Wednesday 30 November 2022

Pharmacy cartel

BusinessDesk reports:

A group of independent pharmacies have gone to court claiming health authorities got the law wrong in letting Countdown run pharmacies and dispense prescriptions. 

New Zealand Independent Community Pharmacy Group (ICPG) is seeking a review in the high court at Wellington of decisions granting pharmacy licences to Countdown in Gisborne and Wainuiomata in Hutt City. 

The group argued that the Countdown pharmacies are not under the full control of its pharmacists as required by law and that the company was running a loss-leading strategy to drum up business.  

The ICPG said the decision-making processes were flawed because they were made with insufficient evidence, and there was no rational connection between the evidence that was available and the decisions made.

Difficult not to laugh on reading this assertion:

Lawyer Robert Kirkness said the two former DHBs made a number of errors in law when deciding to grant contracts to Countdown pharmacies.  

Kirkness said while pharmacies might have commercial interests, that was not the primary role of pharmacists in NZ, nor the driving force in the ICPG seeking the review.  

"It is not an attempt to protect commercial interests but to protect the quality of care to the New Zealand public," he said. 

Tuesday 29 November 2022

Regulating entry

This week's column in the Sunday Star Times picks up on last week's post on grocery entry and the new grocery regulator.

It concludes

The surest protection consumers have in any market is vigorous competition among suppliers and potential suppliers for their trade. Economists know that even the threat of potential entry can provide substantial and real competitive discipline.

Hasty legislative drafting from a Government trying to get too many things done simultaneously is more likely to blame than a deliberate effort to prevent new grocers from entering. It could yet be fixed by select committees.

But legislative urgency makes it more likely that bad ideas and drafting errors turn into policy failures.

And any sufficiently advanced incompetence does become indistinguishable from malice.

I have to submit my SST columns on Thursdays. I didn't then know about the entrenchment games in the Three Waters legislation - the kinds of mess that happens under urgency. That one looks a lot more like malice. Good that they're retreating from it. But if there'd been no furore, they'd have kept it.  

Friday 25 November 2022

Afternoon roundup

The closing of the tabs:

Inflation accountability

Susan Edmunds at Stuff asked me whether the RBNZ is to blame for current inflation outcomes. 

She only had room for a shorter snip, so here's the full bit I'd sent through:

Economists say that the central bank moves last. That means, whatever else is going on that might affect inflation rates, the central bank gets to take it into account when deciding on monetary policy. So if a government runs imprudent deficits when the economy is overheated, an inflation-targeting central bank’s job is to undo the effect of that spending by increasing interest rates by more than it otherwise would have. Surprises can happen. But if a central bank is credible and everyone knows that the central bank will do what it takes to get inflation back within bounds, then that surprise does not much affect either inflation expectations or inflation. When credibility is eroded, everything becomes harder and more costly. 

So while many things contributed to the current inflation rate, including initial large and sustained monetary stimulus, Covid shocks, substantial and highly inappropriate fiscal stimulus, and war in Europe, inflation outcomes are the responsibility of the central bank and monetary policy. Remember as well that New Zealand has a floating exchange rate which provides a buffer between local inflation and international prices. If other countries run very loose monetary policy and New Zealand does not, the New Zealand dollar appreciates and international inflation does less to affect local prices in New Zealand dollars.

But it has not helped that the Remit of the Reserve Bank, which is the agreement between the Bank and the Minister of Finance about the objectives that the Bank will seek, has weakened considerably. When inflation targeting is only one of several parts of a Remit that also includes multiple references to other government policy objectives, it is easier for a central bank to stray from its core business in pursuit of other interests. And when the Reserve Bank and the Minister of Finance consider it a conflict of interest for academic economists with a specialist research interest in macroeconomics and monetary economics to serve as external members of the Monetary Policy Committee, external voices with expertise to break a misguided internal consensus are shut out. Responsibility for those lies jointly between the Reserve Bank and the Minister of Finance. And responsibility for the reappointment of a Governor who presided over these issues lies with the Minister of Finance and the Reserve Bank’s Board

Wednesday 23 November 2022

Discouraging grocery entry

The main potential problem in retail grocery competition, in New Zealand, is the near-impossibility of at-scale entry. 

