SEZs as policy trial areas

A decade ago, I coauthored a report looking at how greater localism and subsidiarity could be achieved in a very centralised country where local councils have variable capabilities. 

We settled on policy trial areas. 

The basic gist was as follows. 

First, a community would pitch a policy trial area - a special economic zone - with different policy or regulatory settings more suitable for local conditions. The idea would come from the local community. Some national-level policies are really unsuitable to some local conditions. 

That community would work with Treasury to come up with indicators ahead of time. How could we tell if the trial were working? What side-effects might we need to watch as well? 

Successful trials would often mean higher tax revenue for central government, lower dependence, or both. share the gains with the originating community as a 'policy discovery' payment. Then let it extend to other communities asking to take it up. Failed trials would fail at small-scale. 

Central government would rule out any proposals that could not, in principle, be extended to other similar communities if the trial were successful. So tax concession areas would be right out. Different consenting processes could be fine; a successful trial could extend to similar consents in other places. 

I have not read the proposal for Marsden Point. 

But I do not recognise our proposal in Bryce Edwards' critique of what's been proposed at Marden Point. 

Edwards writes:

A lobbyist’s paradise

The economist Michael Reddell saw the obvious problem the moment Jones first floated the idea. If there were any substance to the SEZ concept, Reddell wrote, the policy seemed “likely to be a lobbyist’s paradise, and perhaps that of political party donors & recipients”. He recalled that the New Zealand Initiative had pitched something very similar a decade ago.

Reddell’s lobbyist point is the one that NZ First does not want to engage with. The moment you start designating discretionary zones with bespoke tax treatment and accelerated consenting, you create exactly the kind of high-value, low-transparency politics in which the lines between commercial interest and political access become blurred.

Who decides which company qualifies as being inside the zone? Who decides what activities “achieve the aims of the zone”? Who appoints the panel? On what criteria? Under what review process? These are not pedantic questions. They are the central governance questions, and they are conspicuously absent from anything Peters or Jones have said in public. NZ First, of all parties, used to have something to say about that sort of arrangement.

To answer Edwards' questions within the framework that my shop proposed:

1. Nobody decides which companies qualify as being inside the zone. The zone applies to activities within the zone's boundaries. If the company's activities are inside the zone, then those activities would qualify. 

2. Nobody would be deciding on activities, except when the zone is struck. A proposal to, for example, trial a different version of the minimum wage for piece-rate employers in the zone would apply to all piece-rate employers in the zone. There'd be no assessment of aims.

3. We didn't have panels, so appointments and criteria weren't questions. 

4. We did have review - against the indicators that the community had set with Treasury. Central govt doing the assessment. 

Maybe Edwards' column is better in the half that's on the other side of the paywall.

Supermarkets and the price of beef

Danyl McLaughlan's piece in The Listener ($) on NZ grocery retail is fun. 

There's a fair bit potentially packed into 'non-monopolistic prices' here.

Northelia was Edwards’ proposal to the Commerce Commission during its 2020-21 market study. It represented an unnamed group of investors with capital in excess of $1 billion who would establish a third entrant into the New Zealand grocery market on condition the commission break up the existing chains, making up to 175 supermarkets available for purchase at non-monopolistic prices. Crucially, it would also compel access to an existing chain’s distribution system.

There's a different bit I wanted to pick up on though. 

Here's Danyl:

Instead, Willis strengthened the grocery supply code and the wholesale access regime. None of the major international chains engaged with the government’s request for a proposal. Consumer price index data for 2025 showed fruit increasing in price by 10%, vegetables by 4.9% and meat by 8.6%.

Remember that meat trades internationally. We export a fair bit to the US. NZ producers will sell to the highest bidder - the ship ready to go to the US, the local butcher, or the supermarket. 

Here's what's happened to the price of ground beef in the US over the past year. 

US ground beef prices are up by more than 20% for 2025. It'd be surprising if NZ prices didn't go up as well. It's been part of a longer-term increase in US beef prices. 

The graph below sets 1 Jan 2020 at 100 for both CPI and ground beef prices. They're up about 76% over that period; CPI's up about 24%. 

