Monday, 26 June 2017

Inside the asylum: food safety edition

Versions of cost-benefit that tally up all of the savings to a public health system from banning people doing things they like, and ignore the costs incurred by people banned from doing things they like, lead to this:
We reveal today that new Ministry of Primary Industry guidelines for food outlets require your hamburger to be cooked to fried or grilled to 70C internal temperature. As any home cook can tell you (or indeed, anyone with a copy of the Edmonds Cookbook sitting handy) 70C is, to all intents and purposes, nuking it to high heaven. What is left is a hunk of dried out, grey tyre rubber.

...Chefs around the country have no doubt been stewing at the new "guidelines", but it was executive chef Dan Fraser at the historic Duke of Marlborough Hotel in Russell who put a match to the flambé.

First he received an email from an MPI official. "You need to make some changes," he was told – the same stern message they were sending other restaurants and caterers around New Zealand.
And it isn't just hamburger:
Fraser said the rules will also cause issues for serving steak tartare, beef carpaccio, pate or chicken livers.
This is what you get when the government bears downside costs through the public health system and Vogons run things. If the justification is that people might underestimate risks of undercooked hamburger, then maybe you could make a case for putting warnings on menus about risks of undercooked hamburger. Maybe something like "Well done burgers are safest, but less tasty. We serve ours medium. Consider our non-burger options if that's what you prefer!" At least that version of things has some respect for individual preferences.

I'd written on this back in 2012. Minister Wilkinson was citing $162 million in costs of food-borne illness. A chunk of that was enforcement costs that, if anything, would have to rise with her new regime. As for the rest? Count the costs of illness, ignore the benefits of tastier food. Standard drill when you want a high social cost figure to justify compulsion. My post of 2012:
The bulk of the remaining tabulated costs are individuals' intangible willingness to pay to avoid a foodborne illness - about $100 million in residual private costs as estimated from NZ value of statistical life estimates. We can leave aside for now problems in that we don't have good prevalence data on non-reportable illnesses like norovirus that manifests as mild gastroenteritis; Applied Economics is very up front about the limits of inadequate data here. But by far the biggest part of the cost estimates comes out of willingness to pay measures.* That's important. Why? Because people are choosing, all the time, which dining establishments to frequent.

Suppose that there's a roadside falafel place with food I adore but that comes with completely known 1% risk that I'll get mild food poisoning. I eat there a hundred times, I get food poisoning once. But I keep going back because of the taste. If new food safety regulations mean the place shuts down, Wilkinson's measure says I'm better off because I'm saved those willingness-to-pay derived figures on the costs of mild food poisoning. But I've already specified that I knew about the risk and judged it worthwhile; I'm then necessarily worse off if I can't get a falafel. You can't easily use a willingness-to-pay measure to overturn a consumer's decision when consumer decisions underlie willingness-to-pay measures. You can perhaps make an asymmetric information argument; that tends to argue for random inspections and public posting of findings on facility cleanliness rather than for big compliance regimes.

So is the new regime worth the cost? That depends on the compliance costs that will be faced by small and mid-sized traders. Wilkinson assures us that small traders won't face onerous burdens, but I'd really prefer seeing proper analysis of the Bill from someone like Otago's Andrew Geddis. And we have to keep in mind that a substantial proportion of the costs Wilkinson cites might actually be voluntary choices consumers are making that, on lucky draws, yield tasty goodness any diminution of which consequent to regulation ought be counted against the Bill's possible health benefits. Banning me and others like me from having my hamburgers medium-rare might save the health system a bit, but it'll certainly cost me some utils. Equally bad is what a big fixed-cost regime would do to food startups. I really hope that the legislation isn't as costly on those two fronts as some folks fear; I'd love to see independent legal analysis.
Emphasis added.

Remember when National campaigned against the nanny state? I know it was a long time ago. I think they've forgotten too.

Monday, 19 June 2017

Higher education, big big numbers

I don't think we can blame the consultants for this one.

Normally, big big numbers in economic impact reports are a black mark on the consultancy producing them. They don't come with enough health warnings, and the misleading big big figures draw headlines too easily.

Dave Guerin's Ed Insider newsletter (essential reading for anybody following tertiary ed in New Zealand) covers the Universities NZ report, produced by NZIER. He writes:
Universities NZ released Regional activity of universities (30 pages) on 27 Apr 2017 (UNZ media release).
  • The report had straightforward analysis of the direct university spending and employment in their region, and the contribution to regional GDP.
  • NZIER also estimated the indirect and induced expenditure due to universities, but placed major caveats on those figures, stating that UNZ had specifically asked for them. They noted that the government did not see such numbers as a credible argument for increased government expenditure on universities. NZIER repeated their 2-paragraph warning 9 times in the report, and added an appendix with more detail on the issue.
  • Universities NZ cited the largest number possible ($19.95b) in their media release.
For an example of a nice health warning, here's a bit from NZIER's Exec Summary:
Estimating the size of these indirect and induced effects in a way that is economically meaningful is problematic. They can be estimated using multipliers that try to reflect the ripple effects of university expenditure on the economy, but this approach makes so many assumptions that the estimates should be seen as indicative only. The multiplier analysis approach (used in the mid-2000s but now discredited) massively overstates the indirect and induced economic activity attributable to any industry because it fails to consider alternative uses for the resources employed by the industry. At best, multiplier based estimates of indirect and induced effects are a measure of the current footprint of the university in the city/region. They cannot be added to calculate a national total across cities/regions and they are not accepted by central government as a credible argument for increased expenditure on university education or R&D.

Though indirect and induced effects are estimated in this report they should be seen as indicative only. See Appendix A for further caveats and comments on indirect and induced effects.
Pretty blunt. When clients use the big big numbers, even when the reports have health warnings as blunt as these are... yikes.

Sunday, 18 June 2017

Farewell Molly Malone

Courtney Place pub Molly Malone's was damaged in last year's earthquake. The building is old, but not heritage-listed. So it fortunately can be demolished, as the owners wish.

"In this case, the building has been identified by the council as earthquake prone … [and] the applicant contends that the building 'is a clear and present danger to the public'."

In addition, the owners planned to fill the space in the interim, and eventually rebuild, meaning any effects on the streetscape would be temporary, Hayes said.

However, the council's senior heritage advisor Vanessa Tanner opposed the demolition.

She said that while the build was not heritage listed, it had significance in terms of the build and social context.

Heritage New Zealand also weighed in, saying the loss of the Molly Malones building was regrettable due to both the heritage qualities of the building and its place in more recent social history.

[Council Senior consents planner Lisa] Hayes said there were no rules preventing its demolition as it was not a heritage building.

"While I acknowledged the advice of Ms Tanner that there will be an adverse heritage effect associated with this loss, this will be a public effect and needs to be balanced with the risk to public safety if the unsafe building is to be retained," Hayes said.

Saturday, 17 June 2017

Diversity in the metastudy

Wharton's Katherine Klein has a nice literature review up on the effects of corporate boardroom gender diversity.

The bottom line seems to be no effect.

Klein usefully contrasts consultancy reports on the topic with the findings of the academic literature:
Do companies with women on the board perform better than companies whose boards are all-male? Many popular press articles and fund managers make this claim, citing studies by consulting firms, information providers and financial institutions, such as McKinsey, Thomson Reuters and Credit Suisse.

