Monday, 2 February 2015

The Economist Index

The Economist likes to compare currencies' purchasing power by checking the price of a Big Mac. As of January 2015, the New Zealand dollar was slightly undervalued: a Big Mac here cost US$4.49 at going exchange rates while it cost $4.79 in the US. So the New Zealand dollar would have to appreciate a bit in order for the real cost of a Big Mac to be the same in the two markets.

On another index, New Zealand's dollar is massively overvalued. The Economist offers Digital-Only subscriptions that are as identical across countries as is the Big Mac. Having finally decided to shell out for a subscription, I was taken aback by the subscription rate on offer: their best deal was $1020 for a 3-year subscription.

After some consideration of what intrafamily bargaining would need to take place to justify a $1000 subscription, I checked what the cost in the US would be.

The best NZ subscription rate works out to USD $4.49 per week, using The Economist's January exchange rates as reported in their Big Mac Index files. The American subscription rate is $2.19 per week: less than half. So the New Zealand dollar would have to halve in order for the NZ subscription rate, in $US, to match the American rate.

On a busy Monday morning, I had only time to check a dozen or so subscription rates. The weekly $US subscription price is below, with all exchange rates coming from The Economist's January Big Mac Index. Note that Argentina, Brazil, Chile, Columbia, Costa Rica, and Egypt quote prices in $USD: $1.94 per week.

At least I do not live in Australia.

And now to investigate whether I can geounblock things and pretend to be US-based or, better yet, Canadian.

Update: I'd made an attempt at a US-based subscription before figuring out that Canada was slightly cheaper. My NZ credit card worked just fine with a US address. So now you know.

Thursday, 29 January 2015

Student Visas revisited

While it is true that students can get a 12-month open work visas and that students with job offers can get longer-term visas, it's also true that employers will be reluctant to offer jobs to international students soon to graduate where it then means they have immigration hassles afterwards: they can't tell that the student on an open work visa will get the longer term visa, and they risk losing the new employee if the immigration process falls over. Permanent residence by default, barring failure of a criminal background check, would get rid of this problem. Further, because potential students would have certainty that they would be able to stay here on graduation, they would rank New Zealand schools a few places higher in their international applications.

The Timaru Herald's revisited that call. I got an email from them the other day asking if I still liked that idea; they've been finding employers having big problems in getting skilled staff who like the idea of granting permanent residence to new graduates. They reported on it today.
A South Canterbury employer says an economist's proposal to grant international students permanent residency on graduation could ease skill shortages.
Economist Dr Eric Crampton says the Government should automatically grant permanent resident status to foreign students who graduate with Bachelor's degrees from major New Zealand universities.
Crampton, the New Zealand Initiative think-tank's head of research, said the scheme could "do double duty in reducing skills shortages and in supporting the tertiary sector" by encouraging international students, who pay relatively high fees compared with domestic students, to study in New Zealand.
Polarcold Stores chief executive Kevin Cahill said yesterday the proposal "makes a lot of sense".
They note that Jo Goodhew has referred the idea over to Immigration  Minister Woodhouse's office, who punted to MBIE. I hope that MBIE puts some weight on that:

  • Students on the 12-month open work visa still have huge problems in securing work because employers just cannot tell whether the student will be able to stay on. One of my former students at Canterbury was in on a student visa. If there were any student I'd ever taught on whom I'd place a bet on "will be incredibly successful in business", it was him. Ridiculously good. And while on a student visa, his English was superb - better than most Kiwi students. And he still butted up against employer reluctance to take on that work visa risk. This is a real and significant barrier to even really really great students who'd add just a ton of value to firms. 
  • Students graduating and wishing to be entrepreneurs cannot do it under visa requirements demanding that they have employment;
  • The policy would bring in more international students, helping to cross-subsidise domestic students.
I put strong odds on the Immigration bureaucracy's telling the Minister, "Oh, it's more complicated than you think, we'd be outsourcing immigration policy to the Universities, we'd need to be policing the Universities to make sure their processes are robust, and the students can already get that open work visa so there is no problem to be solved." All of that's avoidable: TEC knows how to police this stuff subsequent to the CPIT Cool-IT rort. And the open work visa really doesn't seem to be enough.

I hope MBIE runs with this one. It could do a lot of good.


