Afternoon roundup

The tabs. There are too many.

• Dan Brunskill asks 20 economists how they'd define recession. A bunch of us pointed to how NBER does things. 
• Believing that recycling does much of anything to reduce GHG emissions is wrong and gets you laughed at. Believing that reducing your consumption of things covered by the ETS will reduce GHG emissions is also wrong, but generally gets you plaudits. 
• A paranoid person might start to think that government-funded media goes on crusades to name and pillory pseudonymous critics of the government who do not share their cultural views. 
• The last $5b of the Covid fund was blown on a bunch of populist vote-buying exercises. Good luck getting cross-party consensus to take on just-in-case debt in the next crisis. Labour has really poisoned this well. It is very bad if you think that future governments need to be able to do this. 
• Harvard should protect whistleblowers.
• Michael Gordon has a substack. And he provides a helpful reminder about SNZ's work trying to figure out why the jobseeker numbers are so out of whack when compared to the unemployment figures. 
• Susan Edmunds checks on CTU Craig Renney's claims that the economy's doing great. I pointed to a couple cautions, but also one area where he might have understated things: employment rates were at or near historic highs before Covid hit. 
• Oliver Lewis points to the ways that National's housing policies will likely fail. I still wish National and Labour could have maintained consensus on MDRS by setting a price target for exemptions. 
• There were a lot of appropriate condemnations of poor forestry practice leading to bad outcomes during the recent floods. And a lot of that turned into the usual "it's all neoliberalism's fault" nonsense. Anyway, here's Queenstown Council doing exactly the same thing, causing similar problems.
• I still think the funniest chaos outcome for the election would be Labour winning, but only because it loses enough party votes to the Greens that it gets a substantial overhang from its electorate seats. One can engineer scenarios where National and ACT get 51% of the vote and still lose. It's not entirely plausible, but it would make for a chaotic election night. Here's Greg O'Connor stumping for the electorate vote.
• Remember how I wanted a public health agency laser-focused on contagious disease so it wouldn't just shift back to its usual BS? Pandemic's still going, and they're already back on their usual nonsense. 
• Ngāi Te Rangi is importing houses from the US to build here. I still think that iwi should declare themselves to be their own consenting authorities and tell naysayers to sue them if they don't like it. If council makes it tough for iwi to build houses on their own land...
• BusinessDesk has a series on cost blowouts on infrastructure. On average infrastructure costs have been 23% over their initial budgets. The paper's really worth the sub. 

The price of meth

ACT has proposed lifting the de-facto ban on the only cold medicine that seems to work - pseudoephedrine.

It's about freaking time.

National and Labour both expressed openness to the idea of rescheduling it. So that's good. 

This week's column over in Newsroom ($ today, ungates tomorrow if you pull the /pro from the URL) goes through a bit of the history on this one. 

It's a weird one. When Key's National-led government set the ban, they put evaluation frameworks around it. It was part of a meth action plan. They had indicators on purity, price, availability. The set of policies was meant to reduce use and availability. Use did ultimately decline, but not because of anything obvious on the supply side. The ban on cold medicine had only a minor effect on availability, price and purity - the supply indicators. And you kinda have to squint to even see those. Over the longer term, price dropped and availability increased. 

And rather than ditch the restrictions, the government shifted from six-monthly progress reports on its action plan to an annual report, to no reports. 

The supply side policy had failed. The ban on cold medicine worked only until suppliers figured out how to get methamphetamine into the country properly. Meth suppliers had been importing cold tablets, in bulk, before pseudoephedrine was made prescription-only. They continued to import cold tablets after the policy change. But finished methamphetamine was being imported at levels never before seen – or at least was being seized in unprecedented quantities. Rather than abandon the policy, the government abandoned the reports. The October 2015 annual report was the final report in the series.

