RNZ remains on-form

There are a few basic bits of reality that I'd hope we could agree on.

Minister Costello has set a lower excise rate for heated tobacco products as a bit of a trial to see whether it proves successful in encouraging remaining smokers to flip to something less harmful.

Even without any change in tobacco excise, a smoker shifting to an HTP will result in a drop in tobacco excise. Or at least I'm pretty sure. I'm pretty sure that a heated tobacco stick contains less tobacco than a cigarette does. And I'm pretty sure that heated tobacco draws the lower excise rate that applies to cigarillos and the like. The combination of the two means less excise in a heated tobacco stick than in a cigarette.

If the trial proves successful and a lot of smokers shift from cigarettes to heated tobacco, tobacco excise revenue will drop. The more successful the trial is in encouraging shifts from smoked tobacco to heated tobacco, the bigger the drop in excise revenue. If a lot of current vapers or non-smokers take up heated tobacco, excise revenue will increase on that margin.

While Philip Morris is a dominant supplier of heated tobacco products, heated tobacco competes with smoked tobacco and with vaping. So PMI does not face a vertical demand curve for its product. And even if you model them as a monopolist in the market for heated tobacco, a monopolist will pass through at least some of an excise reduction. 

This is basic Econ 1 stuff. The monopolist sets marginal revenue equal to marginal cost looking across the quantity axis, then traces up to the demand curve to find price. That's the price that maximizes profit. If costs drop, the profit-maximizing price drops too. It's just math. 

I hope that all of this is completely uncontroversial. 

Some mornings I am more annoyed than usual about being forced to pay for Radio New Zealand. This morning was one of those mornings.

Guyon Espiner had his latest update on Minister Costello's reduction in heated tobacco excise.

Let's have a look here.

Govt set aside $216m to pay for heated tobacco product tax cuts

Ok, so RNZ's main focus is going to be on the potential excise losses. 

Now we know, from basic facts of the world, that there can only be substantial reductions in tobacco excise if the policy is incredibly successful in reducing smoking rates.

Let's continue.

The government has agreed to set aside $216 million it may need to pay for tax cuts for heated tobacco products (HTPs).

RNZ reported earlier this month that Associate Health Minister Casey Costello - who is also Customs Minister - had implemented a 50 percent cut to the excise tax on HTPs, where the tobacco is heated to a vapour rather than burned.

Costello's office had not publicly disclosed how much that would cost the government but a Cabinet paper, released without fanfare on the Health Ministry's website, shows Cabinet agreed in May to set aside $216 million as a contingency fund to cover the estimated lost revenue.

The excise tax cut is something tobacco giant Philip Morris has lobbied for in the past. Its IQOS product is a dominant player in the New Zealand HTP market.

The Cabinet paper, signed off by New Zealand First MP Costello, showed it was not even clear whether the tax break would be passed on to consumers.

"Because this product currently has a monopoly market in New Zealand, the extent to which a reduction in excise duty on HTPs would be passed on to consumers via lower retail prices is unclear," the paper noted.

I've highlighted a relevant bit here. Let's look at this section of the Cabinet Paper.

The Cabinet Paper isn't saying that there might be no pass-through. It's saying that they don't know whether there will be one-third pass-through or 100% pass-through. 

Officials could perhaps have been clearer that even a complete monopolist facing a downward-sloping demand curve is going to pass through at least some of a tax reduction, but they could be forgiven for thinking that it was awfully clear in context. They note one study finding a 31% pass-through rate, and that officials have advised to assume 100% pass-through. So the extent of pass-through is likely going to be somewhere between those. 

But RNZ put this as a question of whether there would be pass-through. Not the extent of it. 

If there is zero pass-through, and again this is just math, and it won't happen because even a monopolist will respond to a cost decrease by reducing price, there cannot be more than negligible effect on excise revenue. Why? The price of heated tobacco will not have dropped relative to smoked tobacco. It will not have driven any flipping from smoked tobacco to heated tobacco. Philip Morris would get a transfer equivalent to half of what they currently pay in excise. Excise from heated tobacco was just under $6 million in 2023, so the policy would transfer $3m to Philip Morris. $216 million is right out. 

But RNZ sets the framing to have people expect a $216 million tax cut benefitting PMI that might have no pass-through to consumers. 

Let's continue, again.

Costello declined an interview with RNZ and her office did not address questions about whether that monopoly position referred to Philip Morris.

In a statement the minister did say that she expected the industry to reduce the cost of its products.

"That means I'm expecting the excise reduction to pass to consumers, this is what we were advised would happen by officials and it is something we will also be monitoring," she said.

She also said she did not expect the cost to the government to be "anywhere close to what was modelled", as the tax collected on HTPs was only $3.62 million in 2022 and $5.97 million in 2023.

"Officials noted there is a lot of uncertainty around the modelling and fiscal impact because it was based on the very rapid increase in HTP use that happened in Japan, where vapes were unavailable."

Philip Morris did not respond to RNZ's questions.

Good context from the Minister here, and good that RNZ reported it. 

Unfortunate that they didn't think through what those numbers mean. If current excise from heated tobacco is only on the order of $6m, what would have to happen in the real world for a drop in excise on heated tobacco to result in a $216m excise loss? It would have to mean that there was substantial pass-through of the excise reduction and consequently substantial switching to heated tobacco, which means substantial reductions in exposure to the bad things that come out of combusted cigarettes. 

Another fun bit from the Cabinet paper. Guess which line of this paragraph RNZ chooses to emphasize? Hint: it's not the one saying that even the FDA recognizes that heated tobacco means less exposure to harmful chemicals. 

As always, RNZ's reporting on tobacco needs health warnings. 

Yes, it would have been tobacco prohibition

A living-wage campaigner didn't like my column on tobacco prohibition and complained to the Media Council. 

The Council didn't uphold his complaint on substance but did want the Post to have a disclaimer on our columns about the Initiative's membership base.

The Council's ruling is here. 

Here's what I'd told the Post, and the Council, in response to the complaint:

Please feel free to share this both with the media council and with Mr Herz-Edinger.

