Friday, 20 October 2017

Policy costings

Another potential benefit of the incoming coalition: a policy costings unit for elections. The Greens have long favoured one. Brian Fallow hits the case here
Voters would be better informed, and Government-forming negotiations made easier, if we had an agency charged with providing impartial, independent costings of the policies parties put before us at election time.

It is too easy, as things stand, for politicians to go around promising the earth, and throwing in the moon for good measure, with barely a dollar sign to be found in their manifestos.

The OECD, in its latest country report on New Zealand, noted that the Treasury does not cost or assess opposition parties' policy proposals.

"Consideration should be given to strengthening New Zealand's institutional framework in this regard, possibly by allocating that responsibility to an existing agency such as the Treasury. Another option, which might enhance the perception of independence of the evaluations, would be for a new fiscal council to provide such estimates," it said, adding that most OECD countries have some form of independent fiscal institution.
He highlights some of the caveats I'd raised in a column last year about the proposal: politicians could time the release of bad policies to make costing difficult. I still think it's worth doing though - and especially if bundled into an independent Office of Parliament that, between elections, runs a cost-effectiveness ruler over existing line-item spending.

We get at least cursory evaluation of new spending programmes, but long-standing policies just roll over from budget to budget with little review. The costings office would keep its wits sharp between elections doing something valuable, and would be ready come the election to run the costings. 

Enjoy the Interregnum

If you haven't signed up for the Initiative's weekly newsletter, you should. I need to be better at blogging the bits I write there. Here's this week's column, written on Wednesday.
If no person’s life, liberty or property are safe while Parliament is in session, what’s the rush to have a new government?

As I write this column, no coalition has been struck. Journalists stake out Parliament’s parking garage trying to divine the will of Winston from cryptic hints he might there provide. And if you took the newspaper headlines too seriously, you might think that New Zealand would sink under the ocean if coalitions weren’t formed by whatever date Winston teased about.

But everyone else simply got on with life.

The morning after the election was beautiful. Smiling people strolled along Wellington’s sunny waterfront, almost as though having a Prime Minister were not that important for anything that matters.

And while nobody has yet figured out the causal mechanism behind it, even the weather has been better since we stopped having a Prime Minister. I count about four good days for every terrible one since the election. We know you can’t beat Wellington on a good day, but it’s rare to have those good days in September and October. Since we stopped having a Prime Minister, they’ve been the norm.

Even political tragics could have been happier with the lack of result: the sorrow of losing outweighs the joy of political victory, and neither of the main parties had to reckon with defeat.

And those sceptical about government full-stop have been able to pretend we have none. Sure, the administrative state continues churning away in the background. But it is on auto-pilot. And auto-pilot can be a nice option when the broad policy settings are already basically right.

Outside of that locked and empty cockpit, people argue about daft things like whether it might be a good idea to break the aileron controls by requiring the Reserve Bank to target exchange rates rather than just inflation. The longer that door stays shut, the safer we all are.

The interregnum cannot last forever; the auto-pilot cannot land the plane. Broken policies around housing must be fixed, and Ministries and Councils cannot do that on their own.

But we should enjoy the reprieve from government while it lasts – and hope for more sunny days ahead.
And if Edgeler wants to insist that we do have a Prime Minister, just a caretaker one, my fingers are in my ears. Let me pretend.

Newsletter subscription link's at the bottom of the page here.

Risks and opportunities

The Outside of the Asylum is getting a new Prime Minister, leading a coalition of Labour, the Greens, and New Zealand First. As always, new governments bring risks and opportunities. Here are some of them.

On the upside, we can hope for more serious addressing of the Auckland housing crisis. It took a long time, but National had finally come around to hitting the infrastructure financing problems at the root of Auckland's housing shortage. Labour can be expected to build on this. Labour's Phil Twyford understands the supply and financing constraints. His solutions, around designated infrastructure corridors and value-uplift charging, differ from National's - but will also work. And remember that it's Labour that's supported abolishing the Auckland rural-urban boundary that has jacked up the price of zoned land.

In the longer term, the government will need to address the incentives issue in which councils bear the bulk of the costs of accommodating growth and central government enjoys the bulk of the upside. But Labour should be able to make some progress on getting the necessary trunk infrastructure through.

I worry that the Labour/Green push for a substantial expansion in building state housing will quickly hit against sector capacity constraints, though, even if they're able to get infrastructure lined up. Last quarter's inflation figures suggest those constraints are starting to bind. The only way of easing those constraints in the short term are through immigration, through more relaxed rules around material supply that would recognize building materials from places like Tokyo, Seattle or Vancouver as being sufficient for New Zealand purposes without re-certification here, and potentially through eased rules around the Overseas Investment Act that would allow foreign construction companies able to build to scale to come in and build thousand-home subdivisions and in-town up-zoned developments.

But that gets us to one of the risks: the intersection of Labour, Green and New Zealand First's core beliefs is distrustful of markets and of foreigners. I can't see how we get anywhere close to the proposed 100,000 houses built in any reasonable time without allowing foreign workers, materials, capital and expertise to help.

New Zealand's Overseas Investment Regime already makes us the most restrictive in the OECD. Any land adjacent to a reserve must go through the screening regime, and it will be tough to ease that back under the current coalition. Heck, even New Zealand's Fletcher Construction has to jump through Overseas Investment Act hurdles because it has foreign shareholders. New Zealand First has proposed cutting immigration numbers substantially, and Labour and the Greens have been very sympathetic to that view. The incoming government has also signaled an intention to re-negotiate trade agreements to allow banning non-residents from buying houses. If supply issues are appropriately addressed, the ban does no good and could backfire if it prevents foreign investors from building houses here to rent out.

And there’s some risk the incoming coalition will end what National has been calling the “Investment Approach” to welfare policy. That one’s been promising, but has remained at the promising stage for a while – they've only started to get it seriously moving.

Under the Investment Approach, the government uses back-end administrative data to figure out which interventions reduce the government's long term fiscal burden. It's taken a long time to get there, but the Social Investment Agency's now set up to do that work, they have good statisticians there doing the analysis, and multicategory appropriations are set to fund things that don't fit departmental siloed budgets.

Prime Minister Bill English's vision behind it has been admirable. He's seen that too little spending is accompanied by any assessment of whether it improves the lives of those receiving it. The Investment Approach would start fixing that. It would also break down the informational advantage that Ministries hold over their Ministers. If the Social Investment Agency can show that NGOs  provide some beneficial outcome at half the cost of the line departments, Ministers can use that to better hold their Ministries to account.

It has been long and hard work for the government. But there are NGOs that really want to be able to assess whether their work does good and have been starting to work with the Social Investment Agency to combine their data and figure things out.

There's been some debate about whether minimizing the state's fiscal liabilities is the right goal, but that goal has always had political side constraints. Nobody would have proposed dumping beneficiaries from the benefit system as a way of minimizing liabilities. And it would always be possible - and desirable - to run some ancillary outcome monitoring alongside the fiscal liability measures. In English's view, which I think is the right one, people wind up costing the state a lot of money when they're living miserable lives, and things that bring them out of misery reduce the government's longer term outlays. He's viewed it as a proxy for reducing misery.