Things didn’t improve after those reports ended. Other reports continued. By 2017/18, the national median price of methamphetamine had dropped to $500 per gram, with record low prices in Auckland, Waikato, and Wellington. Prices increased with total border closures to control Covid, but normalised soon after. One News reported in June that meth cost $400 a gram.

On average, the price of everything is 38 percent higher than it was in 2009. But the price of methamphetamine has dropped by more than 40 percent, despite none of us having reasonable access to cold medicines. If meth were in the CPI, the Reserve Bank’s job would be easier.

The official reports rather clearly establish that the ban on effective access to cold medicine had at most a small temporary effect on the supply of meth. It was obvious, rather quickly, that the ban was not helping. But the ban remained in place.

That is a terrible failure, albeit on a smallish margin. The government had set all of the evaluation frameworks needed for justifying a change in course, should one prove warranted. But it did not see fit to do so when the data came in. It stuck with the bad policy.

I like the idea of meth being in the CPI. 

But I even more like the idea of regular reviews of regulation to wipe out ones that impose cost while having no discernable benefit. 

Oh - FWIW - there are some conflicting sources on the price of meth in 2020. A Parliamentary snapshot had it having doubled to over $1000/gram; the regular survey had it fall. Perhaps there was a limited-time period in which price went through the roof? I covered my bases by saying prices increased with border closures and normalised soon after. 

But just look at this. Despite inflation over the period, meth dropped from over $700/gram to about $400/gram. 

I suppose a prohibitionist might claim that the price would be even lower if it were easier to access home cooking supplies, but really? It's imported at scale as finished product. It seems a bit like worrying that legalising the sale of car parts will lead to people building their own utes to get around the tax on utes. 

Update: the official reports, when they were tracking things, were here. There was one (1) annual report produced after the shift to annual reporting. 

The aristocracy of pull, so long as you're the aristocrat

I hate election campaigns.

I can never tell whether some bit of idiocy is actual proposed policy, or whether a candidate was just reaching into a bag full of words in hope of getting through the next couple minutes of an interview.

I hope it's the latter in this case. Because my gawd.

Pressed on how National would incentivise businesses to ditch fossil fuels, [National Party Climate Spokesperson Simon] Watts said: “On our watch, under a National government, there would be a pretty clear conversation between government and industry. If you’re significantly profitable, then you have a social obligation in order to do what is required in terms of helping this country achieve our emissions [goals].”

On behalf of the country, the government needed to apply “the appropriate pressure to these organisations”. Watts expected businesses putting profit margins ahead of this obligation “to change their view pretty rapidly”. He didn’t specify how he’d apply this pressure as Climate Minister.

We have an Emissions Trading Scheme. It puts a price on carbon. He's talking about the covered sector, because the conversation here is around what a National-led government would do instead of dumb GIDI corporate welfare. 

Within the covered sector, the carbon price encourages companies to make decarbonisation investments that meet the bottom line, and to avoid those that are not cost-effective. That is the point of using a carbon price rather than command-and-control regulation. Businesses are better placed than governments to know which investments make most sense for them, weighing carbon cost alongside a thousand otherwise unknowable considerations. 

And Simon Watts believes that it is right and proper for government to apply 'appropriate pressure' to companies, as part of "a pretty clear conversation between government and industry." If an industry is profitable, it can and should be leaned on by Government to achieve the Government's objectives. 

Isn't it wonderful! Corporatism I mean. Government and Business, in partnership, of a sort. Where Government can apply pressure through numerous discretionary regulatory decisions that could hurt or bankrupt a company if the 'conversation' didn't go the way the government might have wanted. 

All kinds of other desirable objectives could be part of these kinds of conversations. 

Companies could be 'encouraged' to reformulate consumer goods to meet Shane Reti's views on what people should be eating and drinking.

They could be 'nudged' toward fulfilling Simon O'Connor's social views, if he were the relevant minister in an area. Or perhaps Chris Bishop's after a cabinet reshuffle. The 'conversations' would be very different! And businesses would always have to be guessing at just what an incoming Minister might consider to be the appropriate social obligation, if they dared to be profitable. 