Now we have another one. New entrants could be forced to supply their competitors with products at regulated prices after having been here for five years - so why would they ever want to enter?

We'll save that bit to the end. 

First a refresher on the existing problem. 

A foreign entrant would face uncertain lags and outcomes through the Overseas Investment Office. Not many sites are zoned for grocery retail. The supermarkets have been voiding restrictive covenants that have tied up some zoned properties against use in grocery retail, but assembling a network of sites where large-footprint grocery retail is permitted will be a challenge. Then there are long and variable lags in council consenting processes. And the background suspicion that at least some towns, like Ashburton, are owned by cartels of existing town-centre property owners who'll block competitors no matter what the zoning is

Basically a pile of legislation, regulation, and standing practice caused by the regulatory thicket makes entry impossible. 

After the Commerce Commission's market study, the government moved to legislate in support of something the supermarkets were already doing - getting rid of those restrictive covenants.

But the Commerce Commission also had recommendations on zoning. It suggested that District Plans and Regional Spatial Strategies should be required to include sufficient land for choice of sites in development of grocery retail, that there should be minimum proportions of urban land zoned for retail grocery, and that positive outcomes of trade competition should be able to be considered in planning instruments. See 9.35 at page 386.

None of that's turned up in the draft legislation. Worse, the NBEB seems to forbid consideration of effects on trade competition full-stop. In parts it's ruling out rent-seeking uses of consenting to block a competitor's opening or expansion. And that's fine. 

But in other parts Commissioners, Independent Hearings Panels, and planning committee are instructed to disregard effects on trade competition full-stop. 

Some examples.

  • The IHP, in formulating its recommendations, must disregard trade competition and the effects of trade competition. Schedule 7 126(1)(e).
  • When formulating recommendations, commissioners must disregard trade competition and the effects of trade competition. Schedule 7 60(d).
  • A person who could gain an advantage in trade competition through a submission may make the submission only if directly affected by an effect that (a) adversely affects the environment; and, (b) does not relate to trade competition or the effects of trade competition. Schedule 7 20 (4)(b)
    • Note that this one blocks rent-seekers, but would also block Aldi from putting in a submission saying "Hey! You're zoning for only one supermarket! Make room for us too!"
  • When considering a requirement and any submissions received, a regional planning committee must not have regard to trade competition or the effects of trade competition 512 (1)(d)
Just go to the bill, hit Control-F, type in "trade competition". Some restrictions against rent-seeking, some bans on considering trade competition full-stop. And ComCom said that they needed to make room to consider the positive effects of competition. 

Either it's poor drafting or they want to block pro-competitive effects from being considered. 

In any case, they're not easing the barriers to entry. And they haven't instructed the Overseas Investment Office to make darned sure it's simple for new entrants to come in.

Instead, they're doing something else. 

The regulation proposed is a mess. 

Leave to one side for now all the problems in regimes mandating that an integrated grocery operator supply competitors at regulated prices for heterogenous and perishable goods. 

Sections 22 through 25 say that additional retailers can be made subject to the wholesale supply requirements after having been operating here for 5 years. How does that work?

A grocer can be designated as having wholesale supply obligations under section 23, on the Minister's recommendation in Section 24. 
24 Minister’s recommendation for designation under this Part


The Minister may recommend that a person (A) be designated as a regulated grocery retailer under this Part only if—


the Commission has given the Minister a recommendation about whether A should be designated; and


the Minister has had regard to the Commission’s recommendation; and


A has been carrying on business as a grocery retailer in the whole or any part of New Zealand for 5 years or more.


