The aristocracy of pull, so long as you're the aristocrat

I hate election campaigns.

I can never tell whether some bit of idiocy is actual proposed policy, or whether a candidate was just reaching into a bag full of words in hope of getting through the next couple minutes of an interview.

I hope it's the latter in this case. Because my gawd.

Pressed on how National would incentivise businesses to ditch fossil fuels, [National Party Climate Spokesperson Simon] Watts said: “On our watch, under a National government, there would be a pretty clear conversation between government and industry. If you’re significantly profitable, then you have a social obligation in order to do what is required in terms of helping this country achieve our emissions [goals].”

On behalf of the country, the government needed to apply “the appropriate pressure to these organisations”. Watts expected businesses putting profit margins ahead of this obligation “to change their view pretty rapidly”. He didn’t specify how he’d apply this pressure as Climate Minister.

We have an Emissions Trading Scheme. It puts a price on carbon. He's talking about the covered sector, because the conversation here is around what a National-led government would do instead of dumb GIDI corporate welfare. 

Within the covered sector, the carbon price encourages companies to make decarbonisation investments that meet the bottom line, and to avoid those that are not cost-effective. That is the point of using a carbon price rather than command-and-control regulation. Businesses are better placed than governments to know which investments make most sense for them, weighing carbon cost alongside a thousand otherwise unknowable considerations. 

And Simon Watts believes that it is right and proper for government to apply 'appropriate pressure' to companies, as part of "a pretty clear conversation between government and industry." If an industry is profitable, it can and should be leaned on by Government to achieve the Government's objectives. 

Isn't it wonderful! Corporatism I mean. Government and Business, in partnership, of a sort. Where Government can apply pressure through numerous discretionary regulatory decisions that could hurt or bankrupt a company if the 'conversation' didn't go the way the government might have wanted. 

All kinds of other desirable objectives could be part of these kinds of conversations. 

Companies could be 'encouraged' to reformulate consumer goods to meet Shane Reti's views on what people should be eating and drinking.

They could be 'nudged' toward fulfilling Simon O'Connor's social views, if he were the relevant minister in an area. Or perhaps Chris Bishop's after a cabinet reshuffle. The 'conversations' would be very different! And businesses would always have to be guessing at just what an incoming Minister might consider to be the appropriate social obligation, if they dared to be profitable. 

All of it will be simply wonderful for productivity. Because the predictability of the rule of law is overrated, relative to having pretty clear conversations about one's social obligations. 

Learning from others' discoveries

Others' idiocy can be a public boon, if the example serves as sufficient cautionary tale. 

In a world of wishful thinking, if one country's government moves first to try the really dumb thing and reap the obvious consequences, it's harder for others to delude themselves into thinking the dumb thing will have no consequence. 

Canada does the world a public service. So long as the rest of us don't ignore the lessons. 

A lot of people in a lot of places convinced themselves that, somehow, platforms were stealing from newsmedia companies by linking to them. A tax on platforms to fund news sounded obviously wonderful. Who could object? Certainly not politicians who value the favour of the media companies who'd believe they'd benefit from such payments. 

And then Meta stopped linking to news in Canada, to much complaint from the media companies who had previously asserted that links were theft.

And now Canada's looking at a unilateral move on a digital services tax rather than working through the OECD multilateral process. This is not a problem that is best handled unilaterally. It needs to be handled through cross-country agreement. But idiots in all kinds of places, NZ included, figure it's a wonderful idea. Sock it to those fat-cat multinationals. That'll show them. There'll be no adverse consequence, just free money and free votes for standing up to the Big Evil Companies. 

Indeed.

NZ had legislation that's passed first reading, suggesting NZ ought to go it alone, like Canada - albeit with a bit of delay. Hopefully the Bill is left to die quietly after the election and NZ sticks with multilateral processes. 

Afternoon roundup

The closing of a few tabs. 

• Tim Harford's cautionary tale about the Sydney Opera House and how megaprojects bring heartbreak is a must-listen. One bottom line: if you're not real clear at the outset just what problem you're trying to solve, you're going to be causing problems. 
• My weekend column in the Stuff papers compares the current draft Government Policy Statement on Transport to the old 1998 proposed reforms - Better Transport Better Roads. The column also echoes a lot of what turned up in my submission on the draft GPS - which I don't think is yet on our website.
• Central Banking covers The Initiative's proposals around RBNZ: split prudential regulation off into its own separate institution, focus the monetary authority on inflation-alone, and not go ahead with deposit insurance. With comments from former RBNZ Chair Arthur Grimes and Mike Reddell. 
• Labour promises rebates for rooftop solar. Weird thing to promise when there's a lot of grid-scale solar going in without subsidies. The balance between grid-scale and rooftop shouldn't depend on subsidies to the latter. 
• Great piece in Quilette on the 2003 BMJ controversy over passive smoking and mortality. I remember having pointed at this literature when the Helen Clark Labour Government was banning smoking in pubs; I'd figured it should be for the venue owner to decide, especially where the risks from second-hand smoke really seemed nebulous. Not a popular view it turned out. The trendy 'let's get more government grants' people had banked their wins on second-hand smoke and were trying to argue that third-hand smoke (residue on surfaces, basically) was its own new terrible thing that needed a lot of grants. Ah well. 
• Kainga Ora is doing some really neat work in getting construction cost and build times down. The kind of thing that you'd normally expect the private sector to have led ages ago. But when councils allow very little building, who'd have the scale to front that fixed cost in process systems? Nobody would have invented automotive assembly lines if the global market for cars was a thousand a year...