All of it will be simply wonderful for productivity. Because the predictability of the rule of law is overrated, relative to having pretty clear conversations about one's social obligations. 

Learning from others' discoveries

Others' idiocy can be a public boon, if the example serves as sufficient cautionary tale. 

In a world of wishful thinking, if one country's government moves first to try the really dumb thing and reap the obvious consequences, it's harder for others to delude themselves into thinking the dumb thing will have no consequence. 

Canada does the world a public service. So long as the rest of us don't ignore the lessons. 

A lot of people in a lot of places convinced themselves that, somehow, platforms were stealing from newsmedia companies by linking to them. A tax on platforms to fund news sounded obviously wonderful. Who could object? Certainly not politicians who value the favour of the media companies who'd believe they'd benefit from such payments. 

And then Meta stopped linking to news in Canada, to much complaint from the media companies who had previously asserted that links were theft.

And now Canada's looking at a unilateral move on a digital services tax rather than working through the OECD multilateral process. This is not a problem that is best handled unilaterally. It needs to be handled through cross-country agreement. But idiots in all kinds of places, NZ included, figure it's a wonderful idea. Sock it to those fat-cat multinationals. That'll show them. There'll be no adverse consequence, just free money and free votes for standing up to the Big Evil Companies. 

Indeed.

NZ had legislation that's passed first reading, suggesting NZ ought to go it alone, like Canada - albeit with a bit of delay. Hopefully the Bill is left to die quietly after the election and NZ sticks with multilateral processes. 

Afternoon roundup

The closing of a few tabs. 

• Tim Harford's cautionary tale about the Sydney Opera House and how megaprojects bring heartbreak is a must-listen. One bottom line: if you're not real clear at the outset just what problem you're trying to solve, you're going to be causing problems. 
• My weekend column in the Stuff papers compares the current draft Government Policy Statement on Transport to the old 1998 proposed reforms - Better Transport Better Roads. The column also echoes a lot of what turned up in my submission on the draft GPS - which I don't think is yet on our website.
• Central Banking covers The Initiative's proposals around RBNZ: split prudential regulation off into its own separate institution, focus the monetary authority on inflation-alone, and not go ahead with deposit insurance. With comments from former RBNZ Chair Arthur Grimes and Mike Reddell. 
• Labour promises rebates for rooftop solar. Weird thing to promise when there's a lot of grid-scale solar going in without subsidies. The balance between grid-scale and rooftop shouldn't depend on subsidies to the latter. 
• Great piece in Quilette on the 2003 BMJ controversy over passive smoking and mortality. I remember having pointed at this literature when the Helen Clark Labour Government was banning smoking in pubs; I'd figured it should be for the venue owner to decide, especially where the risks from second-hand smoke really seemed nebulous. Not a popular view it turned out. The trendy 'let's get more government grants' people had banked their wins on second-hand smoke and were trying to argue that third-hand smoke (residue on surfaces, basically) was its own new terrible thing that needed a lot of grants. Ah well. 
• Kainga Ora is doing some really neat work in getting construction cost and build times down. The kind of thing that you'd normally expect the private sector to have led ages ago. But when councils allow very little building, who'd have the scale to front that fixed cost in process systems? Nobody would have invented automotive assembly lines if the global market for cars was a thousand a year...

Foreign buyer taxes

The problem with taking GST off of food has little to do with the revenue cost of the policy, it's that it's just dumb to begin with. Any gains to households are smaller than those that could be achieved through other instruments, and there's long-term cost to the integrity of the tax system. 

So I won't put time into figuring out the numbers on the revenue cost. The policy's dumb regardless of the number.

I feel the same way about National's proposed tax on foreign house buyers. There's no good reason for imposing the tax; NZ has never had a foreign-buyer problem, it has and continues to have a regulatory-barriers-to-building problem. Make sure it's easy to build and let people build and buy houses if they want to build or buy houses. 

