Internet sales taxes: NZ edition

Should consumers buying online goods from overseas pay GST on their purchases? The Press reports that IRD is examining options.

The status quo is that purchases from overseas do not attract GST where the cost of administering and collecting the tax exceeds the tax collected. So purchases of $400 or less are untaxed: the fixed cost of collecting the tax must then be about $60.

The New Zealand retailers hate that Kiwis like importing things from abroad, but it's hardly the GST-savings that are driving things. You can fairly easily save upwards of 50% by using UK bookseller BookDepository rather than Kiwi outlets; fixed costs here matter a lot more than the 15% GST difference.

Were there some costless technology for imposing GST on goods coming in at the border, then New Zealand should do it. The more we can rely on consumption taxes, the less we have to rely on income taxes. If collection technologies change, then the threshold too should change.

So there is nothing objectionable about IRD's continuing to keep an eye on the optimal GST collection threshold and on things that might reduce collection costs.

But I do hope that IRD is weighing the costs of collection falling on all parties, not just those falling on IRD. When a package is held at the border pending GST collection, it takes time and hassle to bill people, and packages get delayed. All of that is off-budget from IRD's perspective, but they're real costs too that should count in the calculus. And, they're particularly pernicious costs: the random-draw delays that can obtain if goods get held up waiting for GST collection can put people off online shopping from abroad entirely. That's likely what the Retailers Guild is hoping for.

I expect that having the credit card companies or foreign retailers act on IRD's behalf would prove rather intractable. I would also be a bit surprised if collection technologies have advanced sufficiently to make it worthwhile to collect at lower than a $400 threshold, but perhaps IRD will surprise me.

Saint Steven

If Steve Landsburg is right about the process for becoming a Saint, I think we ought to launch a campaign for Saint Steven. Here's Landsburg's summary:

So if I have this right, it is now the official position of the Catholic church that:

1. The late Pope John Paul II has the ongoing power to cure brain aneurysms.
2. As far as we know, he has chosen to employ this power exactly once. (He also once cured a case of Parkinson’s.)
3. While hundreds of thousands of others have suffered and/or died from brain aneurysms, John Paul has not been moved to intervene.
4. The one victim he troubled himself to save was selected not because she was particularly deserving or particularly valuable to society, but because she chose the right guy to pray to — sort of like having to suck up to the teacher to get a good grade.
5. All of this makes John Paul II particularly fit for veneration.

For God’s sake (you should pardon the expression), if you’re looking to make the case that John Paul II was capable of performing (or at least catalyzing) genuine miracles, isn’t the defeat of Soviet Communism good enough? That right there makes him a saint in my book — though if I ever come to believe that he cancure aneurysms and has been holding out on us, I might have to retract my endorsement.

So, here's the campaign for Saint Steven.

1. Any of you who have any kind of illness at all pray to Steven Landsburg for intervention. 
2. If you do not receive divine Landsburgean intervention, don't tell me about it. 
3. If you do receive divine Landsburgean intervention, please leave a record of such in the comments. Preferably with a link to a doctor's note saying that your recovery was unexpected and pretty remarkable. This should happen in maybe 1% of cases. 
4. We submit the documented evidence of the successes, while ignoring the failures. Ta-dah! Saint Steven.

Economics has its Gods; why couldn't it also have Saints? 

Bland by design

I could grok changed building rules in Christchurch post-quake. Earthquake and liquifaction changed what we might want from foundations.

But the percentage of building frontage that must be in windows, no matter what? That car parking be hidden?

For example, the rules requiring buildings facing a road or public space to be between 60 and 90 per cent windows would not suit many businesses.

"Such blanket provisioning ignores that such a percentage of glazing may be inappropriate for the retailer, who may need more security, such as a jeweller or a bank; whose security requirements must take a higher priority than urban design,'' the submission said.

"Furthermore, it ignores the needs of department stores or larger stores who may need to place stock on shelving attached to solid walls around the perimeter of building."

The Property Council said that, because glazing was so expensive, the rule would boost the cost of new shops.

"We are strongly opposed to any provisions in the plan change that call for an increase in development costs without sufficient justification."

The submission criticised the requirement for car parking to be hidden from view, saying visible parking was a principle marketing attraction for retailers.

"This is completely impractical for many retail activities, which rely on visible parking to attract sufficient customers in order to remain viable,'' it said.

Prescriptive zoning rules are what deliver boring, expensive cities. Get a long enough list of "every building must", and you'll get a pretty short menu of options that can fit the bill.