Foreign buyer taxes

The problem with taking GST off of food has little to do with the revenue cost of the policy, it's that it's just dumb to begin with. Any gains to households are smaller than those that could be achieved through other instruments, and there's long-term cost to the integrity of the tax system. 

So I won't put time into figuring out the numbers on the revenue cost. The policy's dumb regardless of the number.

I feel the same way about National's proposed tax on foreign house buyers. There's no good reason for imposing the tax; NZ has never had a foreign-buyer problem, it has and continues to have a regulatory-barriers-to-building problem. Make sure it's easy to build and let people build and buy houses if they want to build or buy houses. 

Michael Reddell, Sam Warburton, and Nick Goodall have put the work into reverse engineering National's numbers. Case looks strong enough that I'd expect Castalia to want to be allowed to release its figures in defense. 

But I don't want to burn cycles on figuring out whether the revenue raised by the tax would be closer to $700m/year or $200m/year. The policy's just dumb. 

It looked like National wanted to get its tax threshold adjustments up before PREFU, which meant hanging them on spending cuts would make them hostage to PREFU. 

So they made it standalone, funded by a bundle of other things that seem like generally bad ideas. 

Messing around with depreciation settings for revenue-raising purposes. What, are we supposed to pretend that commercial buildings don't depreciate whenever there's a revenue need? 

Setting a tax on foreign buyers of more expensive NZ houses (maintaining the ban otherwise) that has no good basis and could cause problems around tax treaties - or at least for perceptions of our adherence to their spirit. 

Trying to make foreign-based casino websites pay company tax in NZ on NZ revenues, on threat that they might set some nationwide internet filter blocking access to IP addresses known to be associated with noncompliant foreign betting sites. ISPs should be pipes, not filters. This is obnoxious and dumb. 

It breaks decent internet policy while also being entirely avoidable by a VPN. And when they find the policy unworkable, what are they going to do? Give NZ banks and credit card companies a list of forbidden transaction counterparties? Make them run some giant new AML compliance regime around whether they process transactions to sites that could be foreign gambling? It's all just bad and dumb. 

And remember how National accidentally banned iPredict? Well, now I watch Betfair's markets on the NZ elections. Are they going to break that too? What are they doing to do, assess GST on the house's rake on winnings where those winnings accrue to NZ-based clients? Would Betfair be arsed to keep track of that, or would they sooner block dealings with clients who are unfortunate enough to be stuck with governments stupid enough to try this kind of thing? 

Anyway. Thomas Coughlan asked me for comment on the foreign buyer thing before the new workings were up from Reddell et al. Here's what I told him (he used some, mainly that I'm punting on putting a number on this stuff). 

“Taxing foreign buyers is better than banning them from purchasing houses. New Zealand has an ‘it’s too hard to build’ problem, not a foreign-buyer problem. 

I’d be nervous about making a hard call on National’s revenue numbers on the foreign buyer tax without having access to the underlying workings. If there are a lot of properties that transact in the $10m+ range, it wouldn’t take many such sales to hit the annual revenue figures National has suggested. 500 $10m properties would do it, or 250 $10m properties and 500 $5m properties per year. A single $30m house would bring in as much tax as fifteen $2m houses. But I haven’t the background figures that would tell me whether those are huge numbers, or small numbers, relative to the number of houses in those price ranges – or relative to the number of wealthy people who’d never become NZ tax resident who might be keen to purchase a second expensive home in NZ. Perhaps the current very low dollar would help. $10m NZD is only $5.9m USD! 

I’m less concerned about National’s foreign buyer tax revenue figures than I am about the revenues from the proposed tax on overseas betting agencies. It seems optimistic to assume that a lot of them would choose to comply with NZ registration requirements rather than remind NZ-based customers about how to use a VPN to get around proposed web filters. And I’d far prefer that National fund inflation-adjustments to the income tax thresholds by getting government expenditures even down to the levels that Ardern had promised, pre-Covid, than with taxes that make little sense even if the numbers on them happened to work out.”

Dan Brunskill asked me for comment after he had a copy of the Reddell et al workings. Here's what I told him (he used some of it, mainly me avoiding weighing in in absence of the other side's workings - but man I do not want to adjudicate between those. The policy is too stupid to be worth the cycles.)

"In the 2019 Budget, Labour projected that 2023 Core Crown spending would be 28.8% of GDP. Instead, it is now 32.5%, and expected to drop to 31.4% of GDP by the end of the forecast window – if Labour sticks to its promised fiscal envelope. 

