Government keeps private option open

Friday 10th August 2001

By Rob Hosking

The potential involvement of private-sector finance in Deputy Prime Minister Jim Anderton's People's Bank proposal might not be the only example of such a public-private mix.

The government is understood to be considering other ways of bringing private-sector funding to help pay for state sector capital projects.

Last year the Information Technology Association (Itanz) put forward a paper to Communications Minister Paul Swain on private finance initiatives (PFIs) as a way of both funding large scale government information technology projects.

And on his recent trip to the UK, Finance Minister Michael Cullen said the government should be prepared to look at such public-private relationships. Such initiatives were not ruled out by Labour Party policy, he said.

A spokeswoman for Dr Cullen said any such initiatives were at a "a very formative stage" but confirmed they were being investigated.

The chairman of Prime Minister Helen Clark's science and innovation advisory council, Rick Christie, told Itanz's annual meeting PFIs seemed to be a "useful way of providing these services at a lower risk to the taxpayer."

While the council's Innovation Framework proposal, released last week at the knowledge wave conference in Auckland, does not specifically mention PFIs it does recommend a far closer arrangement between government and business in identifying and funding key areas of investment.

In a chapter headed "Take an investment-driven approach to government," the report urges ministers to link up private business and communities of interest to set out key areas for investment before the next Budget.

Such linkups were initiated in the UK by the Major Conservative government before 1997 and have been enthusiastically expanded by Tony Blair's Labour administration since then, most notably for building such capital intensive projects as hospitals and prisons.

Under the National-led government in New Zealand, the Treasury investigated such partnerships - mostly in the health sector.

Despite the widespread criticism of underfunded health services, the government has discontinued work on private-sector investment in that area. From a political point of view, PFIs also have the public relations advantage of seeming Third Way.

Last year the State Services Commission evaluated the potential of PFIs for the IT sector and sounded a sceptical note. "If PFI does have any application in the New Zealand context, a real transfer of risk between the Crown and the contracting party must occur for the premium attached to the use of private finance to be acceptable."

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