I really hope that the Labour coalition maintains the Investment Approach, and strengthens it by specifying the ancillary outcome monitoring to make sure that the policies that reduce the longer term fiscal burden are also the ones that improve lives.

But they will be under pressure from a public sector that might prefer to maintain information advantages over their Ministers. NZ First has had Big Brother concerns around that use of data - which also make me worry about whether the current push toward open data will be able to continue. And the Greens have wanted to undo much of the welfare policy emphasis that began under Helen Clark's Labour government to encourage beneficiaries to shift into work. Partially due to that shift, New Zealand now has an employment rate that is at least as high as it has ever been since the 1980s. I worry that the trade-offs haven't been appropriately appreciated.

Could be worse though! I expect New Zealand to remain the Outside of the Asylum. I expect that any changes to the Policy Targets Agreement to satisfy New Zealand First might ask the Bank to avoid undue variability in the exchange rate while maintaining inflation in the 1-3% range rather than asking the bank to pursue a dual mandate - the latter would not be a good idea at all. Any large changes to the tax system would only come after assessment by a new Tax Working Group - here are some of the questions I hoped such a group might answer.

And, for a bit of fun, here is the Spotify playlist that The Spinoff put together of tunes from incoming Prime Minister Ardern’s time as DJ. I love the Shatner version of Common People and hadn’t heard it before hearing this playlist. The Tom Jones version of Lust for Life is also great fun.

Update: other opportunities:
  • The coalition will be addressing water quality issues; I hope we're able to do it through cap and trade regimes rather than ones that would do less good at higher cost.
  • New Zealand First's regional development interests and local government experience could allow greater devolution through things like the Manchester City Accord. Wellington asked the government for that kind of an option; New Zealand First might be particularly sympathetic to greater devolution to Councils, depending on what powers Councils might want.
  • The Greens will get a referendum on personal cannabis use by 2020. 

Friday, 13 October 2017

A Wellington City Deal?

Newsroom's Shane Cowlishaw reported yesterday that Wellington City has been talking with central government about either a variant on the Manchester city accord, or a Special Economic Zone.

What would be in the deal isn't known - the OIA did not provide many details. It noted that Wellington would like a city deal following the UK examples, or a Special Economic Zone to allow different regulatory settings for Wellington, and a revenue-sharing mechanism for the upside gains of any such arrangement. As for the other details, it only noted the potential for a beefed up Urban Development Authority. I'm a skeptic on those as UDAs with expansive powers of compulsory acquisition are dangerous things.

But the rest is interesting; we at the Initiative were happy to see Councils taking this up. Khyaati and I suggested SEZs as a way of achieving devolution and policy trials within the context of a unitary state with Councils of vastly differing capabilities and competence. Our report on localism noted the Manchester model as another way of achieving the same thing.

I talked a bit on the radio yesterday about the proposal. I hope the incoming government is able to progress things with Wellington Council.

Thursday, 12 October 2017

Junk science

It is difficult to see what good purpose was served by this study.

The Otago people (in conjunction with Auckland's public health group) put cameras on kids that would take snapshots every six seconds. Then they poured through the footage to see how often the cameras, and presumably the kids, saw things that Otago people have long wanted to have restricted, like ads for food they don't like or alcohol. They counted the number of times things were seen. And then published the numbers in (at least) two separate studies expressing horror at the number and calling for bans on the things that they counted.

Is there any number that would have been low enough? Almost certainly not.

Is there any context for the number that might assist in anyone telling whether a number is low or high? Heck no. The news story on it talks about kids being bombarded with 27 junk food ads per day. Would there be fewer than 27 ads for candy in any 80s kid's daily bundle of comic books? I'm not the only one who remembers being bombarded with ads for Life Savers, am I?

The news story also says they got $800,000 to do the study.

They also counted the number of times the cameras saw alcohol related stuff and used the number, I kid you not, to call for a ban on alcohol sales at supermarkets.

The abstract of their paper is almost parody. Here it is.
Background and aim

Exposure to alcohol marketing within alcohol retailers has been associated with higher rates of childhood drinking, brand recognition, and marketing recall. This study aimed to objectively measure children's everyday exposure to alcohol marketing within supermarkets.


Children aged 11–13 (n = 167) each wore a wearable camera and GPS device for four consecutive days. Micro-spatial analyses were used to examine exposures within supermarkets.


In alcohol retailing supermarkets (n = 30), children encountered alcohol marketing on 85% of their visits (n = 78). Alcohol marketing was frequently near everyday goods (bread and milk) or entrance/exit.


Alcohol sales in supermarkets should be banned in order to protect children from alcohol marketing.
I wonder what number would have had them saying "Ok, maybe we don't need to call for a ban." Would it be more than zero? Was there any point to the study? I don't think the 1989 legislation that allowed sales in supermarkets said anything like "Oh, and we totally expect that parents will cover their kids' eyes as they go past the wine aisle, so it's ok, but if anybody ever shows that kids might actually see what's down the aisle, then we totally need to re-think this."

Some context that didn't make it into any of the press reporting:

  • The proportion of kids aged 15-17 who consumed alcohol in the past year dropped from 74.5% to 57.1% from 2006/7 to 2014/15.
  • Binge drinking more than halved over the same period, dropping from 25% to 10.7% of kids aged 15-17.
  • The number of hazardous drinkers among those aged 15-17 dropped from 19.5% to 10.8% from 2006/7 to 2014/15.

I don't know if this is the stupidest study in the world. Otago also had that one where they recruited 13 people, mostly from Facebook, interviewed them about their smoking, then called for a ban on smoking outside of bars on the basis of those conversations.

What would be sufficient basis for a call to ban alcohol sales at supermarkets? Strong evidence that the substantial inconvenience cost imposed on shoppers would be outweighed by reductions in external harm imposed by drinkers as result of the ban.

Being able to pick up a bottle of wine or beer with your normal shopping trip is a good thing that should count for more than nothing. It's a nice part of the Outside of the Asylum.

Wednesday, 11 October 2017

Restrictions on foreign investment - some context

Winston Peters is pushing for more controls on inbound foreign direct investment as part of his coalition negotiations with Labour and with National. Fran O'Sullivan's piece in the Herald suggested that New Zealand's regime is pretty laissez-faire.


Here's the latest OECD figures. They tally the restrictiveness of rules around foreign direct investment. New Zealand is the most restrictive country in the entire OECD. It is the seventh most restrictive country of the 62 countries they surveyed.

Here's what you get if you plot countries from most restrictive on the left to least restrictive on the right.

The Philippines is the world's most restrictive country, closely followed by Saudi Arabia and Myanmar. Then come China and Indonesia. Jordan is a bit more restrictive than New Zealand, but only barely. Then come India, Malaysia, Tunisia and Mexico, followed by Laos. 

If New Zealand is laissez faire on FDI, I guess Japan's a bunch of anarcho-capitalists and Luxembourg... we don't have a word for whatever that is. 

Tuesday, 10 October 2017

The Natural

Twitter is wonderful for pointing you to things you should have known, but had missed. 