In deciding whether to make a recommendation, the Minister may do any of the following:


accept the Commission’s recommendation that A be designated if the Minister is satisfied that the criteria set out in section 25(2)(b) are met:


reject the Commission’s recommendation:


request that the Commission reconsider any matter (such as an error, an oversight, or competing policy interests):


make any other decision that the Minister considers is in the public interest.


For the purposes of subsection (1)(c), A must be treated as carrying on a business referred to in that paragraph if—


A is a member of a group of interconnected bodies corporate, and that group (or any part of it) has been carrying on business as a grocery retailer in the whole or any part of New Zealand for 5 years or more; or


A acquires (directly or indirectly) the whole or any part of the business of a regulated grocery retailer.

Ok. So suppose the Minister receives a recommendation from the Commission not to designate a retailer as being subject to the wholesale supply requirements. 

That satisfies 24(1)(a). The Minister has received a recommendation. Doesn't say anything about the direction of the recommendation now does it? 

The Minister can then have regard to it in (1)(b), reject it (2)(b), and make any other decision that the Minister considers is in the public interest (2)(d).

In short, if the Minister considers it as being in the public interest to force Costco, or Aldi, or any other new entrant to provide rent-seeking New Zealand competitors with access to its products at regulated prices, the Minister can go ahead and do that. 

Unless the legislation is changed. Like maybe they just assumed that the Minister would only proceed if the Commission had recommended that a grocery retailer fall under the designation. But nothing in the legislation specifies that. The Minister need only have been given a recommendation about whether the retailer should be designated. 

Anyone with kids is smart enough to see the problem here. If you tell the kids they can do something only if they ask their mother, without having said that their mother has to say they can do the thing, you're just asking for trouble. "You can if your mother also confirms it is okay with her" is safer. 

Now. Suppose you're an international grocer who's spent decades building supply chains. And New Zealand's started looking potentially more open for business. Maybe zoning and consenting does get fixed, and maybe the Overseas Investment Office eventually gets told to approve new grocery retail.

If you figure that five years after you're considered to be operating as a grocery retailer in New Zealand, you'll be forced to open up access to every rent-seeking New Zealand competitor at regulated prices at the whim of the Minister, why would you ever want to open up shop here?

I guess one bottom line is that the Commission should refuse to provide any recommendation unless they actually want the Minister to make the designation - unless the legislation gets changed to require a positive recommendation. 

But more substantively, government needs to be assuring potential entrants that they won't just be expropriated after having been here for five years if you want them to open here, rather than spelling out an obvious mechanism for existing and potentially preferred incumbents to get access to new entrants' supplies.

Everything is stupid and broken and getting stupider and more broken. 

Tuesday 22 November 2022

Afternoon roundup - everything is stupid and broken edition

The tabs:

Resource Management and degrees of freedom

The Natural and Built Environment Act has eighteen different outcomes and sub-outcomes that regional planning must seek to achieve, without hierarchy among them. 

When I see this many outcomes, with no way of weighing across them, and without a requirement to run some kind of CBA across the set, I see infinite degrees of freedom for a regional planning body to just go ahead and do whatever the heck it wanted to while justifying it by pointing to one or several of the outcomes.

I mean just look at this.

5 System outcomes

To assist in achieving the purpose of this Act, the national planning framework and all plans must provide for the following system outcomes:

(a) the protection or, if degraded, restoration, of—

     (i) the ecological integrity, mana, and mauri of—

          (A) air, water, and soils; and

          (B) the coastal environment, wetlands, estuaries, and lakes and rivers and their margins; and

          (C) indigenous biodiversity:

               (ii) outstanding natural features and outstanding natural landscapes:

               (iii) the natural character of the coastal environment (including the coastal marine area),  wetlands, and lakes and rivers and their margins:

(b) in relation to climate change and natural hazards, achieving—

     (i) the reduction of greenhouse gas emissions:

     (ii) the removal of greenhouse gases from the atmosphere:

     (iii) the reduction of risks arising from, and better resilience of the environment to, natural hazards and the effects of climate change:

(c) well functioning urban and rural areas that are responsive to the diverse and changing needs of people and communities in a way that promotes—

