Ministry makes $50 million error in TPP calculations

The Ministry of Business Innovation and Employment may have made a huge computational error, of possibly more than $50 million, in advice it gave the Ministry of Foreign Affairs on the TPP.

The error throws into doubt all the mathematical modelling behind the Government’s case for the TPP.

By late yesterday Ministers were clearly trying to blame the consultant for the error.

An international copyright lawyer and economist, Dr George Barker, Director of the Centre for Law and Economics from Australia National University told Parliament’s Foreign Affairs, Defence and Trade Committee yesterday that the National interest Analysis of the TPP vastly overestimated the cost to New Zealand of extending copyright protection from 50 to 70 years.

The cost of $55 million a year had been supplied to MFAT by MBIE.

Dr Barker said the total cost to New Zealand of the copyright extension term was more likely to be around $250,000.

Labour’s Trade spokesperson, David Clark, who was at the Committee said the error drew into question the economic modelling in the National Interest Analysis.

“That is already being contested and I’m looking forward to the officials explaining more about the checks and balances they have in place to ensure the modelling is as good as it can be.”

But late yesterday the Minister of Economic Development, and the senior MBIE Minister, Steven Joyce was ducking for cover.

An email from his office said the questions raised by Dr Barker fell within the portfolio responsibilities of the Minister of Commerce and Consumer Affairs, Hon Paul Goldsmith.

Mr Goldsmith then replied (also by email) saying “The Government is aware that there are differing views on the impact of copyright term extensions on the New Zealand economy.

““Recorded Music engaged Dr Barker to analyse the economic modelling in the Henry Ergas report, which was commissioned by the Government.

“Dr Barker has produced a critique of the Henry Ergas report.

“I met with Dr Barker to discuss his findings.

“The Select Committee will consider the views of all the submitters and report back to the House in due course.”

Mr Goldsmith ended his email with one of the Government’s standard TPP plugs saying “It is important to consider these costs in the context of the benefits to New Zealand of TPP as a whole, which is estimated to add at least $2.7 billion a year to New Zealand’s GDP by 2030.”

But whilst Dr Barker was critical of the Ergas report he said the New Zealand Government exacerbated Dr Ergas’s errors so that the figures it ended up with were out by factor of 300.

He said Dr Ergas’s figures on the increased cost of the copyright for recorded music did not make sense.

The total New Zealand recorded music market was $80 million between 2008 and 2010, but Dr Ergas proposed that the cost of extending the copyright by 20 years would cost $18 million a year.

“It just intuitively fails the laugh test,” he said.

And to derive the extra cost to New Zealand of extending the copyright on films from 50 to 70 years officials here simply took the figure for recorded music and replicated it.

Dr Barker said the assessment had also not taken into account the overseas earnings of major New Zealand copyright holders like Lorde, Peter Jackson and Eleanor Catton.

He said the extension in the copyright term could add 20 – 30% to the profitability of Jackson’s company.

“That will obviously add an output effect but Ergas assumed none,” he said.

“That’s the bias in this setup.”

Asked by Committee chair, Mark Mitchell, if he thought Ergas and MBIE had been conservative in their estimate of the benefits to New Zealand.

“No, not conservative, wrong,” he said.

“They haven’t captured any benefit at all.”

Dr Barker said the copyright extension term could also benefit New Zealand musicians like Split Enz whose work was about to come out of copyright.

Not only had the consultants and MBIE ignored the benefits to New Zealand of the extension but they had also multiplied the cost by a factor of 200 “which is how they get to $55 million.”

“It is misleading the New Zealand public, it is misleading Parliament,” he said.

The irony in Dr Barker’s submission is that whilst it calls into question the integrity of the National Interest Assessment, it actually defines a much more beneficial outcome to New Zealand from the Copyright section of the TPP.

But before the Ministers can crow about that they will need to wipe some egg off their faces.