I'd missed (then) Don McCloskey (now Deirdre)'s 1992 piece in the Eastern: The Natural.
Richard Bower is an economist right down to his wing tip shoes. He knows Sophocles and Shakespeare all right, but (there it is again) he believes in economics. not all economists do, of course. Bower does, as I do, and as perhaps fifteen percent of the profession does. Give the Bowers or the McCloskeys any social situation, from insider trading to an obstreperous teenage child, and they look to economics for an answer, or at least for a good running start.

People who "believe in economics" tend to agree on who the best economists are. They admire economists like Armen Alchian, Ronald Coase, Gary Becker, Gordon Tullock, Leland Yeager, economists often as not unknown to the unbelieving mainstream of the profession.


So Bower and I agree on economics. Our agreement makes our one disagreement about teaching it puzzling. Bower thinks that we can teach economics to undergraduates. I disagree. I have concluded reluctantly, after ruminating on it for a long time, that we can't.
Read the whole thing if you, like me, had missed it. McCloskey concludes that Bower overestimates the ability to teach economics to undergrads because he is a natural economist, who comes by the way of thinking easily, while McCloskey took a long time to learn it - and good teaching materials are hard to come by.

But teaching materials for thinking like an economist have gotten better since '92. Harold Winter's texts are excellent. So are Tim Harford's. And all of Marginal Revolution University. And blogs.

Monday, 9 October 2017

Poverty policy's terrible tradeoffs.

Susan Edmonds canvasses the state of play around poverty, along with a few bits from me on the subject. It's a good piece.

Basically, policy is a pile of terrible trade-offs.

Cash assistance makes recipients better off. But providing it requires choosing among a few poisons.

Focusing assistance on those in most need through tight eligibility requirements makes sure that aid goes to those in most need - but at the cost of demeaning questions and testing and constantly justifying yourself to WINZ.

Targeting cash assistance to those in most need means clawing back cash benefits as someone is able to earn income, and that provides disincentives to work. And it provides incentive to feign eligibility. Worry less about the lying aspect and more about how it can split up families. And targeting also requires clawing back benefits as earned income increases, which provides disincentive to work.

Shifting instead to a guaranteed annual income gets rid of the demeaning questions, if you provide it at a level high enough to avoid having to layer on a welfare system on top. But providing that much assistance blows out the budget very quickly. Treasury's 2010 analysis reckoned that a GAI paying about the average amount received by someone on benefit would require a flat income tax of about 50% to cover the costs - and remember that that will be less than what's received by those currently worst off. So you'd still need to layer a welfare system on top of that.

Kevin Milligan's impossibility still holds. You can't pay a universal benefit high enough to not leave the worst off worse off without either having a very high phase-out rate (and consequent very high EMTRs), or blowing out the budget. And layering a welfare system on top of a GAI brings back all the problems above, albeit hopefully among a smaller cohort.

And you can't pretend that trade-off doesn't exist by appealing to other taxes that aren't currently in place. Why? Because if those taxes made sense, then they make sense regardless of whether you want to run a UBI. You'd then want to put them in on a revenue-neutral basis, replacing other taxes, first. If the new tax is really more efficient, then the deadweight costs of tax are a bit lower than before so the overall size of government can go up a bit in equilibrium. But whether that next extra lump of spending should go to a UBI or to other spending - you're back in the trade-offs world. You can't just magic up a new tax and pretend the best use for it is your pet project - some other proposal might be a better use of the funds. 

Shifting from cash transfers to in-kind benefits for some kinds of in-kind benefits solves part of one of those problems. If there are benefits that are valuable to someone in need, but useless to others, then you don't have to worry about people lying to get access to that benefit. Cash benefits require monitoring systems and intrusive questions to avoid diffusing the benefits beyond where they're most needed. Some in-kind benefits are self-targeting. So things like literacy programmes for example - people who are literate won't try to get access to them, and you might have reason to expect that improving literacy might help reduce need.

Cash should always be the baseline against which other things are measured. If an in-kind benefit is less valuable to the recipient than cash is, that's a pretty big strike against it. But say that every dollar's worth of spending on an in-kind benefit is valued at $0.95 by the recipient, but providing a $1 cash transfer would require paying out and extra $0.10 in monitoring costs and in leakage to those who weren't really eligible - then some in-kind benefits can wind up being better overall.

So everything above is terrible trade-offs. The most promising option remains what they government's been trying under the investment approach - better evaluation of what programmes can cost-effectively move people from benefit and poverty into self-sufficiency, where possible, and otherwise seeing what's most cost-effective in reducing misery. But there are still piles of problems there too - like difficulty in writing outcome-based contracts for NGOs delivering services; defining outcomes; and, need for monitoring to ensure that reductions in the government's long-term fiscal liability is a good proxy for what the government is trying to achieve. But it still looks the most promising.

Saturday, 7 October 2017

The Battle of Athens

I hadn't heard of this one before. After the Second World War, a bunch of returning veterans used force of arms in Athens, Tennessee, to break a corrupt party machine that was controlling the elections and local government.

The local police were using predatory ticketing to fund the local party machine; it reads a lot like current U.S. asset forfeiture practice.
A state law enacted in 1941 reduced local political opposition to Crump's officials by reducing the number of voting precincts from 23 to 12 and reducing the number of justices of the peace from fourteen to seven (including four "Cantrell men").[5] The sheriff and his deputies worked under a fee system whereby they received money for every person they booked, incarcerated, and released; the more arrests, the more money they made.[5]Because of this fee system, there was extensive "fee grabbing" from tourists and travelers.[7] Buses passing through the county were often pulled over and the passengers were randomly ticketed for drunkenness, whether guilty or not.[5] Between 1936 and 1946, these fees amounted to almost $300,000.[7]


During the war, two service men on leave were shot and killed by Cantrell thugs.[7] The servicemen of McMinn County heard of what was going on and were anxious to get home and do something about it. One veteran said he "thought a lot more about McMinn County than he did about the Japs. If democracy was good enough to put on the Germans and the Japs, it was good enough for McMinn County, too!"[7] The scene was ripe for a confrontation when McMinn County's GIs were demobilized. When they arrived home the deputies targeted the returning GIs, one reported "A lot of boys getting discharged [were] getting the mustering out pay. Well, deputies running around four or five at a time grapping up every GI they could find and trying to get that money off of them, they were fee grabbers, they wasn't on a salary back then."[10]
The Battle centers around the jail where the Sheriff has retreated, with the ballot boxes, and a pile of hired-in armed men, to rig the vote counting.

