Is Health NZ's Chair, Lester Levy, tied to the biggest cost blow outs incurred in this nation's history?

Many years ago I received a mail from the current Chair of Health NZ, Lester Levy, who is now charged with slashing costs across our health system. He was doing part-time teaching at Auckland University as an "adjunct" & asked me to speak at a Tonkin+Taylor conference. They're an engineering consultancy firm specializing in infrastructure. I was surprised to discover Mr Levy was Chairman of Tonkin+Taylor, since to my knowledge he'd not studied engineering. Of course, not being an expert in the core activity of the business is no barrier to corporate success in NZ (Tonkin+Taylor's new Chair is an accountant). Some years later, Mr Levy turned up as full Professor at Auckland University of Technology, which is now in financial difficulty. I'd assumed (turns out wrongly) one required a PhD for that job. After all, it says on Levy's AUT home page he does "PhD student supervision" (though doesn't have the degree himself). I'd also assumed (turns out wrongly, again) one had to be a Lecturer, Senior Lecturer, then Associate Professor, to acquire the skills required to become a Professor (none of which Mr Levy has been). Anyhow, Mr Levy was Chair of Tonkin+Taylor for over a decade, from 2009 to 2020. So lets take a quick look at some projects his (former) firm worked, advised & consulted on, during the period of his tenure.

There's one called Auckland City Rail Link. It was originally going to cost about $3 billion, but now's hurtling toward $6 billion. Documents show the Rail Link will cost $220 million a year once it's (maybe) working in 2026. For Aucklanders, that means rates rises. I suppose the engineering consultants will blame the construction firms - and they will blame the consultants & government. The losers will be the taxpayers. Another project Tonkin+Taylor advised on under Mr Levy was the Puhoi to Warkworth Highway, whose costs exploded to over $1 billion for 18 kilometers of road. That put the cost per km at about $NZ 50 million, making it one of the more expensive highways in the world. Again, Tonkin+Taylor would likely blame Fletcher's and Fletcher's someone else. Last year it was reported that, "Transport Minister David Parker was expecting a briefing shortly on a landslide threatening the new .. Pūhoi to Warkworth motorway north of Auckland. Cracks have appeared in concrete barriers & an entire section may be moving under the motorway".

Tonkin+Taylor also worked on the Wellington Town Hall, whose costs have blown out, more than doubling to $320 million, dragging broken Wellington down with it. (All whilst Chateau Tongariro, a true NZ icon, is left to rot. I suppose the good citizens of Ruapehu District can't write blank cheques in favour of themselves, like Wellington can). Not that we're saying the cost blow out has anything to do with Tonkin+Taylor and Mr Levy. They just advised on "contaminated Land" and lent "geotechnical expertise including screw piles, basement, heritage and foundation work, and underpinning work for the structure". Tonkin+Taylor's website reports this as a "$135m value heritage project". They should update their abacus. Space is short, so let's finish with the PenLink Project, a road that will provide a short-cut to Whangaparoa Peninsula out of Auckland. I couldn't find reference to it on Tonkin+Taylor's website, but it has been reported, "NZ Transport Agency Waka Kotahi, HEB, Fulton Hogan, Aurecon and Tonkin+Taylor formed an alliance to construct that highway". The latest news is that this "new highway costing more than $800 million, which was meant to be finished in late 2026, has been delayed to 2028 due to complications with a novel bridge design".

On the promising side, one supposes that with such wide-reaching experience working on so many public projects that have seen some of the biggest cost and time blow-outs in NZ history during his time at Tonkin+Taylor, Mr Levy is well versed in how things can go pear-shaped. This knowledge may serve him well at Health NZ. Lets wish him the best in his endeavours, even though the National Health System in the UK runs the same model of health-care as ours, and its costs as a fraction of GDP are higher than NZ's. Which tells one that if you want to do better, one must find a new way of running health-care, like adopting one of the models proposed in our previous Blogs, which include a French or Singaporean-style system, with a far greater role for private delivery, but not payment, in NZ. Changing the deck chairs by flying in a new man whose background includes advice on City Rail Link, PenLink, Wellington Town Hall and Puhoi-to-Warkworth road, all of which are symbols of vast cost and time over-runs, to sort out NZ health-care doesn't wash.

The NZ Treasury's Lack of Imagination Threatens our Future. It has no faith in Economic Magic (Einstein did).

Our Treasury is at it again. Telling Kiwis a bleak future awaits them, especially in retirement. Its latest report about how NZ Demographic Change will affect the Country's Finances is enough to make the PM's eyes glaze over, Finance Minister Willis fall asleep, NZ First leader Peters to press Delete on his laptop & everyone else to take anti-depressants. Though NZ won the Americas Cup with a boat called Black Magic & we've a radio station called Magic FM, Treasury's having none of it. Instead, it patronizingly tries explaining to you & me, who it takes to be financial dumb dumbs, how high finance works: "Government revenues are not magicked from thin air, but are obtained through taxes", it says. "If superannuation transfers increase because of demographic ageing then the government must increase taxation, or decrease expenditure on other services. Alternatively, it could change super policy settings, to reduce the associated fiscal cost of transfers to super-annuitants".

Except its not true. Want the evidence? Its contained in my article, joint with a former NZ Finance Minister who did the budgets, called Welfare: Savings not Taxation that has now been published around the world. It shows how NZ can lower taxes and increase spending on Super & health-care in the decades ahead, a feat which Treasury tells you is impossible. Where's the magic? What makes our calculations work? Compound Interest. In 1976 the Wall Street Journal published an article ascribing to Einstein the belief that “compound interest” was “man’s greatest invention”. The crux of our solution is savings accounts which are set up for every adult New Zealander. They have similarities with Kiwi Saver, except also include savings for health-care, which mean everyone has health insurance & go private if they wish, not just the wealthy. People's savings accounts receive contributions from their employers, the government, and themselves in lieu of taxes. Here's the thing: by the time of retirement, average earners will have a balance of about $800,000. Where does most of that money come from? Nearly 70%, or $560,000, derives from compound interest, and only 30% from contributions. We've done the sums. So have journal editors & referees.

What that means is you can enjoy a high standard of living, both in terms of retirement income & high class health-care, whereby the vast majority is funded not by higher taxes, nor by cuts in government spending on services, but instead by the miracle of compound interest. But Treasury doesn't believe in miracles. It doesn't have the imagination to see how you can get a high rate of return on your savings by tapping into the world's equity markets and earning the high rates of productivity growth that are being achieved in other countries. It wants us all to be stuck in low productivity NZ and wants to make that problem worse. Do Aussies get truck-loads of compound interest? The average balance for a person in its Super savings scheme is now about $A 350,000 for retirees, or $A 700,000 for a couple - nearly 10 times the average balance NZ'ers have in their Kiwi Saver accounts. Compound interest is now driving the spending of Aussies in retirement. Not higher taxes. Nor cuts in public services. The NZ Treasury's lack of imagination threatens our future. Its message of doom is based on incorrect economics. It is presenting NZ'ers with fake options that both look awful, when other options exist that could create a stunningly bright future for this country.

Sources:

https://www.treasury.govt.nz/sites/default/files/2024-09/an24-08.pdf