Interchange fees

A few years ago, MBIE ran an inquiry into credit card interchange fees.

Most of the analysis seemed predicated on an assumption that retailers could neither impose surcharges for card transactions nor avoid accepting cards.

So I started taking pictures of EFTPOS terminals with tape over the credit card button or with obvious signs noting credit card surcharges to accompany my submission on it. The MBIE paper seemed to take "Well, anything's possible in two-sided markets so we should regulate" approach. 

Now it's ComCom that's proposing to regulate credit card interchange fees. 

But they did commission a couple papers. 

And this seems a key bit:

Moreover, it is theoretically argued that if the no-surcharge rule is lifted, interchange fee regulation is harmful for total welfare. Regulatory attention should in this case shift to merchants, rather than focusing on card networks. If surcharging is to be allowed, the optimal cap is equal to the merchant fee minus the merchant’s convenience benefit from card payments. In other words, the merchant should not surcharge more than his own incurred “transaction” cost of a card payment. This result is perfectly in line with the proposed “merchant indifference test” or “tourist test” to optimally cap merchants fees keeping the merchant indifferent between a cash payment vis-à-vis a card payment. Yet, recent cost-based surcharge regulations seem too lenient, as they allow surcharges up to the merchant fee – or even higher (Gomes and Tirole, 2018).

And remember that NZ retailers can set surcharges if they want. All of us see them all the time. Maybe John Small doesn't. 

It then goes on to note evidence from other countries about smallish proportions of transactions attracting surcharges.

But think about it for a minute. 

High volume retailers have some power in those relationships. You might expect that surcharges imposed on transactions at the grocery stores would be lower than the surcharges in other places. And it wouldn't just be about the supermarkets being big enough to have some heft. It would also be about the cost of providing the ancillary services that credit cards provide. You're going to be a lot less likely to see chargebacks for undelivered or unsatisfactory goods on a weekly grocery shop than you might for a mail order shipment that's gone wrong or, say, payment for your kid's trip out to space camp. Credit cards provide insurance; EFTPOS doesn't. That insurance is valuable, but more valuable in some cases than others. Those differences matter and I'd expect affect the charging structure that the card companies set. Nobody's doing a credit card chargeback if there's a broken egg in the darned carton when you get home. 

Another key bit, if you remember that NZ retailers very regularly set surcharges for credit cards.

Moreover, many payment networks have frequently imposed restrictive – and potentially “regressive” rules – on the merchant side, such as no-surcharge rules or honor-all-cards rules.31 Effectively, this implies that payment cards that are more expensive for merchants to accept, such as credit cards, will be cross-subsidized by cheaper means of payments such as debit and cash. As high-income consumers are the ones most likely to hold and use cards with higher reward schemes that are more expensive for merchants to accept, the cross-subsidies between the payment methods are regressive transfers from low-income consumers to high-income consumers (Felt et al., 2021; Wang, 2023).

I remember MBIE relying on this kind of argument in making its case, seemingly unaware that NZ retailers can and do set those surcharges. Hence my photography while out grabbing lunch. 

If ComCom tightly restricts credit card fees, expect a whole pile of services currently bundled with card transactions to disappear.  

It's annoying when there's a world of real problems that need to be dealt with and agencies like ComCom go off on these kinds of tilts. 

Fun antitrust application

David Harvey reports that AI scraping could wind up being part of the revised NZ Fair Digital News Bargaining Bill. 

Having defined what an AI system and an AI service is the Bill goes on goes on to link an AI system to news content for the purpose of training the AI system.

The focus is upon the way in which news content may be used to train a digital platform or AI system.

The first element is that an AI system must be trained using news content. This links to the definition of news content in the Bill. The training must generate outputs which happens if the AI system enables or facilitates the generation of outputs.

He continues through with technical elements on whether the definitions work and whatnot.

The better underlying question seemed to be why anyone thinks there's a problem here to be solved.

It's simple for a website to restrict against scraping. It would similarly be simple for a news site to licence its content for AI training, if anyone wanted to pay them enough to allow it. There is no obvious reason government needs to be involved in any of this. 

But there's a fun potential antitrust angle, and then conflicting priorities. It looks like Google has licensed Reddit content for AI training, and that part of the deal might mean that Google is now the only search engine that works on Reddit.