Writing recently on Huffington Post, for example, one consultant observed the following:
“Companies with gender-diverse management teams have been proven to consistently perform better and be more profitable than those without them. There is overwhelming evidence to support the value of having more women in senior leadership positions. A growing body of research –including studies by McKinsey & Company — has proven that companies with more women in senior executive and board roles have advantages over those that don’t.”
But research conducted by consulting firms and financial institutions is not as rigorous as peer-reviewed academic research. Here, I dig into the findings of rigorous, peer-reviewed studies of the relationship between board gender diversity and company performance.

Spoiler alert: Rigorous, peer-reviewed studies suggest that companies do not perform better when they have women on the board. Nor do they perform worse. Depending on which meta-analysis you read, board gender diversity either has a very weak relationship with board performance or no relationship at all.
That's consistent with my read of things as well. But be careful here too: there being no relationship doesn't mean that quotas or mandates would be costless. You'd need to specifically sort through the studies that looked at effects of quotas, because changes in board composition that are board initiated might differ from ones that are compulsory.

Previously: Wishful Treasury Thinking

Friday, 16 June 2017

Afternoon roundup

Some highlights from the closing of the browser tabs:

Cartel's gonna cartel

Canada's dairy cartel continues to impress. After Canada negotiated increased access to Canadian markets for European cheesemakers, the dairy cartel managed to do this:
Under the terms of the Comprehensive Economic and Trade Agreement (CETA), Canada has agreed to allow nearly 18,000 additional tonnes of European cheese to be imported tariff free.

But CBC News has learned that when Canadian officials briefed their European counterparts on how they would allocate the quota for importing this new cheese, not everyone around Europe's cabinet table felt Canada's approach lived up to the spirit of the negotiations.

A European official, speaking on the condition of anonymity because he was not authorized to speak, characterized the state of things as a "row."

Canadians haven't been transparent enough about several aspects of CETA's implementation, the source said, and presented the cheese quota decision as a non-negotiable fait accompli. It was a final straw for upset Europeans who had been otherwise eager to get on with the deal.

The source said Canada informed the EU that 60 per cent of the new import quota would go to domestic dairy producers and processors. Europeans fear they won't use it, so fewer new cheeses compete with their domestic products.

If the quota's unused, or there's any incentive to delay imports, Europe could be effectively denied the market access it fought for years to get. CETA provides a way for complaints like this to be resolved, but Europeans would prefer not to have to sue Canada after the fact, the source said.
Emphasis added. So opening up to greater access to European cheeses gives the bulk of that import quota to the existing dairy cartel. Recall that rather a few of Canada's dairy processors are cooperatives owned by quota-holding Canadian dairy farmers; I've not seen anything on how that 60% gets split. If a decent chunk goes to the companies that haven't quota interests, maybe it wouldn't be so bad.

But still: more reasons to be skeptical about the merits of including Canada in free trade deals if trade in agricultural goods matters.

Thursday, 15 June 2017

Dispatches from the Asylum

Canada considers taxing broadband internet services to fund Canadian Content.
A Liberal-dominated committee will be calling for a 5-per-cent tax on broadband Internet services to fund Canada’s media industries, which are struggling to adapt to technological changes and evolving consumer habits, sources said.

The move would add hundreds of millions of dollars in revenues to the Canadian Media Fund, which already receives a levy on cable bills to finance the production of Canadian content. However, it would open up the government to accusations that it is once again raising taxes on consumers.

Liberal and opposition sources said the new levy is the central proposal in the majority report of the Canadian Heritage Committee of the House of Commons, which will be released on Thursday. The sources spoke on condition of anonymity as the report is not yet public.
If there's some public good case for funding the creation of Canadian content, the burden of providing the public good should fall through the tax system on the public at large.
The Liberal proposal for a new levy would build on the current 5-per-cent charge on cable and satellite TV bills across the country, sources said.

A source explained the revenue stream generated by the current cable levy is no longer sufficient in an age of cord cutting and “over-the-top” services that stream content over the Internet.

Under the new proposal, an additional tax would be levied on “broadband Internet providers.” It would ideally apply to high-speed Internet services that allow for the streaming of music, movies and TV shows, but not to slower and less costly services, the source said.

As such, proponents of the proposal are branding it as a “streaming tax rather than an Internet tax,” designed to bring the existing cable-based system in line with recent technological changes.

“People will say it’s a new tax, but it isn’t a new tax,” a source said. “The goal is to update the current levy on cable companies to include other services that they now also provide.”
It isn't a tax. It's just a compulsory fee levied on a particular consumption good, with the money going to the government. That's totally different from a tax.

We don't know how lucky we are in New Zealand... a continuing series.... 

Kiwi kid outcomes

UNICEF's new report has made for some damning headlines about child outcomes in New Zealand. In a few cases the critique is deserved; in a few others, it needs a bit of context.

UNICEF finds that fewer New Zealand live in relative income poverty than is the OECD average, in 2014 data. It is worth remembering that there is a sharp gap between those figures as measured before- and after- housing costs. If relative income poverty is measured after taking into account the costs of housing, the proportion of children in relative income poverty rises by about a third according to Ministry of Social Development 2015 figures. Since housing costs are a more substantial problem in New Zealand than in most other countries surveyed, UNICEF may be understating the seriousness of the problem in New Zealand as they appear to be using before housing cost figures. But it is a bit difficult to tell, since none of their numbers match up with the MSD figures.

In many cases, New Zealand is not included in international comparison because New Zealand’s figures are not reported in ways that make international comparisons easy. But we can usefully look to the closest available New Zealand measures.

UNICEF leaves New Zealand out of its measure of multidimensional hardship. MSD’s 2015 figures had material hardship, by the EU-13 standard, below the EU or OECD median when measured for the population as a whole, but slightly above it when measured for those aged below 17. This is due in part to New Zealand’s decision to provide more substantial income transfers to the elderly, through superannuation, than to children. Unfortunately, New Zealand’s figures on material deprivation only go back to 2007. The proportion of children both income poor and materially deprived rose during the GFC and has since returned to roughly pre-GFC levels. Figure G.6 in Perry is copied below.

Similarly, while there is no recent official data on youth (aged 11-15 years) alcohol abuse, recent trends for those aged 15-18 have shown substantial declines in youth drinking. In the 2006/7 survey, 74.5% of youths aged 15-17 reported having consumed alcohol in the prior year; by 2014/15, that had dropped to 57.1%. New Zealand’s overall progress towards UNICEF’S Goal 3 around healthy lives may then be understated – though New Zealand’s very high youth suicide rates rightly are highlighted as well.

UNICEF’s figures also understate the dramatic reduction in teenage birth rates in New Zealand. Statistics New Zealand reports that, in 2016, there were approximately 16 births for every woman aged 15-19 in New Zealand; UNICEF’s figures put it at 23. New Zealand’s teenage birth rate has roughly halved since 2008.

The report worryingly points to that 16% of New Zealand children live in households in which no adult reports being in work. This is especially poor performance where employment rates in New Zealand are much higher than in most OECD countries, and are at or near all-time highs in the available New Zealand data.

New Zealand fares relatively poorly on an aggregate measure of inequality that UNICEF constructs from two measures of income inequality, and one measure of the role of socioeconomic differences in school performance. All of New Zealand’s poor showing is due to poor outcomes for children in lower decile schools; New Zealand is at or around mean of reported countries on the other two measures. Lifting performance in poorly performing schools should be a priority.

If the government’s investment approach to improving social outcomes is successful, New Zealand’s standing in UNICEF’s ranking should show improvement within the next few years.

I had initially prepared these comments for Newsroom's Shane Cowlishaw. His story on it's here; I hadn't known he was on a 5pm deadline and got this through a bit too late to make it in.

