Excise fantasies

Zombie stats. You just can't kill 'em. 

It's particularly frustrating when NZ Treasury helps birth one of the things and then does nothing to help kill it. 

Recall that Treasury relied on MoH's shonky reckons on uptake of heated tobacco when the government halved excise on reduced-harm heated-tobacco. 

At BEFU 2025, Treasury put up its estimates.

Excise on heated tobacco not made from reconstituted tobacco currently sits at $818.53 per kilo.

If you think that halving excise on heated tobacco results in $11m in lost excise for year to June 2025, then you must believe that you will collect $11m in excise from heated tobacco for that year (assuming no change in consumption). $11 million per year when excise over that fiscal year (as simple average between the 2024 and 2025 rates) is $789 per kg means you expect 13,900 kg of heated tobacco will be consumed in FY 2025. 

And if you think it will total $44m in FY 2026 at an excise rate of $807 per kg (again averaging the two rates), you're banking on imports of 54,500 kg. 

Infoshare has heated tobacco imports in the detailed overseas trade tables. Go there, select imports, and expand code 24 to get to 2404110200 and 2404110600. One gives volumes of tobacco intended for heating using reconstituted tobacco, the other without reconstituted tobacco. The latter is what is used. 

For the fiscal year ended 30 June 2025, imports totalled 2,374 kg - slightly below the expected 13,900 kg. For the year to June 2026, imports were 4,207 kg - again, just a bit out from the expected 54,500 kg. 

I noted some of these problems back in March.

At BEFU 2026, Treasury recognised that they'd botched this. 

But they refrained from putting up comprehensible alternative figures. Instead, they published a revised overall outlook for tobacco excise where smaller reductions in excise revenue from shifts to heated tobacco melded with sharp reductions in overall expected tobacco excise revenue (with Treasury remaining agnostic about how much is due to people smoking less overall, and how much is due to shifts to the illicit market). It's all mushed together. You can't tell what is the correction to the HTP figures and what is the decline in expected consumption of excised tobacco. 

"Furthermore, subsequent research suggests that future HTP uptake will not be as large as was previously assumed." Indeed. 

A few weeks ago, while I was out of town, Farrar pointed to Labour's fiscal plan. They were relying on getting some $82 million per year from "Reverse Tobacco Tax Cut". 

That... that's just not going to happen. You'd need to expect about a hundred thousand kilograms of heated tobacco being consumed for a doubling of excise from its current $818.53/kg to get you $82 million dollars. 

For the year to September 2026, only 4,309 kg were consumed. 

So you're betting that doubling excise will result in heated tobacco consumption going up by about 23x. Demand curves don't slope that way. 

Labour ought to have known better than to use those numbers. But Treasury really should have put up corrected ones, and especially where Treasury's imprimatur on shonky stats led to the years-long attack on the government for its purported 'giveaway to Big Tobacco'. 

Sheep, speech, and the DMCA

Preston Byrne has been doing superb work trying to help protect US-based tech platforms from foreign regulators that want to kill off freedom of speech. 

Fun case here though showing how the general problem can also work the other way. 

New Zealand's Kiwibank launched a new marketing campaign starring a cute little sheep.

Some Kiwis thought the sheep was more than cute. Or at least pretended to for laughs. It's never easy to tell, but hilarity ensued. 

Hayden Donnell's write-up is superb, and you only have yourself to blame if you click the link. 

And then Kiwibank started using the US DMCA to get the Kiwi (and presumably international - the thing really seemed to have taken off) content taken down from US-based platforms. 

So in this case, rather than weird small-country regulators trying to force American platforms to ignore the First Amendment, US law is being used to stifle NZ-based cultural content. 

Some basics on incidence of student loan relief

Labour proposes wiping 10% off of outstanding student loan balances for domestic borrowers that are not in arrears and who have not benefitted from fees-free study. That write-down will happen on 1 April.

It proposes doing it again in 2031, and each year afterwards, for borrowers in good standing who have been NZ-based over the prior three years. Those whose balances are at or under $2000 will have the debt written off completely. 

Some of the effects of this are straightforward.

If you are a current student and you have not borrowed as much as possible at zero percent, then you have stronger incentive to max out your loan. Borrowing at zero percent is free money. The amount you will have to pay back, eventually, is worth less than the amount you're given today barring deflation. So if you had otherwise been paying for living costs from savings from a summer job, rather than taking on debt, keep your savings in a term deposit. Whatever that term deposit pays will be higher than zero percent. And in 2031, ten percent of your loan balance will be wiped out. 

