Treasury!

Treasury's advice to incoming Ministers, now released, looks rather good. I'll really look forward to whether any of these translate into policy proposals.

In their advice to the incoming Minister for Regulatory Reform they suggest priority be placed on fixing the RMA; labour markets (in particular ACC, minimum wages, and occupational regulation); housing supply; innovation IP and standards; and the Overseas Investment Act. They also want to tighten up requirements on Regulatory Impact Statements (which haven't seemed particularly binding).

The Briefing to the Minister of Finance recommends ... well, this is more easily done as bullets.

• A faster return to budget surplus and debt reduction; 


• Strengthening of the Public Finance Act to "reduce the risks of procyclical fiscal policy during future periods of strong economic growth";
• Hopefully, this could bind a future version of 2005's Michael Cullen from ruining an otherwise decent run. 


• Targeting early childhood education subsidies to lower income households; 
• Makes perfect sense, especially in combination with increased work requirements in welfare reform.


• Have fewer but better teachers teaching larger classes. 
• This is entirely consistent with what I've seen of the educational literature: small class sizes don't do much to help, but good teachers do a lot. 


• Welfare reform: in particular, reduce the age at which work testing applies for sole parents on benefit.
• I like this. Before you note the unfairness of making sole parents work, do consider that we've had both our kids in daycare from the time they were three months old. Suggesting that I pay more in taxes so others can spend more time with their kids makes me angry. But I worry that it might induce some on benefit to have more children so as to remain eligible. Is it impossible to make the sole parent benefit conditional on use of reliable long-term birth control? 


• Reduce taxes by broadening bases. 
• I'd really need to see specifics here as there aren't obvious candidates for base-broadening that would be likely to result in aggregate deadweight loss reductions. They seem to hint differences in effective capital taxation on owner-occupied housing as compared to other investments might be basis for policy changes; they'd then have the somewhat tricky problem of either forcing low income folks out of their homes for inability to pay capital gains on accrual, or forcing kids to sell the family home to pay capital gains on realization, or inducing distortions in duration of home-ownership if you can avoid paying taxes on unrealized capital gains.


• Fix regulatory regimes around RMA, local government, housing supply and the minimum wage.
• Raucous applause. Wild and exuberant cheering. Housing supply constraints, erected by local councils, are killing housing affordability. And for the folks like TV3's Patrick Gower, who wants to paint Treasury as really being in favour of big minimum wage increases on very shoddy evidence, here's Treasury in today's release:

  In addition, it is important that wider labour market settings support welfare reform. For example, large increases in the minimum wage would limit employment opportunities for people transitioning from welfare to the labour market and for youth.



• Shift science and innovation funding to focus on commercialisation
• This isn't crazy; there's a big world on whose contributions to basic science we can free-ride. But it's also debatable whether commercialization and applied work can be done by folks who aren't conversant in the basic science.


• Encouraging use of prices as demand management for Auckland transport; use market structures for encouraging more efficient water use.
• Raucous applause from every economist worthy of the title.


• "Ensure that the longer-term recovery strategy is realistic, maintains confidence in the future of the city, and contributes to the return of normal operation in the insurance, financial, property and labour markets". 
• I'm not sure that $1billion + light rail systems are realistic. Neither am I sure that initial Council plans did much to encourage confidence. 


• Phased increases in the age of eligibility for government superannuation
• Raucous applause.


• Reintroduce interest on student loans
• Raucous applause again

Throughout the document, Treasury's lobbing bricks at the outcomes of Director's Law: that democratic governments wind up using welfare to benefit the middle class rather than the poor. 

For example, government spending on social services (ie, health, education and income support) increased by almost 20 per cent more for households in the top half of the income distribution than for households in the bottom half of the income distribution between 1997/98 and 2009/10 (figure 18). The spending increases for higher-income households have been primarily driven by higher education, health and NZS expenditure. Better targeting of these social service expenditures could both improve overall social outcomes and reduce fiscal costs.

I hope they're able to get half of what they're aiming for.