Plain packaging

The New Zealand government finally got around to telling the tobacco companies what the rules will be under plain packaging. Plain packaging won't be in effect for a while yet, but it takes a while to adjust production lines - it's good that they finally got the rules out. 

Fairfax's Rob Stock called me asking for comment on plain packaging. I told him that the government should have put its efforts into getting a regulatory framework in place to allow the sale of e-cigarettes and other nicotine delivery devices (heat-not-burn products, and Swedish snus). The effects of plain packaging in Australia haven't been large, and a lot of smokers might be more responsive to available better alternatives than to ugly packaging.

After our good long chat about the topic, Rob reported this:
Eric Crampton from the New Zealand Initiative think-tank, which is funded by big business including British American Tobacco and Imperial Tobacco, said evidence from Australia showed plain packaging was not having a big effect.

The Chipty report in Australia published last year concluded plain packaging had had an impact on smoking rates.

Crampton said the Ministry of Health had been slow to get its regulations out, and questioned the cost to government for the benefit that plain-packaging would bring.

He also called on the government to move more quickly to legalise e-cigarettes and heat-not-burn devices that are less harmful alternatives to cigarettes.
He didn't mention the Chipty report during our chat, but neither did I. When I said that it hasn't done much in Australia, I was thinking about it though. Chipty found that plain packaging reduced smoking rates by about a half of a percentage point. Rob presents that as tobacco-funded-me against an expert report, but I suppose it's more of a judgment call on whether a half a percentage point constitutes any kind of big effect.

Anyway, here's the Chipty report.

And here's something that's been bugging me about it; maybe if your econometrics are better than mine you can tell me there's nothing to worry about.

Anyway, tobacco use has been in long-term decline. Just running a dummy variable for a post-implementation period would overstate the effects of the policy, as Chipty rightly notes. But Chipty solves this by throwing in a linear time trend. Now that would be fine if the time trend actually were linear. But if the actual time trend showed an accelerating decline independent of plain packaging, then you're back into the same problem.

Here's Chipty's Figure 1.

When I see something like that, I start wondering whether anybody ran a structural break test to make sure that the shift actually coincides with the policy change. If I had to eyeball it, it looks like a flat trend from 2001 through maybe 2005, then a decline through about 2010, then a sharper decline from 2011 through 2016. It is stupid to try to eyeball it, because that prevalence rate will be reflecting all kinds of things going on in tax which would be controlled for in the regressions. But without a break test, it seems odd to just run (effectively) the 2001-2012 model's estimates through 2013 onward as a counterfactual. Especially where the pre-period includes a lengthy period from 2001 to 2005 where it looks like noise around a pretty flat trend. 

And... aww crud. Googling around to see if anybody's checked for that. And somebody has. It looks like Japan Tobacco commissioned some work, and the first thing the consultant did was go for a structural break test. And they found breaks at 2005 and at May 2012, albeit just on the outcome time series and not in the controlled model because Chipty didn't share data. And so anybody so-inclined will just reckon I cribbed from some tobacco playbook - though I swear I did not see this until I started Googling. I hate one-sided skepticism: Chipty must be right because she was government funded, even if it looks completely obvious that a statistical break test was necessary and wasn't undertaken. 

Fun and games. Anyway, if you're an econometrician and that graph doesn't seem to be screaming to you that we can't just infer policy effects from a dummy variable for the post-2012 period and a linear time trend, let me know why. 

Tuesday, 13 June 2017

Incentivising disability

The boys were identical twins William and Dale, 10. They were the fourth generation in this family to receive federal disability checks, and the first to be declared no longer disabled and have them taken away. In days that had grown increasingly tense, as debts mounted and desperation grew to prove that the twins should be on disability, this was always the worst time, before the medication kicked in, when the mobile home was filled with the sounds of children fighting, dogs barking, adults yelling, television volume turned up.
Traditional welfare benefits became harder to get after welfare reform; disability benefits require making a case that you're disabled.
“I’ve been aware of it my whole professional life,” said Michael L. Price, a demographer who retired from the University of Louisville in 2013. “In eastern Kentucky and other rural areas, you’re more likely to have intergenerational households, not just two but three generations. You have grandparents, very young grandparents, living together with grandchildren or in close proximity. And families don’t separate, so it sets it up not only for the next generation, but for two generations, that ‘This is what’s there, this is what you’re dependent on.’ ”

Other experts, however, say the phenomenon has little to do with generational dependence. “I hesitate to use a term like ‘culture.’ It’s not a specific, measurable metric,” said Kathleen Romig, an analyst with the Center on Budget and Policy Priorities, who studies disability in the United States. “Certain things like toxic stress or nutrition or preterm births or parental depression or genetics” offer a more revealing context for understanding generational disability.

And yet others say it’s about money.

Ruth Horn, director of social services in Buchanan County, Va., which has one of the country’s highest rates of disability, has spent decades working with profoundly poor families. Some parents, she said, don’t encourage their children academically, and even actively discourage them from doing well, because they view disability as a “source of income,” and think failure will help the family receive a check.

“It’s not a hard thing to limit a person,” Horn said, adding: “It’s generations deep.”
Much of the story is about the family's desperation to get the grandkids diagnosed as disabled in order to draw higher benefits.

It makes sense that social services should be targeted towards those who are unable to work because of disability. But so-doing also encourages diagnosis-seeking. Welfare has horrible tradeoffs.

Meanwhile, disability assistance in New Zealand [NOTE: see important update below], in real per capita terms, was flat from 1998 through about 2008, spiked upwards in 2009, and has since eased back to roughly where it was in the mid-2000s. Or at least that's how it looks in playing around a bit with Victoria Uni / NZIER's tables. All errors mine - I did the real and percap adjustments from their tables.

It looks like the GFC saw a big increase in disability assistance, but with a reasonably sharp return to the prior level.

UPDATE: Sam, below in comments, says (correctly) that disability assistance is the wrong line-item to be looking at. I'd need to be looking at the invalid's benefit and the supported living payment. When I do that, I get this:

The real per-capita figure rose from 1998 to 2008 and has since roughly flatlined.

Another email correspondent tells me WINZ may be using the Supported Living Payment as a place to put difficult clients with whom they don't want to have frequent interactions.

Previously: Competing for aid

Monday, 12 June 2017

Public Service Productivity

The Productivity Commission is to be looking at state-sector productivity in a coming inquiry. 

Here's Patrick Nolan on it:
Measuring the productivity of public services is complex. The question is whether evidence of a lagging productivity performance tells us something about public services or more about the measures being used. In particular, the Statistics New Zealand data for the education sector do not account for changes in quality, yet the quality of products and services varies over time.

Adjusting estimates of public sector productivity for quality changes is a challenging task. To illustrate, the Productivity Commission has just published work on quality adjusted productivity measures for New Zealand schools using sector-level data. This work shows the benefits and risks of different approaches and highlights differing results emerging from different quality measures. The differences point to the need to better understand what measures reflect the performance of New Zealand schools.

There is still much more to do to better understand the productivity of New Zealand’s public services. And it is important not to simply point to poor performance, but to develop practical insights into how measures can help improve services. No single approach will work in all cases and no single organisation will have all the answers.

While understanding public sector productivity may be challenging this does not mean giving up. Nations cannot ignore the need to measure and improve the productivity of their public services. As David Cameron once noted, improving public services are “not about theory or ideology – they are about people’s lives.”
Public sector productivity is a big problem for a few reasons.