Reddit wouldn't have set an exclusivity deal unless the exclusivity deal gave it more money than licensing its content to multiple agents. 

Government-types have claimed to be deeply worried about news sites not being able to adequately monetise content, with consequences then for the public good aspects of journalism. And they've tried to punt the bill over to tech platforms rather than just fund a public good out of public funds.

Here we have a news content site that has made a voluntary deal with a platform for content access for AI scraping - the very thing that NZ's Parliament seems to want to legislate to force - and folks are worried that the exclusivity arrangements that mean more money for the news sites also give the platform too much power. 

Today in Antitrust: when we force (or even allow!) AI companies to sign deals w/ content producers for old content or API access, there is obvious way to "raise rivals' costs" and lock in market power, dynamically making things worse for content producers. https://t.co/5wvRIoE0mU

— Kevin A. Bryan (@Afinetheorem) July 24, 2024

I'm not saying there aren't potential competition issues here. But there are trade-offs. Ban exclusivity arrangements and you'll reduce the amount of money going to news content providers, and then you'll have other parts of government looking for convoluted ways to force additional payments. 

Afternoon roundup

The closing of the browser tabs:

• The Commerce Commission blocks NZ DJ software company Serato from selling out to Japanese DJ product company AlphaTheta. One lesson: don't do tech startups in NZ if your exist strategy is selling out to a larger company.


• New Zealand's bureaucrats have apparently been considering a harmonised set of plain packaging rules on infant formula with Australia, which would force an important part of dairy processing overseas. Hopefully the government stops this one while issuing a pretty hard "please explain" to the officials involved. 


• Aaron Smale's reporting on the Inquiry into Abuse in Care has been superb throughout, and is great again this morning at Newsroom. He asks the right questions about state accountability. I expect that those who helped cover up the state's abuses are more likely to earn knighthoods than to face charges. 


• Gas shortages have Huntly importing more coal. 


• The Department of Conservation has more opportunity than any other part of govt I can think of to realistically improve its own finances through user charges and concession auction. Newsroom reports this morning that they're facing "huge financial pressure". There is an obvious solution here.

Right to Repair

The Green Party has a Member's Bill up arguing for a consumer right of repair; Auckland University's Alex Sims has written a few columns in support of such a thing. 

I'd had an email asking about that legislation; figured I'd share my response here - tidied up a bit.

If it’s more expensive to produce a product that can be easily disassembled for repair, there will be trade-offs. Consumers could choose an offering with lower up-front costs, but hard to repair, or one with higher up-front costs, but easier to repair. There’s no reason for legislation to privilege one choice over another. 

If one car company makes vehicles that can only really be repaired by dealers, and another uses a more open standard, the latter could easily advertise that ease of repairability. I remember back on our farm we had a very strong preference for tractors made by Versatile, because field-repair was dead simple and you didn’t have to wait for a couple days for some tech to come out with a diagnostic kit in the middle of harvest. Folks who could afford fleets of John Deere tractors to cover twenty square miles of fields could have a couple in reserve; we couldn’t on 1000 acres. Trade-offs and consumer choice. The John Deere machines were great for folks in situations different from ours.

But even leaving that aside, New Zealand has to be a regulation-taker in this space. We import all this stuff. A bespoke rule could require separate production lines for products destined for the NZ market. That has to increase costs while sharply limiting the range of products here available. And if Europe or some other crazy kind of place sets rules requiring more repairable versions, nothing stops anyone from bringing the Euro-standard products into New Zealand. 

Also important to remember that avoiding putting things in landfill can itself be wasteful. Landfills charge people for dumping things. Important to make sure that user charges there are set to fully cover the cost of disposing of stuff in landfill. If the landfill charges are set properly, and it's cheaper to buy something new and dispose of the old one than it is to repair the old one, repairing the thing would be wasteful. It would take more real resources to effect the repair. 

And if there are competition issues around vertical integration in repair, that’s for ComCom right?

I hope the legislation does not progress. It could easily see a sharp reduction in the range of products offered onto the NZ market.

The current Consumer Guarantees Act amounts to an information requirement on this stuff. 