Paring government spending back to what Labour had promised, pre-Covid, would have given National plenty of room for inflation-adjusting the income tax thresholds. Getting long-term Core Crown expenditure, as a fraction of GDP, back down to what Labour had promised in 2019 would free up over twelve billion dollars, or about seven thousand dollars per household. 

Instead, they're embroiled in disputes about the amount of money that would be raised by a tax that never made much sense in the first place. Foreign buyers were never the problem. Regulatory barriers to building were and still are the problem. There was no good case for either banning, or taxing, foreign buyers. A tax is less restrictive than a ban, but hardly makes us seem friendly to foreign investors. And it seems inconsistent with the spirit of our international tax agreements. 

Without having the Castalia workings to see where the difference in figures comes from, it is hard to adjudicate between the two. There seems to be a case worth answering.

But between this problem, the implausibility of raising much revenue from foreign gambling sites, and the undesirability of plugging revenue holes with adjustments to depreciation, National should have been looking harder at the spending side."

The only real tax cut is a spending cut. Will look forward to what National winds up having to say on the spending side. 

National supporters really ought to be able to hope that National could get Core Crown spend down to levels no higher than Ardern promised (as fraction of GDP) in the first Wellbeing Budget. 

Remember the first Wellbeing Budget, 2019? The one that was meant to solve all the world's problems with sunshine and rainbows and unicorns and lots of government wellbeing spending? 

National complained at the time about wasteful spend - in a budget promising Core Crown spend at 28.8% of GDP by the end of the forecast period. 

Is it crazy to expect a National-led government to not want to outspend Ardern 2019? Lots of room for inflation-adjusting tax thresholds if they can get back even to what Ardern promised in 2019....

Morning roundup

Have to get the browser tabs closed before heading over to PREFU. Will Treasury have come up with an estimate on the tobacco burn in the accounts they'd missed at BEFU? Or will a billion dollars or so just not matter much given the scale of the mess they'll be reporting? We'll find out!

In any case, the closing of the tabs:

• Works in Progress really becoming a must-read. Dattani et al on why we didn't get a malaria vaccine sooner. Incredible history here. Advance market commitments for vaccines treating diseases experienced in poorer countries would be a great part of foreign aid.
• Max Rashbrooke's take from our debate last week. I agree with him on getting more frontline input into fixing public sector messes. 
• Parliamentary Commissioner for the Environment's take on the first Emissions Reduction Plan. To me it's an argument for abolishing all of these things in the covered sector and just legislating the quantum of unbacked NZU that can be issued between now and 2050 - though PCE wouldn't see it that way.
• The Economist on Law & Economics. The revolution has yet to come to NZ alas. 
• So over 40% of Wellington's drinking water is lost due to leaks, and we're looking at heavy water restrictions come summer as consequence. This is what happens when people keep voting for councilors who take money that should be going into maintenance, and flipping it into flashy convention centres, library rebuilds that cost a hundred million dollars more than they should, do-ups of every minor 'heritage' public building. People of Wellington, the enemy is us. Stop voting for councilors and mayors who promise anything other than fixing the pipes. 
• Abandoning consensus on MDRS is the stupidest bit of National's platform. But their promise of a web filter to keep Kiwis from accessing foreign gambling sites is pretty dumb. Not nearly as consequential as housing, but still. More on the filter proposal at BusinessDesk.
• The demesne of the Baron of Miramar. Dileepa Fonseka has more on the Shelly Bay tragedy. 
• My column in Newsroom ($) on RBNZ blackballing experts from the monetary policy committee. Meanwhile, a former RBNZ board member doesn't believe the current line on it.
• Len Cook on no surprises and briefings for incoming ministers. And the fourth piece in the BusinessDesk series on the state of the public sector.
• BusinessDesk deep dive into what a 100% NZ gin would have to look like. Really neat detail here. 
• This is not a serious way of deciding on expensive infrastructure. 

Afternoon roundup

The closing of the tabs...

• When I tweet my columns, probably best to thread them with the link to the column coming late in the thread, and maybe a screenshot of part of the column in the lead tweet. Twitter's downweighting tweets with links. 
• Meta pulls back from news in Europe. There was so much wishful thinking among the bien pensant about the ability to extort platforms to pay for news. I think NZ media still believe it. It won't end well. 
• Is there a betting market on the John Bates Clark? I'd be putting some money on Seamus's former student David Baqaee. 
• Immigrant entrepreneurship in Canada and location choice. Canada's just so well-placed to take advantage of American xenophobia.
• New York bans AirBnB. NZ's hoteliers would very much like to pull this kind of trick too. 
• Man but Works in Progress are putting out great stuff. Judge Glock (that's just his name, he's not a judge) on local government anti-growth incentives in the US. And Sarygulov & Arslanagic-Wakefield on understanding the Baby Boom (hint: housing costs matter). 
• Great long essays from Scott Wilson on NZ Land Transport Policy. Part 1 on the history. Part 2 on what's wrong with the current system. Part 3 on fixing the mess. I had a podcast chat about some of this with Scott, in context of the Government Policy Statement, late last week. 

Around the traps

A few recent bits.

