salient point is that estimates of the Nairu are often quite high. In 2018 our Reserve Bank put it at 4.8%. If unemployment falls below that level, on this theory, inflation will accelerate away. Even commentators who’ve never heard of the Nairu are channelling a similar logic – one that leads inexorably to mass layoffs.

So much here is upside down. While high inflation is undoubtedly bad, high unemployment is far worse. Research by New Zealand economist Robert MacCulloch suggests the latter is 12 times more damaging to our self-reported well-being than the former. If, as ministers claim, we live in the age of well-being economics, surely we should be making different decisions.

There’s little evidence, moreover, that the main villain in the cost-of-living story is the spending of the 50,000 people who’ll be laid off. Much of current inflation is driven by Covid-induced supply-chain shocks and war in Ukraine, by firms facing so little competition that they find it easy to raise prices, and (at the margins) by government spending. None of that is working people’s fault.

It’s still true that too much money sloshing around lifts inflation. But think about the 50,000 workers most likely to be laid off, who will be disproportionately low-waged, young and Māori. Are they spending their spare cash on fripperies, or just trying to buy groceries, heat their houses and pay rent?

If there genuinely is excess cash, it sits in the hands of the well-off. But current policies don’t target them. In other words, low-wage workers will be thrust into poverty so that the rich can keep buying new kitchens. Hence the above reference to a crime scene, for these are economic crimes being visited upon ordinary people.

Questions should be asked of the Reserve Bank, though its options are limited by the blunt interest-rate-hike tools at its disposal. We must also dig deeper into our intellectual substructure, unearthing semi-hidden concepts like the Nairu and questioning what they represent.

The Nairu assumes, for instance, that wage rises automatically spur inflation. But if employers take the hit by accepting lower profits, rather than passing costs onto consumers, inflation needn’t soar. How, in these equations, have company profits slipped out of sight, gaining the protection of an invisibility cloak?

Nairu-based analysis also sees greater staff bargaining strength as a bad thing, because it lifts wages. A wider pool of workers is good only because competition between them keeps wages low. Again we glimpse an upside down economic universe.

In a more orderly world, decision-makers would put employment and wage growth first, then work out how everything else fits. Since New Zealand used to have full employment, we might aim for something similar again.

Accepting that 1% of the workforce constantly churns in and out of jobs, we could seek to eliminate long-term joblessness – especially if we invested far more in retraining schemes for beneficiaries, as other countries do. Paid work isn’t the be-all-and-end-all. But for those who want it, a job should be available. Isn’t that one of the core promises of social democracy?

In this scenario, of course, inflation risks would be heightened– and we’d need to manage them carefully, without harming poor households. Which tools we’d use isn’t yet clear. Forcing more competition into sectors where it is currently deficient? Higher top income tax rates? Higher but temporary GST levies on luxury products, when inflation threatens?

Whatever the answers, they have to be more sophisticated than the current set. Sacrificing 50,000 workers on the altar of inflation is madness.

Spinoff: Kris Faafoi and the revolving door

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Kris Faafoi’s got us all in a spin. A cabinet minister barely three months ago, and now the country’s newest lobbyist, he has gone through the revolving door between politics and corporate life so fast it must still be spinning. And of course one of his new roles, at lobbying and public relations firm Dialogue 22, will be… spinning.

Why does this matter? Because it highlights a key weakness in New Zealand’s integrity rules. As a cabinet minister as recently as July, Faafoi will have been privy to the most important political discussions in the land, compiling a treasure trove of information. And normally that knowledge is held confidential. Admittedly, elements of cabinet discussions leak, and the government publishes some papers after the fact. But the vast majority of the information surrounding such discussions – the arguments made for and against in cabinet, the motivations and positions of individual ministers, the political realities that determine a given decision – is kept under wraps.

In particular, confidential public information is not supposed to end up in the hands of commercial interests. With good reason, we do not simply sell information about cabinet debates to the highest bidder. That information is supposed to be used for the public good, not to advance private interests. And if private firms or individuals do get hold of it, they gain a completely inappropriate advantage over their rivals.

All these values and protections are rendered somewhat irrelevant, however, if Faafoi – or indeed anyone else – can simply step through the revolving door and, taking confidential public information with them, immediately turn it to the benefit of their clients. Dialogue 22’s website makes clear that Faafoi’s former life as a cabinet minister is a core part of its pitch. And the man himself told the Herald earlier this week that in looking to drum up business, he had been “speaking to people I’ve had relationships with in the past”. Given it’s a long time since Faafoi did anything except politics, those are presumably people he has met in his capacity as an MP and minister.

The concerns about the revolving door arise well before ministers leave politics. If, while still in post, they spy the prospect of a lucrative corporate afterlife, it is hardly inconceivable that they will start to bias their decisions towards – or at least form overly close relationships with – the firms able to deliver that career. While there is no reason to think Faafoi has behaved in this way,  it routinely happens overseas. Empire of Pain, Patrick Radden Keefe’s celebrated book on America’s opioid-pushing Sackler family, shows how they built a cosy relationship with a regulator whom they persuaded to approve their dangerous drugs – and then found said regulator a job at the family firm paying US$400,000 a year.

None of which is to say that lobbying itself is bad, even if the term usually has negative connotations. Everyone is entitled to (try to) contact an MP or a minister. And if people can do it themselves, they should presumably be able to pay someone to do it on their behalf. Lobbying becomes a problem only when it happens in secrecy, involves inappropriately close relationships between officials and lobbyists, creates an imbalance of power – such that some voices are heard much more than others – or, as in this case, may involve turning confidential public information to private benefit.