If a manufacturer does not undertake to provide parts or repair services, they inform the consumer. That's the exception provided at Section 42 and signaled in Section 12. It arguably increases consumer information and enables better-informed choices. I'd still argue that manufacturers of easily-repaired goods already have plenty of incentive to advertise that fact to customers, but it's harder to see that the Act does harm where that exception is provided.

Deleting that exception while extending the requirements placed on manufacturers willing to sell into the NZ market really wouldn't be good. 

Shakedown finances

There are a lot of problems with the Paul Goldsmith / Willie Jackson media bargaining bill. 

I hit on some of those over in the Stuff papers this week.

A snippet:

If the bill goes ahead with only that change, some things are predictable.

Meta will exit news in New Zealand, as it is set to do in Australia. Australia’s government has been mulling over whether it ought to compel Meta to continue providing news in Australia – which is a bit odd. This all started from a notion that Meta was stealing news. One normally doesn’t encourage thieves to keep at it because of the benefits of the fines assessed against them.

When Meta leaves, outlets where Meta provides a lot of free distribution and links will take a substantial hit. They will appear at the minister’s door asking why he has done this to them. They will be right to do so. He will have to come up with an answer despite the fiscal situation and explain to his Cabinet colleagues why he needs to boost media subsidies.

Moreover, New Zealand’s reputation among tech investors will decline. What should they think about places that shake down the tech sector to subsidise other industries?

There is a completely defensible case for public support for journalism. This bill fails to help and causes substantial additional problems.

I wish Minister Goldsmith luck.

The more I think about it though, the more the tax policy aspect of it really bothers me.

NZ has had a decent tax policy process overall. Some bits are incoherent - depreciation settings on commercial buildings and interest deductibility for rental property businesses seem to flip on political whims rather than on any sound basis. But overall, the generic tax policy process is good.

What Minister Goldsmith and National are setting up here is an end-run both around the generic tax policy process and the vote allocation process. 

The legislation that Minister Goldsmith wishes to progress would set the Minister as decider on whether to designate a platform for compulsory bargaining. A Minister could tell Meta/Google/Twitter/Microsoft that if they give some specified amounts to whichever media companies, that would be enough to avoid designation. 

Whatever the resulting de facto tax is, it will not have gone through any kind of IRD tax policy process. Nobody will have checked whether it makes sense, how it interacts with other taxes, what it does to BBLR norms. It won't have to be voted on by Parliament, except in the legislation enabling the Minister to act as extortionist. 

Normal drill in spending measures is that different Ministries put budget bids up to cabinet. Those bids fight against each other for scarce public funding. There's an implicit evaluation of all of them against each other - ideally via cost-benefit assessment, but often also against political considerations. 

None of the money handed over to media companies through Goldsmith's extortion bill will go through that process. Nothing will adjudicate whether the money is appropriately allocated across media outlets/objectives, or whether spending in that area is more important than in other areas that normal vote bids have to compete with.

It is an end-run against both IRD and against the normal vote allocation process. We wind up with tin pot funds for different things, contributed to 'voluntarily' by sectors heavied to make the contributions. 

It is terrible precedent. 

If Government learns that it can avoid all manner of fiscal and procedural constraints by heavying a disfavoured industry to fund a favoured sector through regulatory impost or through promise of regulatory forbearance if the heavied sector does 'enough' to pay off the favoured sector, do not expect it to stop with tech platforms and news media.

Other applications are obvious.

The Grocery Regulator could be instructed to go hard against supermarkets in areas that are of little public benefit but massive cost to the sector, unless the grocers 'voluntarily' agree to do enough to supply food banks free of charge. Who could object? Anyone who does would be painted as either being in the pockets of Big Supermarkets, or as hating the poor, or both - good policy be damned. 

It isn't hard to come up with more of these. 

It's a terrible path. 

I hope Paul Goldsmith comes to his senses. 

Food waste

There are some areas where it's hard to get a solution without government intervention. Carbon prices, for example. Not saying it's impossible, it's just hard.