US News on NZ's rise in a ranking of 'best countries'

Still, global and domestic sentiment can differ. Eric Crampton, chief economist at The New Zealand Initiative, a nonpartisan public policy think tank, says it’s “easy to see” why perceptions of New Zealand appear to have improved, particularly when the pandemic response comes to mind. But, for example, New Zealand faced a slow vaccine rollout that Crampton argues contrasted with what he describes as Ardern’s skillfully projected image.

“Eventually the disconnect here between the visionary statements she’d provide, and actual reality in delivery on those promises, became substantial,” he says, noting Ardern’s flagging support ahead of her eventual resignation. The former prime minister also faced challenges including gang violence, child poverty and rising home prices.

New Zealand does have other things going for it that mirror Australia in some ways. Murray, of Karamea, says the country – considered the most scenic among respondents to the Best Countries survey, with Australia at No. 7 – has seen a tourism boom over the past couple of decades. Data points to that sector rebounding in the pandemic’s wake, and Murray adds that because of its geographic location, New Zealand is an attractive option for people looking to get away from parts of the world prone to more conflict.

Crampton, originally from Canada, has been in New Zealand for around 20 years. He is quick to list the challenges the country is facing, ranging from immigration to the cost of living, though he also notes the relative sanity of life there.

“I think, at best, we are going mad more slowly than the rest of the world,” Crampton says. “So we're still, relatively speaking, the outside of the asylum, but that doesn't mean that there aren't crazy things here, too.”

The Guardian on NZ's housing issues:

The planning rule change that enabled places like Ralston’s family compound was a historic policy agreement in 2021 between New Zealand’s two main parties, Labour and National. Part of that policy supercharged the construction of medium-density housing —such as rows of three-story townhouses— in cities and regional centres.

However, the conservative National party, which is leading in the polls, will renege on the part of the agreement that favours concentrated urban housing. Instead, National promised to immediately unlock enough land on suburban outskirts to satisfy the next 30 years of housing demand.

“The consensus that we had was cities need to be allowed to grow up and out if you want housing to remain affordable,” said Eric Crampton, chief economist at the New Zealand Initiative, a public policy thinktank. Now, the two major parties are tilting further apart in their housing strategies, he said, with National promising to repeal other key Labour policies.

 

The Times (not Waikato), also on NZ housing 

Moreover, Eric Crampton, chief economist at the New Zealand Initiative, the think tank, told me that Labour’s own failures had shaped this densification push. Many on the left were convinced that housing affordability woes partially reflected the market’s unwillingness to build and that government building therefore was required to overcome land-banking. Sound familiar? Labour’s Kiwibuild promised 100,000 new state-built homes within ten years; fewer than 2,000 have been completed.

This woeful performance confirmed what experts already knew: the real supply problem was because of rules and bad incentives, not developers’ unwillingness to build. Councils did not want to give the green light even to central government homes, as local authorities shouldered the burdens of new development without being able to fund the necessary infrastructure or to reap tax revenue. Densification thus became the default priority, creating tensions with cities.

“Locking in the positive reform we’ve seen is important,” Crampton says, “but the underlying incentives for councils to expand their housing supplies haven’t changed much. When the central government beats councils over the head to densify, councils are still incentivised to look for other ways to thwart growth.” That includes exploiting exemptions to the laws or using new powers to block homes over carbon emissions.

Blackballing academics for the Monetary Policy Committee?

A few months ago, RBNZ and Treasury made some pretty extraordinary claims about the appointment process for external members of the Monetary Policy Committee. 

Treasury had, in notes released under OIA, said that academic economists with an ongoing research interest in the area were considered conflicted for the MPC.

Michael Reddell's written a lot more on it than I have, but it's something that worried us too. I had a column in the Herald on the problem, which included a survey that me and Dennis Wesselbaum ran of the country's macroeconomists on the next round of MPC appointments / reappointments. 

And it came up when I had a podcast with John Cochrane. 

More recently, RBNZ told Treasury that it had all been a big misunderstanding on Treasury's part and that there had never been such a blackballing. And Treasury officials seemed to just take it at face value rather than contest it and pick a fight with the Minister of Finance and RBNZ about it. 

Michael and I both separately sent through some OIAs trying to figure out just what the hell had happened. RBNZ repeatedly had made statements defending the blackballing, or consistent with there being a blackballing. It's great that there isn't a blackballing now, but memory-holing a prior one wouldn't be great. 

I received a reply from RBNZ earlier this week and passed it on to Michael because he's been watching the file more closely. Michael has the replies I received, along with his own, up at Croaking Cassandra now.

I keep trying to come up with a fog-of-war version that has nobody involved just outright lying. 

From the OIAs, it seems clear that Orr believed there had been a ban and was trying to figure out why there was one, since there didn’t seem to need to be one. 

In February, in response to queries from Jenée Tibshraeny, officials punted on it by saying "criteria unchanged" - so they didn't have to commit to what the underlying criteria were. 

So senior levels in the Bank didn't seem to know what had happened during the 2018 appointment round but everyone there seems to have believed that there had been a ban. 

And nobody involved there dropped a note to RBNZ Chair Neil Quigley asking about it, where he seems to have headed up the appointment process. 