     (i) the use and development of land for a variety of activities, including for housing, business use, and primary production; and

     (ii) the ample supply of land for development, to avoid inflated urban land prices; and

     (iii) housing choice and affordability; and

     (iv) an adaptable and resilient urban form with good accessibility for people and communities to social, economic, and cultural opportunities; and

(d) the availability of highly productive land for land-based primary production:

(e) the recognition of, and making provision for, the relationship of iwi and hapū and the exercise of their kawa, tikanga (including kaitiakitanga), and mātauranga in relation to their ancestral lands, water, sites, wāhi tapu, wāhi tūpuna, and other taonga:

(f) the protection of protected customary rights and recognition of any relevant statutory  acknowledgement:

(g) the conservation of cultural heritage:

(h) enhanced public access to and along the coastal marine area, lakes, and rivers:

(i) the ongoing and timely provision of infrastructure services to support the well-being of people and communities.

6 Decision-making principles

(1) To assist in achieving the purpose of this Act, the Minister and every regional planning committee, in making decisions under the Act, must—

     (a) provide for the integrated management of the environment; and

     (b) actively promote the outcomes provided for under this Act; and

     (c) recognise the positive effects of using and developing the environment to achieve the outcomes; and

     (d) manage the effects of using and developing the environment in a way that achieves, and does not undermine, the outcomes; and

     (e) manage the cumulative adverse effects of using and developing the environment.

(2) If, in relation to making a decision under this Act, the information available is uncertain or inadequate, all persons exercising functions, duties, and powers under this Act must favour—

     (a) caution; and

     (b) a level of environmental protection that is proportionate to the risks and effects involved.

(3) All persons exercising powers and performing functions and duties under this Act must recognise and provide for the responsibility and mana of each iwi and hapū to protect and sustain the health and well-being of te taiao in accordance with the kawa, tikanga (including kaitiakitanga), and mātauranga in their area of interest.

I don't think there exists a possible regional spatial plan that can meet all of the objectives without trade-offs between the objectives. And there's enough of them that you could write up whatever spatial plan you preferred (based on aesthetics or whatever else), and then just point to how any alternative worsens one or several of the named outcomes relative to your starting point. 

"Oh, we'd love to allow more density in this region. But as I'm sure you're aware, that area's important for the preservation of cultural heritage. And while we'd like to enable urban expansion at the fringes, we're simply surrounded by land that either has high agricultural value, or is ancestral land, or both. So I'm afraid our hands are tied. We aren't NIMBYs who just hate change and newcomers; we'd love to be able to do what you recommend. But we must give regard to a broad set of outcomes. It is unfortunate."

Unless councils have a lot stronger incentive to want growth, they'll have plenty of degrees of freedom for blocking it. 

My column at Newsroom this week covers it. Ungates tomorrow by dropping /pro from the URL. 

The game of whack-a-mole in which central government legislates against each new way that councils find to obstruct growth seems likely to continue – unless councils are made to welcome urban growth by sharing in its benefits.

Sunday 20 November 2022

Transport Maths

Transport projects run their own version of benefit-cost accounting. It's weird to the sector, but apparently common internationally. 

Normally you'd want to go ahead with a project if it provides net benefits, where benefits are counted comprehensively and costs are counted comprehensively. If a project provides net benefits, it'll also have a benefit-to-cost ratio that's greater than 1. 

I never much worried about it whether they were using BCRs or net benefits.

But transport BCRs aren't really benefit-to-cost ratios

They're instead something a lot more like a "net benefit per dollar of transport expenditure" measure. Costs that aren't financial costs to NZTA wind up as disbenefits that are netted from benefits in the numerator of their ratio. 

And that difference can matter.

Imagine two projects, each of which would result in one statistical life-saving valued at $5m. That’s on the benefit side. Neither project has any other benefits. 

Project A would impose $4m in costs on drivers through reduced speed limits (increased travel time) and a $100,000 financial cost to NZTA in changing speed limit signs. So it has net benefits of $5m - $4m - $0.1m = $900k. 