I don't think Labour's figures have accounted for this stronger incentive to borrow to the maximum. 

Graduates with large balances and with strong earnings get the largest benefit from the policy. Remember that the loan balance, at zero percent interest, only really determines when you have to stop paying $0.12 on every dollar earned above the threshold to pay down your debt. The present value of that obligation is higher for those who are actually paying down their loan. If you have a large balance but no earnings, you have no repayment obligations. Taking 10% off of that balance does not affect when you'll pay it off. The balance will eventually be wiped out because it does not transfer to your estate on death. 

As we approach 2031, which I'm pretty sure is the first year in which the 'small balances are wiped' happens, those with balances of up to maybe $15k and ability to shift funds around to drive that balance down to $2k should really consider doing so. Getting the $2k wiped off can be a decent return. But obviously if your balance is above $20k, it's better to have 10% wiped off. 

I go through it in this week's column for Newsroom, now ungated. 

So we should expect that borrowing will increase if students expect loan balances to be partially written off three years after graduation. How many students will decide to stay here rather than move abroad after graduation is anyone’s guess. But moving abroad already means facing actual interest payments on student loan debt.

New Zealand’s Student Loan Scheme is already heavily subsidised. Every year, the government writes down the value of its lending, largely because that debt attracts no interest. In the most recent annual report, the subsidy provided through new student loan lending amounted to $585m – the cost of the initial write-down.

That ongoing subsidy would increase under Labour’s proposed policy, in addition to the up-front cost of about $460m, with some odd distributional and incentive effects.

I suspect there are better uses of hundreds of millions of dollars. But it is an election year.

I still think it would make more sense to reinstate interest on loans while setting means-tested scholarships instead, along with better prep for tertiary study at high school. 

Supermarkets and due process

I hate election years. 

The Commerce Act sets out penalties and remedies for various types of anticompetitive conduct. Do the anticompetitive thing, get caught, be shown to have undertaken the unlawful conduct, face a penalty and possibly a remedy. 

National wants to break up one of the large grocery chains, splitting its banners and requiring duplication of a pile of infrastructure. 

Divestment is a remedy under the Commerce Act for unlawful acquisition. And it can be required as part of a merger authorisation. There have been no such cases. 

ComCom has brought cases against one of the grocers, with things still in process. But you just can't reasonably go from "ComCom is investigating an allegation of anticompetitive conduct" to "we will impose a remedy that isn't in the Commerce Act regardless of how those cases go, based largely on whether a cost-benefit assessment figures it's a good idea."

It's my column in this week's Post (and Press and Times etc). I also had a quick first-cut assessment of the CBA that they want to hang this on. 

The Post column was mainly a thought experiment: what would have to have happened for it to be non-crazy for ComCom to ask for a breakup power in retail grocery? I think it would be something like the following, under competition process as I understand it. 

Unlawful conduct aimed at thwarting competition would not be enough. Not on its own. The Commerce Act has meaningful penalties for that, as well as remedies. The courts can apply injunctions against continuing the unlawful behaviour too.

That would normally be the end of things. Injunctions and penalties work. Break-ups are not a potential remedy in this kind of thing because it is entirely disproportionate.

Something else would have to happen.

Imagine that, after the injunctions, rather than really abide by the decisions, a firm that has engaged in unlawful conduct kept finding new ways of achieving the same anticompetitive outcome.

Monitoring and interim relief provisions could normally prevent this. So there still would be no case for adding a break-up power.

But suppose that unlawful conduct could happen faster than the commission could ever act, and potential entrants would lose financing before the commission could act to stop behaviours aimed at killing off a new entrant.

In that kind of scenario, it is possible to imagine the commission asking Parliament to provide a break-up option. It is still a stretch: Commerce Act penalties can extend to three times the commercial gain.

But even if that option were made available, invoking it would only be possible after court determinations of unlawful behaviour that could not be remedied more normally.

And I would hope that it would also require cost-benefit assessment demonstrating that separation is more effective than the full range of less intrusive remedies, and provides benefits that exceed the costs – along with a chance to test and challenge the workings.

I hate election years. 

But there is one bright spot: ACT's supermarket policy is good, and so was Seymour's speech on it. 

Australia and vaping

Action on Smoking and Health NZ's Prof Beaglehole went on tour in Australia. Other NZ public health academics who want to copy Australia might consider a similar trip.

He writes:

What I found was revealing. Legal cigarettes were widely available, although expensive, costing A$40 to A$60 (about $50-$74) for a pack of 20. Yet illicit cigarettes were easy to obtain, starting at A$9 a pack. One shopkeeper even offered some unsolicited business advice: “If you want to get rich, open a tobacco shop and sell cheap cigarettes.”