Prof Quigley says there was no blackballing in 2018, despite the Governor having thought that there had been.

And then this account of what might have happened. 

That would then seem consistent with fog of war, but a pretty deep one.

1. Only appointment committee knew what happened; Governor's team were not in the loop.
2. One candidate was blackballed as conflicted, and Treasury interpreted that as being a broader thing.
3. All of RBNZ who weren't in on that appointment process take their lead from the early OIAed excerpt from Treasury's notes, which said academics with a research interest were conflicted.
4. Quigley figures that the noise from the usual malcontents (me, Reddell, Wesselbaum, others) is just noise from the usual malcontents and pays it no mind.
5. Orr doesn't bother asking his Chair about the prior appointment process when he has his team checking whether there's any reason they'd have to be blackballing appointees. This may be the least plausible link in the chain here?
6. Where RBNZ has been pretty quick to put critics straight in other cases, they didn't here because they thought, mistakenly, that there had been a general blackballing - and all of it was below Quigley's threshold of attention. 
7. Robertson's 2019 comments were specific to an academic who did not want to forego free public commentary on monetary policy, rather than academics with a research interest more generally.
8. Quigley finally notices and says there hadn't been a blackballing. 

That isn't great, but it isn't crazy. 

Except for this last bit that Reddell noticed in the OIAs.

The bit Reddell's circled suggests they expected any active researcher would likely be conflicted, as with (redacted, but presumably the academic who wanted maintain freedom to speak publicly on monetary policy). And the Chair signed off on these notes.

Reddell figures there ex post reinvention of what happened. 

The consistent and nobody's lying version would be a bit Clintonesque - my attempt at it: 

There was never a general blackballing, just a ruling out of one particular academic and a general expectation that academic researchers active in the Bank's areas would likely be conflicted. Which led to Treasury mistakenly viewing it as ruling out perhaps rare cases that might not be considered conflicted, and all senior tiers at RBNZ relying on Treasury's notes and believing for years that there was, in fact, a general blackballing when there wasn't and never had been. 

I'm not so sure that Treasury's summary of the position was all that wrong? Perhaps it depends what the meaning of the word likely likely is?

Great that the Monetary Policy Committee will be considering appointing people with active research interest in macro/money henceforth though. 

Debating tax

I was a last-minute stand-in for Ruth Richardson at Monday evening's debate at Vic Uni, hosted by the Free Speech Union. 

The moot: "The tax system is unfair and the wealthy must pay more."

Moots are fun. You don't have to argue what you believe, but it's easier and more convincing if you find angles sufficiently adjacent to true-beliefs. 

Had I been assigned the affirmative, I'd have focused on the regressive effects of fiscal drag, which have put a proportionately higher tax burden on those on lower real income. It's unfair, and rebalancing it would mean a greater proportion of the overall tax burden would fall on those on higher incomes. I'd have worked to frame the moot as being about relative shares. 

I also would have followed the line taken by Danyl McLauchlan on the affirmative that wealth accrued through rent-seeking is illegitimate, that zoning restrictions have created a rich landed gentry, and that those rich pricks work like hell to maintain the restrictions forever. If that's their game, tax every dime of it until they don't want to play anymore. 

But I led for the negative, with Jordan Williams for the Taxpayers Union as second. Max Rashbrooke led for the affirmative. So we were basically typecast. That's fun too. 

I expected Rashbrooke to focus on the good things done by the state, so I had that in mind. And that I have no clue about the actual rules of formal debate - but that Sean Plunkett, as moderator, wouldn't be hewing to such rules anyway. 

My opener:

There’s a lot packed into today’s moot. But it’s important to stay on point.

A tax system is fair to the extent that it treats individuals in equivalent circumstances equally. 

That it is predictable rather than arbitrary in application. 

That one’s proportionate share of the burden of providing public goods reflects one’s proportionate share of the benefits enjoyed thereof. 

And for government spending that is not on public goods, that the beneficiaries of spending are, wherever possible, called on to fund that expenditure. 

Those principles are reasonably agreed. They apply equally well for drawing the revenue necessary to fund a minimalist government, or an expansive one. You can find the roots of them going back at least to Adam Smith, and now in modern public finance textbooks.

Today’s moot doesn’t ask us to judge how large the state should be.

It does not ask us to judge which parts of life’s unfairness, and there are many, should draw government programmes or income support. 

Unfortunately, neither does it ask us about the unfairness created by the state when government makes it impossible to build more homes, to enter markets that are protected for the benefit of incumbents, or when Ministers’ families seem surprisingly adept at drawing lucrative government contracts at our expense.

If the moot asks whether there is any unfairness in the tax system, no tax system could pass that test. 

Smokers and moderate drinkers pay far more in taxes than they ever cost the health system. Everyone else pays slightly less in tax because of it. 

Failure to inflation-index income tax thresholds means that increasing numbers of lower income earners pay higher rates of tax. That is unfair.

Nevertheless, work presented by Treasury in February showed that, as of 2019, the net fiscal impact of the tax and transfer system was no worse for the bottom two deciles than it was in 2010, when the tax thresholds were last set. 

