Friday, 12 September 2014

Strategic voting on the right

So the latest chatter on the NZ right is that strategic voting for the Conservatives is a great idea. I'm going to disagree.

Under New Zealand's MMP system, a party enters Parliament on earning one electorate seat, or 5% of the Party Vote. In the former case, the MP enters Parliament with however many additional MPs the Party would be entitled to if there were no threshold in the Party vote: 2% of the vote gets 2% of the seats, if you have an electorate. If you don't have an electorate seat, and you get 4% of the vote, those votes are wasted: the composition of Parliament is determined by the Party Votes of those voters supporting parties that enter Parliament.

And so what do you do if you're on the right, if you want a National-led government, and if you're worried that National will lose if the 4% (or thereabouts) gained by the Conservatives is wasted? You could be tempted to vote Conservative to help push them over the line so they go into coalition with National. National then isn't forced to look to Winston Peters and New Zealand First for support.

I think this reflects short-term thinking. Winston Peters is near retirement. After he has retired, it seems pretty unlikely that New Zealand First will continue. The Peters personality cult will end. And, for a single retirement term, Peters' price may more likely be in approbation than in real policy.

If the Conservatives enter Parliament this term on a strategic vote, we might expect them to be around for a couple decades. They're socially conservative and, thus far, fiscally incoherent. Maybe they'll increase alcohol excise four times over, maybe they won't. They propose tax cuts but no spending cuts; Christine Rankin said they'd square the circle by turning a billion in alcohol excise revenue into four billion.

I wonder whether alcohol taxes could really go up by enough to make that happen: we start getting into tax territory where I'd be real nervous about applying current point estimates of the price elasticity of alcohol demand. The usual point estimate is -0.44: a 100% increase in the price of alcohol would result in a 44% decrease in consumption. A 133% increase in excise means about a 40% increase in the cost of low-priced beer and a 103% increase in the price of low-cost spirits in New Zealand. A 133% excise hike reduces consumption of low-priced beer by about 17%, so you get a 110% increase in revenue for the 133% increase in tax on beer, assuming no substitution over to home brewing and distillation. I'd expect things get more price elastic as you keep hiking things further (the income effect has to start biting sometime). I doubt you're into backward-bending territory with a 400% revenue increase, but taxes are going to do far more than quadruple to get quadruple the revenue. I really don't like where that's heading.

It's that kind of populist socially-conservative nanny-state knee-jerk economic incoherence that I expect a lot more of if the Conservatives get embedded into the system. Hey, let's propose a fiscally incoherent platform and then wave a referendum wand to find out how to plug the hole!

Is getting a third National term without NZ First really worth getting the Conservatives into Parliament? I suppose it depends on your discount rate. I don't like the long game on this one. I'm sure National could work with the Conservatives and make something decent out of it, but it doesn't seem a particularly good strategic vote for social moderates or liberals on the economic right who care about policy rather than just about keeping John Key in office.

Maybe Paris is worth a mass, but is Key really worth a Craig? I'd really really really prefer that National go into coalition with either NZ First or the Greens, or even a grand coalition with Labour.

Conflicts disclosure: I'm modestly short on the Conservatives' crossing the 5% threshold at iPredict, but long on National winning.

Update: Conservative leader Colin Craig has clarified the party's position: they want to hike alcohol taxes, but not to $4 billion. He also notes that our excise system "is nowhere near consistent with Australia's." He should note that the Australian system is nuts. The anti-alcohol campaigners rightly point out that the WET is distortionary and messes up relative alcohol prices. He also notes that alcohol is cheaper than water. When the kitchen faucet at my house starts supplying Emerson's at no charge, we can have a talk about that.