Michael Reddell, Sam Warburton, and Nick Goodall have put the work into reverse engineering National's numbers. Case looks strong enough that I'd expect Castalia to want to be allowed to release its figures in defense. 

But I don't want to burn cycles on figuring out whether the revenue raised by the tax would be closer to $700m/year or $200m/year. The policy's just dumb. 

It looked like National wanted to get its tax threshold adjustments up before PREFU, which meant hanging them on spending cuts would make them hostage to PREFU. 

So they made it standalone, funded by a bundle of other things that seem like generally bad ideas. 

Messing around with depreciation settings for revenue-raising purposes. What, are we supposed to pretend that commercial buildings don't depreciate whenever there's a revenue need? 

Setting a tax on foreign buyers of more expensive NZ houses (maintaining the ban otherwise) that has no good basis and could cause problems around tax treaties - or at least for perceptions of our adherence to their spirit. 

Trying to make foreign-based casino websites pay company tax in NZ on NZ revenues, on threat that they might set some nationwide internet filter blocking access to IP addresses known to be associated with noncompliant foreign betting sites. ISPs should be pipes, not filters. This is obnoxious and dumb. 

It breaks decent internet policy while also being entirely avoidable by a VPN. And when they find the policy unworkable, what are they going to do? Give NZ banks and credit card companies a list of forbidden transaction counterparties? Make them run some giant new AML compliance regime around whether they process transactions to sites that could be foreign gambling? It's all just bad and dumb. 

And remember how National accidentally banned iPredict? Well, now I watch Betfair's markets on the NZ elections. Are they going to break that too? What are they doing to do, assess GST on the house's rake on winnings where those winnings accrue to NZ-based clients? Would Betfair be arsed to keep track of that, or would they sooner block dealings with clients who are unfortunate enough to be stuck with governments stupid enough to try this kind of thing? 

Anyway. Thomas Coughlan asked me for comment on the foreign buyer thing before the new workings were up from Reddell et al. Here's what I told him (he used some, mainly that I'm punting on putting a number on this stuff). 

“Taxing foreign buyers is better than banning them from purchasing houses. New Zealand has an ‘it’s too hard to build’ problem, not a foreign-buyer problem. 

I’d be nervous about making a hard call on National’s revenue numbers on the foreign buyer tax without having access to the underlying workings. If there are a lot of properties that transact in the $10m+ range, it wouldn’t take many such sales to hit the annual revenue figures National has suggested. 500 $10m properties would do it, or 250 $10m properties and 500 $5m properties per year. A single $30m house would bring in as much tax as fifteen $2m houses. But I haven’t the background figures that would tell me whether those are huge numbers, or small numbers, relative to the number of houses in those price ranges – or relative to the number of wealthy people who’d never become NZ tax resident who might be keen to purchase a second expensive home in NZ. Perhaps the current very low dollar would help. $10m NZD is only $5.9m USD! 

I’m less concerned about National’s foreign buyer tax revenue figures than I am about the revenues from the proposed tax on overseas betting agencies. It seems optimistic to assume that a lot of them would choose to comply with NZ registration requirements rather than remind NZ-based customers about how to use a VPN to get around proposed web filters. And I’d far prefer that National fund inflation-adjustments to the income tax thresholds by getting government expenditures even down to the levels that Ardern had promised, pre-Covid, than with taxes that make little sense even if the numbers on them happened to work out.”

Dan Brunskill asked me for comment after he had a copy of the Reddell et al workings. Here's what I told him (he used some of it, mainly me avoiding weighing in in absence of the other side's workings - but man I do not want to adjudicate between those. The policy is too stupid to be worth the cycles.)

"In the 2019 Budget, Labour projected that 2023 Core Crown spending would be 28.8% of GDP. Instead, it is now 32.5%, and expected to drop to 31.4% of GDP by the end of the forecast window – if Labour sticks to its promised fiscal envelope. 