There are also plenty of areas where policy is probably wrong and could use advice from a Chief Science Advisor. For example, setting an air quality standard for schools that balances cost of cleaner air against benefits from fewer teachers and kids out sick. Seems important. Naomi Wu's put up interesting stuff on far-UV light. Does the science stack up? What would it cost to put those in schools, if government ordered at scale for every school in the country? Would doing so bend the cost curve and set an example for others to follow?

Little things like that. Might matter. There have been a lot of illness-related school absences, and the government has claimed to be keen on reducing school absences.

The Prime Minister's Chief Science Advisor just put out a report on the critical issue of... food waste.

Normally you want to start with whether there's a potential policy problem. 

But every part of the system has strong incentive to avoid food waste.

A cabbage that doesn't make it onto the truck to get to market is money that the farmer doesn't get. Farmers like having money. They will invest in getting food to market up to the point at which getting the next cabbage onto the truck costs more than it's worth. Reducing spoilage isn't free. Farmers have to balance things. They are best placed to do so on their end. Who could know better than they do?

Transport companies that can't get their act together to deliver food in good condition wind up losing customers to those who can. That also means money. Transport companies prefer having money to not having money. They will invest in reducing spoilage up to the point at which the expected costs of doing so are greater than the benefits. Reducing spoilage isn't free. Shipping companies have to balance things. They are best placed to do so for their part of the production chain. Who could know better than they do?

Grocers that throw out a lot of spoiled food are throwing away money. They paid for the goods, and get no revenue from the ones they throw out. Grocers like having money. Didn't we just have an inquiry into whether grocers like having money too much? Spoiled food is wasted money. Grocers will invest in reducing spoilage up to the point at which the next dollar invested in it saves less than a dollar's worth of food. Reducing spoilage isn't free. Grocers have to balance things. They are best placed to do so for their part of the production chain. Who could know better than they do?

Households that throw away spoiled food are throwing away money. They paid for the food, and don't get to eat it. Households like having edible food and like having money. Don't we regularly hear news stories about people not being able to afford enough food? Spoiled food is wasted money. Households will invest in reducing spoilage and avoiding waste up to the point at which the next dollar's worth of effort in doing so saves less than a dollar's worth of food, as the household values things. Reducing spoilage and waste isn't free. Households have to balance things. They are best placed to do so for their part of the production chain. Who could know better than they do?

Spoiled food winds up in a few places. If it's in a household's compost bin, it can result in GHG emissions that aren't priced. But government seems to like composting. If it goes down the waste disposal, it winds up in the city's sludge plant along with human waste. I'm pretty sure those plants are in the ETS. If it goes into the trash can, it winds up at landfill. Landfills pay for their emissions, and have every incentive to reduce those emissions. Some capture and use the captured methane. If it winds up being fed to pets or to livestock, it displaces other feed and needn't be worried about.

And then we get the press release on the PMCSA's report from NZ Food Waste Champions. Where do you even start? 

They want a national food waste strategy with Targets! and Structures! and Systems! and Mechanisms!. 

The recommendations delivered to the Government include the need for a national food loss and waste strategic action plan, a reduction target, and structures and systems to empower stakeholders to act on them; mechanisms for ensuring more New Zealand-specific reliable and comprehensive food waste data; better strategies aimed at preventing food loss at  source; and enabling conditions that promote food rescue and upcycling to ensure edible food is never treated as waste.

The report gives a bullet-point list of first steps in preventing food losses in production. One of them was "exploring the potential of cooperative business models to improve farmers' market power." 

It is ...not obvious... why a coop would be preferable or how market power enters into any of this. The report seems to worry that buyers with market power can insist on high standards for delivered food, resulting in diversion of 'nutritious food' (ie potentially unpalatable to their customers, but still edible, and could be on-sold to Wonky Box) away from tables. There seems little consideration of that high standards by grocers might encourage producer practices that avoid bruised fruit that has a shorter shelf-life. 

There was one sensible bit in the press release.  

Dawson cites food packaging decisions as an example. “Moving to more sustainable packaging solutions is important, but what if that packaging means the food inside has a shorter shelf-life, which leads to higher levels of waste with greater levels of emissions?”