The Labour Party's come out against zero-hour contracts: an employment practice where employees have to be on call for what shifts might come, but with no particular guarantees of how many hours might come or when those hours may be required.

Jim Rose discusses things in a four-post series, which takes a more academic take on the question.

Here, Jim argues that a good start would be reckoning why employers and employees would agree to the deal in the first place. Unless labour markets are highly uncompetitive with employers having massive power over employees, employers should have to pay a per-hour premium if zero-hour contracts are a hassle for workers. If we see zero-hour contracts in Christchurch, for example, I don't think we can first-cut look to power as the answer: plenty of labour demand there.

In the second part, Jim notes that the fixed costs of employment are such that you shouldn't expect zero-hour contracts: you'll typically do better with one 40-hour worker over two 20-hour workers barring some kind of mandatory benefit for 40-hour workers. I don't think there's any set benefits threshold that obtains for 0-hour contract workers as compared to 20-hour workers though. Each additional employee means recruitment, overhead, HR and training costs; why pay all that out on somebody who might only work 3 hours a week?

You might do it if there are strong and somewhat unpredictable fluctuations in product demand. Jim notes premiums for part time jobs in seasonal industries; I'd also expect some of those employers could also see advantages of zero-hour contracts. If it's raining, you're less likely to send a team of fruit-pickers out; when it's sunny, you need all hands on deck. Jim expects, rightly I think, that zero hour contracts would be most likely in jobs with low recruitment costs and where specialised training needs are low. While you might think that could point to potential power issues, think twice: specialised skills can be more likely to make you beholden to particular employers.

In part 3, Jim expects workers with low fixed costs of working will flip into the zero-hour sector while those with higher fixed costs would prefer lower hourly rates but more guaranteed hours. Again, read "lower" here as meaning "relative to what they could elsewhere earn".

Finally, Jim relates all this back to problems of team production.

Jim makes one big and important point in all this: unless we have a good idea about why firms are moving to this contract structure, and why employees are sticking with it rather than flipping instead to other employers, meddling in the arrangements via policy is pretty risky.

Wednesday, 28 January 2015

Neo-lib anti-culture support for the arts

Ok. Since moving to Wellington, we've seen Circa Theatre put on a production of Little Red Riding Hood and Bats put on a production of Richard III.

We thought the former would be good for the kids: it was an early enough show and was advertised as pantomime. The opening musical number was a lengthy rant on the evils of the National Party. The Big Bad Wolf was a scary awful developer who wanted to collude with evil scary politicians to turn some park in Karori into apartment blocks. We ducked out at half-time as the show was running really long and we were past the kids' bedtime - they're normally to-bed around 7, and we'd been expecting an hour-long kids kinda show. Our fault on due diligence.

The final Act of Richard III had Richard the Third's face on a National Party 2014 election placard in place of John Key's, and Henry VII's face in place of Cunliffe's on a Labour hoarding. The play's leaflet apologised for the strong partisanship in this performance, but because they just hate National so much and because they thought it was so apt, they hoped nobody minded too much.

Both plays were fun and I enjoyed them, but it's hardly unprecedented for tax-funded arts types to go all-out on how much they hate the government (if National's in office), markets, economists, developers, and businessmen. I might be misremembering, but I thought I saw various government funding body seals on both programmes.

Anyway, today a bunch of people got mad on Twitter that Eleanor Catton, a NZ novelist, complained about NZ's neoliberal profit-loving, culture-hating politicians. Half of them were mad she'd said that; the other half were mad anybody might complain that she'd said it; and some other half entirely were mad at Sean Plunkett. My Twitter filters must be getting better as I didn't see any of it until somebody pointed me to it.

To resolve matters in everybody else is wrong except me fashion:
  1. Catton's complaint is self-refuting: no neoliberal, profit-loving, culture-hating government would keep giving so many grants to so many productions that spend so much time complaining about our neoliberal, profit-loving, culture-hating government. 
  2. John Key's disappointment that she doesn't like him is entirely unobjectionable.
  3. Complaining that artsy types are going to be loud and lefty... would you blame the birds for singing, the fish for swimming, or the children for laughing?*
  4. That so many got so riled up over this whole thing... I guess the summer stupid season isn't over yet. Wasn't there a state-of-the-nation address on or something that people should have been paying attention to? 
* Don't answer this last part if you live in Stonefields.