I just don't get why we have to be so prescriptive about things that are orthogonal to "risk this building causes to others that are avoidable at reasonable cost." Minimum engineering standards that keep buildings from falling onto passers-by make sense. Council failed to do anything about this prior to the quakes, and even hindered owners who had wanted to tear down buildings that wound up falling down and killing people in February's quake. Even if we take a hard econ line on that individuals should be free to live or work in a dodgy building and trade safety for money, risk imposed on passers by seem sufficient to require either strictly enforced minimum standards or liability rules with compulsory insurance.

I wonder how much intersection there is between the kinds of people who think prescriptive town planning rules are great things and the kinds of people who don't like the tilt-slab construction that's been the consequence of trying to tick all the planning boxes on a budget.

Meanwhile, in America, Matt Yglesias has taken up Donald Schoup's banner on the high cost of free parking. Parking minimums are pretty common in the States: developers then have to put in more parking than they'd like to. Other places have parking maxima, preventing developers from providing as much parking as they think appropriate.

What happens when you stop being so prescriptive around parking?

Michael Manville of UCLA studied a liberalization of parking regulations in one section of Los Angeles and found that deregulation leads to the construction of more housing units and fewer parking spaces. Conversely, tighter regulation leads to a lack of affordable housing and a surplus of parking spaces. That might make sense if parking spaces were a public good, like clean air. But they’re closer to being a public bad. When Chicago mandates the creation of ahigh number of parking spaces per square foot of downtown office building, it reduces the price of parking, but it has a number of negative consequences. Cheaper parking means more traffic congestion on the streets. It also means lower ridership for Chicago mass transit. Perversely, cheaper parking offers a subsidy to commuters from outside the city limits at the expense of Chicago residents living within walking or biking distance of the central business district. And, of course, it leads to dirtier air, not cleaner.

Yglesias recommends abolishing requirements that buildings have parking spaces; I'll also recommend abolishing requirements that they have maximum numbers of parking spaces. If the highest valued use of a piece of land, as seen by the person with skin in the game, is a parking space, why need Council get involved?

Maybe, just maybe, if Christchurch Council focused really hard on a small number of rules around building safety, and dropped the other stuff, they'd be able to competently administer a set of useful rules instead of, well, what we have instead.

The Rent is Really Rather High: Christchurch edition

The median two-bedroom property available for rent in Christchurch today, listed on TradeMe, is going for $395 per week. There are 173 2-bedroom properties available. There are fifty properties listed at $340 per week or less; that's also the price at the 25th percentile. When I'd checked this back in March, the median Christchurch price was $365 and the 25th percentile price was $300 per week. So the median is up by 8.2% since March and the 25th percentile is up by 13.3%. 

The Christchurch Press continues to report on the rather substantial consequent problems.

Christchurch economist Robin Clements said it would ''take a long time to relieve the issue'' of the shortage.
''It's still going to take years to increase the supply, even if action is taken now."
Even the slowness of the cental city rebuild was affecting the housing market, Clements said.
There's a shortage of hotels, so visiting businesspeople have to stay in motels. Then people having their homes repaired can't get a motel, so they're taking up rental homes.
"Every section of housing has got some sort of pressure, and it's all linked to the pace of the rebuild.'' 

Every homeowner with temporary accommodation coverage in his home insurance policy is pretty price inelastic in demand for the duration of repairs. Inelastic and increased demand meets fairly inelastic supply and results are pretty predictable.

Everybody knew or had to have known this was going to happen. There was even talk about doing something about it. Here's Roger Sutton from June 2011:

Speaking to about 50 mostly red and orange-zone residents yesterday at a community meeting in New Brighton, Sutton said the region's land prices were a "real concern".

The authority's extraordinary powers could be used to reduce the cost of development land, he said.

A "common theme" from the meetings was that many properties in the red zone, where land cannot be rebuilt on, had a rateable value under $100,000.

"There's very little land on the market for those prices at the moment," Sutton said. "We have to move as quickly as possible to give an assurance that there is actually going to be land and house packages, or at least land packages, to begin with, at prices you feel you can afford."

Residents told yesterday's meeting that some developers had increased land prices after last week's Government announcement.

Sutton said supply-and-demand problems were expected, but cutting red-tape costs, such as planning and resource consents, was possible.

"I have quite extraordinary powers to actually bypass those planning laws, but my preference would be for the normal legal processes to work," he said.

