MBIE miscalculated benefits from America’s Cup

The Herald reports:

Hosting the America’s Cup in Auckland would be “barely worth it”, says the New Zealand Initiative after the Government was forced to drastically reduce its cost-benefit analysis.

The Ministry of Business, Innovation and Employment (MBIE) today admitted errors in its report on the economic benefits of the hosting the cup.

Its initial cost-to-benefit ratio estimate was between 1.8 and 1.2, meaning benefits would outweigh cost by between 80 and 20 per cent. However, it today revised this to a high of 1.14 and a low of 0.997, the latter scenario would mean the cost would outweigh the benefits.

“In simple terms, the cost benefit ratio is normally the total benefits divided by the total costs,” MBIE said in a statement.

 

“However, Market Economics had erroneously divided net benefits (new spending less the costs to deliver the goods and services) by total construction costs.”

The error was brought to the Government’s attention by policy think tank the New Zealand Initiative.

Great work by the NZ Initiative in finding the error. The Government may have spent tens of millions of dollars on the basis of this error. Now we know that there isn’t really much of a case for taxpayers subsidising the America’s Cup being held in New Zealand.

Research Fellow Sam Warburton, who reviewed MBIE’s numbers, welcomed the ministry’s correction to the optimistic figures that were widely reported in media.

“The alleged net benefit of the Cup was relied on by key decision makers including Economic Development Minister David Parker and Auckland Mayor Phil Goff,” he said.

“As in every public project, cost blow-outs and optimism biases are a possibility when hosting the America’s Cup. A benefit-cost ratio of just around 1 is not a sufficient basis for committing taxpayer’s money to this event.”

If the BCR at the moment is 1, you can be sure it would end up as less than 1 eventually.