One of those reasons is that a reasonable chunk of what the public sector does destroys value, and making the government more effective and efficient towards those outcomes is itself destructive. Imagine a world in which the government were tremendously efficient at identifying and prosecuting people who:
  • Smoked a joint;
  • Provided assistance to a terminally ill person in constant pain to help end their suffering;
  • Gave somebody a ride in their car, not for free but for cash, and without a P-endorsement on their license;
  • Blasphemed;
  • Watched an R-13 TV show with their 12 year old on DVD (illegal) rather than on broadcast (legal);
  • Rode a bicycle without a helmet;
  • Was homosexual before the government finally got around to deciding that it shouldn't be prosecuting people for being homosexual.
Efficiency in the pursuit of public bads is bad. Government produces many public bads. The same government that funded Alan Turing, killed him. The first part of that was a public good; the evil of the second part outweighs the first. Views on the desirability of efficient government depend on views on that government's benevolence. And there's much to be said for government stopping doing evil things before doing good things better. 

But leaving all that aside, you need to put some value on the outputs. There's plenty of stuff you can do to get closer towards one sense of cost-efficiency. Outsourcing, competitive tendering, and a lot of the outcome-based contracting under the Social Investment Approach will all give us a much clearer picture of the cost per unit of outcome. And the Social Investment Approach also gives a sense of the value to the government of those outcomes in terms of reduced long-term fiscal liability - which is a darned sight better than what we have had before. But it still doesn't really say how much people really value the outcomes.

Patrick's link does go to some exceptionally interesting work on productivity in education; I'll follow up on that in a later post.

It'll be interesting to see where Prod Comm takes the inquiry. I'm an optimist about getting better cost-per-outcome efficiency. I'm a pessimist that we'll ever get the right mix of outcomes. But I'm optimistic that we will eventually at least be able to stop the purchasing of bad outcomes. 

Saturday, 10 June 2017

Occupational licensing

Occupational licensing in New Zealand just got a bit worse.

Anne Tolley's announced that social workers will now have to be registered, and that registration will require meeting standards and on-going professional development for maintaining registration.
The majority of social workers, almost 6,300, are registered. It is estimated around 2,000 social workers are unregistered - of this group it is expected that nearly 60 per cent (1,200) should be able to register using their qualifications, and another 300 should be able to register using their work experience.
The people who put on the courses for social workers seem happy:
Whitireia and WelTec Chief Executive Chris Gosling says, “The challenge for government agencies and NGOs is to make the investment to ensure staff are properly qualified and registered. We are very well placed to meet the new demand for training that will be generated by mandatory registration. The Bachelor of Social Work degree is the ideal pathway which allows graduates to meet these new registration requirements.
I've asked MSD for the Regulatory Impact Statement on this one. The costs of this regime will start mounting as the qualification requirements go up.

Friday, 9 June 2017

Grow Large With Milk

It would be tempting to take these results and make a case for ending Canadian dairy supply management, but there are better reasons for ending Canadian supply management.

A new paper out in the American Journal of Clinical Nutrition shows there's an association between children drinking non-dairy milk, as opposed to cow's milk, and lower heights. 

The press release talks about associations but doesn't say anything about causality. Nevertheless, the author goes on about the lack of regulation of protein content in non-dairy milk. 

And hey, maybe that's what's going on. Reduced protein intake could be doing it.

But it looks like the paper doesn't control for other part of kids' diets. If it's likely that kids on almond milk diets or soy milk diets are more likely to be on vegan diets overall or to have other weird diet issues that could also affect protein intake, it seems kinda odd not to adjust for other parts of the diet. 

And while they exclude kids with growth-affecting disease from the study, they do include asthma. Some folks exclude dairy as part of trying to control asthma, and inhaled corticosteroids can suppress growth among kids (though they catch up later)

So it would be a bit premature to run the cross-price elasticities of milk with respect to non-dairy substitutes, multiply by the effect of supply management on milk prices to get the substitution into non-dairy because of supply management, then work out how much shorter supply management is making some Canadian kids. 

Thursday, 8 June 2017

Looking East (well, and North)

Vernon Small reports on an interesting new survey about Kiwis' attitudes about foreign affairs:
But opposition to Trump is nevertheless boiling over into attitudes towards the United States itself.

It was no surprise that a Stuff/Massey survey this week recorded scant backing for Trump; 15.2 per cent in a theoretical world where Kiwis could vote in the US. Defeated Democrat Hillary Clinton scored 51 per cent and others – probably Bernie Sanders in the main – took the rest.

Polls last year showed a similar trend. Given New Zealand's political spectrum starts somewhere to the left of the Democrats, that would likely be replicated in any Republican-Democrat run-off.

But the biggest surprise was respondents' views in a three-way test of where our bilateral efforts should be aimed. About 42 per cent picked the UK, reflecting our historical links, 42.5 per cent went for China and only a paltry 15.6 per cent for the US.

Put in the context of New Zealanders' (anecdotal?) suspicion of Chinese immigration, investment and land purchases – and the political hay made on those issues by NZ First and more recently Labour – that is a stunning finding.

If New Zealanders are looking to China for leadership and bilateral links over the US (in a conservative and male-heavy sample) then something profound is going on.

Tillerson did his best to address the policy issues and assert the US's commitment to the region and rules-based solutions.

He reaffirmed its interest in trade deals – albeit bilateral ones where New Zealand will be well down the pecking order or, even more ephemerally, multilateral deals in the future.
Emphasis added.

New Zealand has a free trade deal with China; America doesn't really do free trade anymore.

Open data - Free the CURFs

Koordinates hosted a fun event yesterday on open data.

Ed Corkery, Koordinates CEO, opened with a talk on the potential of open data in GSS-space, once it's actually opened up in useable form. Too much data winds up being inaccessible or unusable; Koordinates works to try to make that data more easily used.

Statistics NZ's Government Statistician, Liz MacPherson, presented next. She has a great vision for where open data should be at. We're not there yet, but I like the kind of future she's describing. In that world, IDI users share all of their code. That means that you don't just get replicability and a lot more potential for error-catching, you also get standardised bits of code that can get dropped into projects. So if one person's already run the code that matches, for example, students' NCEA records to later income tax data, somebody else can just grab that bit of code rather than have to re-create it. There's recognition of that Stats needs to be careful not to break its current social licence as a trusted repository of data, but that there are ways of doing that while also being far more open than Stats has been.

It's work in progress, with all kinds of real technical hurdles. Antiquated back-end systems generate reports that turn into the current tables, with dependencies all over the place, making it tough to shift towards the more flexible and dynamic environment that would allow cross-tabs to be generated on the fly. Get far enough into that world, and you don't even need Confidentialised Unit Record Files any longer. Instead you can get privacy and confidentialisation on the fly that scales confidentialisation to the risk of deanonymisation given the kind of data being extracted.

But things are moving.

One easy thing that Statistics NZ could do, as an interim measure while everything else is going on, would be to open up the CURFs. And that's a good chunk of what my talk focused on. I just can't see any good reason that these things are still locked up behind difficult access barriers when America's PUMS are all available to anyone in the world who has a browser.

Liz described me in her talk as one of Stats' NZ's most vigorous critics. But I love Stats NZ. I just get frustrated that the CURFs have been locked up forever, and that what we're able to do here is so far behind what can be done with American data because of the access controls. And that's especially frustrating when so much NZ data held in IDI is so much better than that which can be done with American data. It'll take time to sort things out on the back-end so that we can get front-end interfaces that match what IPUMS is already doing in American data (and that Berkeley's SDA engine has been doing for ages now), and some of that is unavoidable where there are resource constraints and a pile of old systems that need sorting out.

