Don’t fix the PGF. Abolish it.

Dr Eric Crampton
Insights Newsletter
7 August, 2020

The problem isn’t just that the Provincial Growth Fund is poorly managed with slipshod standards and politically-driven spending decisions. The problem is that it exists at all.

This week, the Auditor General released a scathing report on the Provincial Growth Fund.

The PGF is a notorious political slush fund and many see it as less concerned with regional development than with securing New Zealand First a seat in Northland.

The Auditor General said it was difficult to tell why projects were funded or how they were chosen. The report said the PGF’s spending on “manifesto commitments to the regions” acted as a “fund within a fund” with “no easy way for Parliament to scrutinise the appropriations for the Fund as a whole.”

In response, National’s Michael Woodhouse promised a National Government would keep the Fund but improve how it runs.

That would be a mistake.

Regional development matters. But it hardly requires giant, politically-driven slush funds run from the capital.

Instead, Wellington should be working with and listening to the regions to find out whether central government policy settings work for them, or whether they need the flexibility to try out new things.

The City Accord model used in Greater Manchester is a great example.

In 2012, the boroughs of Greater Manchester struck a deal with the UK central government. Greater Manchester would take on more responsibility that traditionally sat with the central government but also receive extra funding to do the job.

The Initiative’s 2015 report, In the Zone, suggested ways of letting New Zealand’s regions trial policies tailored to local conditions. Successful trials could roll out more broadly to any region wanting to take them up. Unsuccessful trials would be wound back. And if a successful trial led to higher tax revenue, then local government would get a slice of the pie.

Regional development should not require local businesses to ask a granting agency, or Minister, for favours. No matter which party is in charge, the temptation is too great to use a slipshod regime for political ends. New Zealand could also risk its clean standing in Transparency International’s corruption indices.

Reforming the Provincial Growth Fund is not enough. Abolishing it, and enabling real regional development, is in order.

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