I viewed and continue to view the VLNC rules as prohibition on smoked tobacco.

In the same way that near-beers with less than 0.5% alcohol were allowed under American alcohol prohibition, near-cigarettes with less than a tiny amount of nicotine would be allowed under the VLNC rules. It is not prohibition of nicotine, which would continue to be available in vape form. But it would have been prohibition of smoked tobacco.

If we compare 0.5% alcohol beer to the average strength of beer, and the VLNC-allowed levels of nicotine in cigarettes to the average strength of a cigarette, it is roughly equivalent to a 0.2% alcohol rule for beer. So I do not think I am exaggerating here. I went through that calculus here:

“The legislation sets limits on nicotine allowed in cigarettes. The US Centres for Disease Control estimates that the average cigarette has just over 19mg of nicotine per gram of tobacco. From April 1, 2025, Very Low Nicotine Content rules will apply. Under those rules, no tobacco product can have more than 0.8 mg of nicotine per gram.

If a standard beer is 5% alcohol, the VLNC rules are roughly equivalent to banning the sale of beer with more than 0.2% alcohol.”

Those wishing to do so can check the math with a calculator. It isn’t complicated. The VLNC rules set a tighter standard for nicotine allowed in cigarettes than American alcohol prohibition set for alcohol allowed in near-beers.

Had American prohibition included a ban on the sale of near-beers to those born prior to 1900, the creeping increase in the proportion of population forbidden against buying near-beers would have been the minor point

I very much hold that prohibition on cigars, pipe tobacco and cigarettes would have begun the instant that the VLNC rules took effect: 1 April 2025. If that is incorrect, then America never had alcohol prohibition. And my article, here disputed, very clearly set out that I referred to prohibition of tobacco, not prohibition of nicotine. Nicotine would not have been prohibited. I was not taking license or exaggerating for effect or generalising. Smoked tobacco would have been under a prohibitionist regime from 1 April 2025 if the rules maintained a 0.8mg/g threshold. The effects would have been different from American alcohol prohibition, because nicotine would still be available in vape from. But it would nevertheless be prohibition of smoked tobacco.

I had thought that I had made this very clear in the disputed column. I wrote,

“Under prohibition, the illicit market would not just be a way of avoiding excise. It would be the only way of getting a real cigarette. It would be remarkable if Australian crime syndicates, or others, did not plan on supplying the New Zealand market from 2025 – had we gone ahead with prohibition

Tobacco prohibition would not have prohibited nicotine – vaping would remain legal. But illicit tobacco does not carry excise. Shifts to the illicit market provide no health benefits while reducing excise revenue. And because illicit tobacco is cheaper than taxed tobacco, smokers who shift to the illicit market would have one fewer reason to flip to vaping.”

I would have written exactly the same thing regardless of who our members are, because I believe it to be true.

It's a bit funny where total membership subscription fees from our two tobacco company members, over the entire lifespan of the organisation, are a tiny fraction of the amount that the Health Research Council gave to Janet Hoek in a single grant for anti-tobacco work and nobody ever seems to consider that a conflict. One-sided skepticism reigns.  

Afternoon roundup

The afternoon's worthies:

• Immigration restrictions on spousal work rights are dangerous.
• 28 months jail for tobacco smuggling
• Pseudoephedrine is legal. Now we just have to wait for pharmacies to stock it.
• Really neat stuff on NZ board directors. 
• When Wisconsin school districts got to decide how to pay their teachers, shifting to flexible pay "raised salaries of high-quality teachers, increased teacher quality (due to the arrival of high-quality teachers from other districts and increased effort), and improved student achievement." HT: John Dickson.
• RBNZ's estimates of the neutral interest rate
• Rocket Lab's increasing success in landing US DoD contracts. 
• Ikea is spending just over $400 million to open its NZ shop.

More black market scaremongering

None of this can really be happening. It has to be fake news. Or somehow generated by the tobacco industry. Remember? Janet Hoek told us. Black markets are just tobacco-funded scaremongering. 

So there's nothing to see here.

A dramatic influx of illegal vapes into Australia is distracting border force officials from stopping guns and illicit drugs from entering the country.

And the inundation of vapes has led the Australian Border Force to call out for more workers to fulfil the Federal Government’s demands of detecting, storing and disposing of every illegal e-cigarette.

The West Australian understands the high volume of vapes being imported has taken up border force staff’s time because they are required to refer e-cigarettes without a prescription to the Therapeutic Goods Administration.

Sources aware of the process say it is time-consuming and is diverting workers away from other priorities such as seizing smuggled weapons and drugs.

Limited and costly transport and storage capacity has created further issues as the agency is required to hold the products while a decision is being made by the TGA. The products are either then destroyed or released to the owner after samples are tested.

Ok. Maybe it's happening. But there's no way that tobacco and nicotine prohibitionists are to blame. That's just tobacco industry scaremongering.  

New regulations came into place under the Morrison Government in 2021 where any nicotine product hitting Australian shores without a prescription from a local doctor is seized and referred to the TGA for laboratory analysis to see if it contains nicotine.

The Albanese Government has gone a step further — last month announcing a plan to ban imports of recreational vapes at the border, which means those that do not contain nicotine, in the hope it will stamp out the black market.

A Border Force spokesman told The West the organisation required more staff with the calls coming before the new reforms have been implemented.

“As with any legislative change, an alteration to border controls will have a significant impact to ABF frontline resources and will require an uplift in our capability and capacity to detect, store and dispose of products containing nicotine safely,” the spokesman said.

The only possible conclusion is that Australian border officials are beholden to Big Tobacco. I can't wait for the expose on it from Hoek. I'm sure The Conversation will publish it for her.  

A cigarette burn in the Crown Accounts

Late last year, the government passed legislation intended to sharply reduce the sale and consumption of legal tobacco. 

It is also intended to reduce smoking rates; how good a job it will do with that will depend on how efficient the smugglers get. But it will definitely reduce the sale of legal tobacco that draws excise. 