Polls Closing

As the polls closed, and counting began (sans the three boxes taken to the jail), the GI-backed candidates had a 3 to 1 lead.[5][13][20] When the GIs heard the deputies had taken the ballot boxes to the jail, Bill White exclaimed, "Boy, they doing something. I'm glad they done that. Now all we got to do is whip on the jail."[19]
The GIs recognized that they had broken the law, and that Cantrell would likely receive reinforcements in the morning, so the GIs felt the need to resolve the situation quickly.[21] The deputies knew little of military tactics, but the GIs knew them well. By taking up the second floor of a bank across the street from the jail, the GIs were able to reciprocate any shots from the jail with a barrage from above.[21]
By 9:00 PM, Paul Cantrell, Pat Mansfield, George Woods (Speaker of the State House of Representatives and Secretary of the McMinn County Election Commission), and about 50 deputies were in the jail, allegedly rummaging through the ballot boxes. Wood and Mansfield constituted a majority of the election commission and could therefore certify and validate the count from within the jail.[21]

The Battle Begins

Estimates of the number of veterans besieging the jail vary from several hundred[20] to as high as 2,000.[15] Bill White had at least 60 under his command. White split his group with Buck Landers taking up position at the bank overlooking the jail while White took the rest by the Post Office.[19]
Just as the estimates of people involved vary widely, accounts of how the Battle of Athens began and its actual course disagree.
Edgerton and Williams recall that when the men reached the jail, it was barricaded and manned by 55 deputies. The veterans demanded the ballot boxes but were refused. They then opened fire on the jail, initiating a battle that lasted several hours by some accounts,[15][20] considerably less by others.[22]
As Lones Selber, author of the 1985 American Heritage magazine article wrote: "Opinion differs on exactly how the challenge was issued." White says he was the one to call it out: "Would you damn bastards bring those damn ballot boxes out here or we are going to set siege against the jail and blow it down!" Moments later the night exploded in automatic weapons fire punctuated by shotgun blasts. "I fired the first shot," White claimed, "then everybody started shooting from our side." A deputy ran for the jail. "I shot him; he wheeled and fell inside of the jail."[5]
Read the whole thing, including the aftermath.

Friday, 6 October 2017

Business school structure and performance

Please answer this short survey if you are familiar with academic economics departments. I had a previous version of this up earlier, but have fixed a couple of errors in it - apologies to the three people who answered the prior version. This one more accurately reflects what I need to know about. More context to come.

Create your survey with SurveyMonkey

Thursday, 5 October 2017

Age of Freaking Wonders

There is no great stagnation.
  • Google's new earbuds, paired with their Pixl phone, are the Babelfish: realtime translation on demand for conversation. Alas, no NZ release date yet scheduled. But still.

  • The new graphics engine for simulated faces. Just look at what they can do now.

    It advertises itself as compatible with all game engines and animation packages. Dunno how long it'll take for this kind of rendering to show up in real games and what you'll need to run it but... wow. 

Wednesday, 4 October 2017

Flying blind

I guess unconscious bias is only a bad thing if it operates in the expected direction. This one's a couple months old now, but I'd missed it at the time
A measure aimed at boosting female employment in the workforce may actually be making it worse, a major study has found.

Leaders of the Australian public service will today be told to "hit pause" on blind recruitment trials, which many believed would increase the number of women in senior positions.
Professor Michael Hiscox, a Harvard academic who oversaw the trial, said he was shocked by the results and has urged caution.

"We anticipated this would have a positive impact on diversity — making it more likely that female candidates and those from ethnic minorities are selected for the shortlist," he said.

"We found the opposite, that de-identifying candidates reduced the likelihood of women being selected for the shortlist."

The trial found assigning a male name to a candidate made them 3.2 per cent less likely to get a job interview.

Adding a woman's name to a CV made the candidate 2.9 per cent more likely to get a foot in the door.

"We should hit pause and be very cautious about introducing this as a way of improving diversity, as it can have the opposite effect," Professor Hiscox said.
I suppose unconscious bias is one-way bad if the goal is diversity rather than just hiring the best applicant. The full report from Australia is here.

Meanwhile, over at the New Zealand Treasury, blinding the applications gave Treasury something that they thought worth celebrating. They're even getting an award for it.
To increase the diversity of its workforce, Treasury reformed its graduate recruitment process to reduce unconscious bias and expand the skills, experiences and qualifications it valued. Opening Our Eyes Through Blind Recruitment won the Improving Diversity and Inclusiveness in the Public Sector award.

Through the introduction of blind applications, which redacts personal information such as name, gender, location and school attended, Treasury's graduate intake now has a majority from mixed ethnic backgrounds, a 50/50 gender representation and none have solely economics qualifications.

This seminar will provide further details about this important public sector recruitment initiative.
I expect that blinding on schools means the secondary school attended rather than the university attended. If it were blinding the attended university, that would not be good.

Emphasis added on the part that worries me.

If serious economics graduates stop seeing Treasury as a place they might want to work, that could be a difficult problem to undo - and it would have substantial longer term implications.

I'd heard last year that Canterbury's economics grads had given up on Treasury as being any kind of place for serious economists to go for work. A student there had emailed me asking about options at Treasury, and I'd advised that the best route was to talk with students at Canty in Honours who'd done the Treasury internship over the prior summer - to get a feel for the place.

Turned out that the Canterbury students had stopped applying for that internship and none had gone the prior summer. It seemed like Treasury's recruitment team that went out to the universities overshot ... a lot... in emphasizing how open they were to non-econ grads; the econ students took the signal and went where they thought they were wanted.

I'd hoped that Treasury was working to change that impression.

I understand that RBNZ is seen is the place for serious economics students to go, where previously RBNZ and Treasury were always in a race for our best students. The ranking used to be RBNZ and Treasury had pick of the litter, putting out job offers even before students started their Honours or MCom year. Other departments waited until RBNZ/Treasury finished their recruitment, since nobody would accept an offer if either of those were still outstanding.

Double-degree students can be fantastic. Law & Economics is a great combination. There are seriously good math & economics double-degree students. And Economics has always paired well with Philosophy, either as a double or as a PPE degree. Heck, my undergrad was double-honours Economics & Political Studies.

But if Treasury were starting to have trouble in convincing serious econ grads that they were really interested in hiring economists, celebrating not hiring any single-major economists in the latest recruitment round isn't the most obvious play.

And I wonder whether this hiring outcome is because of their new blinded recruitment system, or because they've successfully convinced the serious econ majors that Treasury analysts get to play with the Hexagon of Happiness while RBNZ analysts get to do real economics.

Tuesday, 3 October 2017

Big data beats

This is amazing. Big data identification of all the musical genres and where they sit relative to each other. Here's the project description:
This is an ongoing attempt at an algorithmically-generated, readability-adjusted scatter-plot of the musical genre-space, based on data tracked and analyzed for 1536 genres by Spotify. The calibration is fuzzy, but in general down is more organic, up is more mechanical and electric; left is denser and more atmospheric, right is spikier and bouncier.

Click anything to hear an example of what it sounds like.

Click the » on a genre to see a map of its artists.

Be calmly aware that this may periodically expand, contract or combust.
Just hit the link to see what it means. It also has an associated Spotify playlist. Just look at how amazing this thing is, and how it's all free, and how you can listen to all of the music with a (ad-ridden) free Spotify account or for a cheap-as-chips monthly subscription.

We live in an age of freaking wonders. Discover new realms of music you never knew you'd like, get a ton of surplus, and not a dime of the increased value of the Spotify subscription shows up in the GDP stats except if it gets more subscribers as consequence.

Monday, 2 October 2017

Foreign Investment - the random number generator strikes again

Every month, the Overseas Investment Office puts out its figures on foreign investment in New Zealand. This month, people seem to want to talk about those numbers - likely because Winston Peters is in coalition negotiations.

Anyway, here are the notes I put together for a couple of radio chats on it. They're not extensive notes, as I hadn't much time on this one.