For the next two years we instead stuck with Council's normal legal processes, which turned out to be so incompetently administered that we don't even know how many recently consented buildings actually meet Code. It's not as though Council weren't putting lots of hoop-jumping in the way of those trying to build: it seems rather that they were enforcing a random-draw set of rules often orthogonal to actual building safety. The resulting potential liability has had Council's credit rating downgraded. Council had planned on substantial borrowing to finance its share of the rebuild costs, and sensibly so. But this will now be more expensive.

Central government could be tempted to take over more of Council's functions; it would be hard to blame them, given Council's rather substantial demonstrated failure and the importance of getting this mess sorted out quickly. I don't know Douglas Martin, who has been appointed by central government to fix Council's consenting issues, but I don't share the engineers' worries about his not being an engineer. Council needs somebody who can sort out their processes and who can listen to engineers.

But perhaps we might instead pay some attention to what our very own Cassandra, Hugh Paveltich, recommended shortly after the earthquakes. Instead of abolishing local government, perhaps instead decentralise further. Instead of running everything out of Council's offices, and out of Earthquake Minister Brownlee's offices, devolve building consenting down to a far more local level. Paveltich then recommended:

1. COUNCIL REFORM REQUIRED: Dealing expeditiously with the systemic problems of the Christchurch City Council, in moving quickly to a “One City – Many Communities” approach. Thankfully there is a strong core majority of sound Councillors (as your article “A shaky future” explained). The current CEO needs to be replaced with someone having engineering training and a proven track record of project management. I am most impressed with the performance of Orion's CEO Roger Sutton – a person I hold in the highest regard.
   There need to be about 8 Community Service Centres – Akaroa, Lyttleton and about 6 in the city, which again need to be led by people at the staff level with engineering training and a proven track record of project management.
   After all, local government's primary responsibilities are infrastructure and buildings.
   These Community Service Centres need to be supported by building and environment regulators with enabling attitudes and the capacity to solve problems. It does not appear many within the current centralized structure have these skills. There would need to be constant monitoring of the performances of these building and environmental officers, so that those lacking the required skills are replaced quickly.
   The Central Office should be a small one, fulfilling a coordinating role where required (and importantly not, when it’s not required), responsible also for the central area within the four avenues.
   The highest polling elected representative should be the local chair and city councilor. The mayor should be elected on a city wide basis.

Spreading consenting across a lot of local units builds robustness. Failures get contained to that unit.

It would be interesting if Paveltich were to run for mayor. At least we'd get substantive discussion about urban planning and how it might facilitate rather than hinder recovery.

That of which we here are a part and complicit

From Snowden's interview with Jacob Appelbaum and Laura Poitras:

Interviewer: What are some of the big surveillance programs that are active today and how do international partners aid the NSA?

Snowden: In some cases, the so-called Five Eye Partners go beyond what NSA itself does. For instance, the UK's General Communications Headquarters (GCHQ) has a system called TEMPORA. TEMPORA is the signals intelligence community's first "full-take" Internet buffer that doesn't care about content type and pays only marginal attention to the Human Rights Act. It snarfs everything, in a rolling buffer to allow retroactive investigation without missing a single bit. Right now the buffer can hold three days of traffic, but that's being improved. Three days may not sound like much, but remember that that's not metadata. "Full-take" means it doesn't miss anything, and ingests the entirety of each circuit's capacity. If you send a single ICMP packet and it routes through the UK, we get it. If you download something and the CDN (Content Delivery Network) happens to serve from the UK, we get it. If your sick daughter's medical records get processed at a London call center … well, you get the idea.

Interviewer: Is there a way of circumventing that?

Snowden: As a general rule, so long as you have any choice at all, you should never route through or peer with the UK under any circumstances. Their fibers are radioactive, and even the Queen's selfies to the pool boy get logged.

Interviewer: Do the NSA and its partners across the globe do full dragnet data collection for telephone calls, text and data?

Snowden: Yes, but how much they get depends on the capabilities of the individual collection sites -- i.e., some circuits have fat pipes but tiny collection systems, so they have to be selective. This is more of a problem for overseas collection sites than domestic ones, which is what makes domestic collection so terrifying. NSA isn't limited by power, space and cooling PSC constraints.

Recall that Five Eyes is the US, UK, Canada, Australia and NZ.

Speculation: In the tent, eventually NSA kits up GCSB to be able to do what GCHQ can do. It'll be lower priority as we're a rump loop of the cable at the end of the world whereas Britain's pretty central. But we'll get there. Out of the tent, I'd expect NSA would stick a box at the Australian or US termination ends of our cables and start doing it faster.