The retailers respond

Retail NZ's Greg Harford replies to my piece on maintaining the GST-threshold:
While Government must balance potential revenue with the costs of collection when considering the GST loophole, the negative effects on local retailers are an important part of the equation. Difficult conditions for local businesses have flow-on effects that impact the whole economy including reduced employment (which results in reduced consumer spending), lower tax revenue and empty store fronts in our town centres.
GST is not a new tax. Introduced in 1986, New Zealand’s simple and broad-based GST policy was the envy of Australia and the United Kingdom. It was, until the advent of e-tailing, an easy to use and fair system that applied to all good and services consumed by New Zealanders.
The internet means that consumers are now able to easily avoid GST by purchasing from offshore retailers online, and they are doing so in droves. Nielsen estimate New Zealanders spent $1.3 billion on purchases from offshore retailers in 2013 and this is only expected to grow.

The confusing variable de minimis level for GST and duty on offshore online purchases further complicates our otherwise simple consumption tax system.
He goes on to make some reasonable points about Retail NZ's role in informing consumers about the benefits of buying locally. That's all fine; I'm happy with whatever choice consumers want to make about paying more and having all the local service or buying from overseas and potentially having warranty problems.

But I'll disagree that negative effects on local retailers are that substantial a consideration. Really, we need to be minimising deadweight costs here. The absence of GST on imports means some things get imported that, in an ideal world, would be purchased domestically. This distortion is inefficient relative to a blackboard ideal. But some inefficiencies are best left alone - where the cost of mitigating the failure exceeds the cost of the deadweight loss, it's best not to mess with it.

I've yet to see a mechanism for collecting GST on low value imports that does not induce more distortion in favour of NZ retail than the current system applies against NZ retail. If somebody comes up with one, fine. But just insisting that GST be applied without specifying a mechanism for doing it smacks of protectionism, not playing-field levelling.

Rob Salmond also took issue with my piece, though I'm not convinced he read more than the bits I'd excerpted for Offsetting. The Standard thought Salmond worthy of reposting. I left the comment below there for Salmond.

Hi Rob,
If you check the full op-ed piece, you'll note that my main argument is about the hassle cost that GST collection would impose on NZ consumers. I argue that the GST difference is trivial relative to the magnitude of savings from shopping online, and that retailers looking to blame the GST are missing the bigger problem of economies of scale available abroad.
You'll also find that I support applying GST on imports IF there's a mechanism that would impose no hassle costs on consumers and that wouldn't just eat up all the revenue in transactions costs for the government.
I'm not sure why you characterise the argument around extra customs fees as slippery slope. The Customs fact-sheet dated November 2014 says that they collect those two charges whenever they collect GST. I hardly thought it unreasonable to expect that they would continue with that practice. It's always possible that the government could tell them "And, don't charge any fees for collecting $15 on $100 purchase", but that just shifts the collection cost to the broader public, and it wouldn't be trivial. If the existing fees are cost-recovery per transaction, think a bit about how much the Customs budget will have to hike to cover $37 in real costs per processed transaction if they have to process all of them and are barred from recovering the cost. We can ban customs from charging for it, but we can't wave a wand to make the collection costless. We just change who pays.
But, again, that isn't the crux of it. Rather, it's the differential hassle cost imposed on online shoppers purchasing from abroad when they have to jump through additional GST hurdles.
Hey, if you come up with some actual real-world mechanism that works, that's great. I expect that if any such mechanism existed, IRD would already have done it. But you could be an entrepreneur in this space.
The other main point is that NZ retailers may be deluding themselves by laying blame on GST when the price difference between NZ retail and shipped-to-my-door-from-abroad is often 33%-50%. Rather, it's economies of scale from abroad that are the main source of the cost differences.
Anyway, you might check back on the full piece I'd written and linked. I say pretty explicitly that I'd support GST on imports were there a way of doing it without effectively just putting up a big hassle-cost non-tariff barrier.
I'm curious about your source on Amazon's willingness to collect foreign taxes. If it's just that collects VAT on goods shipped from the UK to other parts of the EU, I'm really not sure that's the same thing as agreeing to collect NZ's GST.
Finally, I'll note that where the NZ market is often pretty small and cannot sustain that much competition, it's fringe competition from online imports that help to constrain domestic prices. Make low-value imports a hassle to parallel import, and I'll bet you'll start seeing hikes in the local prices of those products.