On that analysis, only the top three income deciles pay net tax. 70% of households receive more in transfers and services than they pay in tax. The 39% rate imposed since then will mean even more of the burden falls on those on higher earnings.

And tax issues facing migrants arriving in NZ with an overseas pension are byzantine at best. 

But the moot cannot have asked only whether the tax system is unfair to any trivial degree as that would make for uninteresting debate. We could all agree and go home. 

The moot would have to propose more than some de minimus unfairness, and that that unfairness could usefully be rectified by calling on the wealthy to pay more. Effectively, Revenue Minister David Parker’s tax proposition. 

This side is happy to stand in the negative against that moot. 

My partner, Jordan, will argue that Minister Parker’s proposition – the real underlying moot – violates norms of fairness. That the Prime Minister was correct to pull the plug, last-minute, on comprehensive plans that had been developed to impose a wealth tax. And that had that plug not been pulled, another plug would have been pulled instead – with the economy flowing down the drain as capital fled. 

I will stand against it by arguing a better moot: the tax system is unfair and everyone should pay less.

I do this by advancing one further proposition. If the government cannot demonstrate real value from the taxes it collects from us, it cannot justify even current levels of taxation let alone propose higher taxes on anyone. 

Our moot is not about the size of government. If taxes were raised fairly and government delivered value for that money, and could demonstrate that it could deliver even more value if it had even more money, that would be one thing. It would have to further demonstrate that putting a greater proportion of that burden on the wealthier would be most effective to that end, and perhaps it could if it focused on a land value tax. In that case, maybe today’s moot could be defended. 

But that is not the state we are in. 

Core Crown expenditures, for 2023, were estimated at 32.5% of GDP. In 2019, Treasury forecast that the government’s programme would yield Core Crown expenditure of only 28.8% of GDP. The difference of almost 4 percentage points of GDP amounts to $14.5 billion dollars this year – a substantial increase in the long term tax burden. Almost $7,800 more spending per household. 

And what do we have for it? 

A Jobs for Nature programme designed as a make-work scheme when economic calamity was predicted but that government stuck with – at cost of over a billion dollars. 

Administrative restructuring of the health system and the Polytechs that cost billions of dollars and have worsened outcomes – and may yet sink the Polytechs. 

Hundreds of millions on industrial subsidies to companies for investments that they can perfectly well make on their own. 

Oh – and a new subsidy for companies that make videogames. And how much have we spent on studying a misguided Lake Onslow scheme and various implausible new Auckland harbour crossings? 

And while it’s utterly small potatoes as compared to the overall budget, the complete contempt that Wellington officials have for taxpayers, demonstrated in lavish welcoming ceremonies for incoming CEs and second-tier officials, including flying in the appointee’s family or live-streaming the event, does not bode well for any increase in government revenue. 

If we adhered to the benefit principle of taxation, we wouldn’t be looking at surtaxes on the wealthiest. We’d be looking at surtaxes on the consultants that produce feasibility studies on projects that will never eventuate and reports on restructurings. 

PJ O’Rourke used to say that giving money and power to government is like giving whiskey and car keys to teenage boys. Supporters of this debate’s moot might figure it’s fair to tax the wealthy to fund more of that kind of drunken spree. I think it’s reckless. 

Until the driver’s sobered up, we ought instead to be talking about taking away the keys. The tax system is unfair. Everyone, wealthy or not, should be paying less.  

All fun.

Danyl made probably the most interesting argument of the night. He noted that any government implementing a capital gains tax would bear all of the political costs of doing so, but revenue wouldn't really start accumulating for some time because gains are assessed against a current-year start point. And that makes confiscatory wealth taxes more tempting, because the current government gets to benefit from the predation. 

I never trust the voting in these kinds of debates. It was based on how many people reported having changed their minds, but nothing stops them from voting strategically for the other side at the start of the debate to misreport a flip. In any case, Jordan and I eeked out a narrow win.

Deficits and PREFU

Dan Brunskill got in touch last week asking whether the deficit is a serious problem and what's likely to come at PREFU. He only had room for a short bit of what I'd sent through, so I'll copy the rest here.

Of course it’s a serious problem. 

At BEFU 2019, Treasury forecast that the government’s policy programme would have Core Crown tax revenue and Core Crown expenses at 28.8% of GDP in 2023.

At BEFU 2023, Treasury forecast that the actual 2023 figures would be Core Crown tax revenue at 29.3% of GDP and Core Crown expenses at 32.5% of GDP.

PREFU will very likely show a worse track for tax revenue (weakening corporate tax take; weakening GDP forecasts in part on milk prices; finally correcting the error that Treasury made at BEFU in tobacco excise forecasting) but, in the absence of signaled policy changes, a worsening track for expenditures. GDP will be lower than forecast so the denominator gets lower. A worsening economy means more spending on the automatic bits that kick in: benefit payments, hardship grants and the like. So the numerator’s going to be higher.

I haven’t checked Westpac’s numbers but haven’t reason to second-guess them.

