Democracy Briefing: Cementing corporate welfare

The Government has decided to give up to $60 million of public money to Golden Bay Cement, which is wholly owned by Fletcher Building. It is not a loan and taxpayers do not receive shares in return. It is a grant to one of New Zealand’s largest listed companies.

Ministers prefer other language. Finance Minister Nicola Willis calls the deal “the least worst option”. David Seymour describes it as a “necessary evil”. Fletcher Building says it is a “specific, one-time response to an exceptional set of circumstances”. But the ordinary description for transferring taxpayer money to a private company is “corporate welfare”.

Today’s editorial in The Post says Seymour’s “necessary evil” description was “half-right”. The context strongly suggests the newspaper accepts the “evil” part while disputing that the payment was “necessary”. It argues that the Government should have reconsidered the policies making the plant commercially vulnerable rather than reaching for the taxpayer cheque book.

The Post not only strongly attacks the $60m payment to Fletcher Building, but generally critiques the wider return of government subsidies to private business. The editorial invokes Adam Smith, quoting his warning that meetings between businesspeople can end “in a conspiracy against the public, or in some contrivance to raise prices”. The Post adds: “Add politicians and lobbyists, and the mischief is compounded.”

There is no evidence of corrupt dealing in the Golden Bay decision, or that Fletcher Building has acted improperly by pressing its case. Companies are entitled to argue for their commercial interests. The question is whether governments are becoming too ready to accept the arguments put to them by large and well-resourced businesses, particularly when the proposed solution involves a very large amount of public money.

There is a real case for saving the plant

It is important to acknowledge that there are some good reasons for keeping Golden Bay Cement open. RNZ’s Corin Dann argues that Willis probably had little practical choice. Golden Bay is New Zealand’s only fully integrated cement manufacturer and supplies about 60% of the cement used here.

Fletcher said rising costs, including carbon-emission costs, would likely have forced it to close the manufacturing operation and move to an import-only model from 2030. An independent assessment found that closing the plant and importing cement instead would make commercial sense without government support.

That would leave New Zealand entirely dependent on overseas cement at a time when the country is planning a large programme of house building, roads, hospitals, schools and water infrastructure. The risks of relying on international supply chains have also become much clearer. Wars, shipping disruptions and growing protectionism make dependence on imports less comfortable than it might have seemed a decade ago.

Anneke Smith makes this case in The Post. She says the optics of giving $60m to a large listed company in an election year are “quite simply ridiculous”, but there is also “a method to the madness”. Once the ability to manufacture cement here disappears, rebuilding it would be difficult and expensive.

Willis says losing the plant could create “significant economic disruption”. She warns that any serious interruption to cement supplies could bring construction and infrastructure development to a standstill. The closure of the Marsden Point oil refinery also hangs over the decision. Once an industrial capability has been dismantled, regret does not easily bring it back.

In return for the money, Fletcher has committed to keeping the plant at Portland, near Whangārei, operating until at least 2040 and to investing at least $150m over that period. That investment remains subject to Fletcher’s normal approval processes and a programme still to be agreed with the Government. There will also be open-book monitoring and clawback provisions, and the deal protects about 150 direct jobs as well as a larger number of jobs linked to the operation.

So Willis probably did face a genuine problem. Allowing the country’s last cement plant to close would have been a major decision, and one a future government might deeply regret. But that does not automatically make a $60m grant to Fletcher Building a satisfactory answer.

The Government has chosen the quickest answer

Kate MacNamara puts the nature of the deal plainly in the Herald: “It’s taxpayer money. It’s not a loan. It’s free money.”

She explains that the underlying problem is the Emissions Trading Scheme. Golden Bay Cement pays carbon-related costs that many overseas producers do not. Imported cement can therefore undercut the local product, even when it may have been manufactured with higher emissions overseas. Production moves offshore, New Zealand loses jobs and industrial capability, and global emissions may not fall. This is the problem usually described as “emissions leakage”.

The Government says it considered changing the rules but decided that doing so could undermine the ETS and potentially create much greater costs. It opted instead for a targeted agreement with Fletcher Building. That leaves the climate scheme untouched and keeps the plant operating.

But the problem was hardly unexpected. MacNamara points out that Grant Robertson and David Parker were considering a carbon border adjustment mechanism as far back as 2021, with cement used as an obvious case study. Such a system could impose a carbon-related charge on imports so that domestic companies were not competing against overseas producers facing much weaker environmental rules.

That work went nowhere. A structural problem that has been known about for years is now being addressed through a commercial agreement with one company. Fletcher itself says the issue is a “structural imbalance” in which New Zealand manufacturers face costs that importers largely avoid. It continues to argue for a carbon border adjustment mechanism.

This is why the payment looks more like a temporary fix than a coherent policy. A general problem should normally receive a general answer. Instead, Cabinet has selected one company and negotiated a commercial agreement whose detailed terms have not been published. Perhaps that was unavoidable in the time available, but the Government has dealt with the immediate threat to the plant without resolving the distortion facing other emissions-intensive manufacturers.

The paywall now starts partway through all Democracy Project newsletters. Please take out a paid sub if you want to support this service and access the full content, including the following sections: “The return of corporate welfare”, “Who gets saved?”, and “Public money and private decisions”.