  1. Most of the world competes for foreign investment. Some of that competition is silly, like the subsidy war that Amazon might get among cities for its new hub. NZ mostly doesn’t play that game, sensibly, although its film tax credit regime isn’t far. But the OIA regime is the opposite: it drives foreign investment away.
  2. In 2012, 80 of 198 countries had attracted a higher stock of inbound FDI as %GDP than had New Zealand. Per capita, Australia had attracted 45% more inwards FDI than NZ by 2012.
  3. Year on year changes in FDI flows will depend a lot on what’s going on in global markets and in the current exchange rate. January to August this year is a bit under a billion dollars more than last year. But it’s about a hundred million lower than January-August 2015. But Jan-August 2014 was much lower than last year. These things bounce around; it can be a bit silly to read too much into any particular year’s numbers. If we look back farther, the gross value of investment consideration Jan-August 2007 was 14 billion; it hasn’t been reported for 2017, but for 2016 it was just under 7 billion. You need more detailed work on what’s been going on in policy as well as exchange rates. And because NZ sees so little foreign investment as compared to other countries, it’s easy for a few big deals to push the numbers around disproportionately. The prior years' data is here.
  4. This year’s figures include Vero’s takeover of Tower Insurance. One of the big land transactions was 3600 hectares sold by Solid Energy to BT Mining. Mining’s about the only land sale where the buyer is digging up the ground and potentially sending it abroad – but solid energy would be doing that anyway. As for the rest, it isn't like foreign investors are digging up New Zealand farmland and sending it overseas. Foreign owners here are subject to all the same rules as domestic owners. 
  5. NZ tops a lot of world rankings for ease of doing business. But we’re 32nd in the world, behind even Rwanda, on severity of restrictions on foreign ownership. Everybody talks about how protectionist Japan is; Japan’s less restrictive on foreign ownership than New Zealand on the rankings. Sweden is 7th least restrictive. Why are we celebrating scaring investment away when New Zealand firms can have trouble in access to capital? Foreign owners also can bring connections and expertise to the table that can be difficult to access domestically as well.
XKCD may be relevant here.

Friday, 29 September 2017

In praise of evaluation

The Ministry of Social Development has been evaluating the effectiveness of its employment assistance programmes.

Here's the key figure.

Note that effectiveness is here defined by whether the programme improves participants' outcomes across income, employment, and independence from welfare. It does not look like it measures cost-effectiveness, but would be a first step toward that. They note that future editions will try for a Welfare Return on Investment measure, and a Social Return on Investment measure.

A big chunk of spending couldn't be evaluated because it's on the childcare assistance programme that's available by entitlement to anyone who asks, and has been for as long as they have reasonable data. And that programme is $183 million.

I wonder whether they might be able to get some mileage by exploiting shortages in childcare availability. After the ECE subsidies came in for more families in the mid-2000s, and the rule changes around qualified ECE staff, there were lots of stories about shortages of available childcare spaces. I know we had our application in for daycare at Canterbury University months and months ahead of Ira's being born. Anyway, if there is any data on where there were and were not shortages of childcare, then that might be exploited to evaluate the effectiveness of the childcare assistance programme. They could also consider the discontinuity at the income boundary for eligibility. 

Kudos for the evaluation work! I hope that this kind of work continues, and look forward to the cost-effectiveness versions to come. 

Thursday, 28 September 2017

Morning roundup

A few of the worthies as I close out the browser tabs before Chrome eats every last bit of my system's resources:

And hopefully on closing Chrome, there will no longer be a long lag between moving the mouse and seeing the cursor move. It's really annoying. 

Wednesday, 27 September 2017

For a teal coalition

So. All of Left-Twitter figures that anyone wanting a blue-green coalition are either shills for National who want to destroy the Greens, because coalition would destroy the Greens, or useful idiots for those shills.

Count me as one of the idiots then, because some of the objections just aren't making sense to me - or if they are right, they perhaps don't work in the way that's being suggested.

Received Wisdom from Twitter-Left is that if James Shaw were to bring a substantive environmental policy offer to his party's members for approval, the act of doing so would destroy the Greens by bringing to the fore an internal schism between the Greens' social and economic left, and the Greens' environmentalists. The differences between those groups can be papered over in opposition, but cannot be in any coalition other than one with the left. And simply presenting an offer would reveal the Greens' leader as a traitor to the Left faction.

Let's suppose that's the case - I certainly don't have particular insight into the Greens' internal workings.

But if it is true, then that is also a terrible opportunity for anyone who did want to destroy the Greens: offer a very substantial environmental policy bundle, knowing it would not be brought to the Greens members. Failure to present the option to the members, for the environmental wing, should be as strong a betrayal as presenting the option would be for the left wing. This should be the case except where preference intensity among the Greens' left is much stronger than preference intensity among the environmental wing - which is possible. Pre-commitment to preferences for self-destruction over deviations from a pure line might be part of that.

That then gives National a near no-lose proposition. Make the strongest sincere environmental policy bundle offer they can credibly offer. If it's accepted, they get that coalition with the Greens. If it isn't, it's riven the Green Party. And if National then forms a government with NZ First instead, it gives National the ability to bat back any Green complaint about environmental policy with a reminder of what was rejected. The risk: publicly making the offer annoys Winston Peters and then brings about a Labour-led coalition.

But what would be a good environmental offer that National could make?

The Greens' biggest environmental policy concern this election has been water quality - at least as far as I could tell. Without iPredict around, I didn't pay as much attention as I have in prior years.

So, the first part of the offer would give the Greens a mandate to deliver a system to improve water quality. They get Ministry for the Environment. What makes a deal there acceptable to both the Greens and National? Rather than run the whole things through taxes, set up a trading regime that respects existing drawing rights as property rights, and existing consents for effluent discharge. Set a catchment-level cap on water extraction so that the aquifer is sustainable, set a minimum river flow so that the river is a river, then run the kind of trading regime that Raffensperger and Milke designed.

I started sketching this out here, but there are a lot of details yet to be worked out. We're soon to be starting a research report trying to figure out some of those details, and I rather expect that the Greens might prefer to set those details rather than leave them to others.

At the same time, set catchment-level caps on total nutrient flow to the lakes and let trading work similarly. Taupo's nutrient management regime is a place to start looking - but again there are lots of details to be worked out. Give the Greens a mandate to work those out.

And make the whole thing sweeter by setting a budget item to buy extra water volumes in the rivers where the money can do the most good for water quality, and to buy further nitrate reductions in catchments where it's high enough value to do that.

That set-up has a lot of desirable characteristics. Instead of farmers being offside and fighting the whole thing, they wind up with a property right that they find valuable - and that would be eroded if somebody proposed abolishing the system. The same mechanism that makes it impossible to reverse Canada's terrible dairy quota management system would mean that nobody could worsen environmental quality by either scrapping the system or by doubling or tripling allocations.

