OnPoint by Keith Ng

JTF: "In the red" and Rail "Myth"

“Skyrocketing living costs mean the average New Zealand family is going into the red simply to cover everyday expenses.” – Sunday Star Times, 4 May

The Sunday Star-Times claimed that in 2004, the average household was just scraping by, but in 2008, the average household is going into debt just to pay the bills – that is, every week, they spend more money than they earn.

Sure, households are facing the squeeze from several different areas, but the idea that the latest series of price rises have pushed the average household “into the red” is arbitrary and unfounded.

The last Household Economic Survey (HES), conducted by StatsNZ in 2007, showed that the average household expenditure on the purchase of housing was $38.30 per week. Unbelievably little? That's because the HES includes everyone over the age of 15, and many of them don't have mortgages. For example, people who are renting or own their house mortgage-free.

So the SST used independent mortgage data for the average household mortgage, but didn't adjusting the income. The “average family” in that model had the burden of an average homeowner with a mortgage, but only the income of the average household (which is arguably lower).

It’s a mismatch that highlights the bigger issue. All this “average family” business is just a big fat statistical construct. The fact that a column of numbers add up to a negative doesn’t mean families have crossed a magical threshold and are suddenly “in the red”. It just an arbitrary comparison between two different sets of numbers, and they weren’t really comparable to begin with.

The only clear conclusion we can draw from these numbers is that most of the squeeze is coming from the mortgage. Average mortgage rates have gone up from 6.9% in 2004 to 9.7% in 2008. Mortgage repayments have shot up, and that's put pressures on families with mortgages. But it also tells us that the bad news about food isn't so bad after all.

According to the 2004 HES, households spent 12.3% of their pre-tax household income on food. In the 2007 HES, it dropped to 12%. Even we take into account the significant increases in the last two quarters, that still only gets it up to 12.1%. In the last four years, income has grown faster than expenditure on food. So, while prices might have risen, Kiwis are making sensible choices at the supermarket and getting by.

“Mr [Richard] Prebble said it was a myth to say rail was environmentally friendly if the production of rail, locomotives and the need for trucks to take goods to destination were counted.” – NZPA, 5 May

How does he know? According to Prebble, when he was the Minister of Railways in the late 80s, the rail bosses told him. It's hard to find any evidence to back him up, but there's a mountain of material to prove him wrong.

The most authoritative is a Energy Efficiency and Conservation Authority (EECA) report from 2000. It worked out the energy intensity of different kinds of transport, and found that freight transport by road used 3.10MJ/t-km (that's 3.1 million units of energy to move one ton of goods one kilometre), while rail only used 0.61MJ/t-km. And that took into account the energy used by trucks to get goods to the railway station.

Chris Kissling, Professor of Transport Studies at Lincoln University, says that the gap is probably not as big now. With rising fuel prices over the last ten years, fleet operators have worked hard to find ways to become more energy efficient. And although rail is New Zealand is less efficient than other countries because of our terrain, Kissling was unequivocal: “[Rail] is less energy intensive, and will always be less energy intensive.”

But what about the cost of laying tracks and building trains compared with building roads and trucks? A European study estimated that the environmental cost of the “up- and down-stream processes” for heavy road vehicles was three time higher than similar costs for freight rail. All the evidence is weighed heavily in rail's favour – unless you count the dark horse of transport, coastal shipping.

It has even lower energy intensity than rail, but is currently held back because of dirty fuels. While Kissling was optimistic about the rail buy-back, he says that it needs to be well-managed, otherwise, New Zealand would be better off turning to the sea.