I suppose folks could blame Woolworths and Foodstuffs for the run-up in US ground beef prices, and the National-led coalition too, but it seems more likely that high export prices pull up NZ domestic prices across the board. 

Or maybe Trump will order a break up of NZ supermarkets to help US grocery prices. Who knows. 

Afternoon roundup

Closing the tabs so I can find the ones I really do need...

• Using hoards of ancient coins to trace out historic trade networks
• Left-wing populism is also risky
• ACT won't be supporting National's proposed social media age limits
• Meanwhile, Meta and Google battle over who's going to be stuck trying to verify user ages. I really don't like options that require OS-level ID verification.
• NZ needs more investable propositions
• "It will come back to bite you", but if partisans have very high discount rates....
• BBC's More or Less on the relative risks of vaping and smoking
• Happy 50th Birthday to the Layfield Report. I'm still unconvinced of the merits relative to a combination of user/beneficiary charges, uniform general rates, and land-value apportionment of council rates. I'll have to properly go through the thing though. 
• I'll be helping out on the Advisory Group for Te Kura Taka Pini. 

A bit less shit

Hayden over at The Spinoff asked me what the government can do to make the economy 'a bit less shit'.

I sent an overlong reply; he excerpted some choice bits along with contributions from others.

But this is what I'd sent through. 

I don’t think there are any quick fixes from where we are. 

Imagine you’re 50. You haven’t been taking care of yourself properly for a while now. You’re recovering from a hangover from a ridiculous bender that you should not have gone on. Yes, you had to have a couple of drinks given the event, but nobody forced you to finish the bottle. And you’re starting to realise that the burrito you had last night was probably very dodgy. 

How can you feel a bit less shit? In the short-term, you can take some Gaviscon and hope for the best. But it’s still not looking good. A lot of the pain is locked-in. The bits that have largely just passed were definitely your own fault. The bit that’s about to come isn’t your fault but would have been easier to weather if you’d taken better care of yourself. And the long-term stuff still needs to be dealt to. 

We have been in the hangover brought on by the fiscal and monetary binge we had in 2021-2023. And that was starting to come right - though the fiscal binge is still ongoing. 

There were good signs. Despite the downturn, Auckland building consenting was still higher than pre-AUP. Unemployment still is far below GFC-peaks. There’s reasonable, but not solid, cross-party consensus on reforms to how housing is regulated so that a lot more building can happen and so housing costs can come down. 

But we're now in an ongoing severe energy shock where high prices are combined with supply risk. On the plus side, economies overall aren't as tightly tied to oil prices as they were in the 1970s. But it's still not good. 

At the same time, the government's accounts are in poor shape - and the real fiscal consequences of population aging haven't hit yet. The rating outlook downgrades mean that goodwill and reputation from NZ’s prior commitments to fiscal responsibility (balanced budgets on average) are eroding. Debt servicing costs will go up with credit downgrades unless it's sorted. Folks on the right would prefer it be sorted by getting core government spending down to pre-Covid levels. Those on the left would prefer tax increases. Either one will be painful. A Parliamentary Budget Office running routine value-for-money scrutiny of spending would make it less painful. 

Unfortunately, it's hard to point to shorter-term options that would provide substantial improvement - and really easy to point to options that would make things a whole lot worse. 

We still have fuel *because* prices are high. Otherwise, tankers would go elsewhere. High fuel costs worsen all kinds of things for everyone. People have less money to spend; business costs are higher. And there’s still risk it could get worse. 

Policy cannot do much to help, beyond what it already has done with targeted household support and attempts to bolster international supply arrangements. 

Making it easier and faster to put up new power generation would help bring down electricity costs and provide more alternatives. But that's not really a short-term fix. 

I do not believe that there are any policy moves that can provide substantial benefits in a hurry. There are lots of small, incremental things that could be addressed in the short-term, but they wouldn’t have large effects quickly. 

It would be better to stop looking for short-term fixes, and to start addressing the more foundational problems. 

Longer-term stuff requires finally updating NZ Super, getting a workable version of resource management through that can maintain cross-party consensus and make it easier to build houses and businesses, local government reform to make it easier for them to accommodate and even welcome growth, and civil service reform to help central government work better regardless of whether Labour or National is calling the shots. If proper competitive urban land markets form the cross-party core of resource management reform, that will be highly beneficial over the longer term. 