What else could be in the bundle? Perhaps Associate Minister of Transport with a mandate to set up nation-wide road-user charging that's time-of-day and congestion sensitive. Road pricing has to get addressed in the next couple decades as electric cars make a hash of petrol excise as a way funding roads. You likely to apply the kind of RUC framework used for diesel over to electrics, but likely with a phase-in to avoid discouraging electric uptake. There would be fun balancing in that, and I expect the Greens would like to be the ones to get to do it. And if you had road pricing right, that would also tell you whether it makes sense to build more roads in the first place - why not a hold on new big roading projects pending real cost-benefit assessment informed by the prices people are willing to pay to use roads at different times of day? Maybe the time-shifting you get just by having a congestion charge is enough to mean you don't need as many new roads.

And add in a path towards including all sectors in the ETS that's triggered by trading partners' accessions - basically, the more other dairy-producing places that have a carbon price, the closer New Zealand should be to having full agricultural inclusion in the ETS. But there are important things to wrestle with there too: too quick accession by NZ could increase global GHG emissions by shifting production to more carbon-intensive places.

Count me as one of the honest idiots in this mess. It's all wheels within wheels, and the whole thing has a bit of a tar-baby feel to it: "No, National, please don't make us a very sound policy offer with lots of environmental concessions in it. That's the last thing we'd want! It would destroy us if you did it. Please don't do it!" And where Shaw has spent the last few years developing an immunity to Iocane powder, who knows what level anybody's playing this game at.

If an offer to the Greens skews things against a coalition with Winston, that makes things more complicated - though I don't know why he should be the only one able to play both sides. Leaving that to one side, I still think National should offer a sincere strong environmental policy bundle to the Greens.

And for what it's worth, this is not the first time such a coalition has here been proposed:
And here's an old TVHE post arguing for the same thing.

Update: A few other areas that could be given to the Greens in a desirable National-Green coalition:

  • Minister of Justice:
    • mandate to present a proposal for blue-skies drug policy reform for currently illegal drugs and novel substances, along with the constraint that what comes out of it either has to go to a referendum or is sunsetted after a decade barring a continuation referendum. I can't see National offering it to the Greens without having that kind of check.
    • mandate to do what it takes to reduces recidivism, under big-data checks of programme effectiveness.
If there are other bits you see working, note 'em in comments. 

Friday, 22 September 2017

Food prices

Whenever food prices go up in one of the quarterly surveys, cue the news stories on how bad it is that food prices went up. When food prices drop, crickets.

Anyway, Aaron Schiff's got a handy new tool out to provide a sense of perspective. It tracks the nominal prices of the different food items that StatsNZ tracks. Here's the nominal price of mild cheddar, going back rather a while.

Thursday, 21 September 2017

The election asylum

New Zealand is mostly the Outside of the Asylum. The rules around what you can and can't do on election day - not so much. Lots of things are banned.

Back in 2011, I'd written:
How about using clever special characters to tweet the binomial formulation of the voter's probability of decisiveness and thereby discouraged mathematicians' turnout? How about tweets pointing to George Smith's tracts against voting coupled with text saying "Don't read this, he's wrong"?

Would a blog post very neutrally specifying the mathematics of decisiveness under MMP implicitly be encouraging abstention and consequently be banned?

Is it possible that it's legal to phone your friends and offer a ride to the polling place while noting the merits of your preferred candidate, but illegal to post the same offer to a Facebook group of the same friends?

So many questions. But I'm far too cowardly to test things on Saturday. Pretty much anything I say on Saturday could be interpreted as being intended to encourage abstention, because I've a long track record of encouraging abstention.
And I remember when iPredict started worrying that allowing trading and consequent public prices on election day would breach the rules, and so froze trading on election day. If early on the morning of election day, one of the candidates were caught in an embarrassing situation with a goat that would likely affect the election results, you couldn't trade on it. If I remember right, they opened things up again when the polls closed.

Duncan over at The Spinoff has a great piece highlighting the absurdities.
The classic I-just-voted-here’s-me-looking-good-with-a-sticker selfie is allowed and encouraged. But don’t you dare say who you voted for. Voting is a private and shameful thing that legally we should all be ashamed of. So keep it to yourself or you’ll be getting a visit from your local social media police who are in fact the real police.

To summarise, don’t wear a mask of a politician’s face; don’t wear that Labour x Supreme collab tee that you kind of regret paying money for; and don’t write a status about why everyone should vote for Greens/TOP/National because this far into the election campaign, no one cares. Also all those things are illegal.

But you know what’s great? You can vote today if you want. And if you want, you can do any and all of the things listed above. In fact, you can do anything you want right up until 11:59pm on Friday 22nd September. What’s the difference between posting a political status at 11:59pm and posting one at midnight, you ask?

Like I said, it’s dumb.
Not part of the Outside of the Asylum.

Wednesday, 20 September 2017

The costs of policy uncertainty

From the latest issue of the American Economic Review (gated):
We examine the impact of policy uncertainty on trade, prices, and real income through firm entry investments in general equilibrium. We estimate and quantify the impact of trade policy on China’s export boom to the United States following its 2001 WTO accession. We find the accession reduced the US threat of a trade war, which can account for over one-third of that export growth in the period 2000 – 2005. Reduced policy uncertainty lowered US prices and increased its consumers’ income by the equivalent of a 13-percentage-point permanent tariff decrease. These findings provide evidence of large effects of policy uncertainty on economic activity and the importance of agreements for reducing it.
Accession of China to the WTO gave China the same Most Favoured Nation status as other WTO members. That meant that the US could not impose trade punishments on China whenever it got mad about Chinese policy. The paper notes that the risk of this was high prior to WTO-accession as the House kept voting to remove China's MFN status post-Tienanmen.

They generate a variable on trade policy uncertainty to put into the gravity equations for trade. Trade policy uncertainty winds up mattering - folks don't want to sink investments into trade relationships if policy can wipe them out quickly.

Now think about the effects of government-induced policy uncertainty in the downtown Christchurch rebuild. Wellington focused on trying to provide certainty around demand in the Christchurch downtown and paid no attention to the uncertainty it was generating around supply and investment through its fiddling with precincts, what was allowed where, whether there would be a new convention centre (and when and where)...

Tuesday, 19 September 2017

Incomes and expenditures

There is a big known problem in New Zealand income and expenditure data. The big known problem is that incomes in the bottom decile are very badly reported. 

Some people will report large negative incomes because they are business owners who have had very bad years - but who often have other assets to draw on in bad times.

Other people are on mixes of benefits and informal income and worry about whether truthfully reporting incomes might have consequences.

Bryan Perry at MSD has been on top of this. I learned it from him - and from chats with John Creedy, if I recall correctly. Anyway, Appendix 8 and 9 of Perry's Incomes Report walks through the problem. Here's one of the implications of the problem: 46% of those reporting income at or below the lowest low-income measure (first column below) also report expenditure that is more than double that income threshold.

All of it means that you should use bottom decile figures with caution. If you're trying to track incomes at the bottom, I tend to go for the upper boundary of the second decile - as that won't be messed up by inconsistencies at the bottom.

And it means that taking expenditures on any category as a fraction of incomes is tricky. It can work fine in the middle deciles. But not so much if you're comparing things to average incomes for the bottom decile, or average income within the bottom quintile. Those averages get affected by what's going on in reported income. If you want to know the burden of food expenditures on households over time, it's better to look at it as a fraction of outgoing expenditures rather than as a fraction of income.