Film imports

New Zealand is considering reducing the duration of the ban on the parallel import of DVDs. It should reduce it to zero. Why? The ban could have made sense in a world of physical film distribution; we are rapidly moving away from that world.

Background: films have traditionally taken a while to arrive in New Zealand. Film distributors used international release windows to ration a good in scarce supply: the physical copies of films that, after a first run in the US, made their long slow journey to New Zealand (complete with scratches and other assorted wear and tear). Movies could show up on planes before hitting theatres here. If everybody had been able to import VHS tapes or DVDs of films from the US when they hit the US market, film producers would have had to have printed more copies of films at the outset. This would have increased costs for everybody. One source says it costs the studios $1500 to produce and ship a film reel within the US. Maybe the benefits to consumers from earlier releases would have outweighed the increased ticket prices and the reduced producer surplus, but the movie industry's producer surplus is what lets new films be made too. Also, the US provided a testing ground letting film distributors get a handle on which films were likely to be able to make it on the international stage. If they had to produce enough copies of everything to satisfy a worldwide simultaneous release for all films that had a decent chance of making it internationally, costs could have been pretty substantial.

In general, New Zealand allows parallel imports. If some big brand wants to strike an exclusivity arrangement with some NZ retailer, the government rightly figures it's not the government's job to enforce that arrangement by banning wholesalers or retailers from other countries from shipping the same product to NZ retailers. But NZ has maintained a ban on parallel imports of DVDs until the theatres have had a kick at the can.

Now the marginal cost of another copy of a film is near zero with digital distribution. Theatres are flipping to digital projection. Worldwide simultaneous release is no more expensive to run than a staggered release, though you do forgo the benefits to local cinemas of being able to wait and see what works in the States so they can pick the winners, and you miss the chance to jet the stars around the world for the various premieres. The benefits to consumers of being able to see what's on in the States at the same time as it's there airing are also much higher now than they were two decades ago. If a pile of your Twitter and Facebook friends are all chattering about a movie you can't yet see, that really really sucks. You never say "Boy, am I glad that film didn't come here (or took 4 months to get here) because all my friends in the States saw it and said it stunk!" If you want movies to be pre-vetted that way, you do the same thing Americans do: wait for credible reviewers to see it and do what they tell you to do.

So, the benefits of staggered international windowing are much smaller than they used to be. Parallel importing of DVDs pushes distributors away from their ideal, but also circumvents the obvious alternative strategy of just downloading things, so the losses may be less than the naive model might suggest. If New Zealand abolishes the windowed ban on parallel DVD imports, it will have negligible effects on the film industry as a whole and will encourage that more films open here at the same time as the US. I'm not sure that it's in New Zealand's interest to help facilitate this particular international price discrimination scheme, or at least it would take reasonable evidence to convince me that it is.

CAFE kills?

American fuel economy standards have a bunch of offsetting effects. If you're going to be in an accident, you're safer in a bigger vehicle, but you're also increasing the risk for everyone else. Tightening the fuel economy regulations then have ambiguous effects: do they save more lives by reducing deaths caused by those in SUVs, or do they kill more people by ensuring that more who are involved in accidents are in smaller vehicles?

Mark Jacobsen runs the numbers.

I estimate the fleet-wide impact of historical CAFE rules to be 149 additional annual fatalities per mile-per-gallon (MPG) increment in stringency. In this case, the shift to smaller vehicles within the car and light truck categories prescribed under CAFE causes deterioration in safety that is only partially offset by reductions in poorly matched accidents. The safety effect translates to a welfare cost of approximately 33 cents per gallon of gasoline saved.⁵ In the context of related environmental externalities, damages of $25 per ton CO₂ amount to 22 cents per gallon of gasoline, and Parry and Small (2005) report costs from local air pollution of about 16 cents per gallon.

So tightening the regs by one mile-per-gallon costs $0.33 in lives lost for every gallon saved while providing $0.38 in reduced pollution for every gallon saved. Pretty close to a wash if we think that the regulations themselves are costly.

He estimates the effects of an alternative policy bringing all vehicles under a single unified standard and reckons that tightened fuel economy standards under that form of regulation come with approximately zero cost in terms of lives lost: drivers of light trucks substitute into safer cars.

Even better could be abolishing CAFE entirely in favour of a petrol tax. CAFE standards only make sense relative to a petrol tax where consumers are particularly myopic and ignore the future petrol costs when buying a thirsty car. They aren't.