It would also help if NZ started being more realistic about what is possible on small scale. We too often try to replicate regulatory functions of larger countries when we could instead lean more heavily on determinations from overseas. If you would have no qualms about taking the medicine a British doctor would prescribe, and a French doctor would prescribe the same thing, why require Medsafe to duplicate those regulators’ work? And why wait for foreign pharmaceutical companies to get around to applying here, when our small market isn’t a priority? It only creates delay. 

Shifting toward unilateral recognition of overseas standards would make it faster and easier for households and businesses to access products and services from overseas. It’s worth considering beyond medicines. Not as important as RM reform, but lots of small bits could add up. 

Legalise energy

If someone owns some land with minor brush on it and wants to clear that brush, and clearing isn't going to create erosion into streams that bother neighbours or anything like that, they should be able to do it. It's their land. If someone else wants them to preserve the brush, the someone else should purchase an easement. 

If someone owns some land and wants to put solar panels on it, they should be able to do it. It's their land. If someone else wants them to not put in solar panels, that someone else should purchase an easement.

Read this, and remember the Golgafrinchans.

The potential size of a proposed solar farm in North Canterbury has been reduced due to compliance issues on the land.

Far North Solar Farm Ltd has confirmed it has removed a section of land from its resource consent application to build a 181ha solar farm near Waipara, north of Amberley, after the landowner removed native vegetation from the site.

The large solar farm project has drawn criticism from some locals who say it would have adverse impacts on the environment and to property values, pose risk to passing motorists from glare from the panels and question how the solar panels would stand up to strong winds.

FWIW, the group trying to stop the solar farm puts the start-date on the project as April 2023. 

More than three years ago. 

Good doormen and good bouncers

I'm not convinced that there's a real problem to be addressed by ACT's immigration policy. 

I also don't see it doing much real harm. And I can see how it could do a lot of good for public perceptions around immigration. And those perceptions, held only by a very small minority as of the 2023 survey data (2025's will be released later this year) could turn into a real problem. 

ACT wants to make it easier to deport residents. The government is already shifting policy so that someone who has been resident here could be deported for crimes committed within 20 years of being granted residence. I miss that window by a couple years. ACT suggests removing the time limit entirely. 

So if I don't bother going for citizenship in the interim, and I get convicted (innocent people do get convicted from time to time) when I'm 70 years old, and have basically no remaining connection to Canada, and wouldn't be eligible for pension there either for lack of residence over the prior half-century, I could be sent off to the arctic. Very nice. 

They've also proposed a stand-down period for access to benefits - fair enough. Even Clinton had that in his 1996 welfare reforms. ACT ought to consider other parts of that policy, including the term limit on lifetime access to the equivalent of Job-Seeker Work-Ready benefits. 

And they've suggested greater enforcement against overstayers. People who overstay their visas but don't cause any other trouble aren't a priority for Immigration New Zealand - for pretty obvious reasons. Increasing enforcement would mean diverting resource from other activities, or staffing up. They're going to require platforms like Uber to do more checking that driver-partners have valid visas; hopefully the regulatory burden won't be substantial. I don't think there's any real problem here - overstayers will have particular incentive to not do crimes because drawing attention would mean quick deportation. But also fair enough where perceptions of system integrity matter. 

I worry more about what ACT's policy is responding to. A pile of people on the right have been encouraged to believe that the immigration problems evident in Europe and the UK will soon manifest in NZ - or that they already have. ACT hasn't encouraged this false belief. Some others have. 

Viewed as a suite of measures designed to help everyone have confidence that bad people would be kicked out quickly, so that NZ can maintain the kinds of high levels of support for migration seen in MBIE's surveys over the past decade, it's good. 

But a bit depressing that it may be necessary.

My column in Monday's post (ungated here) covered it. The online version of the article has links to the surveys etc that I used as source. 

I used a bar analogy. A bar ought to have at least one of a good doorman or a good bouncer. Unwillingness to have either could be risky. NZ has a decent doorman and a pretty good bouncer. Strengthening both won't do much harm, and could let the bar accommodate more patrons.