Fortunately, there is a straightforward policy response: the cooling-off period. In many countries, former decision-makers have to wait some time before they can lobby the public institutions that once employed them. Principles set out by leading global NGOs, including Transparency International, recommend a minimum cooling-off time of two years. In Taiwan, the period is three years, in Canada five, and in some US states six. Because politics moves rapidly, the individual’s confidential knowledge is, by the time such periods end, far less relevant, and thus less likely to be used for private benefit.

If we were to implement such a policy in New Zealand, we would have to pick an appropriate period – three years, the length of a parliamentary term, would be one option – and decide whom it covers. Ministers, obviously – but arguably MPs and senior public servants also possess enough confidential information to warrant a cooling-off period, albeit perhaps a shorter one.

Beyond that, we should also require those lobbying the government to disclose their interactions with decision-makers. The Greens’ 2012 attempt to institute such a register may have gone down in flames, but Ireland has long maintained one, suggesting it is not an especially difficult thing to get right. As ever, the tools to ensure openness and transparency in government are readily available to us; the only question is whether we have a real desire to use them.

Guardian: Hope and heartbreak for New Zealanders dreaming of a communal life

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“Welcome to the site of hope and heartbreak.”

With these words Bronwen Newton greets visitors to a quarter-acre gravel carpark between two industrial buildings in New Zealand’s capital, Wellington. Still visible are the foundations of a sheet-metal workshop that once stood there; not visible is the cohousing project that Newton and 23 other families hoped to build, but now never will.

Since 2018 Newton – a lawyer and property developer – has helped steer the Urban Habitat Collective, one of New Zealand’s latest attempts at a cohousing scheme. The story of its collapse is the story of the difficulties facing those who dream of living in a connected community outside the conventional models of the property market – often at considerable personal cost.

Cohousing is a semi-communal housing model, typically featuring a mix of private and shared spaces but retaining individual ownership of homes.

Mark Southcombe, a Wellington architect and academic, lauds it as a “self-help, bottom-up organising” of house-building that delivers stable, well-connected communities – important in a world of increasing loneliness.

“I think cohousing is wonderful,” he says, adding that in a country where property investing is a national obsession and has helped drive house prices to world-record highs, there is a need to “re-socialise” housing.

For Newton, cohousing is about ensuring people can live not just physically close, but also connected. Inspired by such sentiments, her collective’s 24 members – a mix of retirees, families with children, and others – bought a site in Wellington’s Adelaide Road in 2019 for NZ$2.25m.

Their final design featured two buildings with shared dining areas, a rooftop social space, a bike workshop, car-share parks and an expansive communal garden. “We used to say we are building ‘together-ments’, not apart-ments”, Newton adds.

For developers, though, the project sat awkwardly between the familiar profitable territory of stand-alone houses and 80-unit apartment blocks. Few were willing to take on the job, and then rising construction prices wreaked havoc. Estimated costs nearly doubled, to $23m. At this point, Newton says, the “last sliver of hope” vanished: even if their bank hadn’t pulled out of financing the construction, many owners would have struggled to get mortgages.

The scheme itself is effectively over, and at some cost: between them the families have spent millions of dollars on design and other expenses, and will likely be out of pocket. Some had sold homes or used inheritances to finance their involvement.

In light of this collapse, how does Newton feel? “It only hurts when I think about it,” she says. “I don’t regret doing it. [But] I really still regret not having a building. It’s what we set out to do, it’s what we worked for, it’s what we still want.”

‘We get to be a community’

Across town, a happier story unfolded. On Christmas Eve last year, six Wellingtonians moved into a cohousing scheme they had been planning since early 2017. One of the residents, Tania Sawicki Mead, says: “Independently lots of us had been talking about wanting to buy a house, and the impossibility of affording one.”

Moving quickly, they bought a site in November 2017 and settled on a small local building firm.

But even getting a building loan took eight months. The problem wasn’t the costs, it was that the group weren’t a conventional one-home, nuclear-family customer, nor could they be classed as commercial developers. “We were just weird – we didn’t fit into any category.”

The supposed complexity of a six-owner structure also “gave people the heebie-jeebies … They were so obsessed with the idea that we were a risk.”

Eventually, though, the project got a loan and today the row of four townhouses stands proudly amid still-fresh concrete paths, work-in-progress gardens and common room and deck.

“The ability to socialise together was really important,” Mead says. “That made it worth the time and hassle … We get to live close to people we care about and we have a space where we can hold those connections alive. We get to be a community.”

Extending the pool

These projects mirror the fortunes of New Zealand’s cohousing movement. Alongside well-established examples like Auckland’s Earthsong, recent successes include Dunedin’s Toiora High Street, which repurposes a former school site, and another Auckland project, Cohaus. But planned schemes in Cambridge and Lyttelton have folded.

Southcombe is among those working to create open-source guides and legal templates for prospective cohousing groups. Cohousing advocates have also urged the government to allocate spare public land for collective house-building, and to provide support for people navigating the many finance, tax and building-consent hurdles.

Such moves, Mead says, would help “extend the pool” of groups able to carry out cohousing projects, among them hapū (indigenous families) seeking to build papakainga developments – a traditional multi-generational shared housing model.

For her part, Newton wants to see “fundamental issues” in the construction industry resolved, including its boom and bust cycles and the unbalanced risk-sharing that sees clients pay more if costs escalate but developers pocket the proceeds of any savings. State agencies, too, could be waiving development contributions for cohousing projects and providing other supports. Anything, she says, to recognise the fact that cohousing collectives are people “trying to do something different, at great personal cost and risk”.