From 1 April 2025, Very Low Nicotine Concentration rules will be in force. Only authorised tobacco products will be allowed to be sold, and only tobacco products with less than 0.8 mg/g nicotine content will be allowed. That's section 57I of the revised Smokefree Environments and Regulated Products Act.

How much is 0.8 mg/g? 

Sources vary a bit. But this CDC study had mean nicotine concentrations in cigarettes of 19.2 mg/g. 

So the rules reduce nicotine concentration by over 95%. 

Or to put it a different way, if a normal beer has 5% alcohol, this is like reducing the maximum alcohol content to 0.21%.

The level is low enough that it simply isn't plausible that people would start smoking a lot more, or smoking more heavily, to try to get those last bits of nicotine. It would be like trying to get drunk on 0.21% beer. It just isn't going to happen. As my most favourite footnote in a tax review put it, you'd die of water poisoning well before you ever hit alcohol poisoning at those kinds of concentrations. [I've snipped the bit from the Henry Review as footnote because it's just so good.]

Ok. So we're all on the same page here right? The intended and near-certain effect of the legislation is to cause a very sharp reduction in the number of legally purchased cigarettes that draw excise.

How big will be the effect? Your thumb-suck is as good as mine, and better than mine if you're a smoker. 

But let's think it through.

In the month or two before the new rule comes in, I expect massive stockpiling of real cigarettes. It will give a surge in excise returns for FY 2024/5. Smokers who can afford to will buy however months' supply is plausible to store. An unopened pack probably stays fresh for at least a year, maybe two? 

I do not think it crazy to expect this. Remember that, when government used to do big increases in excise, it would do them on very short notice specifically with intention of avoiding stockpiling of cheap pre-hike cigs. We have two years to prepare for this one. I expect everyone will be fully responding to incentives: there will be ample supply to meet stockpiling needs ahead of the rule change. 

Households will stockpile their own cigs. Many households that smoke will be unable to afford to do so. Others will stockpile real cigarettes on their behalf, and sell them illicitly afterwards - a greyish market competition to the black market that will be out there. 

So FY 2024 will see a surge in tobacco excise returns, much of which will be a bringing forward of excise returns that would have obtained in FY 2025. 

Cigarette sales will plummet in April 2025. 

Some who'd been completely unaware that the change was coming will buy the new cigarettes and learn whether they want to keep buying them. 

As others work through their stockpiles, they'll do the same thing: buy a pack of the new cigarettes, then decide whether to flip to something else or try another pack; try that next pack, decide whether to stick with them or flip to something else. And so on. There'll be incoming new-tryers and a decay function. 

Say that stockpiles are largely run-down by October 2025. We're likely to be at steady state or close to it by April 2026. Some proportion of current smokers will have quit; some will have shifted to vapes; some will have shifted to the black market; and, some will continue to smoke VLNC cigarettes. 

A VLNC cigarette is like a 0.2% beer. What do you think steady state looks like?

Well, MoH gave what it thought the answer was. It's in the 2021 RIS. They expect that it would take two years for smoking rates to drop by 73%. 

If half of that drop is in the first year, then they're expecting the sale of excised cigarettes to drop by about 36% in the first year.

So the Ministry of Health's Regulatory Impact Statement on its SmokeFree intentions had VLNC rules reducing smoking rates by about that amount. We can safely leave aside arguments about black market or whatever else. This is just the Ministry's projections assuming no shifts to the black market, which doesn't pay excise anyway so doesn't matter.

What do you think happens to collected tobacco excise if the legislation works in the way that the Ministry of Health intended and projected?

I think it's safest to assume that tobacco excise revenues, in 2026, after we've gotten through whatever surge and trough was due to stockpiling, are going to be a lot lower. 1 April 2026 is one year after the law comes in. Sales of excised tobacco should be 36% lower at the start of the year and decline by another 36% over the course of the year. 

That means excise will be about half of what it otherwise would have been, for 2026, and much lower after that. 

Recall that Minister Robertson promises a return to fiscal surplus in 2026. OBEGAL of $600 million. 

But let's have a look over in the notes. It's always good to look in the notes. And there we see Treasury figuring that the government will collect $1.710 billion in tobacco excise. They've projected a slow and steady decline in tobacco excise revenues, in line with overall declines in smoking rates. They've obviously not factored the VLNC rules into their workings yet. 

And fair enough. It can take a while to run the figures. This has taken me about 20 minutes, but it's very thumb-suck. 

As a rough cut, I expect tobacco excise in 2026 to be about half of what it otherwise would have been. So a drop in revenue of $855 million as compared to forecast. 

So a $600 million 2026 surplus becomes a $255 million deficit. 

This isn't a criticism of the SmokeFree policy. It's the just working through the implications of the policy as promised.

The government is trying to have it both ways here. It wants the reductions in smoking, but wants to pretend there won't be any effects on revenues. It cannot have both. It's one or the other. 

I've called it the cigarette burn in the Crown Accounts.

What really really does puzzle me is why Treasury didn't bother including it as a substantial fiscal risk in BEFU. It's a lot more than the $100 million threshold for inclusion. 

Had a short column over in The Dom on it. 

Update: ASH had had serious critique of the modelling work on the reductions in smoking with VLNC. The critique makes sense. But then you'd have wanted both the smaller numbers on expected tobacco decline, and commensurate figures on excise, in support of the legislation. Can't pass the legislation claiming massive effects on smoking, then backtrack when running the excise implications, right?

FOOTNOTE

Finally, the bit from the Henry Review. So fun. 