Paring government spending back to what Labour had promised, pre-Covid, would have given National plenty of room for inflation-adjusting the income tax thresholds. Getting long-term Core Crown expenditure, as a fraction of GDP, back down to what Labour had promised in 2019 would free up over twelve billion dollars, or about seven thousand dollars per household. 

Instead, they're embroiled in disputes about the amount of money that would be raised by a tax that never made much sense in the first place. Foreign buyers were never the problem. Regulatory barriers to building were and still are the problem. There was no good case for either banning, or taxing, foreign buyers. A tax is less restrictive than a ban, but hardly makes us seem friendly to foreign investors. And it seems inconsistent with the spirit of our international tax agreements. 

Without having the Castalia workings to see where the difference in figures comes from, it is hard to adjudicate between the two. There seems to be a case worth answering.

But between this problem, the implausibility of raising much revenue from foreign gambling sites, and the undesirability of plugging revenue holes with adjustments to depreciation, National should have been looking harder at the spending side."

The only real tax cut is a spending cut. Will look forward to what National winds up having to say on the spending side. 

National supporters really ought to be able to hope that National could get Core Crown spend down to levels no higher than Ardern promised (as fraction of GDP) in the first Wellbeing Budget. 

Remember the first Wellbeing Budget, 2019? The one that was meant to solve all the world's problems with sunshine and rainbows and unicorns and lots of government wellbeing spending? 

National complained at the time about wasteful spend - in a budget promising Core Crown spend at 28.8% of GDP by the end of the forecast period. 

Is it crazy to expect a National-led government to not want to outspend Ardern 2019? Lots of room for inflation-adjusting tax thresholds if they can get back even to what Ardern promised in 2019....

Morning roundup

Have to get the browser tabs closed before heading over to PREFU. Will Treasury have come up with an estimate on the tobacco burn in the accounts they'd missed at BEFU? Or will a billion dollars or so just not matter much given the scale of the mess they'll be reporting? We'll find out!

In any case, the closing of the tabs:

• Works in Progress really becoming a must-read. Dattani et al on why we didn't get a malaria vaccine sooner. Incredible history here. Advance market commitments for vaccines treating diseases experienced in poorer countries would be a great part of foreign aid.
• Max Rashbrooke's take from our debate last week. I agree with him on getting more frontline input into fixing public sector messes. 
• Parliamentary Commissioner for the Environment's take on the first Emissions Reduction Plan. To me it's an argument for abolishing all of these things in the covered sector and just legislating the quantum of unbacked NZU that can be issued between now and 2050 - though PCE wouldn't see it that way.
• The Economist on Law & Economics. The revolution has yet to come to NZ alas. 
• So over 40% of Wellington's drinking water is lost due to leaks, and we're looking at heavy water restrictions come summer as consequence. This is what happens when people keep voting for councilors who take money that should be going into maintenance, and flipping it into flashy convention centres, library rebuilds that cost a hundred million dollars more than they should, do-ups of every minor 'heritage' public building. People of Wellington, the enemy is us. Stop voting for councilors and mayors who promise anything other than fixing the pipes. 
• Abandoning consensus on MDRS is the stupidest bit of National's platform. But their promise of a web filter to keep Kiwis from accessing foreign gambling sites is pretty dumb. Not nearly as consequential as housing, but still. More on the filter proposal at BusinessDesk.
• The demesne of the Baron of Miramar. Dileepa Fonseka has more on the Shelly Bay tragedy. 
• My column in Newsroom ($) on RBNZ blackballing experts from the monetary policy committee. Meanwhile, a former RBNZ board member doesn't believe the current line on it.
• Len Cook on no surprises and briefings for incoming ministers. And the fourth piece in the BusinessDesk series on the state of the public sector.
• BusinessDesk deep dive into what a 100% NZ gin would have to look like. Really neat detail here. 
• This is not a serious way of deciding on expensive infrastructure.