Kirsty Johnston at the Herald reports on high food expenditures among those on low incomes, and on malnutrition among poor kids. The overall stats are worrying. But I would suggest that she should correct this part of it:
The new health data comes as food prices continue to rise, with the consumer price index last week indicating food costs were up 2.3 per cent on a year ago. At the same time, income in the poorest third of households has remained flat since 1982.

Statistics New Zealand information released to the Herald shows for families on the lowest incomes (under $35,000), that means they're now spending 60 per cent of their income on food, compared to 48 per cent in 2007.

More than half of that goes on fruit and vegetables, data shows. Among middle-income families, 22 per cent of income goes on food, with one fifth of that on fruit and vegetables.
First off, it isn't true that income in the poorest third of households has remained flat since 1982. Here is real income growth, before housing costs, for each decile - but remember to be careful with the bottom decile figure. Again, this is from Perry. Real income growth has been at least 20% for each decile.
If you take instead After-Housing-Cost incomes, you have basically flat real income for the bottom decile, but real income increases from $14k to $17k in the second decile, from $16k to $20k in the third decile, and so on up the track. 
But the more particular problem is in comparing the expenditure measure on food with the reported income measure. The $35k figure Johnston reports would be the top of the first quintile (second decile). A mean household expenditure of $13.3k on food within that quintile is believable. But the same specialised Stats data pull suggests mean household total regular recurring income within that quintile of $22.8k. Maybe they adjusted the zero-incomes appropriately, but I'd expect they left them as-is unless they were requested to do something with them. 

Here's Perry on that. 
The bottom quintile's mean will have the same problem as the bottom decile's mean, but in attenuated form. Perry reports that are usually 20-30 households in the bottom decile reporting zero or negative income, and that the bottom decile sample will have about 250 households. The bottom quintile would then have about 500 in total, but the same 20-30 reporting zero or negative incomes.

Anyway, I'd suggest a couple corrections:
  • Note that real incomes have not been stagnant. After-housing-cost incomes have been flat for the bottom decile, if we trust bottom decile income figures, but real incomes otherwise have risen;
  • Compare food expenditures to total expenditures over time rather than to incomes. I suspect that, were the data pull across all expenditure categories rather than just food, the sum of all expenditures might have exceeded income for the bottom quintile. The 2013 Household Expenditure Survey is up here. Average weekly household expenditure for the bottom decile there is $476.20, so $24,762 annually (in 2013). That is higher than the reported mean household total regular recurring income that Johnston was given for the bottom quintile in the 2016 data.
  • The decile breakdown on proportionate expenditures on food might also need looking at. Among those in the bottom income decile, in the 2013 data, food expenditures were 19% of total expenditure. Among all income groups, food expenditures were 17%. 
And I wish that the 2016 HES data were up in the darned Stats tool that has a bit more disaggregated data than you can get from the main tables.

None of that's to say that there aren't real budget problems at the bottom. We just need to be careful with HES data. 

Monday, 4 September 2017

The Outside of the Asylum

The Spinoff published the last episode of its serialisation of The Outside of the Asylum on Friday. You can catch the full serialisation at The Spinoff here:
If you prefer the full PDF, it's up here at The Initiative's site. And, if you prefer, you can listen to it over at SoundCloud. Share and enjoy!

I'll keep tweeting Asylum-relevant content at @TheDaggEffect. I suppose I could attach the essay to my eventual citizenship application, when I get around to that...

Saturday, 2 September 2017

AML Costs

A reader sends me the following email he received from someone selling Anti-Money Laundering compliance services.

I hope that the country is getting just a ton of benefits out of this thing, because it sure doesn't look cheap.

Email copied below, company's name stripped out.
Please see the below information as to your upcoming requirements and our service offering to assist your compliance with the new regulations regarding AML/CFT:
  • Phase II of the AML/CFT Act is due to come into effect by August 2018 for Lawyers, and October 2018 for Accountants.
  • Those changes will mean Lawyers, Accountants and Real Estate Agents will have to comply with the AML/CFT regulatory environment in their day to day business.
  • October 2018 is not far away. This sounds like a long time, but once you understand the requirements for compliance, it is not long at all.
  • Compliance with the Act will be expensive should you choose to comply “in-house”. The essential requirements needed to comply are:
    • You must undertake a risk-assessment of your business and record your business risk profile. This must be reviewed quarterly.
    • You must have in place a full AML/CFT programme that all members of your staff are familiar with, have access to and understand the procedures required for take-on business or new transactions with existing clients.
    • You must appoint a Compliance Officer/Manager. This person is responsible for managing and overseeing the AML/CFT programme in the office. If you do not have staff, you must hire an employee for this role. (This is a requirement of the Act). This person must keep informed of all updates and changes in the law.
    • You must file annual reports with the governing body (Dept. of Internal Affairs).
    • You must submit your programme to independent audit biennially.
    • As you take on each new client or undertake new business for your clients, you must screen/identify your clients and their source of funds to be used in the proposed transactions. That means independently checking photo I.D through a verified service such as “World-Check” (the only service providing passport verification), proof of address, internet checks and reviewing information as to source of funds depending on the risk level of the transaction. This must be carried out prior to undertaking the work anticipated. 
    • Any transaction that appears to be “suspicious” must be investigated in-house and if the suspicion is not allayed, a suspicious transaction report must be filed with the Dept. of Internal Affairs/Police. Records of the suspicious transaction investigation or report must be maintained.
    • This is a significant increase in workload that does not (at least visibly) increase your bottom line.
XXXXX offers to provide you with a solution to the new compliance environment.


We are a corporate services and trustee company that has been operating in the new AML/CFT environment since the application of Phase I, and prior to that HWL worked under the European rules which at the time were more stringent than the NZ rules. The shareholders are lawyers based in Christchurch, two compliance specialists (ex-NZ Police, APRA and CBA Bank, ex-NZ Navy, qualified educator and certified by the GRC Institute (Australia)) and compliance managers/administrators.

We have extensive experience in drafting risk assessments, programmes and application of those on a day to day basis including conducting “know your client” checks, suspicious transactions and identifying source of funds of potential and existing clients. Our systems have passed Dept. of Internal Affairs audits and are robust – including extensive use of services such as “World-Check” and KYC360. We have liaised with banks and enforcement agencies on suspicious transactions and know the environment well.


We can provide the following services on your behalf:
  • Preparation and drafting of your business risk assessment and the provision of on-going monitoring to ensure changes to your business are covered by your risk assessment;
  • Preparation and drafting of your AML/CFT in-house programme, along with training for you and your staff as to your obligations under the programme and Act;
  • Provision of a compliance officer (contractor basis) where you are unable or unwilling to nominate an existing member of staff as such;
  • Prepare and file annual reports to the governing body on your behalf;
  • Arrange and provide the biennial independent audit on your behalf;
  • Undertake individual client risk assessments on your behalf as and when required, using “World-Check” for identity verification, and make recommendations on the outcome of the verification in line with your risk assessment for you to act on or over-ride;
  • Supervise or provide guidance on suspicious transactions and the reporting of said should the need arise.

Our service is comprehensive, and the fees charged will cover all the services as outlined above.