Its true benefit-cost ratio, where all benefits are counted on the benefit side and all costs are counted on the cost side, is 1.2:1. NZTA’s 'net benefit per dollar spent' measure would have it as 10:1. 

Project B would spend $1m on median barriers and impose $100,000 through visual disamenity costs and hassles while the barriers are being installed. It has net benefits of $5m - $1m - $0.1m = $3.9m. The true benefit-to-cost ratio, where all costs are weighed against all benefits, is 4.5:1. NZTA’s 'net benefit per dollar spent' measure would have it as 4.9:1. 

In this example, project B has much higher net benefits, and a much higher true BCR. 

But a transport ranking would prefer project A. 

It's a made-up example with made-up numbers, but I wonder how many real-world cases wind up with this problem. 

If NZTA were mainly weighing up projects that had comparable bundles of financial and 'disbenefit' costs it probably wouldn't much affect things. But where more of the options, like blanket reductions in road speeds, mainly have costs that get netted from numerators while having trivial financial cost to NZTA, it could be a problem. 

It might be worth NZTA checking whether their method remains fit for purpose or whether it's likely to cause issues. Alternatively, it would be a fun student project.

Saturday 19 November 2022

Medical cartels

The Medical Board of Australia has proposed new guidelines under which anyone going for cosmetic surgery, including face lifts, nose jobs, liposuction and breast augmentation, would need a GP's referral. 

Australian Doctor expects (HT Dylan Mordaunt) this could involve up to 100,000 GP consultations per year. 

All patients going for cosmetic surgery would require a GP referral under proposed new guidelines from the Medical Board of Australia, which aim to protect patients from aggressive marketing tactics.

The board has gone a step further than its independent cosmetic surgery review — which merely noted that GPs were often out of the loop — by suggesting patients “must have” a GP referral before undergoing major cosmetic procedures.

These included procedures that “involve cutting beneath the skin”, such as rhinoplasty, surgical face lifts, liposuction and breast augmentation, its consultation paper published on Monday states.

“The referring GP must work independently of the medical practitioner who will perform the procedure and must not perform cosmetic procedures themselves,” it adds.

And at least two consultations would be required before surgery. 

They claim it's to protect patients from aggressive marketing - like pictures of people with perfect bodies or unrealistic before/after shots. 

I expect that Australian consumer law has the same kinds of restrictions against false advertising that are prevalent elsewhere and that cosmetic surgery would be under the same restrictions as other services. 

The simplest explanation is the standard bootleggers-and-Baptists drill that operates in medicine. The public interest rationale is just veneer over top of measures that restrain competition. 

Mandatory superfluous consultations pre-surgery prevents anyone from chiselling on cartel arrangements by offering speedy services. 

GP referrals can block new entrants or force new entrants to go and work for an established practice, if the GP's recommending where to go for the surgery. 

And the GPs, and everyone associated with them, will convince themselves that it's all part of protecting patients.

I really hope that NZ's Commerce Commission will run a market study on medical services, focusing in on whether Medical Council rules unduly restrict entry. It's a tough problem. Government hasn't the knowledge to set the rules in a complex, changing, high-stakes area. It has to rely on experts to tell it what the standards have to be. But delegating standard-setting to a body whose members have a financial interest in restricting entry and restraining competition is also risky.

Cartel-stuff isn't everything going on in this. But it's certainly consistent with some of it. 

If the doctor's cartel were solely acting to maintain standards, rather than to maintain standards and restrict competition, wouldn't doctors from Canada or the US in good standing with their own professional bodies, and not under investigation for malpractice or misconduct, be able to just set up shop here after some short course outlining how systems here work and to reminding them that some parts of NZ are more developing-country than developed?

Thursday 17 November 2022

Afternoon roundup

The worthies, as I try to stop Chrome from crashing and crashing and crashing...