Evening roundup

The accumulated worthies:

• Dave Heatley on the publicly-provided goods that should, and should not, draw user charges - and how to tell the difference. Public transport should be charged. I'd add that, when congestion charging is finally in place, the case for subsidising public transit really goes away. Or at least the economic case for it. 
• If you think that NZ hosting FIFA matches is worth at least $11 per capita in fun and festivities, then that's fine. But there might be better uses of the money. And if you think the spending buys us anything other than a festival, you're deluding yourself. A few bits from me in this piece. 
• New Zealand's holiday pay rules are so complicated that the Ministry of Health has spent $50 million on consultants trying to deal with it. They now estimate that they owe backpay of $1.8 billion due to incorrect holiday pay calculations. 
• Otago's public health people prefer prohibitionist approaches to vaping, with restrictions ramping up as smoking rates decline. 
• Westpac argues for vertical separation of the supermarkets to encourage competition. Their report ignores regulatory restrictions against new large-scale entry, other than nodding at removal of covenants. Bizarre from a sector that's likely to be hitting its own market study soon, and ought to prefer that interventions have sound logic. 
• New Zealand has a new policy in the event that boatloads of refugees arrive: detention. UNHCR has some reasonable concerns. 
• Concentration in graduate economics education.
• Scott Sumner on Noah Smith's pessimistic vision.
• Water flows downhill and restrictions on housing supply drive housing price growth. Nathaniel Baum-Snow in the Journal of Economic Perspectives. 
• Want affordable housing? Make sure there's ample excess zoned capacity. 
• Council-owned wastewater treatment plans are often a mess. Regional councils seem to feel constrained against properly enforcing their regulatory duties. 
• An oldie but a goodie: Alex Tabarrok on The Happy Meal Fallacy
• Some cautions about the "Gas stoves cause asthma" hypothesis. A lot of the underlying research isn't that sound. 
• Remember how SCTV came up with Bob & Doug McKenzie in response to a demand for 2 minutes more Canadian-content per episode? Think about that when considering CanCon rules for pornography in Canada....
• The Spinoff has a pre-budget roundup. Six months ago I'd have put very high odds on some form of a carbon dividend showing up. Now, with some problems in the last auction, it's harder to say. Still some odds of it though. A few bits from me in this piece. 
• Peter Griffin on Rocket Lab's successes. This really was one where NZ's regulators stepped up to quickly set an enabling regulatory framework. 

Youth vaping rules

If youths are vaping, it's not for want of rules prohibiting supplying youths with vape.

The rules are broadly modelled on the rules around supplying minors with alcohol.

The Sale and Supply of Alcohol Act has a fine of up to $10k on licensees selling alcohol to minors and up to $2k for others.

The SmokeFree Environments and Regulated Products Act [I'll still call this SFEA out of habit, not SFERPA] has a fine of up to $10k for a business selling vape to minors and of up to $5k for others.

For alcohol, it's a defence to have believed on reasonable grounds that the customer was not under the purchase age - like if they provided a very credible fake ID. See 239(6).

Same deal for vape (and cigarettes, and other regulated product) at 40(4) of SFEA.

For alcohol, there's exemption in licensed premises if the minor is accompanied by parent or guardian and is supplied by the parent or guardian (240). No such exemption for vape as there aren't licensed premises.

Section 241 of SSAA prohibits alcohol supply to minors anywhere, on pain of a fine of no more than $2k, unless supply is by a parent, with consent of a parent, or if there were reasonable grounds for not believing the minor to be a minor. 

Section 41 of SFEA prohibits vape supply to minors in public places on pain of a fine of no more than $2k. There's a defence if the minor supplied a credible fake ID (4), or if the kid just took your stuff without your knowledge and where you took reasonable precaution to avoid it. 

So a parent at a restaurant can order a beer for their 17 year old, and can give permission for their kid to be supplied with one in a public place or a private place. A parent cannot give permission for their child to be supplied with a vape in a public place. 

But, there are no restrictions on providing a vape to a minor in a private place like a living room.

I don't know that there's a good case for tightened restrictions on access by minors. I also wouldn't support restrictions on kids getting a frappucino. Nicotine without combustion isn't that different from caffeine.

But if the government or an incoming government really wanted to do that, it could have parts of the vape rules more closely mirror the alcohol rules in prohibiting supply to minors regardless of whether it's a public or private place. If it did so, it really ought to also copy over the exemptions for supply by parents or guardians. 

Section 343 of SSAA makes it an offence for a minor to purchase alcohol from a licensed premise, subject to a fine of not more than $2k. Presumably this gets invoked if someone did use a fake ID and put the shop at risk. This bit could also be ported over, if you think that fining kids for trying to buy a vape with a fake ID is a good idea. Don't think it causes much harm, as compared to fining kids for possession. 

But worst of all would be if National, spurred on by Mike Hosking's crusade against vaping on Newstalk ZB, put in Australian-style restrictions. We'd wind up with a giant black market in vapes, and more harms because of it. The current regime has product notification rules that ensure that ingredients are notified, and if something's found to be a problem, they'll know what products carry it. Black market vapes aren't in that regime.

Tobacco prohibition

Last year, Guy Bentley and I put together a joint submission on New Zealand's proposed very low nicotine content rules. 

We noted an interesting parallel to alcohol prohibition. During US alcohol prohibition, near-beers of very low alcohol content remained legal. But they didn't prove very popular. Of course, the VLNC rules would amount to prohibition of smoked tobacco. They wouldn't amount to prohibition of nicotine, because vaping would remain legal. So overall effects would be harder to peg.

It's Section 2 of our submission. The section's far more extensive, but the most relevant bit is right up front, in 2.2 through 2.4:

2.2 VLNC rules, if sufficiently binding to make smoking unpalatable, amount to tobacco prohibition. Alcohol prohibition in America allowed the sale of ‘near-beers’ of less than 0.5% alcohol. Despite beer-like liquids being legal, illicit trade in alcohol flourished. We will here refer to VLNC rules sufficiently stringent as to make cigarettes unpalatable to current smokers as constituting tobacco prohibition. 

2.3 However, alcohol prohibition was fundamentally different from the proposed tobacco prohibition. Alcohol itself was prohibited except as prescribed medicinally, or as used in religious sacraments. Under stringent VLNC rules, cigarettes would be de facto prohibited, while nicotine would remain legal if delivered through vaping. 

2.4 How tobacco prohibition will play out in New Zealand, where the illicit tobacco trade is growing but where many legal and safer forms of nicotine are available, is impossible to predict accurately. 