But why not open up the CURFs in the interim? It would also help signal the change in approach at Stats, in line with the Government Statistician's vision of real open data.

Flip the switch! Free the CURFs! And, just to be on the safe side, put in a big real penalty for anybody who takes the CURFs and uses them to re-identify individuals.

Update: Oh My.

For the birds

There's an important recommendation missing from the Parliamentary Commissioner for the Environment's list of things to help endangered birds. It hardly would work for all birds, but it is ridiculous that it is banned for those birds for which it would work.

Let people farm them.

Roger Beattie has demonstrated that he can successfully raise weka. There would be ample specialty markets for the birds. But DoC seems to consider him a menace rather than a savior for those birds. He made the case well on the tag accompanying his Weka Woo hats.

I did like that PCE recommended considering GE modified predators as a way of helping. They write:
The nature of research is that there are no guarantees of success in the laboratory, let alone practical application in the real world. One approach may be very effective, but would face many hurdles in becoming registered for use; another may be the opposite. It is important that all options be kept open, and that research money is not prematurely funnelled into one area.

Approaches that rely on some kind of genetic modification are likely to encounter strong opposition from some. But the use of genetic science does not necessarily involve modifying genomes. Nor does the use of genetic modification necessarily involve transferring genes from one species to another.

Some techniques, like the Trojan female and gene drive, once introduced, will spread through predator populations by themselves. This attribute will make such techniques very cost-effective, but is likely to create public concern.

Informed and early public discussion about different methods for using genetic science for predator control will be essential. Such discussion should not only cover the risks associated with such methods but also the promise they hold – the widespread control and potential eradication of the predators that are killing many millions of birds and other native wildlife every year. The Royal Society of New Zealand has set up a panel of experts on gene editing.

I recommend that the Minister for the Environment, the Minister of Conservation, and the Minister of Science and Innovation direct officials to begin developing a programme of staged engagement with the general public on the potential uses of genetic techniques to control predators.
I also strongly support their recommendation to better levy visitors to the conservation estate for conservation services provided. It is absurd that there is not an access charge, with a relatively low fee for domestic visitors and a relatively high fee for foreign visitors. Access to Canada's National Parks requires purchase of a parks pass, and it is easy to charge foreign visitors more.

Those things that can be funded through user fees should be, and if your worry is you might limit access to those on lower incomes, remember that it's a mistake to try to solve an incomes problem by screwing up relative prices.

Friday, 2 June 2017


Last time I flew domestically in New Zealand, I had to make sure that my spare lithium battery pack was in carry-on rather than checked. It's safer that way because a fire from a shorted battery can be contained in the cabin but can't be so easily contained in the hold. 

Made sense.

America's looking to broaden its ban on laptops in the cabin. Rather than just affecting flights from the mid-east, where there might be somebody planning on making a laptop-bomb that could be activated from the cabin, it may extend to all flights.

Pretty good trick from the bad guys' perspective, if batteries in the hold are risky. Restricted to places with a relatively high risk of laptop bombs, maybe the ban passes cost-benefit. Applied everywhere, the tiny risk of any laptop spontaneously catching on fire adds up across all laptops and likely dominates bomb risk.

Here's Joe Nocera at Bloomberg
When a laptop in the passenger cabin spews smoke or bursts into flame — it’s happened some 19 times over the last five years, according to Christine Negroni, Forbes’s aviation blogger — it is quickly noticed and extinguished. But a fire in the cargo hold won’t be noticed, and experts say that the heat from such a fire quickly grows too high to be extinguished by the fire containment equipment in the hold.

That’s why the United States Postal Service stopped shipping products with lithium batteries overseas. It is why Federal Express classifies lithium-ion batteries as "dangerous goods" and imposed strict rules about how they must be packaged. It is why the Air Line Pilots Association has called for "comprehensive regulation governing cargo shipments of lithium batteries."

When I made some inquiries about why the F.A.A. wasn’t raising holy hell about Kelly’s laptop ban, giving its warnings about the dangers of the batteries, I was told that transporting lithium batteries in bulk creates a different scenario than shipping laptops and iPads in checked luggage. But the agency is also going to be conducting tests to gauge the potential danger a laptop ban might pose. Those tests are now in the planning stages. Given the pace at which the government moves — as well as the need to get this right — the work is unlikely to be done soon.

But consider: On a flight with, say, 200 passengers, there could be as many as 400 lithium-ion batteries in the cargo hold. Yes, they’re not packed together. But if one burst into flames in a suitcase, it is not hard to envision the flame spreading, and one battery after another exploding. And what if another manufacturer comes out with a faulty product, as Samsung did, after the ban is in place? It would dramatically raise the odds of a disaster.

When I asked [security expert Bruce] Schneier whether he thought as I do that the odds of a crash caused by a battery fire in the cargo hold was higher than a terrorist attack using a laptop bomb, he replied that there was "simply no way to make the numerical comparison." But, he added, "My intuition matches yours."
Simplest solution is just to continue avoiding travelling to the United States until it is less of an insane asylum. But please let's not import this bit of American nonsense here. Not much we can do about it if the US requires it on all flights to the US, but we can avoid imposing it on ourselves.

Thursday, 1 June 2017

Ruby slippers and social construction

Here's Rossman on social constructionism.
Social construction is a really useful concept, but unfortunately, this really important concept has the misfortune of being popular with idiots who don’t really understand it. When this sort of person says “x is socially constructed” the implication is “therefore we can ignore x.” When I lecture on social constructionism I ridicule this sort of thing as “ruby slippers” social constructionism, as if your sociology professor tells you “why Dorothy, you’ve had the power to solve inequality all along, just click your heels three times and say ‘race is a social construct,’ ‘race is a social construct,’ ‘race is a social construct.'” If you really grok social constructionism, the appropriate reaction to somebody invoking the concept in almost any practical context is to shrug and say “your point being?” If you actually read Berger and Luckmann rather than just get the gist of it from some guy with whom you are smoking weed, you’ll see that the key aspects of social constructionism are intersubjectivity and institutions. That is social construction is important because social interaction is premised on shared conventions and becomes deeply codified to the extent that for most purposes it might as well be objective.
All of that makes twitter discussions around social constructionism less constructive than it might be.

Wednesday, 31 May 2017

Retail innovation

New Zealand retail's problems are deeper than a 15% GST-at-the-border levy. Here's what Amazon is doing. Marvel at the innovation.
This all said, I believe that Amazon is the most defensible company on earth, and we haven’t even begun to grasp the scale of its dominance over competitors. Amazon’s lead will only grow over the coming decade, and I don’t think there is much that any other retailer can do to stop it.

The reason isn’t the bullet-point moats that are talked about in headlines, and it isn’t the culture of innovation or Bezos’s vision as CEO (though I do think Amazon’s culture is incredible and Bezos is the most impressive CEO out there). It’s the fact that each piece of Amazon is being built with a service-oriented architecture, and Amazon is using that architecture to successively turn every single piece of the company into a separate platform — and thus opening each piece to outside competition.

I remember reading about the common pitfalls of vertically integrated companies when I was in school. While there are usually some compelling cost savings to be had from vertical integration (either through insourcing services or acquiring suppliers/customers), the increased margins typically evaporate over time as the “supplier” gets complacent with a captive, internal “customer.”

There are great examples of this in the automotive industry, where automakers have gone through alternating periods of supplier acquisitions and subsequent divestitures as component costs skyrocketed. Divisions get fat and inefficient without external competition. Attempts to mitigate this through competitive/external bid comparison, detailed cost accountings and quotas usually just lead to increased bureaucracy with little effect on actual cost structure.