Tuesday 15 November 2022

MIQ v3

Marc Daalder at Newsroom points to the government's contingency plans should it wish to again stand up an MIQ system at the border

Unfortunately, it looks an awful lot like the old system. Government would contract with hotels to provide facilities, scaling up to provide 6000 rooms over 8 weeks. 

We'd put up a sharply different alternative in the winter of 2020. In that setup, government would flip from contracting for rooms to certifying and auditing standards-compliance while providing vouchers to support the costs of MIQ stays for those whose stays the government wished to subsidise. The hotels could contract with government, or other providers, for security and other services. But the government would be sharply monitoring standards and compliance.

Under that flipped system, government would be within its proper role and comparative advantage, while the private sector could handle what it does well. There'd be no need for government to set priority categories or manage queues. It would just require that anyone boarding transit to New Zealand present evidence of a booking at an authorised facility. The facilities could manage their own bookings. Hotels know how to do that. Governments don't. And the system could expand to meet demand when it needed to, so long as there was willingness to pay for it. 

It seems unlikely that MIQ v3 will be invoked. Or at least the situations that would warrant it would seem to simultaneously require a renewed lockdown where we wouldn't otherwise be able to tell whether the new variant had already gotten here. And there seems little chance that the government would do that where they won't even look back again at mask requirements during surges in cases. But whatever MBIE's put together now will also be the playbook if some new disease crops up requiring it. 

I can kinda get why the government didn't want to shift to my proposed system in July 2020. They were scared of breaking anything. But now we're looking at setting a system for future events. There's time to not screw it up. They've screwed it up anyway. 

Add it to the list of things that will need to be attended to by some future better incoming government. 

Also mildly amused in thinking back on all the Labour brainworm people who thought I was some kind of death merchant in 2020 for proposing a workable better system that wasn't Labour's system. I'm now the only one wearing a mask at public events, while they're all drinking Ardern's let's-all-get-Covid kool-aid. And my system still makes more sense.

Monday 14 November 2022

Afternoon roundup

The worthies:

If prices can't allocate, we may need greater prudential reserves

My column at the Sunday Star Times this week harkens back to the petrol shortages in Christchurch after the earthquake. Stations on the west side of town, where there was still power, had substantial queues and were running out of fuel. But prices didn't go up.

If prices could go up in a crisis, that would provide incentive to invest in capacity against such crisis. But if you fear consumer backlash, legislation, or expropriation, it won't happen.

Last week, Minister Woods announced new rules requiring fuel companies to maintain onshore reserves against scenarios where international fuel shipments are disrupted. It'll increase the cost of fuel during normal times to maintain some capacity during a crisis. It wouldn't be needed if prices could allocate in that event. But it seems rather unlikely they'd be allowed to. 

The column concludes:

Letting prices ration scarce supplies would not just save everyone the cost of queueing. Companies would also have stronger incentive to invest in capacity. If a company expected to be able to sell fuel at multiples of normal prices in an emergency, it would make sense to invest in tanks to hold that supply ready.

High prices in the crisis would cover the cost of building capacity ahead of time. There would be no need for mandates, though the Government might still want to purchase emergency supplies for emergency services.

But no one will invest enough in that capacity if they expect punishment for increasing prices when the crisis happens. Consumer backlash, Government edicts, or punitive taxes on gains that populist governments portray as ‘windfalls’ are all very real risks.

So we are stuck in a very second-best world. In a better world, those of us most willing to pay for fuel in times of crisis would be the ones who cover the cost of that capacity. And we could get by with less emergency capacity because high prices would reduce demand during the crisis.

Instead, regulation is buying us a form of insurance. We all will pay a premium for fuel during normal times and less than we otherwise might if fuel supplies are disrupted.

Whether the Government has chosen the right amount of insurance against these kinds of scenarios is anyone’s guess. Over insuring is a real risk. But forcing us all to pay for at least some insurance through higher fuel prices is not mad.

The real madness was the pumps running dry in Christchurch when no one dared to increase fuel prices. Clear thinking about prices in a crisis is too scarce.