Pretty clear, right? The section, as a whole, goes through the reasons that it's hard to peg what proportion of current smokers flip to reduced-harm alternatives, and how the VLNC rules would affect how we think about other bits of the legislation like retail tobacco outlet licensing. 

Here's how Otago University Public Health's Janet Hoek characterises things in a piece at The Conversation. She doesn't name us; we're too Voldemort for that. But she does link our submission.

Who gains from black market scaremongering?

There are obvious risks to relying on industry evidence. In 2006, a US court found international tobacco companies acted with “intent to defraud or deceive” the public about the harms from smoking for decades.

A New Zealand lobby group supported by tobacco companies appears not to have critically reviewed industry evidence but instead amplified the claims. Its submission during the consultation process for New Zealand’s smokefree legislation erroneously argued the measures would amount to prohibition. It drew incorrect parallels with alcohol prohibition in the US.

Nicotine products will in fact remain available, either as approved treatments (such as nicotine replacement therapies) or through vaping products. Prohibition arguments are as baseless as they are misleading.

I'm glad she included the link at least. 

The natural reading of her piece at The Conversation is that our submission ignored that nicotine products will remain available, and that our submission intended to mislead people because we have tobacco company members (among 70 or so members). 

Please read our whole submission, and Hoek's full column, and judge for yourselves which of us had intent to defraud or deceive. And draw your own conclusions about academic standards at my shop, compared to Otago University. 

I've sent a note to The Conversation asking whether this meets their editorial standards.

Morning roundup

We have too many tabs open here at the Crampton Discount Browser Tab Warehouse, and we have to liquidate stock immediately. All the links you can handle at rock-bottom prices.

• Turns out that, entirely predicably, subsidising electric cars gives a pile of money to rich households while doing bugger all to reduce emissions. Just as we told them two years ago. Stupid. 


• I'm not a Ben Sheeran fan, but I'm cheering for him in this lawsuit. Another stupidity long foretold. If you haven't read Spider Robinson on Melancholy Elephants and Infinite Copyright, do attend to that. That's the stakes on the Sheeran lawsuit. 


• Meanwhile, Chris Luxon wants to follow Australia in banning vaping, if National should form government. I'm cheering for the smugglers in this one. I don't know why Luxon's pro-smuggling. On the plus side, I love having something I can cheer about no matter who wins the election!


• The government says it wants a no-frills budget. NZ's videogame sector's pretty convinced that subsidies to the videogame sector aren't a frill. I think NZ should go further than simply not playing the subsidy game. Instead, NZ should seek the equivalent of international arms control agreements banning film and videogame subsidies. The dangerous nature of these subsidies is obvious if we're even talking about having them in a year that's going to require a lot of budget restraint. 


• Looks like there's a treatment option for lakes with too much phosphorus. Of course, New Zealand doesn't seem interested. Presumably it isn't sufficiently circular. Too much like waste-to-energy plants that solve the obvious problem, but that don't solve the underlying problem of regulators wanting to tell people what to do. If the thing works, farmers ought to be able to fund remediation if that's more cost-effective than other options. 

Afternoon roundup

A long-delayed closing of the browser tabs:

• A compilation of the Official Information Act requests that Health New Zealand ignored or delayed. I doubt anything gets fixed without penalties for OIA non-compliance.


• CarbonNews ($) reports more investments into Ruminant BioTech, which has a slow-release bolus that massively reduces cattle methane production. 70%. If this thing winds up being able to be delivered at a reasonable price-point, that's agricultural methane emissions solved. Nitrates will still be a problem. But 70% reduction is well beyond any of the targets for long-lived gas reduction. 


• Who is Dril?


• Learning from Houston's townhouse reforms.


• If you take away combustion's harms, there's no particularly good reason to worry about people enjoying nicotine. Do you complain about their caffeine? The excellent Clive Bates. 


• And on the same topic, note too the speech by UK Minister Neil O'Brien on avoiding NZ-style prohibitionist approaches.

  Now of course some would go further - to stop people to start smoking in the first place. The Khan Review last year advocated the New Zealand approach - a full phase out of smoking, with the age of sale increasing over time to cover all adults.
  This would be a major departure from the policy pursued over recent decades which has emphasised personal responsibility and help for people to quit. And it is the help for current smokers to quit that we want to focus on. 

• An older piece by Pete Boettke that I'd missed on the genius of Armen Alchian. Certainly one of the Pantheon of the Econ Gods. Really important points on markets as a filtering tech. It doesn't matter if people are stupid, obnoxious, or daft. You can still model them as rational and the model tracks because that's what survives. Read!

And in honour of the Boettke piece...

Presenting...

GMU Balenciaga -- Economics with attitude 😎 pic.twitter.com/wzWiOnnd73

— Samuel Hammond 🌐🏛 (@hamandcheese) April 9, 2023

Tobacco maps

A little while back, the Ministry of Health put up some indicative maps of where licensed tobacco retailers might be allowed to operate.

The government has decided that rather than being available at some 6000 outlets, cigarettes will only be allowed at 600 outlets across the country.

Lots of things will enter into Ministry considerations of which outlets might be allowed to continue functioning, and which dairies might go bankrupt if they rely heavily on tobacco sales. 

They write:

If there are too many applicants in one area, the following criteria could be useful to distinguish between retail applications (Appendix 3 provides further detail). These criteria may be defined in Regulations.

• Business related criteria: criteria like security, sales systems and training, could be used to rank applicants. For example, in terms of sales systems, the business needs to have considered factors such as their supply chain – ensuring that they will have the right amount of stock to service demand. We propose that detailed proposals would be acceptable within an application, to avoid retailers’ incurring costs prior to approval of an application.
• Proximity and location: certain criteria may relate to the location of the retail premise or specific community needs. For example, distance from schools or sports grounds may be relevant.  Communities may feel that there are areas where it is less appropriate for smoked tobacco retail premises to operate (such as near schools or marae). Additionally, ensuring that the premises are spread across each area may be important.
• A history of compliance with the Smokefree Environments and Regulated Products Act, by the applicant (the entity or individual) and any responsible people over the previous 5 years may be relevant.
• The nature of the business may be relevant – for example, retail premises selling alcohol, convenience goods and/or groceries might rank lower on this criterion while stores only selling smoked tobacco products may score higher, because we are of the view that selling tobacco products alongside everyday grocery items normalises these products.
• A ‘specialist outlet’ category could allow for a certain number of retail premises specialising in smoked tobacco products that are not cigarettes (eg, cigars) to score higher.