The most obvious example of Amazon’s SOA structure is Amazon Web Services (Steve Yegge wrote a great rant about the beginnings of this back in 2011). Because of the timing of Amazon’s unparalleled scaling — hypergrowth in the early 2000s, before enterprise-class SaaS was widely available — Amazon had to build their own technology infrastructure. The financial genius of turning this infrastructure into an external product (AWS) has been well-covered — the windfalls have been enormous, to the tune of a $14 billion annual run rate. But the revenue bonanza is a footnote compared to the overlooked organizational insight that Amazon discovered: By carving out an operational piece of the company as a platform, they could future-proof the company against inefficiency and technological stagnation.
Read the whole thing. Amazon is amazing. There's a reason that you can parallel import things, as a consumer, for a much bigger price discount than the 15% GST gap.

I've been a skeptic about arguments for applying GST at the border, mostly because the main methods for doing so amount to non-tariff barriers: holding goods up at customs pending GST payment. I also think that if there's a distortion favouring imports because of the GST issue resulting in some allocative inefficiency, we should also consider that competitive pressure from those fringe parallel imports may make prices for domestic consumers more competitive as well.

But if Amazon does become increasingly dominant, that does simplify things a bit - if Amazon were willing to collect GST on its shipments to New Zealand.

Monday, 29 May 2017

Health CPI

So Labour and National are scrapping over whether National's increased or decreased the health budget. There's no question that health budgets are well up since National took office, whether in per capita terms, real terms, nominal terms, or real per capita terms. Population's up about 10% since 2008; health budgets in CPI-adjusted terms are up about 29% since 2008. So real per capital spending has to be up.

But the more interesting question's on how to adjust health costs for CPI.

StatsNZ has a sub-index on health costs. And that's shown substantial cost inflation - well above CPI in some categories. But should health spending be adjusted for that sub-index? Let's look at what's in it.

Position in the CPI structure

The health group of the New Zealand Household Expenditure Classification represented 5.09 percent of the CPI at the June 2008 quarter.
Table 1
Expenditure weight for healthJune 2008 quarter
Group, subgroup, or classLevelWeight (percent)Examples of items within class
Medical products, appliances, and equipmentSubgroup0.98
Pharmaceutical productsClass0.61Prescription medicines, oral contraceptives, and over-the-counter products such as painkillers, cough and cold preparations, sunscreen, and vitamins
Other medical productsClass0.03Bandages and contraceptive supplies (other than oral contraceptives)
Therapeutic appliances and equipmentClass0.34Corrective glasses and contact lenses
Out-patient servicesSubgroup3.32
Medical servicesClass1.97General practitioner, specialist, and optometrist consultation services
Dental servicesClass0.94Dental examination, filling, and denture services
Paramedical servicesClass0.41Medical laboratory (eg scanning) services
Hospital servicesSubgroup0.78
Hospital servicesClass0.78Private hospital services
Let's assume that this is all still the same in terms of weightings and definitions as it was in 2008.

If you flip over to the figures, Infoshare has 2006Q2 as base set at 1000 for the level 2 subgroups. Medical products, appliances and equipment had dropped to 890 by 2008Q3 (National comes in) and is now at 1030. Basically, no inflation there. This group covers pharmaceuticals, medical products, supplies and equipment.

Out-patient services were at 1035 in 2008 and are now 1356. This covers things like GP fees, specialist fees, optometrist fees, dentist fees, and medical lab fees. It's mostly GP, specialist and optometrist fees. Suppose that the government wanted to concentrate health spending on lower income cohorts and so reduced the capitation fee paid to GPs while increasing the range and subsidy on the Community Services Card - with the whole thing being revenue neutral if clinics upped the GP consultation fee. That would increase measured out-patient service cost inflation but it would be silly to increase health budgets on the back of that inflation.

Similarly, if specialists decided to charge private clients more, that affects measured inflation but only affects government health provision costs if they also change how they bill DHBs.

Hospital services rose to 1187 by 2008 and to 1527 by 2017. This reflects costs at private hospitals. If richer people demanded nicer services at private hospitals that would show up as cost inflation but wouldn't affect costs at public hospitals - but could reflect that public hospitals are declining in quality of amenities relative to private ones.

Bottom line: the health component of the CPI has increased far more quickly than other parts of the CPI, driven by increases in private hospital costs and out-patient services. It's very likely that the cost of providing health services in the public system has outpaced CPI inflation, but I'd be reluctant to just use the health services subcomponent of CPI for a weighting there.

A few notes on the budget

Your take on last week's budget should depend on whether you have your economist glasses on, your politics glasses on, or your "economic policy is constrained by institutions and elections" glasses on.

The economics of it are pretty average.

The increase in the accommodation supplement is likely to flow through primarily to landlords. Radio NZ has reported on work at MSD showing relatively little effect of a prior increase in the accommodation supplement on rents, but the basic tax/subsidy incidence on this stuff depends on market conditions. If supply is more elastic than demand, meaning that a given increase in rent does more to stimulate new construction of rental properties than it does to decrease demand for rental accommodation, then the accommodation supplement is good for low-income tenants receiving it. If you run your study when regulatory barriers to building aren't as binding, you'll find that increases in charged rents are pretty minor. But if you extrapolate from that period to now, you just might be making a mistake.

I also worry that there's not been quite enough attention paid to the long term fiscal outlook, where the costs of an aging population drive us into substantial net debt from 2030; to effective marginal tax rates, which barely changed; or, to the small-scale fiscal discipline that would avoid cash giveaways to the film industry in favour of measures addressing either of the two prior points.

The changes to the tax thresholds only partially adjust for inflation since they were last changed in 2010. The increase in the threshold for the 17.5% rate overadjusts for inflation, but the 30% rate's threshold was underadjusted, and the 33% rate's threshold wasn't touched.

My piece at the Spinoff, last week, covered what would have been needed for inflation adjustment to those thresholds:
Suppose that the government adjusted the tax thresholds to account for wage inflation since 2010. The top income tax rate would then kick in around the $83,000 level, the 30% rate would come in at around $57,0000, the 17.5% rate would apply from about $17,000 and the bottom rate would apply below that. Treasury’s tax calculator says this would cut just under $1.9 billion from government revenues. For the same drop in government revenues, every tax rate could be cut by a percentage point and the 17.5% rate could drop by two points. Everyone would get to keep a greater fraction of the next dollar earned.
If we rank options, here's my preference ordering:

  • Adjust for inflation automatically by knocking income tax rates down by half a percentage point whenever accumulated wage inflation warrants it. Treasury's calculator provides the full-year costs of a one percentage point change in each of the tax rates. Whenever inflation gives the government an extra $740m in revenue through fiscal drag, cut each of the rates by a half point - at least on the current costings. 
    • Adjusting things this way means everyone sees a change in their marginal tax rate, with consequent dynamic benefits for growth. Adjusting the thresholds provides a big marginal tax change for a small group, and large inframarginal changes for everyone else.
  • Adjust for inflation automatically through annual changes to the tax brackets.
  • Let politicians pretend inflation adjustments are tax cuts in an election year. We're probably stuck with this one because politicians really really like being able to announce tax cuts in election years.
And that gets us to the pure politics lens, which has the budget as a triumph. That lens is boring and has been done to death already. 

If we run it instead through a "what's the best we could have expected given that it's an election year and given the political constraints" lens, it's not too bad. Just consider how much better things are here than in Australia - the subject of my Australian Financial Review piece on the budget.