Perhaps we need an emergency reserve of it somewhere.

Thursday 10 November 2022

Morning Roundup

The tabs...

Watching Mediawatch

Massey University's Journalism school put out a survey of the nation's journalists. 

Mediawatch's story on it focuses on gender and ethnic diversity, as well as journalists' reports of taking abuse online, after an opening that casts things this way [updated to insert link that I forgot the first time round...]:

These days, there’s no shortage of the same sort of scepticism – and cynicism – among a group of New Zealanders convinced the media are biased and agenda-driven, even without any firm evidence.  

Cranky claims of pro-government media bias have been amplified by increased public funding of media and journalism under this government, twinned with declining trust in the media and journalists as captured by opinion polls and surveys.

... One startling finding from the latest survey was that when journalists were asked whether "supporting government policy" was part of the role of reporting,10 percent agreed. 

Does that not confirm the suspicions of critics who feel that the media isn't impartial and journalists are often biased?

“There's always going to be journalists that think their role is to change society and advocate for one thing or another," Hollings said. 

"It may be that sometimes that aligns with government policy. But there's a difference between journalists actively propagandising for a particular point of view and doing the ‘watchdog role’ of asking difficult questions about something that's going on.

"They can often be mistaken for having an agenda when their agenda is really to find out what's going on – and not necessarily to push a political party. I think one is sometimes mistaken for the other and it's easy to label a journalist as being an activist who is, in fact, just asking difficult questions which some people don't like."

With that kind of opening, you'd expect that the survey either found no evidence of ideological or partisan bias among journalists, or didn't ask about it. Surely the claims are only 'cranky' if they aren't borne up by the evidence right?

They helpfully link through to the study at least, so you can check for yourself. And here's an interesting chart.  

For some reason, RNZ's Mediawatch decided that this chart, showing that there are more self-identified extreme-left journalists as there are "Hard Right", "Right", and "Mild right" combined, and that "Hard left", all on its own, outnumbers everything to the right of "Middle leftish" by a massive margin, wasn't worth noting. 

Probably just an innocent oversight by the always politically and ideologically neutral team at Mediawatch. 

Thursday 3 November 2022

Bracket creep basics

My fortnightly column for the Stuff papers shifted from Mondays to Sundays. This was in this past week's Sunday Star Times:

If you want to know the effects of small changes to tax rates or tax thresholds on government revenue, the Treasury provides a handy calculator. But the calculator breaks if you ask it to tell you the effects of inflation on tax revenues since April 2021, when the new 39% tax rate came in.

It warns, “The change is too large for this model to give a realistic estimate of change in tax revenue.”

Parliament did not legislate for a tax increase large enough to break Treasury’s tax calculator.

Nobody proposed it. Nobody campaigned on it.

It never went to Select Committee for deliberation. No tax experts analysed the distributional consequences of it or its affordability.

It never received Royal Assent. Parliament simply failed to undo that which Adrian Orr gifted it, at our expense.

Imagine if Parliament had increased taxes across the board when it introduced the 39% rate. The $14,000 threshold would be reduced to $13,000. The $48,000 threshold would drop to $44,000. The $70,000 threshold for the 33% rate would go down to $64,000. And the 39% rate would apply to incomes over $164,000 rather than $180,000.

Discussion about whether people earning $65,000 should face a 33% tax rate might have been heated.

Thanks to the Reserve Bank of New Zealand having forgotten about its one big job while pursuing other trendy objectives, $70,000 today is worth the same thing as $64,000 in April 2021.

I went through a few more of the numbers on bracket creep. Susan Edmunds followed it up with a couple more stories on tax and inflation.

One of the more depressing kinds of responses to these stories is argument that inflation pushes government costs up too so all's fine. Think about it this way. 

Imagine we had a 30% flat tax that covered everything and government had a balanced budget. If inflation pushed everything up in parallel, no worries: government collects 30% of the bigger income figure, and its costs go up by the same amount, so it all works out.