The Director-General may weight the criteria or give them an equal consideration. We are interested in feedback about what criteria is of most importance, or least importance

Proximity to schools is a fun one. It reminds me of a map that City Beautiful had put up last year. They were looking at the proximity rules for vape shops, when the Asthma Foundation was trying to ban them within a kilometre of schools. 

On this map of Auckland, every green dot is a school. Every circle draws a one-kilometre radius around a school. And the orange bits? Those are the only places that are outside of the circles and that are zoned for shops. 

So if the government took a hard line on proximity to schools, well, there aren't many places in Auckland where one could run a shop. And in small towns, it'll be tough to find somewhere that's farther than a kilometre from the school. 

Submissions are due 15 March. 

Afternoon roundup

Easing back into the office after a summer break and already the tabs have multiplied.

Today's worthies:

• Alex Penk on the value of free speech
• Zoning Reform in Gotham. One option sounds a lot like NZ's National Policy Statement on Urban Development. 
• Bryce Edwards expects a big politician pay increase after the election. I'd forgotten about the MP pay freeze. I like that a nominal pay freeze for the politicians responsible for the dilution of the Reserve Bank's mandate and erosion of accountability for meeting its inflation target means substantial real pay cuts for them. 
• Bryan Caplan is working on a book on zoning reform. Will look forward to it!
• Regime uncertainty around investment in thermal generation is a problem:

  “Mitigating the winter 2023 operational coordination issue with further information is insufficient by itself, particularly considering the limited timeframe to resolve the issue,” the system operator says. The key issues are the influx of unreliable wind generation, the paucity of fast-start thermal generation, and the weakening market incentives for slow-start thermal generation. And Transpower says the EA’s proposed measures won’t address these underlying problems.

  The article notes some more complex multi-hour generation contracts as a potential solution. 

• Getting more energy generation seems like a good idea and people get unreasonably upset about landfills. And so a waste-to-energy plant gets knocked back for want of an adequate cultural impact assessment. 
• But, on the plus side, there is more generation coming through - including 168MW of geothermal
• Medicaid expansions in the US did not reduce mortality. In line with the results of the now-old RAND experiment. 
• Some details are up on the new smokefree regs. New Zealand's Planning Board has mapped out where cigarette stores will be allowed to be. Oamaru and Queenstown will each be allowed to have two stores. Balclutha can only have one. Auckland will be allowed 13. These are all clearly the scientifically-determined correct number of stores. If you disagree, you have a couple of months to make your submission. 

Afternoon roundup

A closing of some of the browser tabs:

• Eli Dourado on NEPA - America's equivalent to the RMA. Superb seeming primer on how it all works, though I would not be one to notice any holes in it. 
• Road-building is going to get harder, thanks to a court interpretation around water consenting. Minor bits of drainage are going to hit large hurdles. 
• Chris Snowdon in conversation with Marewa Glover on New Zealand's tobacco and vaping regime. 
• Possibly the best approach for "glue ourselves to things" protestors: leave them there.
• Lindsay Mitchell picks up another aspect of the Perry child poverty report: substantial differences across regions in foodbank uptake, sorted by material deprivation. 
• "Rather than address the workforce crisis it inherited, Labour instead resorted to restructuring the health system to put it under greater central government control and make it more vertical. This was a fatal error." 
• NPR's Darian Woods and Wailin Wong on America's blocking Chinese access to higher-tech chips.
• Government may be preferring government-built housing in easing RM constraints. That, as a pattern, will make it harder to get necessary RM reform - if govt can exempt itself from the worst effects of bad RM rules...
• Older piece now, but I want to be able to find it again. Cato's critique of the US Jones Act, which prohibits foreign shippers from transporting goods between US ports. NZ shippers often want this kind of rule here too. It's been doing particular harm in Puerto Rico lately. 
• Sex work legalisation in NZ included measured aimed at protecting temporary migrants from exploitation; those rules may be doing more harm than good.
• Youth justice facilities overwhelmed by numbers.
• Emergency rooms overwhelmed by numbers and want of staff.
• Mental health system overwhelmed by numbers and want of staff.
• One reason the new Rings of Power series may not be as faithful to The Silmarillion's account as it could be: copyright. 
• Wellington: for, by, and of connected insiders. 
• MBIE is running a review of space policy. Wish there were a one-click submission option "Just leave it alone and don't break things." There are just so many submission processes on...
• Yet another area in which NZ could do well by simply recognising standards in use in other places. This time, car safety. 
• It looks like the prescription guidelines for medicines for ADHD have been designed around avoiding Ritalin flowing out into other uses rather than helping patients. And the one doctor who prescribed in accordance to patient needs rather than guidelines is in trouble for it. 

Evening roundup

I was out on leave last week, touring around Lake Taupo with the family, hoping desperately for snow that didn't come. 

We had fun anyway. 

But the browser tabs... a week's worth of emails, and stuff saved up... egads. 

Some worthies as I try to clear six different Chrome instances...

• Wikipedians don't like research on IQ. They're even slowly memory-holing the Flynn Effect.


• Time to end the Canadian Dairy Cartel


• Neat evil DMCA hack: create a fake-dated earlier version of content you don't like, then claim the original is a copy. 


• DevPolicyBlog on reducing remittance costs in the Pacific. I hadn't known that getting money from Oz/NZ to the Islands has some of the highest remittance costs in the world. But it makes sense: NZ is overly enthusiastic about AML, and that's a fixed cost in a small place. 


• John McDermott on the case for another Saturday Night Special. When credibility is lost, getting inflation back under control is costly. The RBNZ forgot its job, and we will all bear a cost. 


