Monday 18 August 2014

The Greens' tax and child poverty policy

I spoke briefly on Morning Report this morning on the topic of the Green's proposed policy to increase the income-tax rate to 40% for incomes over $140,000 and use the revenue raised to fight child poverty. Our brief pre-recorded interview covered a number of different aspects of the policy, of which they used my comment on the income-tax hike. The main points I made were as follows:

  • On the expenditure side, it is a laudable goal to seek to reduce child policy, but I have a couple of concerns with the proposed mechanisms for achieving this:
    • I would like to see more details on how replacing the In-Work Tax Credit with a general tax credit that doesn't require 20+ hours worked each week would affect the incentives to work. I take Susan St John's point (from the same Morning Report piece linked to above) that it is unfair to separate children in poor families into the deserving and undeserving poor based on the employment status of their parents, but the potential unintended consequences of creating new poverty traps needs to be acknowledged. 
    • I wonder about the evidence base to backup the suggestion that problems with child poverty eliminated by providing parents with more income support. More income may well be a necessary condition, but I am mindful that we live in a country with a shockingly low immunisation rate for children from impoverished backgrounds even though immunisation is free. 
    • To be fair, there are other aspects to the proposed policy than increased benefits (or reduced taxes) to poor families with children, and these may well be worthwhile, and I am not sure that the proposed income supplements wouldn't be effective; I just feel that this is a hugely difficult area that is not well understood. I would feel a lot more confident in these proposals if the proposal were to experiment with a few different things and to collect good data on effectiveness before committing a massive expenditure that will be hard to reverse if the policies turn out to be ineffective or counter-productive. 
  • It is on the revenue side that I can't take the policy seriously at all:
    • By all means seek to raise revenue by cracking down on tax avoidance, but this is a bit like trying to save money by eliminating inefficiency in the public service. In reality the revenue gains are probably small; realistic budgeting should assume gains of zero until the revenue actually materialises. After all, one of the reasons that it is possible for people to structure their affairs to avoid paying tax is that the tax system has complexities that have been put in place to achieve specific objectives; removing the complexities also implies abandoning those objectives. 
    • But this is just a detail. The kicker for me is the proposal to increase the tax rate to 40%, only for incomes above $140,000. This smacks heavily of offering the other kid's bat--that is, asking people to feel good about alleviating child poverty without asking them to make any sacrifice themselves. Seriously, there is very little income earned above $140,000. Why not start the income threshold for the top rate at a much lower income level. That way, you would raise more revenue from the very rich (they pay tax on their first $140,000 of income, not just the incomes above that level), and you would be asking the comfortable middle class to contribute to the laudable goal of reducing child poverty as well. A politics that boasts that only 3% of tax payers will see their tax bill rise is a politics that assumes the average New Zealander doesn't care at all (other than rhetorically) about child poverty. Greens' co-leader, Metiria Turei was asked about this in a different segment of Morning Report this morning, but she evaded the question. 
Note: Matt at TVHE has posted on this policy as well and makes many of the same points and some others. In particular, his final bullet is spot on. 


  1. This is a very odd decision. Gluten can make coealiacs very ill. Some of them, like my wife, enjoy a beer when they can find a gluten free one. There are several niche brewers actively supplying this market.

    Now according to MPI she cannot find gluten free beer and manufacturers
    cannot target these customers. There are very specific processes
    required to deglutenate the barley mash so not being able to advertise
    their product will kill this market.

    Note that coeliacs prevalence has been estimated around 1% in North America, although it's difficult to assess accurately as diagnosis is difficult and often it isn't spotted. There is lots of controversy over levels of sensitivity and levels of diagnosis however this is a big enough market to target.

    Gluten-free shouldn't be seen as a "this product is healthy" message but as advice that "this product won't make you ill".

    I for one am very grateful for gluten free beer brewers and think this is a real shame.

    This is especially strange in that foodstuff manufacturers have to list everything in their products; but alcoholic beverage purveyors don't have to list anything. There would be carnage in the wine and beer industries if they had to adhere to the same level of labelling as food.

  2. I kind of get the idea that you might want to prevent alcohol marketers from presenting alcoholic products as health food but this is one of those decisions where you wonder why they bother with any form of regulation at all.

    As a food manufacturer I have to comply with a food labeling scheme that runs to about 30 pages (and that's just the flow chart to show me what has to go on any specific label). And yes it is quite clear that you must indicate the presence of common allergens in a food product. So if, as a regulator, you were serious about ensuring consumers got good information about the content of what they ingest you would require brewers to label beer as containing gluten. But they obviously don't.

    It reminds me of the general requirement that workers handling food need to remove all jewelry while they work with food - a very sensible requirement. Except that women have always been exempt from removing a wedding ring. It's baffling why anyone would impose a regulation then grant a massive exemption.

    Regulators not only have an obligation to be consistent in applying regulation but also to be comprehensive. After all one of the side effects of regulations governing things like food labeling is that the regulators have trained consumers that they can rely on food labeling. Consumers come to know that they do not have to do anything themselves to assure themselves of the safety of food, it's all taken care of by regulation.

  3. I think the default setting for beer is that it has gluten in it. It would be like buying a bag of peanuts and being shocked to find it has peanuts in it. It then makes sense for the rare beers that are gluten-free to advertise as much. I expect that mandating that everything with gluten in it have a gluten warning would be pretty costly for the food industry as a whole; having the "gluten-free" opt-out instead seems more efficient.

    Agree on the moral hazard problem with regulation.

  4. The prevalence of gluten-free options at cafes suggests that more than one percent of the population wishes to have gluten-free stuff; it's consequently, and likely erroneously, viewed as a health claim by that cohort. And so MPI may have been stuck; I don't know.

  5. You would think so. However.....

    Just checked some packaging for bags of peanuts, just peanuts. And here's what the labels say just under the NIP (Nutrition Information Panel):

    Major name brand :"Contains peanuts"
    Major house brand: "Contains peanuts"
    Cheap bulk pack brand: "Processed in factory that also processes peanuts...."

    (BTW the word "Contains" is pretty much the industry standard way of introducing the allergens)

    I think you could expect most people to work out that a bag of peanuts has peanuts in it just as I think most people know that bread has "gluten" in it. But how many people do you think know that beer is made from barley let alone that barley contains glutenin, a precursor to gluten and also the real allergen? If you were going to put a warning anywhere beer would be right up there.

    I think my point is that, given that regulations always have a cost, you would think the regulator would want to get the best return for the costs imposed. Yet they keep creating these weird exemptions that undermine the credibility of the original regulation.

  6. Peanut warnings on bags of peanuts. We're doomed as a species, aren't we?