Now flip it so that the two-thirds of the population face a 25% tax rate and the top third pays 35% on their last dollars earned. And that the income distribution is such that government collects the same amount of revenue as it would have collected from a 30% flat tax. Run inflation in that model and you aren't just getting 30% of a bigger number, you're getting more dollars taxed at that higher 35% rate. Government revenue goes up extraproportionately.

Afternoon roundup

Today's closing of the tabs:

Life expectancy and health outcomes

There's a literature on everything, so I expect someone's already done this. I'd be keen to see the result if someone has.

There are almost-certainly piles of disorders that are particularly damaging when you're older rather than younger, and where there are apparent differences in effect by ethnicity after correcting for age. 

I know that the Ministry of Health here has pointed to differences in Covid outcomes by ethnicity in multivariate analysis correcting for age but there will have to be lots of other ones.

There are two ways of thinking about age. You can think about it as years since birth. Or you can think about it as percent of expected life expectancy already expended. Same as how you can think about your fuel tank as how many litres of fuel you've used since you filled up, or as what percentage of the tank is left. 

Suppose that life expectancy at time of first birthday varies by ethnicity for whatever mix of environmental and genetic reasons. Fuel tanks vary in size. If you're counting litres of fuel used since the tank was full, there will be very different amounts left in the tank depending on the car. 

And suppose further that the true effect of some disorder on health outcomes depends on your remaining life expectancy before the disorder hit rather than your time since birth. Basically anyone who's at 95% of their life expectancy is going to have a rougher time with the illness regardless of whether that 95% mark hits at age 67 or age 80. 

If that's the underlying process, if you run a regression with health outcomes on the left-hand side, and age-in-years and ethnicity on the right-hand side along with whether someone catches the disorder, you're going to lump effects into ethnicity that might not really belong there for this particular disorder. 

It'll be true that a greater proportion of people with this ethnicity at that age die of the disorder, but the ethnicity variable will be a mix of underlying differences in mortality risk by ethnicity plus disorder-specific risks.

I'm not trying to criticise the MoH work here. I'm just wondering where this kind of thing has been considered in the literature. Do age-ethnicity interaction terms sort it out by allowing the effect of age on health outcomes to vary by ethnicity? MoH throws in a "hospital-registered co-morbidity" variable that will catch some of the 'effectively old for physical age' effect but wouldn't get all of it.

I just keep remembering that old Robert Fogel work looking at the health status of US Civil War enlistees, where the 50-year-olds of the 1850s were hitting the health problems of today's 70-year-olds. It'd be true to say that 50-year-olds of that era were at far higher risk of dying from heart attacks. But they were also way closer to end of expected life expectancy. So it wasn't just that heart attacks were worse then - it was that life expectancy was lower, people effectively aged more quickly, and something like a heart attack is worse when you're more run down. 

Other not-so-fun bit from that old NYT piece on the Fogel work, that could also be relevant these days:

Dr. Almond had a problem with the studies. They were not of randomly selected populations, he said, making it hard to know if other factors had contributed to the health effects. He wanted to see a rigorous test — a sickness or a deprivation that affected everyone, rich and poor, educated and not, and then went away. Then he realized there had been such an event: the 1918 flu.

The flu pandemic arrived in the United States in October 1918 and was gone by January 1919, afflicting a third of the pregnant women in the United States. What happened to their children? Dr. Almond asked.

He compared two populations: those whose mothers were pregnant during the flu epidemic and those whose mothers were pregnant shortly before or shortly after the epidemic.

To his astonishment, Dr. Almond found that the children of women who were pregnant during the influenza epidemic had more illness, especially diabetes, for which the incidence was 20 percent higher by age 61. They also got less education — they were 15 percent less likely to graduate from high school. The men’s incomes were 5 percent to 7 percent lower, and the families were more likely to receive welfare.

The effects, Dr. Almond said, occurred in whites and nonwhites, in rich and poor, in men and women. He convinced himself, he said, that there was something to the Barker hypothesis.