• Jem Traylen tries to figure out why the government won't fast-track residence for migrant nurses. There are no good answers. 


• The Australian Therapeutic Goods Administration has approved Moderna's Covid vax for under-5s. Unclear that Medsafe has even started looking at it. 


• The McGuinness Institute maintains an archive of Government Department Strategies. There are 221 operational GDS and 327 archived ones. I did not know there were so many. 


• Frank Newman on a few problems in the government's Three Waters financial modelling. Oh - and the IT systems alone could cost half a billion. 


• I wonder how much income protection insurance premiums are going to go up because of Long Covid risks. Would be fun if cautious mask-wearers could get a discount...


• Survey evidence of misperceptions could just be miseducated guesses. But wouldn't that predict unbiased means?


• The flu-normal sucks.


• New Zealand's defamation law is even worse than I'd thought. Its reach extends to America.


• Prof Beaglehole on Smokefree 2025.


• Three cheers for the three Christchurch councilors who voted against the stadium.


• Infometrics warns inflation expectations look unanchored. 


• Cameron Bagrie warns of a lack of expertise on the RBNZ Board. I remember Suzanne Sniveley telling us at the NZAE meetings that all is fine. 


• This is just lovely. How the world's worst golfer kept getting to play at big golf tournaments. Great fun story. 


• Pandemic-related losses in education. New Zealand did manage to get through the early period with some of the shortest periods of school closure in the developed world. But we're still showing shocking results on literacy and numeracy - though tough to tell whether it's worse than pre-Covid. 


• Russ Roberts' chat with Ran Abramitzky and Leah Boustan was great while we were on our drive back from Taupo. Just such an enormous amount of core data work in that project on immigration and outcomes. Here's Noah Smith with Boustan.

Smokatunity?

The draft legislation for the coming changes to the smoking rules are out.

There's a lot of nuttiness in there: a cap on the number of tobacco vendors that will create rents for incumbents as the lid presumably sinks; a lifetime ban on smoking for my daughter but not my son (and a fine for me of up to $50k if I handed her a cigar in a public place; and, a requirement that a cap on nicotine content in smoked tobacco be set.

But let's ignore all that for now.

Section 3AA just updates the numbering of some parts, including rules around smoking and vaping indoors.

Some time ago, I'd argued that the whole mess around defining an outdoor area, for purposes of the Smokefree Environments Act, should be flipped. Instead of taking out measuring tapes and figuring out whether 50% of an area has a ceiling, or what fraction is enclosed by walls, just set an air quality standard. Stick a CO2 monitor in a prominent spot. If it stays under 600 (say), it's an outdoor place. The air cycles frequently enough that everyone's cumulative exhaust doesn't hit the sensor. 

And I'd noted that you could do away with all the rules around indoor smoking and vaping on the same basis. 

Ok.

There has been reasonably compelling argument in favour of updating air quality standards to deal with the pandemic. Whatever was considered good enough for indoor air quality prior to Covid - the optimum has to be higher than that now, right? Now it might not meet CBA for retrofitting existing places, but it's definitely in the realm of things worthy of more detailed analysis. It could make sense.

Nobody except for the public health people have been pushing this barrow. Government has basically given up on Covid and I expect would recoil at anything of this sort that would impose costs on businesses. 

But what if we could set an air quality standard that, if met, meant indoor smoking couldn't possibly be a problem - and simultaneously protected against Covid? Either maintaining a low CO2 level by cycling air through frequently enough, or running the air through a set of filters including a proper HEPA filter frequently enough, would do the trick. 

Define that standard, then say that smoking and vaping are allowed in any place that meets the standard. 

By definition, smoking can't impose any noticeable harm on others if you've set that standard appropriately. And it would give venues a reason to want to meet the standard - they could cater to a broader set of customers. 

Now it's a pig of a thing relative to a first best. 

There was never any case for regulating indoor vaping. It should always have been left to the decision of property owners, and then people could choose which venue to attend based on their own preferences. And really, the same holds for indoor smoking. 

And if a tighter air quality standard meets CBA, it shouldn't matter whether the venue wants to cater to smokers and vapers. And really, restaurants and bars should be competing on this margin if they don't want to have staff that are constantly out sick and if they want to attract Covid-averse people like me. Their failure to do so suggests, strongly, that my Covid-aversion is increasingly idiosyncratic and nobody else cares about it. A tiny number of venues might start competing on this margin - but I've yet to really find one. 

But if there are places that would like to be able to cater to vapers and the tiny number of remaining smokers, and if this kind of setup would let them do that, and if the marginal cost of simultaneously making it safe from Covid is pretty low if you're upgrading anyway....

Maybe there's a smokatunity here. 

I'd actively seek out cigar bars, because the rules making them safe for smoking would simultaneously and more importantly protect me from Covid.

Afternoon roundup

The browser tabs. I think they're conspiring against me. They're multiplying. I have to get rid of them, before they get rid of me. They'll do it too. 

• Me, chatting over on RNZ nights with Bryan Crump about my favourite economist, Gordon Tullock. We really didn't have enough time. 


• Some fun history from PolitikWebsite on personalities in the 80s reforms, as part of an obit for Stan Rodger


• Ottawa is letting British Columbia decriminalise possession of small quantities of cocaine, opioids, and methamphetamine. One to watch!


• Huh. Turns out that warnings of a lot more tobacco smuggling weren't just pipe dreams from Big Tobacco.


• Another study finding correlations between better aging and higher alcohol use.


• NZ loses its top score for budget transparency. Not unrelated, a former Treasury official takes issue with Treasury's Budget at a Glance. 


• Building material costs continue to blow out. If only it were possible to bring in substitutes from overseas and have councils willing to sign off on their use. If only...


• New RBNZ Chief Economist Paul Conway says the bank is thinking hard about the role monetary policy should play in addressing climate change. Inflation's at 6.9%..

Morning roundup

There are 5 different Chrome windows, each chocka. I can't do every bit justice. So, a roundup while I try closing maybe 2 of them.