Our service is on a yearly basis, and is NZD15,000 per annum (plus GST) broken down as follows:
  • Initial mobilization fee of $4,000.00 (plus GST). On receipt of this payment we undertake the preparation of drafting the risk assessment and your AML/CFT programme. We will meet with you on site and provide in-house training on responsibilities under the programme for you and your staff. 
  • Thereafter 11 monthly payments of $1,000 (plus GST). 
  • During the 12-month contract we will carry out the above services on your behalf, as and when required by you and as due dates for obligations arise.

Employment of compliance officer (average salary) $50,000.00 per annum

Subscription to World-Check for identification verification (the only service offering passport verification) $10,000.00 plus GST per annum

Consultancy services for preparation of AML/CFT programme and risk assessment – usually $400 per hour (plus GST) and expectation of 20 hours for the programme and assessment - $8,000.00 plus GST

Consultancy services for quarterly review of assessment and programme – usually $400 per hour – expectation of 4 hours per quarter - $1600.00 plus GST

Consultancy services for provision of in-house training on the programme, STR’s and any updates or changes – usually $800 per presentation(plus GST) – expectation of 16 hours training per annum - $1,600.00 plus GST.

Independent audit – $90.00 per hour plus GST (biennial cost). Estimated time for audit – 20 hours.


XXX annual fee $15,000.00 plus GST

Biennial independent audit $2,500.00 plus GST

Total in first year: $15,000.00 plus GST
Total in second year: $17,500.00 plus GST.

Total in first year: $71,200 (plus GST)
Total in second year: $73,000.00 (plus GST)
Government. It's what we do together. Like impose $73,000 per year in compliance costs on small accountancies for no well-stated reason.

Friday, 1 September 2017

Tax Working Group?

Ardern is right not to be making up tax policy on the hoof - it's best thought through deliberately. Setting a Tax Working Group to come up with recommendations makes sense.

But I would expect that she might signal who would be on that group. There aren't that many serious tax people in New Zealand. Seeing some of those names show up on a list would signal something good; seeing none of them on that list would be worrying.

And a draft Terms of Reference might not be out of order either. Like, you wouldn't expect a fully finalised one, but it would give an indication of what sorts of things they'd be looking at.

Big questions I'd expect a reasonable Tax Working Group to be considering under an incoming Labour-Green government:
  1. Do current tax settings cause a distortion towards investment in housing as compared to other real assets, or towards real assets in general as compared to interest-bearing instruments? How much real world efficiency does a capital gains tax really get you as compared to just flipping to taxing real returns instead of nominal ones? The last Tax Working Group considered that while capital gains taxes sounded good in theory, there were big problems in any real world implementation. Any reason to believe that's changed? Plus, Seamus did have rather a few good questions about a CGT.

  2. What are the costs involved in flattening out the EMTR schedules that are generated by the combined clawbacks across different income-contingent benefits? It's always a trade-off: flattening things out for the small number of people stuck in terribly high EMTRs always means increasing the EMTRs for everyone else if you keep things budget-neutral. And at least some of the current high EMTR ranges can be hurdled by flipping to full time from part-time work depending on salaries. But how much would other income tax rates need to go up if we wanted to shave the peaks off those EMTRs? The last Tax Working Group asked for a comprehensive review of the interaction between tax and the welfare system. 

  3. Is the mix between central and local taxes right? I love the clear split between what's local government's tax base, and what's central's, but the current system seems to yield perversities where local councils don't see enough of the economic benefit of facilitating growth, particularly in housing, given the infrastructure costs - and this seems to be driving a lot of the scraps between central and local over housing. For local government, what would be the benefits and consequences of flipping from land plus capital valuations for rates to land-value only? I'm a fan of land taxes over land + capital - but anything looking at land taxes for central government would have to be careful of trodding on local toes. 

  4. The set of tradeoffs I have in my head is that the top marginal tax rate can't be too out of line with the company tax rate or you do too much to encourage folks to set up companies; the company tax rate can't be too out of line with international company tax rates or corporates want to put their revenues elsewhere; and, the dividend imputation regime means that mucking about with the company tax rate mostly affects foreign owners that don't benefit from imputation credits. Have we got the rough proportionalities right? How does that change if an incoming Labour/Green government wishes that overall tax revenues should increase?

  5. Taxation of multinationals would come up, but all of that's subject to what's going on in international negotiations that I know nothing about. 
Minor issues that could show up, but are probably well below the threshold for what a Tax Working Group should be thinking about:
  1. Is there any feasible way of collecting GST at the border on low-value imports that doesn't do more harm than good by introducing a barrier to trade because of the administrative hassles? We should weigh the importance of direct-to-consumer imports as part of overall market competitiveness: it would be very surprising if prices in thin NZ markets were not constrained by this competition, and it would be very disappointing if the pursuit of 'level playing fields' wound up having anti-competitive effect. 

  2. I see absolutely no basis for any new landfill tax - Councils should just be making sure that they're running the appropriate charging regime. Simplest way of thinking about it: if the landfill's capital costs were completely bond funded at the outset (buying the land, putting in all the clay lining and stuff), with annual payments to bondholders that expired at the end of the life of the tip, the tip fees should match the payments on the bonds plus the tip's operating costs. But I expect the Greens would want to see something on this. 
Things that should be thought through, but likely need prior work first:
  1. Are there important real environmental externalities that might be reasonably addressed through Pivovean taxes, and are taxes the best way of dealing with them? This one would likely need to be later down the track, after work looking at whether the ETS is up to scratch, if it isn't whether it should be modified, and whether a best-form ETS is preferable to a carbon tax (for example, on that front). Do water charges and nitrogen taxes make more sense, or should we be looking at a trading regime both for water drawing and for effluent? I expect that trading regimes make more sense in both cases. But there could be other Pigovean taxes that should be in there that I've not considered, and that wouldn't be as well handled by trading. 
Things that I would get worried about if they were in there:
  1. Tobin / financial transactions taxes are nutty enough not to be worth investigating. Like, maybe they could be in there just so that a tax working group could lay out the evidence on that they're not a good idea;

  2. Looking at putting in a new top income tax rate per se rather than looking at the most efficient means of getting higher overall government revenues, if that's the desired outcome. Higher top rates could be part of increasing overall government revenues, but shouldn't be done for their own sake. It increases the gap between the top marginal rate and the corporate rate (and so causes problems) or forces up the corporate rate too and so causes problems in the gap with other countries' corporate rates. 
Things I dream about that would never be in there:
  1. Desirability of abolishing or substantially curtailing Schedule 1 of the Local Government (Rating) Act;

  2. Appropriate mechanisms for inflation-adjusting tax rates. Currently, inflation causes fiscal drag as wages bump past income tax thresholds. Those thresholds are rarely adjusted. When they are, politicians pretend it's a tax cut instead of an inflation adjustment. The same parties that get mad if a department's budget doesn't keep up with inflation don't worry much about inflation's effects on taxes. What's the best way of running inflation-adjustment given menu costs? Set an automatic trigger for review for every new fiscal year, and provide an adjustment whenever fiscal drag has exceeded some threshold since the last adjustment? Should the adjustment push up the thresholds for the different tax rates, or provide small cuts to each tax rate.
Anything I'm missing in any category?