If grocers have chosen those options because consumers want them, they've made the balancing. If consumers want dumb-forms of packaging because they falsely believe those versions are somehow better for the environment, then maybe government could decide to run fewer anti-plastics campaigns. If grocers have chosen those options either because compelled by regulation or under threat of regulation if they do not, or because of misguided government-sponsored messaging around sustainability, then government has skewed the balance and done harm. Regulation doesn't do the comprehensive balancing that grocers would otherwise do. 

Similarly, the report recommends evaluating the Grocery Supply Code on "trade term driven food loss and waste." If the regulator sets supply terms that aren't what willing parties would contract to on their own, there's again the risk that government has skewed the balance and done harm. Regulation doesn't do the comprehensive balancing that grocers and suppliers discover through negotiation. 

Highlighting how regulatory mandates can inadvertently create waste is great. It's the kind of thing a new Ministry for Regulation could be doing. 

Another potential area for investigation - not sure whether it's in the report, though - would be the darned restrictions against building things on Precious Agricultural Land. Where those things can include restrictions against putting processing facilities on that land, they wind up requiring that food be trucked farther away before processing, which increases damage and waste. It's one of the things that National promised to look into; the restrictions on use of agricultural land are entirely a government-caused problem.  

The rest seems madness.

They apparently wrote four reports on this stuff. In this government budget situation. And with rather more important areas where scientific advice could improve government policy where there is an actual policy problem. With 500 "experts and stakeholders across the motu" having had to spend time on it. 

It all does make one wonder about waste-reduction.

Sheltered workshops and wage top-ups

It's hard to tell what the actual state of play is, but pretty easy to tell what it should be.

People with severe disabilities will often have great difficulty obtaining employment. In cases of intellectual disability, the point of employment is far less about what gets produced and far more about social connection and a feeling of worth for those engaged in activities. 

If you apply the minimum wage rigidly in those cases, people will instead be unemployed unless philanthropists are willing to fund sheltered workshops or equivalent roles. 

If you allow sub-minimum wages, a lot of people who otherwise would be unemployable will have some chance of finding meaningful activities. 

If people are employed at sub-minimum wages, activists will decide that it's awful and unfair and insist that the minimum wage be applied rigidly, and damn companies as selfish if they do not pay $23.15/hr for work that might produce $2/hr of value. It's inevitable.  They cannot see the next step, or don't care because it gives them a chance to rail against the evils of capitalism when that employment ends. 

Labour had proposed a reasonable solution to that mess: top-up wages. Budget 2023 had had them coming into effect from mid-2025, but I do not know whether or for how long that had actually been funded.

Ending the Minimum Wage Exemption

The Government will end the discriminatory Minimum Wage Exemption (MWE), which allows disabled people to be paid less than the minimum wage, by mid-2025.

“This unfair exemption currently affects about 800 disabled people who are legally able to be paid less on the basis they’re perceived to be less productive,” Priyanca Radhakrishnan said.

“Some disabled people in New Zealand are paid under the minimum wage and that needs to end. We will start this work immediately.

“This Government made a manifesto commitment to replace MWE permits with a wage supplement, ensuring all disabled people receive at least minimum wage.

“Under the Wage Supplement, approximately 800 disabled people will have their wages increased to minimum wage. This will support some disabled people to shift off the benefit into paid employment and decrease their reliance on the welfare system,” Priyanca Radhakrishnan said.

The rhetoric here is a bit nuts; it's playing to their activists around fairness. But the underlying policy would recognise that people with severe disabilities would not find employment if the employer had to pay the minimum wage, and had government wage top-ups making up the difference. 

If the state were not topping up wages, it would be providing other benefits instead. So the government isn't out the full amount of the wage top-up. It's out the difference between the wage top-up and the cost of whatever other supported living payments would otherwise have been provided if there were no wage income. I would expect that the EMTR on the wage top up will be pretty high, given the other income-linked benefits that would claw back.  

If the state wants the wages of severely disabled people to be high enough to support their living costs, doing it through wage top-ups makes a lot of sense. It keeps people in work and puts the burden of support broadly on the tax base, rather than expecting the employer to bear the burden itself. 

The Herald reports that the government is not going to go ahead with the top-up payments, with cost savings to the government reported at around $11m per year - or just under $13,000 if there are 900 affected workers. I expect, but don't know, that that is net of any increase in supported living payments and the like. 