Saturday, 27 May 2017

A better case for tipping

If New Zealand were to move towards a tipping norm, here's an entrepreneurial idea.

Set up a restaurant. The wait staff are all volunteers. They still have to pass through normal recruitment practices, but they're volunteers. List on the menu prices that there is no charge at all included in the prices for service: none. The wait staff receive no pay except that which is provided by diners as a gift, and list some suggested gratuity levels that would provide, if every diner paid those amounts, various wage levels from $15/hr to $30/hr.

Currently menu prices include not only the cost of wait staff but also the GST that applies on the service provided by the wait staff. My restaurant only charges GST on the non-waitstaff costs.

And restaurants normally have to compete for staff based on salary, but the gifts provided to my staff would all be before-tax. And since nobody's tracking how much the wait staff receive in donations, they'd be on their own recognisance when it came to things like income tax and ACC levies. Really, the tips are a gift, right? There's no gift duty in New Zealand (though I'm pretty sure IRD doesn't consider tips to be gifts).

I might change my mind about this whole tipping thing.

Friday, 26 May 2017

Ending appeasement

Blackland's produced the best summary of the demise of the Wellington 7s that I've yet seen. Bottom line: the only outcome that would appease the critics was the death of the Sevens, so attempting appeasement was not a great strategy.

From their summary:
The organisers acquiesced to, and collaborated with, the “moral panic” (an imbalanced, hyper-sensitive reaction to non-extraordinary normal events) among the City establishment, including the Council and Police.

It was driven by non-attendees who disliked the behaviour, and campaigning media, but gathered strength when it was allied with anti-alcohol and social disorder sentiments. This gave moral imperative and opportunity which meant establishment and elite figures felt obliged to agree that “something must be done” to change the behaviour.

The changes made by the Sevens organisers and the City establishment directly affected the “party” atmosphere. This experience also relied on large crowds – the joint and mutually reinforcing experience. When attendance began to decline in response to the changes, it quickly gathered pace. Each fall affected the experience, which deterred future attendance.

The lesson is that acquiescence to value signalling of noisy people on contentious subjects can disadvantage those most important to your organisation or event; customers, staff or shareholders.

It is instructive that the Police finally praised crowd behaviour and declared themselves satisfied over the 2017 event, when effectively no one turned up and was a fiscal disaster.

The Police and the City establishment had killed a “golden goose” event enjoyed by tens of thousands of everyday New Zealanders, and the Sevens organisers collaborated.  
They conclude:
Conceding that there was a behaviour and alcohol problem tacitly accepted the need for curbs on these factors. That meant conspiring with the moral panic to suppress factors key to the event’s success. When they did, the event lost popularity.

Because the event was an alcohol-imbibing outrageous party, these factors would be a feature. If you remove these features, you remove the Party. You remove the party, you remove the event.

A common response recommended by public relations “experts” is to concede some ground – accept criticism and modify.

This was the first route tried by the organisers. It didn’t work. It accepted that alcohol consumption and behaviour was out of the ordinary and therefore a problem.

This emboldened and legitimised critics. Without the organisers’ backing, no one was standing up for the event’s punters.

Without any defence of the relatively innocuous and common standard of drinking and behaviour, the complaints were not challenged and moderated.

The next route was total collaboration with critics. The organisers introduced rules and components to the event pandered to the idea that it was possible to create a new product and attract new customers.

The critics had no skin in the event. The success or failure of the event would not be their responsibility, and would have no direct impact on them. Their objectives were different. They were motivated by factors such as changing alcohol consumption or attitudes, undermining rugby, signalling virtue to peers, or gaining political advantage or media airtime.
Read the whole thing, as well as their excellent recommendations that follow on from the conclusion.

HT: Stephen Franks.


Product labelling

All we wanted was truth in labelling, backed by tough enforceable regulatory standards, right? Sounds good?

Here's where that path goes:
The fight over the US government’s definitions for certain foods has flared up again. It’s no longer just a fight for milk farmers, who’ve grown increasingly angry about plant-based food companies (think soy, almond, and cashews) calling their liquid products “milk.”

For the first time, vegetables are being roped into the debate—all because of the arrival and popularization of “cauliflower rice.”

“Only rice is rice, and calling ‘riced vegetables’ ‘rice,’ is misleading and confusing to consumers,” Betsy Ward, president of industry lobby USA Rice, said in a statement earlier this month. “We may be asking the Food and Drug Administration and other regulatory agencies to look at this.” Ward added that Scott Gottlieb, the new Trump-appointed FDA commissioner, could use his power to enforce the agency’s existing definitions for food, the so-called “standards of identity.”
The better system: a consumer guarantees act that guards against fraud, and a court system prepared to tell a plaintiff that he's an idiot for suing a riced vegetable producer for having a product that doesn't contain right (and award costs against him).

Thursday, 25 May 2017

New EMTRs!

We have the new Effective Marginal Tax Schedules. Really these things should be published along with the budget documents.

The excellent Patrick Nolan will be presenting some work at the NZEA conference explaining New Zealand's EMTRs. They're kinda high in some income ranges.

I asked Patrick whether he might update one of the main scenarios (they all vary depending on number and ages of kids) to account for the newly announced income tax thresholds and WFF abatement rates. And he kindly provided! Thanks Patrick!

This scenario tracks the EMTR by weekly hours of work for a single-income family with an earner on $20/hour and with one child under the age of 16. I'll quote from the scenario description - note that the description is from the pre-budget version so make your own adjustments.

Again, the $14,000 threshold increases to $22,000; the $48,000 threshold increases to $52,000, the family tax credit increases by $9 per week and abates at a higher rate starting from a lower level of income. The accommodation supplement is not here included.

UPDATE: Updated 16.30 with a correction to the image from Patrick.

And here's Patrick (again: this is pre-changes):
Income taxes and ACC levies are levied from the first dollar of income. The starting tax rate is 10.5% and ACC levy is 1.4%, thus giving an initial EMTR of 11.9%.
Once gross earnings increase to $80 per week the main benefit starts abating. The net benefit abates at a rate of 70% against increases in gross non-benefit incomes. Income-tested benefits are not exempt income under section CW33 1(a) of the Income Tax Act 2007. Thus, as both the level of the benefit and total gross taxable income are above the threshold for the 17.5% tax rate ($14,000 per annum), the gross benefit abatement is 84.8% (given by 0.7 / (1 - 0.175)). The increase in gross income from a dollar earnings is thus 15.2 cents (given by 1 - 0.848), giving an increase in net incomes of 10.1 cents (given by 0.152 * (1 - 0.175) - 0.014), meaning an EMTR of 88.9% (given by 1 - 0.101).
The EMTR remains at this level until the gross benefit falls below $14,000, at which point the tax rate used to gross up the main benefit falls to 10.5%. Consequently the gross benefit abatement is 78.2% (given by 0.7 / (1 - 0.105)). The increase in gross income from a dollar earnings is thus 21.8 cents (given by 1 - 0.782), giving an increase in net incomes of 16.6 cents (given by 0.218 * (1 - 0.175) - 0.014), meaning an EMTR of 83.4% (given by 1 - 0.166).
 The EMTR and remains at this level until the person works 20 hours a week and thus qualifies for in-work assistance. The Minimum Family Tax Credit provides a guaranteed net family income, and so net income above the level of the guaranteed net income ($23,764) abates at 100% until the credit is fully exhausted. With the ACC levy this leads to an EMTR of 101.4%.
 Once the family has a net income before Working for Families of $23,764 the Minimum Family Tax Credit is fully abated, and the EMTR falls to 18.9%, reflecting the 17.5% income tax rate and 1.4% ACC levy.
Once gross income reaches $36,350 the rest of the Working for Families programmes start abating at a rate of 22.5%. The order of abatement is the Family Tax Credit and then the Working Tax Credit. (Note the Independent Earner Tax Credit and Parental Tax Credit are not included in this model.) This gives an EMTR of 41.4% (made up of 22.5% Working for Families Abatement, 17.5% income tax, and 1.4% ACC levy).
At $70,000 gross income the income tax rate increases to 33%, so the EMTR increases to 56.9%, and once the Working for Families entitlement is fully abated the EMTR falls to 34.4%, which is a combination of the top personal tax rate and the ACC levy. The EMTR remains at this rate until $122,063, at which point the ACC levy is no longer charged, and the EMTR is 33%.

