Selling our defence bases to property speculators

The proposal to sell our defence bases and lease them back to the armed forces from their new, private sector landlords is a pretty good example of the short term thinking that is driving the whole process of public private partnerships. Any wishful thinking that such a sale and leaseback operation would not impact on the effectiveness of the armed forces is dreaming. Any short term gains from the sale would be more than offset by the costs of renting (otherwise, where’s the profit incentive for the landlords?) and those costs would eat into the money available to equip, pay and recruit our defence personnel.

Remember, those costs would be accruing within defence budgets at a time when, as the government also said yesterday, the C130 Hercules, P3 Orions and two Anzac frigates all need to be replaced by 2020, and there would be no significant increase of the 1 per cent of GDP New Zealand spent on defence. It would mean that this rent money would be joining defence salaries as a fixed cost, just when major re-equipment needs are coming on stream. There is an alternative. Rather than carry out a firesale of defence properties nationwide, the government would be better advised to revisit its commitment to retain Whenuapai, which in the light of this fresh proposal, looks even more irrational than ever.

As with all other PPPs, the detail of the contracts will crucially determine whether these deals will merely privatise the profits and socialize the losses. Right now with interest rates around 3% there would be a lot of property speculators able to raise money to buy defence bases that will have a guaranteed long term return on investment. But lets suppose that when the recession eventually ends, the legacy of inflation causes the Reserve Bank to crank interest rates back up again – to damp down the inflationary fires that are likely to be raging in the wake of various kinds of stimulus policies.

What happens then? Will those leases be insulated to protect the investor from any such variations in future? And if so, how? And if not, how will the contract protect our defence forces from having their premises re-sold out from under them in mortgagee sales, and their tenancy reviewed upwards by the new landlord? Do we really want our armed forces to have the same security of tenure as a flat-ful of university students?

Plainly the terms of these leases will have to be very carefully calibrated to ensure that the armed forces’ long term security of tenure does not come at an exorbitantly high cost to a limited defence budget. The alternative would be not to go down this path at all, to sell Whenuapai and to cancel the next round of tax cuts. Because this is the kind of necessary capital expenditure nightmare that governments get into, when they allow themselves to indulge a mania for tax cuts that rob them of the revenue to pay for necessary functions.

Hopefully, the upcoming defence review will not also jettison the perspectives that were set out in the Quigley Review, called Defence Beyond 2000. One of the great advantages of that review was that it sought to put defence procurement decisions on a rational footing. Rather then being driven by inter-service rivalry or the latest toys for the boys brochures, or by the desire to keep up with the Joneses in Canberra and Washington, the Quigley Review recommended that our procurement decisions should be based on the conceivable risks within this region over the next 15 years. And on any rational basis, the Quigley Review suggested, those risks in this region were minimal.

Quigley has been proven right. It is not as if there would be no conflict at all, but that this would be at a manageable level. Instead of the prior focus on an alliance largely determined by our partners in Canberra and Washington, New Zealand would play out its international role under the UN umbrella, and concentrate domestically on the protection of our own resources, particularly within the maritime exclusive economic zone. Sensible stuff.

On RNZ this morning, some defence analysts seemed more than ready to throw that rational framework out the window. The defence needs in the South Pacific, it was suggested, should be approached as if this region faced the same threats as anywhere else in the world, including the Middle East. Right, that makes so much sense. Bougainville, Baghdad – who can tell the difference?

By that logic New Zealand plainly needs a missile shield just like the one that the Americans are planning for Poland, to shoot down the nuclear missiles that Iran will surely be sending our way. Maybe we could tack the monthly rental for a missile shield onto the lease conditions that New Zealand will be signing with the property speculators who will soon be owning our defence bases.


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