• Superb news. Finally. The government is starting to be a bit more flexible about safe alternatives to MIQ. 
• I like how Australia still thinks big. Here's Stephen Kirchner making the case for a large increase in immigration.
• There's a claim that carbon farming, via forest sequestration, starts being costly after a century. I'm still not convinced. If carbon prices are high enough that people can't cut down trees at that point, they may be high enough to warrant digging a giant hole, sticking the cut trees into the hole, covering it up, sticking a pipe in for methane recovery, and replanting it. Maybe there's some price range where carbon isn't valuable enough to do that, but too costly to allow cutting the pine plantation. But should that be the presumption?
• On the merits of not letting Covid become endemic in New Zealand. It is not the flu. I still wonder what the heck happened to Pfizer's talk of a delta-specific vaccine from back in June(ish). I'd understood mRNA to be plug-and-play. It took them only a couple days to develop the vaccine in the first place, on having Covid sequences to play with. Why isn't there a delta-vax yet? 
• Asher Wilson-Goldman on what it will take to get vax out to the last 17 percent. Remember of course that this government is forcing Maori health providers to sue them to get access to the systems needed. 
• Remember how we all got excited when the government made Verrall, who'd written the darned report on the inadequacies of contact tracing, the new Deputy Minister in charge of that? Well, nothing's fixed. Contact tracing still isn't up to the job. Why? The government couldn't imagine elimination failing, so just didn't prepare for it. 
• Lew Stoddart on the end of elimination. He's more than a little too charitable about the Government's record up to the past couple of weeks; the Government had ignored expert calls for all kinds of measures that would have reduced the likelihood of the current outbreak happening in the first place. 
• A month ago, I'd had a podcast with Medicines New Zealand's Graeme Jarvis about how we risked being stuck at the back of another queue - this time on procuring effective antivirals. Looks like Pharmac is now getting on top of this, with an order in for molnupiravir. Fingers crossed. 
• Jacob Grier on respecting the agency of smokers and on the illiberalism of prohibitionism. He's right. 
  

The last month has been utterly mad. There was an old Roger Douglas line about the reforms in the 1980s moving too fast for opposition to them to mount. Labour's basically doing that again, but mostly in the wrong directions, in the middle of a pandemic, while not being appropriately on top of the pandemic stuff. 

It's not ideal. 

Morning roundup

The morning's closing of the browser tabs:

• Customs is now seizing 125,000 cigarettes and 155kg loose tobacco per month. Why? "We have the most expensive cigarettes in the world for legal purchase."
• Wastewater testing says highest meth consumption, per capita, is in Kaitaia, Ōpōtiki, Wairoa, Kawerau, Tokoroa and Huntly. Lowest levels were in Kerikeri, Dunedin - Tahuna, Queenstown, Wellington - Karori, and Greymouth. 
• Robert MacCulloch on the mediocrity-bias in the public service. 
• Robert MacCulloch wonders why NZ didn't just pay more to get vaccines faster. Asking this on Twitter always generates a pile of replies from Labour-stans, but come on. We're continually vying with Australia for worst in the developed world. 
• Oh - and if we wanted to get vaccinated faster, first doses of AZ followed by second doses of Pfizer seem to work a treat. 
• The Industrial Revolution? Look first to the prior agricultural revolution enabling the population growth that allowed for the division of labour and for time spent in discovery. 
• Ayn Rand's worst idea: moral intolerance. Seems popular though.
• The NZ residence application queue is awful. Almost 30,000 people whose applications are "waiting to be allocated for processing". They suspended processing of Expressions of Interest under the Skilled Migrant Category because of Covid. But piles of those people are already here. They wouldn't need to come in through MIQ. Surely Immigration NZ could give them an answer. 
• MBIE and DoC have a new tourism data portal. There's a ton of stuff in there. Some of it hasn't updated since covid, like employment in tourism. 

Smokefree 2025

The Government's proposed approach for achieving SmokeFree 2025 is a bit over-the-top. 

The proposals would restrict tobacco sales to a smaller number of to-be-licenced R18 outlets, which could then be subject to a sinking lid; impose an annual one-year increase in the purchase age for tobacco until full prohibition were achieved; restrict nicotine content in cigarettes to very low levels; prohibit filters in cigarettes; impose minimum cigarette pricing; and further restrict flavourings.

In short, the only way to get a proper cigarette would be through the black market. The Ministry's betting on folks shifting more heavily to vaping or heated tobacco. I'd expect instead that imposing all this stuff would have smokers flip to black-market excise-free cigarettes, and that smokers would be less likely to switch from those to vaping. I also wonder whether some smokers might try soaking loose tobacco in nicotine e-liquid to get the nicotine levels up, and I don't know what smoking that stuff winds up doing. Heating is different than combustion. 

Our submission on the consultation document went through a couple of weeks ago; have been a bit pressed and hadn't gotten around to blogging it. 

But it has been fun watching more stories of black market tobacco coming though. Sometimes they're sold for organised crime groups; sometimes they're sold as church fundraisers. Loose tobacco is fungible like that. 

All the talk about prohibition reminds me that I have forgotten to tell you something else important. The new season of Cocaine & Rhinestones is up. It's Tyler Mahan Coe's podcast of the history of country music, and it's superb. 

Episode 4 is on prohibition and the leadup to George Jones's White Lightning. 

He goes through the rather evil history, not forgetting the part where the federal government poisoned industrial alcohol and murdered a pile of people who'd previously been filtering the bad tasting stuff out of industrial alcohol. But also the history of the whisky rebels before that. Great stuff. Recommended.

In other words, the U.S. government empowered a bunch of thugs to enforce organized crime’s monopoly on illegal alcohol distribution in most major markets of the nation. This is how Chicago came under the thumb of Al Capone, who was targeted by Elliot Ness and his Untouchables, yes… But this unit of officers were called “untouchable” because of their surprising ability to resist the near-universal corruption laid bare by Prohibition.

Beats me why the New Zealand government expects better results out of tobacco prohibition.