Most important is not abolishing the minimum wage exemptions for people would could never find meaningful employment from willing employers at the minimum wage, and it doesn't look like the government is abolishing that. They're also maintaining support to help employers accommodate disabled workers. 

Supplemental assistance through supported living payments would have these workers no worse off than disabled people who are unable to work. There aren't good choices here, only trade-offs. 

What Labour had proposed was good, but did mean that someone who is completely unable to work would wind up with less money than someone whose work is really more of a social activity than productive. And you might not like that. 

National's version has support instead through supported living payments, which means some so-supported workers don't get to enjoy that support through a paycheque, and total support will be at a lower level than what Labour had promised (but had not yet put in place). And you might not like that. 

What I worry more about is whether the proposed version will prove politically stable. Most important in a lot of these cases is going to be the fulfilment of being able to go to work, not the paycheque itself. I hope that the next turn of the electoral cycle would have a Labour-led government reinstate top-ups, rather than ban employers from paying sub-minimum wages. 

Previously: Karl du Fresne's excellent piece on sheltered workshops.

Morning roundup

A selection as I read through the morning papers.

• Twenty-three MPs claim an accommodation allowance to stay in their own Wellington properties.  Well, consider the alternatives, which the story doesn't.
  • You could pay all MPs much higher salaries and tell them to sort their own accommodation, which would mean higher effective pay for Wellington-area MPs who wouldn't need to pay for a second residence.
  • You could means-test access to accommodation support which would basically scale MP pay by prior wealth. It would also tilt things to discourage candidacy of middle-to-higher wealth MPs from outside of Wellington.
  • You could raze Premier House and put up halls of residence for MPs and the Prime Minister (and maybe have a reality show based there).
  • Or you could provide non-Wellington MPs who have a Wellington property with a strong incentive to sell off any Wellington properties by not providing the payment to MPs who don't live in Wellington but who have a house here.
  What do you think sucks least? Because I'm not sure there are other options.


• The Government is to run a Parliamentary inquiry into rural banking.

  The Federated Farmers’ campaign for an inquiry was led by farmer Richard McIntyre.
  “I have been inundated with phone calls and emails from farmers, and even some former bankers, wanting to tell their stories,” he said.
  “And there’s been some pretty harrowing stories.”
  The worst of those involved farmers losing farms that their families had owned for generations, he said.

  Parliament might consider whether difficulty in foreclosing on failing farms, because of this kind of response, provides a strong disincentive to lending on rural properties.


• I love that Xero is now putting out productivity data. The data is depressing. But great that Xero's doing it!


• My gawd people. We have a competitive electricity market. New supply can come in if demand increases - though we need to make consenting for it easier. Emissions from mining and from electricity are in the Emissions Trading Scheme. If you want fewer emissions, reduce the number of unbacked units the government will issue or allocated between now and 2050. But wanting to block a gold mine because it will use energy and might have CO2 emissions is nuts.

Expert advice

There are a few things you'd hope would be common knowledge about the Emissions Trading Scheme.

For example, the scheme caps net emissions. If emissions go down in one sector, another sector's emitters can buy the slightly-cheaper NZUs and use them. The only thing that reduces net emissions in the covered sector is government auctioning or allocating fewer units. 

And that the scheme wasn't designed by idiots. You can get credits for growing trees. But if you cut down the trees, or if the forest burns down, there are obligations: surrender the carbon credits or replant to sequester an equivalent amount of carbon. 

If the scheme didn't require surrendering credits if the forest burned down, it would be a pretty stupid design. 

MPI explains it in really simple language.

Natural disasters and other accidental events can damage forest land. Where this damage fells, burns, kills, uproots, or destroys the forest, the forest is treated as cleared in the ETS. This can result in a need to pay (surrender) New Zealand Units (NZUs or units) for the decrease in stored carbon.

From 2023, you can apply to pause carbon accounting if such an event damages your forest. This is called a "temporary adverse event suspension". If your application is approved, you won’t need to pay units for the decrease in stored carbon.

This pause will last until your forest:

• is re-established (replanted or regenerated), and
• achieves the same level of carbon storage as it had before the event.

So it's fun to read today's Carbon News:

The former chief science advisor for the Ministry of Transport says the current government isn’t even pretending to try to reduce carbon emissions from transport.