If we compare what Labour’s policy package had lined up, as of 2019, for 2023, it’s obvious that the problem isn’t on the revenue side. Revenue is up on the 2019 forecast. It’s spending that’s blown out. Debt and spending had to be part of the Covid response. But Michael Reddell’s shown that NZ’s fiscal response has been huge compared to other countries. 

I’ve copied two of Michael’s charts below.

NZ started with a low net debt to GDP ratio. And still has a relatively low net debt to GDP ratio. But our increase in net debt was very large as compared to other countries, and the current general government primary balance is awful. Deficits that large might make sense in a recession, when tax revenues are down and spending on benefits is high. But doing this while the Reserve Bank is meant to be trying to get inflation back down is simply irresponsible.

The OBEGAL path presented at BEFU was not credible.

Treasury forgot that the government passed legislation banning the sale of cigarettes with nicotine in them from 1 April 2025; it projected a tobacco excise path that did not change with what amounts to tobacco prohibition. Recall that tobacco excise revenues are on the order of $1.7-$1.8 billion per year, and that the government’s projected surplus for 2026 was on the order of $0.6 billion. The VLNC rules bring forward the sharp drop in tobacco excise revenues that would otherwise have been expected further down the track. Annual tobacco excise revenues after 2026 are likely to be about a billion dollars lower than had been forecast at BEFU, on this single item, unless an incoming government eases the VLNC rules.

At the same time, large spending items like the food in schools programme were forecast to end at the end of 2024. It may be politically challenging for any incoming government to end that spending line in 2024. Treasury has to forecast based on what the government has legislated (barring its amnesia about the effect of tobacco prohibition on tobacco excise revenue). But expenditure paths that depend on decisions that are unlikely to be made may not be all that credible.

On the revenue side, inflation’s pressure on household after-tax disposable income is becoming intolerable. Had the income tax brackets been inflation-adjusted to 2017 levels, the median wage and salary earner’s after-tax income would be almost $1600 higher this year. Inflation-indexing only the bottom tax bracket would give $210 to everyone earning at least $17,000, and even the Job-Seeker benefit is now above that level. Coincidentally, that’s about as much as the government thinks its GST move on fruit and vegetables might save the average household.

At some point, the tax brackets will have to adjust to account for inflation. Failure to do so means more and more people on lower incomes wind up in higher tax brackets. But when it happens, tax revenue will drop.

Vaping panic

I hate election campaigns.

• Labour proposes capping the number of vape shops at 600 - the same as the number of licensed tobacco shops when that legislation comes into effect. I had a chat with Phil Barry about the coming smoking rules; it's going to be a mess. But making it simultaneously harder to access vapes will make it even less likely that the new tobacco rules result in people shifting to vape. Excellent that RNZ goes to Action on Smoking and Health's Ben Youdan on it at least.
• ACT's mused about restricting vape sales to shops with a liquor licence. If Seymour meant that it'd be easy to get spirits at the local dairy, that'd be great, but....
• The public health people are counting the number of vape shops within 400m of schools. But schools tend to be near town centres. If a vape shop is around a city village centre, it's likely to be within 400m of a school. They're also worried about that those shops tend to be in lower-rent areas. But vape shops pop up in spots where rent is low. And that's also where smokers are - the potential client base. You might as well count dollar stores within 400m of schools. The map's here.
• The advocacy group for dairies that sell vapes put up a report. Recall that it's forbidden for a vape retailer to sell to under-18s. There are enforcement stings checking compliance. In the second half of 2022, there were 150 covert visits to vape shops (within general retailers) and 245 covert visits to tobacco shops (within general retailers). They found 89% compliance in vape shops and 94% compliance in tobacco shops. It suggests better enforcement of penalties for noncompliance could be in order, but also that they're within ballpark of each other. For the first quarter of 2023, it was 97% compliance for vape and 100% compliance for tobacco. It all suggests social supply is the more important route for kids getting vape; if government wanted to worry about that, it could mirror the rules around social supply of alcohol.

Two more months of this kind of stuff yet to come....

Morning roundup

The morning's worthies:

• NZ alcohol policy basically gives a veto over licensing to the Medical Officer of Health and to the Police. Sucks when you get a prohibitionist in charge of either. And why are so many NZ prohibitionists named Palmer anyway?
• Josh Gans on copyright status of AI-created works. 
• Grimes set up an AI trained on her own work. It tweets. Grimes notes, "The degree to which this bot has mastered my internal monologue is terrifying to me"
• Michael Reddell on RBNZ forecasting. I think it's a damned shame we didn't get NGDP markets for NZ; Simon Bridges murdering iPredict may have cost us considerably. Thanks again Simon. 
• A reminder that it was Don Lavoie who coined the term "knowledge problem" for Hayek's fundamental insight, not Hayek himself. Even if you think you're familiar with the term, please read this. 
• Immigration NZ continues to be an absolute mess. It's only partially the bureaucracy's fault. They'll have had whipsawing policy directives from the Ministers. First it's clamp down and don't process visas because Labour hates immigrants. Then the inevitable bad consequences from blocking migration, so they get told to stick every employer into the high-trust accredited employer visa programme to speed up processing - which pushes actually trustworthy employers into the same queue with a bunch that really really aren't. And the inevitable consequence of that. Absolute mess. Herald, Stuff. The Stuff piece is particularly good. 
• RBNZ figures that migration might now be reducing inflationary pressure rather than adding to it - easing labour supply bottlenecks.
• In today's edition of "China is actually a more stable and reliable trade partner than the US," Trump promises 10% across-the-board tariffs if elected. Shouldn't US foreign policy aim at encouraging deeper trade links with the US and reduced reliance on China?
• Action on Smoking and Health is getting fed up with BS coming from Health Coalition Aotearoa.