Judicial discretion under MMP: Smith v Fonterra

Robert Cooter's The Strategic Constitution is excellent. I used to teach from it in public choice. 

He provides a game-theoretic description of judicial discretion.

Imagine a unicameral Parliamentary system with no particular transaction costs in producing legislation. The executive and the Parliamentary majority have a unified ideal point. 

If the composition of Parliament and the Executive have changed since legislation was passed, and a case comes up revealing potential ambiguity in interpretation, the Judiciary can choose to interpret consistently with the bargain that was struck when the legislation was passed, the outcome that might obtain if the legislature and executive were to reconsider it, or the Judiciary's own view of what the public interest requires. 

The judiciary has zero discretion in that case. If it returns a decision inconsistent with Parliament's intention or views, Parliament immediately legislates to correct. 

In a bicameral system, legislating to correct a judicial decision requires agreement between the two houses. The executive will sit in the House; it needs the agreement of the Senate. If views between the two houses differ, the judiciary has discretion within the Pareto set: the set of all points between the ideal point of the House and the ideal point of the Senate. If the judiciary sets a decision outside of that Pareto set, the legislature reverts to some point within the Pareto set. 

He illustrates as follows.

In a unicameral Parliamentary system in a zero transaction-cost world, there is no opportunity to diverge. 

In a unicameral Parliamentary system that has a coalition, there is opportunity to diverge if the governing coalition does not understand the game or refuses to play consistently with it. 

If the bargain within the coalition is weak, the judiciary's discretion is constrained to the Pareto set of the members of the coalition. If it produces a decision outside of that range, the coalition can negotiate to overturn, returning legislation to the Pareto set. But it will not be able to find agreement to legislate to overturn a decision within the Pareto set: by definition, at least one member will prefer the Judiciary's stated position to the status quo.

A more clever coalition will realise that this game gives the judiciary room to unwind the bargain struck during coalition negotiations, and will pre-commit to overturn any decision that starts down that path - even if one party prefers the judiciary's decision in that particular case. 

That's the zero transaction cost world. A not-stupid coalition precommits to not letting the judiciary play shenanigans. And so the judiciary does not engage in adventures. 

Now let's move to the more realistic positive transactions cost world.

Parliaments have a habit of producing bad legislation whether through haste, incompetence, or unwillingness to resolve political conflicts within a governing coalition. In that latter case, explicitly political decisions may have been avoided through use of ambiguous language that will require the judiciary to take interpretive decisions of political consequence. You could imagine the legislation as not providing a point on the line, but rather a fuzzy shaded area spanning potential interpretations. And you'd hope that the legislature at least would have set legislation ruling out interpretations outside of the Pareto set.

Legislating around a decision is not costless. A governing coalition has its own legislative priorities. Time, effort, and drafting resource spent bringing an errant decision back in line means time, effort, and drafting resource not spent on other pieces of legislation. And some MPs' understandings of comity give the judiciary much room for shenanigans before the legislature would be allowed to act.

These transactions costs widen the range of judicial discretion. Even a governing coalition with tight agreement will not act unless the judiciary strays beyond a tolerable range. Beyond that range, the legislature will correct aberrant decisions. Within the range, the judiciary has discretion. 

And that turns things into an expectations game. If the judiciary expects that Parliament faces high transactions costs for reversion, then it will play as though it has a very wide range for discretion. Repeated refusals by the legislature to correct aberrant decisions affect those expectations. They reinforce the judiciary's view of its own discretion, and solidify legal academics' views that the court actually has that discretion. 

Smith v Fonterra looked like judicial shenanigans. Emissions have cumulative effects on global warming. No individual emission is the problem. It's their cumulative effect. Regulation makes far more sense than approaching it as tort. And we have a regulatory system around emissions. In the case of energy sector defendants, their emissions are fully covered by the ETS.

It took far too long to do it, but Parliament has finally moved to correct. 

I doubt it will be enough to convince the Supreme Court that the legislature is generally willing to incur costs to correct adventures by the judiciary. But it is a very good start.