For the past six and a half years Simon Kingham, professor of Human Geography at Canterbury University’s School of Earth and Environment, was seconded two days a week to the Ministry of Transport as chief science advisor, to advise on the evidence base of government policy.

Kingham says the coalition government is taking a completely different approach to the former Labour-led government. “The previous government was working to reduce transport emissions. The current government is not even pretending to try.”

There is a long list of transport emissions reduction policies that the coalition government has binned. “They’ve cut back the Clean Car Discount, reduced the Road User Charges exemption for EVs, they’re winding back the Clean Car Standard, reducing funding for public transport, reducing incentives for walking and cycling, they’re building more roads which increases emissions, they’re encouraging density but also encouraging sprawl, which induces demand."

He continues:

The government seems to be focussing more on net emissions and offsetting, Kingham says. But that’s not a straightforward solution. “If the emissions reductions are not coming from transport or agriculture that puts a lot of pressure on tree planting.”

While the government issues carbon credits for tree planting, we don’t know if that sequestration is necessarily durable, Kingham says. “Do they get to keep the carbon credits if the forests burn down? As well as tree planting there’s talk of biofuels. That all adds up to a lot of land that’s going to be used and I don’t know if anyone has thought through the implications of that.”

While relying on the Emissions Trading Scheme might work to decarbonise other sectors, Kingham says it won’t work for transport. “The ETS is not going to deliver reductions in transport because the price it would have to go to is politically unpalatable. You’d have to add a dollar to the price of petrol and no-one is going to want to do that.”

One nice feature of the carbon price is that it tells us where emission reductions are most cost-effective. If one sector won't decarbonise much at a carbon price of less than $100, that tells us that there are lots of other ways of reducing net emissions for less than $100/tonne.

But it could be a fair critique to want transport planning to be making its best guesses as to what people will want as transport options when the carbon price rises to $100 or $150/tonne.

Anyway, it's always fun to gauge understanding of the ETS.

I'd always counted things like the clean car discount as pretending to try to reduce emissions. 

Baseline 2019

I'll be in tomorrow's budget lock-up and on TVNZ's ridiculously early Breakfast panel pre-budget roundup ahead of it. 

For rather some time I've been making the case that government needs to retrench Core Crown Expenditure to pre-Covid levels. 

The Great Wellbeing Budget of 2019 was not austere. It was a substantial increase in spending, as a fraction of GDP, as compared to the prior National government's last budget. 

So. 

Take every Vote from Budget 2019 as a percent of GDP.

Make that the baseline for a future budget. Maybe 2025 if they're somewhat ambitious, 2026 if less ambitious. 

Some programmes or structural changes since Budget 2019 might be considered worth keeping. Government would have to trim other spending so there'd be room for it. 

I'm less interested in overs and unders around automatic stabilisers. Benefit spending will be higher in 2025 than 2019 because unemployment is likely to be higher; note too though that jobseeker numbers remained very high relative to unemployment over the period after lockdowns. 

If Budget 2025 were "Hey, this is the same as Budget 2019 would have been, as a fraction of GDP, if unemployment had been at 2025 levels", all good. There would be no structural deficit. 

Let's compare a few numbers here. 

At Budget 2019, Treasury put up forecasts of Core Crown expenditure for the year to June 2023. The bulk of Covid spending should have been 2020 and 2021. The traffic light system ended in September 2022. 

Budget 2019 forecast a 4.3% 2023 unemployment rate. The 2023 half-year fiscal update had a 3.6% unemployment rate for year to June 2023. So higher unemployment isn't responsible for any differences in spend between 2019's forecast 2023 and the actual 2023. 

Let's compare Budget 2019's forecast for core crown expenses by functional classification for 2023 with actual expenditure by those classifications for the year ended June 2023, inflated by the extent to which nominal GDP for 2023 exceeded 2019's forecast GDP for 2023. Nominal GDP in 2023, divided by the forecast of 2023 GDP from Budget 2019, then multiplied by each functional classification line. 

Overall, Core Crown spend is $13.4b higher than had been expected in 2019, after inflating for nominal GDP increase over the period, and accounting for Budget 2019's expectation of about $10 billion in new operating spending by 2023 that couldn't be classified in 2019.