State's gonna State

I was surprised on Monday that the flag at Parliament went to half-mast for the Saudi dictator. Graeme Edgeler pointed out on Twitter that the flag does that on the death of every head of state.

I suppose if you do it for one, you kinda have to do it for everybody. Otherwise, you wind up in a big Parliamentary scrap on the death of each and every foreign Head of State. Given the absence of Twitter outrage over the flag-lowering for equally repulsive Hugo Chavez, I expect the general outcome of a "recognise some" rule would be mouth-frothing at the death of every US-allied dictator and silence on the death of every left-wing one, until the whole thing turned into team-based culture wars with the right working to object as strongly to the death of the next socialist tyrant as the left had objected to the last US-allied tyrant. And that would be no fun at all.

I'd prefer a no flag lowering rule. But I'm not sure that wouldn't unravel were there to be a Commonwealth PM, or American President, who died in office. And as soon as that happens, we're back to the bun-fights.

Sending the NZ Governor General out for the funeral does seem a bit much though.

I'd tweeted:
Not much we can do about Club State always choosing to mourn other Heads of State. At least in the movies, Mafia families would always show up to pay their respects to fallen heads of other families; States are gonna State too. But we can choose how we interpret those symbols.

The Herald picked up that tweet; they didn't note it was a tweet.

I'm cool with that, but I'm not sure I'd be always happy with other tweets being cited as though they were official NZ Initiative comment. I'd had tongue-in-cheek comments in twitter replies last week suggesting that instead of reducing immigration to ease pressure on housing, we could deport anybody who objected to a notified consent, whether or not they were NZ-born, which would both free up one NZ house AND make it easier to build new houses. In case it isn't clear, that's neither my official position nor that of the Initiative. But it is kinda fun to think about.

Update: Thanks to Stephen Hickson for pointing out that the first line in the paragraph above was originally missing the critical "not".

Tuesday, 27 January 2015

Online GST revisited

While pretty much all goods and services consumed in New Zealand attract GST, imported goods under $400 are GST-exempt; IRD generally reckons the cost of collecting the tariff to be higher than the taxes collected.

As Australia's debates around reducing or abolishing its GST-free threshold have sparked renewed NZ-retailer pushes for its removal here, I wrote a short piece for NZ Retail, the local retail trade magazine. Their news story is here. Here's the op-ed. A snippet:
Does this create an uneven playing field for New Zealand retailers? Yes, as compared to a world in which tax could be collected costlessly. But consider the real world!
Ordering higher valued products from abroad means they will be held up at Customs until GST is paid. The quickest payment option is the online credit card service which attracts a 2.5 percent convenience charge. Internet bank transfers are cheaper, but require the customer to take the separate step of logging into online banking, making the payment, then waiting for Customs to notice that payment has been made.
Or, you can drive across town to your nearest Customs office. All of these methods also attract a separate Import Entry Transaction Fee of $29.29 (including GST) and a biosecurity levy of $17.63, regardless of the value of the import. That hundred dollar import that was undertaxed by $15 suddenly would attract not only $15 in GST, but also $47.29 in transaction charges.
It often seems like local advocates of a lower GST threshold really just want importation of foreign goods to be such a hassle that customers give up on trying. That world is the one I lived in in Canada in the 1980s, when I would stare longingly at American computer magazines and know that getting anything across the border involved at least $200 in brokerage fees.
I worry that too many local retailers focus on the GST issue when the underlying issue is rather more troublesome. New Zealand simply is not large enough to be able to achieve the economies of scale that foreign warehouses enjoy. Even if GST could be applied on foreign imports, today, with zero hassle-cost imposed, the foreign cost advantage is not likely to decline over time. The problem really isn’t the GST, or at least not in cases where consumers can easily save at least a third by shipping goods in from abroad. Domestic retail of easily shipped goods that do not require specialised local advice is not going to get easier. Recognising that rather than blaming the GST will be an important part of a reality-based reassessment of retail opportunities in the coming decade.