Shakedown

The government's released the Fair Digital News Bargaining Bill.

It sounds a lot like what Canada put in place - and that resulted in Facebook blocking all links to news rather than being compelled to go into arbitration that could lead to unpredictably humongous settlements against it for linking to news. 

Over at BusinessDesk, Dan Dunkley notes that one of the government's justifications for the bill is that government funding of media undermines trust in media. I really don't get how strongarming tech companies into funding media companies is that much better: avoiding that threat requires being deemed to have given 'enough' to whichever media companies the BSA (and presumably the Minister behind the scenes) figure ought to be paid off. 

My column in the weekend's Dom Post:

Shakedown rackets are, thankfully, illegal.

Except when government legislates them. In that case, all bets are off. And if I were Facebook, I’d be off too – or at least thinking about it.

The Government finally released the Fair Digital News Bargaining Bill this week. The bill aims to improve news funding by requiring payments from those who link to news online.

Similar legislation caused Meta, Facebook’s parent company, to block all news links in Canada.

So what’s in the New Zealand version?

The legislation puts the Broadcasting Standards Authority (BSA) in charge of a new bargaining framework.

News outlets overseen by a recognised regulatory body like the Media Council, or subject to a standards code, can apply for registration.

It’s the other side of the bargaining table that gets trickier.

Any internet service that makes news content produced by news media entities available to people in New Zealand is considered a digital platform. The definition is very broad – simply facilitating access to news content, for example, by linking, is sufficient.

If you control such a platform, whether directly or indirectly, you’re considered an operator, and potentially subject to registration under the legislation.

The legislation is obviously aimed at Google and Facebook, and potentially Twitter and the Microsoft start page. But the definition of ‘platform’ is much broader. It probably covers Dr Bryce Edwards’ daily online news roundup at Victoria University, and my organisation’s own weekly newsletter. Both link to news.

But the BSA will only register some platform operators. If the BSA believes the platform operator has more than a minor power advantage over a news media entity, it can impose registration.

It’s an odd thing, that power imbalance. A news outlet can set a paywall and can prevent platforms from indexing or scraping content, at the outlet’s sole discretion.

But here, the BSA would consider bargaining power in deals over whether a platform will pay a news entity for the privilege of providing links. And since a platform operator can always decline to pay for links – because links have been free since the Internet was first created – there will be some power imbalance.

The BSA may give regard to a host of different considerations when deciding whether to register an operator. But just how that will work will be impossible to tell until the BSA starts making decisions. And that makes it risky to be a potentially registered operator if the bill passes.

Once a platform is registered, news outlets can initiate bargaining. Parties are under a duty to bargain in good faith and are subject to hefty penalties otherwise. If they cannot come to agreement, a panel of arbitrators is appointed. The parties put up their final offers.

And the arbitrators must choose the offer that “fairly compensates the news media entity party for that party’s news content being made available”.

The whole process is incredibly risky from a platform operator’s side. The news company takes on no risk. Even though the consultancy report produced for the Ministry of Culture and Heritage found that platforms provide considerable commercial benefits to news companies, payments here will only go one way. But it’s impossible to tell just what kind of final offer an arbitration panel would consider ‘fair compensation’.

In a traditional shakedown racket, a mafia boss threatens vague terrible harms if the ‘protected’ business owner doesn’t pay up enough protection money. It’s an offer you’re not meant to refuse.

The Fair Digital News Bargaining Bill has its own shakedown option. A platform can be granted a five-year exemption from bargaining processes if the BSA thinks the platform already makes “a fair contribution” towards news production.

What counts as a fair contribution? It’s hard to say. Broadcasting and Media Minister Willie Jackson has made clear that he wants the platforms to make deals with media outlets. Offer enough, and you won’t have to deal with complicated risky arbitration. Do you feel lucky?

But instead of facing the certainty of a tax code, platforms would face the constant uncertainty of trying to figure out which media outlets need to be paid off by how much to satisfy the minister and the BSA.

As in Canada, there may remain a safer way of avoiding all of it – though I expect anyone with skin in this game is talking it through with lawyers rather than economists.

Arbitrators are required to choose the offer that provides fair compensation to the news outlet for news content being made available.

If the platform stops providing access to news, its final offer in arbitration could be simple. “We do not provide access to news, so our offer is $0.”

Hopefully the bill dies on the order paper after Parliament rises for the election and is not picked up again after the election.

But it is disgraceful that shakedown legislation of this sort has even made it to Parliament for consideration.