Thanks again!

Previously: Bringing sexy back - EMTR style

Tax cuts require fiscal discipline

It's budget day here in New Zealand. Much has been pre-announced; Chris Keall has the summary list over at NBR. But as Rob Hosking points out, there's a pretty big remaining surplus that could yet give us some surprises. 

I'd expect most of those surprises to be saved for later election promises, but it would be nicer if they were laid out in the budget.

When it comes to tax cuts, though, we need to be careful. The surpluses look fine for the next few years, but current tax cuts would need to be reversed in a decade's time if we've neither sorted out the costs of an aging population (NZ Super, health), nor increased productivity and economic growth. And temporary tax cuts do less good than permanent ones.

I cover it off over at the Spinoff.
The case for more substantial tax cuts is sound, but harder. It requires the government to be willing to cut programmes that deliver little benefit. And while the government has taken a sharper eye on the effectiveness of new spending programmes under the social investment approach, too much spending simply carries over, year after year, with little attention paid to whether that spending achieves its objectives.

Interest-free student loans cost the government $600 million dollars per year and mostly benefits students who are either from wealthy families or who are likely to go on to be higher earners themselves. That’s more than what it would cost to cut the 17.5% income tax rate down to 16.5%.

Deciding not to throw $300 million at the film industry over the next four years would allow the government to cut the 30% rate down to 29.5%.

Every billion dollar programme throws away the chance to cut the 17.5% income tax rate to 15.5%.

But, even worse, while the medium-term forecasts are very rosy, with plenty of room for tax cuts, the longer-term projections have health care and superannuation costs requiring substantial tax increases or substantial spending cuts – unless somebody finds the magic formula to reverse the long-term slump in productivity.


New Zealand has an excellent non-tipping equilibrium, but there's been some discussion of encouraging a shift to tipping. A lot of restaurants do kinda have it, mostly (I think) as a way of securing rents from foreign tourists who don't know better.

But most of the discussion around tipping has the base economics of the thing wrong. The main point of tipping is to solve an information asymmetry problem.

Suppose you own a restaurant and simply have no way of telling which of your wait staff are decent with the customers and which are terrible. In that state of the world, you pay them a low hourly wage and encourage the customers to top it up based on the quality of service. Ideally this means that bad wait staff get no tips and exit the industry, average service gets an average overall wage inclusive of tips, and excellent staff are appropriately compensated.

In practice, shame constrains customers against leaving meagre tips for poor service, and tipping makes splitting bills among groups a hassle. And is it really that hard for a restaurant owner to tell whether the wait staff are doing their jobs properly?

Also worth noting is that service staff in roles with tipping have lower minimum wages in the US. Wages plus tips in total have to equal the minimum wage in some states; others just have a really low minimum wage for tipped staff. New Zealand's minimum wage is already very high relative to prevailing wages, and restaurant meals here are not cheap. Combining a high minimum wage with a shift to a tipping norm would have effects on overall demand for restaurant meals.

Finally, and from a more Eric-preferences perspective, it's just really really nice to have the staffing costs bundled into the price of everything and not have to carry a wad of small bills around to pay the same amount for your meal at the end of the night. And I don't particularly like what tipping does to service in the US - because I'm idiosyncratic. On average, people give higher tips where the server is chatty and, if the server is female, touches the customers. I don't like any of that.

Previously: Tipping and inflation incidence

Wednesday, 24 May 2017

Net Fiscal Impact - disaggregated

Keith Ng's 'mythbusting' around net taxpaying annoyed me enough that I started digging around for more of the literature on this stuff. 

Keith argued that it's a myth that 40% of households pay no net taxes. While he's right that the commonly cited measure just focuses on income taxes paid versus cash transfers received, it isn't like correcting for that shows the system is less progressive or relies less heavily on the top deciles' tax contribution. When Aziz et al had a look, they found this:

The figure shows the cost of transfers and services provided to households in each income decile, net of the taxes paid by households in that decile. It includes all taxes, even GST. And when you look at it that way, the bottom four deciles receive substantial transfers, the middle three deciles net out close(ish) to even, and the top three deciles pay rather more in tax than the value of the services they receive. Or, put another way, the bottom six deciles receive more in transfers and services than they pay in tax, the seventh decile is tiny net tax contributor, and the top deciles contribute substantially. 

That should have been common knowledge among folks dealing with data, inequality, and tax. We even included the graph in our report on inequality.

What we didn't include, and I only recently had pointed to me, was the life-cycle and gender effect. Life cycle of course matters: government spends far more on kids than it receives in taxes from kids, and same for the elderly. Much of tax and transfer policy handles life-cycle income smoothing that would otherwise be generally handled by households on their own.

But I hadn't known the size of the gender gap. There had to be one, since men's earnings are higher than women's earnings; women live longer and then collect superannuation over a longer period; and, health care costs are higher for women. Even still, I was surprised. I hadn't known about the gender gap in education costs, for example. 

Regions above the $0 line x-axis are cohorts that, on average, are paying more in tax than they are receiving in transfers and in services (valued at cost). They write:
The data illustrated in the figure suggest that, on average, males start having a positive net fiscal impact—per capita tax revenue exceeds the (allocated) expenditure they receive—in their early 20s. Women, on average, do not pass this “break even” point until their mid-40s. This is due to a combination of lower workforce participation, higher health and education spending, higher income support, and lower direct and indirect taxation.

A possible causal link may lie behind the high value of per capita education expenditure observed for women aged 30–44 and the lagged increase in per capita market income and direct tax for females in the 45–49 year age group. One possible hypothesis is that retraining during child-rearing years that precedes re-entry to the labor market results in an increase in market income and consequently higher direct taxation. The net effect of decreased education expenditure and increased direct taxation increases the net fiscal contribution of women in the 45–49 year old age group.
If we consider only the age patterning, this looks like what households and individuals would be doing for themselves absent the state. You consume less than you earn during your prime earning years in order to provide transfers to your children and to save for your retirement.

There's a similar aspect to the gender patterning where it is more common for males to be the primary earner. In households with a male primary earner and a female who takes a longer period out of work or in part-time work to be able to spend time in the home, you'd see males consuming less than they earn in the market and females consuming more than their market earnings. Were there no government-provided healthcare, taxes would be lower and families would purchase their own health insurance - which would have a similar 'net contribution' breakdown were anyone so daft as to try to produce that figure within a household.

This side of things didn't come in at all for the piece I wrote for the Dom Post on it, as it's largely irrelevant to the argument about household-level net tax contributions. But it's interesting and I hadn't known it before.

Thanks to John Creedy for the pointer.

Also: Fairfax produced this very nice infographic version of the Aziz et al figure. Excellent!