Then I went looking for vapes. The contrast was striking. Illegal vapes were easy to find. Regulated legal vapes were not. They are available only through pharmacies, which are not required to stock them and most do not.

Smoking and vaping are not the same thing. It is the burning of tobacco and inhalation of smoke, not nicotine, that causes almost all the disease and death caused by smoking. Vaping is not harmless, but the evidence strongly supports it being substantially less harmful than smoking.

 ...

Of course we should continue to protect young people. Age restrictions should be enforced. Marketing should be tightly controlled. Products should be properly regulated.

But we should be just as determined to help people who smoke quit.

Some New Zealand experts have argued that vaping products should be supplied only through pharmacies, as they are in Australia, to reduce youth vaping. But any proposal to make vaping less accessible should confront a simple question: what will people who smoke do instead?

My Australian road trip offered a reminder that public health policies should be judged not only by their intentions but also by their consequences.

For those concerned about youth vaping, there is a very obvious and easy policy move. Selling vapes to those underaged is illegal and draws penalties. Social supply by older friends is unregulated.

The Sale and Supply of Alcohol Act, at s241, makes it an offence to supply alcohol to a minor without the parent or guardian's permission.

It is exactly the right framework to use here, where you'd want to maintain parent ability to supply vapes if the kid has started smoking. 

You could take the first three parts of s241, go through with a crayon, cross out the word alcohol, write in the word vape, stick it into the Smokefree Environments Act, and call it done. 

I do not know why public health people concerned about youth vaping aren't arguing for this move. 

Against laissez-faire democracy

Jason Brennan and Christopher Freiman have fun applying standard market failure arguments to democratic politics. 

A snippet:

Each of the major market failures which supposedly justify government intervention appear in democratic voting and elections. Indeed, some of these failures are anomalies in markets but are baked into democratic elections. Accordingly, there is a prima facie case for regulating democratic voting with the same mechanisms used in market regulation.

Converting this prima facie case into an all-things-considered case requires a few more steps. First, we need to discuss how regulation might work, considering the possibility that regulation will fail, be too expensive, or make things worse. Note that the burden here, as with market regulation, is not to show that regulation will decisively solve all problems, but rather than it will perform adequately, with the benefits exceeding the costs. (We doubt most readers think that market regulation must be perfect and problem-free to be justified. They should apply this same standard here.) Second, we need to consider disanalogies and objections, including arguments which hold that people have a special right to engage in democratic failures free of regulation.

The article is open-access for those keen on reading the whole thing.  

American questions about Australian online safety

The US Embassy in Canberra has raised a few concerns about Australia's Online Safety Amendment (Duty of Care) Bill. 

The same concerns will apply to any NZ equivalent. 

A few choice bits:

Speech & Platform Design Concerns – The United States has serious concerns about the Australian government’s stated goal of mandating broad duty of care requirements that dictate how platforms manage content and users’ feeds.  Concerns include:

1. how the Australian government, or the Communications Minister, would designate what constitutes “foreseeable harm”; 
2. any resulting requirement that platforms alter their algorithmic systems to suppress expression that should be protected in order to avoid liability, or, if not an explicit requirement, any approach that would likely result in platforms defaulting to pre-emptive censorship to avoid the risk of liability.

• We are particularly concerned by potential mandates that would allow regulators to impose rigid, one-size-fits-all platform design requirements – such as forced chronological feeds or opt-in recommendation systems.
• A framework that empowers governments to enforce vague definitions of “harm” risks becoming a mechanism for viewpoint-based censorship, as platforms will be incentivized to over-moderate speech that should be protected to avoid regulatory penalties.
• Such a framework also risks reducing the reach of independent journalists or other voices whose content touches on sensitive or controversial topics that platforms may preemptively demote to comply with overbroad safety mandates.
• We ask that Australia clarify how exactly “harm” and “risks” shall be determined, if there are any standard definitions that will be utilized, and by whom in the context of the proposed plans, ensuring these definitions do not encroach on protected speech.
• If Australia compels platforms to aggressively filter content in algorithmic feeds to satisfy a government mandate, and such filtering draws in protected speech, the effect on a disfavored speaker or media source’s reach would not be meaningfully different than outright removal.  The U.S. government would likely consider such a measure as facilitating censorship.

The Embassy also notes the extraterritorial reach of Australia's policy, and the American government's clear "opposition to foreign measures that result in extraterritorial censorship of protected speech by Americans online."