Or put it this way. Budget 2019 expected Core Crown spending in 2023 would be about $104 billion across those functional areas, plus $10 billion in new operating spending, for $114b all up, after adjusting for nominal GDP growth to catch population increase and inflation.

Actual 2023 was almost $127 billion. So $13.4 billion more than would reasonably have been expected.

Despite unemployment being a lot lower in 2023 than had been forecast in 2019 for 2023, social security and welfare spending were $3.8 billion higher than had been forecast for 2023 at Budget 2019.

Health spending was $7.7 billion higher. 

Finance costs are substantially up, and there won't be much government can do about that now other than avoiding making things worse.

Transport is $1.8b higher. Core government services $1.6b higher. Education $1.5b higher. 

Spending has blown out across the board. If you take the excess spend as a proportion of the had-been-forecast spend, the blowout is of course biggest in finance costs, with with housing and community development (60.3%), heritage, culture and recreation (57.8%), environmental protection (52.2%), primary services (48.9%), and transport and communications (47.1%) following - health only blew out by 36.8% as compared to forecast and social security and welfare by only 9.9%. But those two line items are so very very big. 

Getting back to Core Crown expenditure comparable to 2019's when measured against current GDP isn't a small job.

The Taxpayers Union commissioned a poll from Curia. Sample of 1000 respondents. 

They wanted to know whether people viewed Robertson's Wellbeing Budget, with Core Crown spending of 29% of GDP, as being too low, about right, or too high. 

Only Green Party supporters reported that it was too low, or at least in any substantial numbers. Among Green supporters expressing an opinion, about half of Green supporters thought it was too low, and half thought it was about right. 

Among the population at large, 9% thought it was too low, 34% about right, 29% too high, and 29% were unsure. 

Among those expressing an opinion, those thinking spending in 2019 was too high outnumbered those saying it was too low by more than 3 to 1, with most saying it was about right.

It isn't crazy to view the pre-Covid spending proportions as a decent baseline. And most people didn't think Budget 2019 was austerity - far more people said that it spent too much, as a fraction of GDP. 

Budget 2019 reckoned on Core Crown spend of 28.8% of GDP over the medium term.

December's Half-Year fiscal update had 2023 Core Crown spend at 32.2% - the mess I pointed to above. And forecast it would be worse for 2024 at 33.4% of GDP. 

People rightly recognise Budget 2019 as not being austere. 

Getting back to spending consistent with government's share of the economy in 2019 is still going to be a big job. 

I'm hoping tomorrow to see reasonable work in that direction at least. Especially if they also want to deliver tax reductions, given the size of the deficit. 

National will be damned as austerity merchants for any spending reductions, regardless of how many people viewed 2019's budget as too generous. 

If you're going to be hanged anyway, better to be hanged for a sheep than for a lamb. I don't expect any sheep here. But they could at least aim for hogget. 

Campus speech

Victoria University's panel on free speech at universities seemed designed to be tedious, providing the smallest target for criticisms of the university. 

Rather than any discussion among panelists, we heard a series of statements in response to less-than-useful questions from Corin Dann. 

Because of Dann's framing, a pile of discussion was around who should be allowed to speak on campus.

Dann could not be expected to know that there has been a standard solution to this. Or at least there was for the period I was on campus at Canterbury. It worked well. Michael Johnston briefly alluded to that standard solution, but that didn't stop the 'but who should be allowed to speak on campus' bit. Or "Should someone be allowed on campus to debate cutting off Corin Dann's head" - as one of the panelists put it. 

Someone can speak on campus if they have been invited to do so by a member of the academic community. 

An academic can invite guest speakers to present to their class. 

Departments invite guest speakers to present working papers in regular workshops. Ours were on Friday afternoons, followed by excellent beer at the Staff Club. 

If an academic wants to host a guest speaker for a more public event, they need to get a room booking. At one point that was done through the Department because we controlled a couple of our own lecture theatres; later, that required centralised room booking. But the academic's name was on the booking; the academic had thought the speaker worth hearing out.

If a student group wanted to host a guest speaker, they could do it at the student union, or they could ask a member of faculty to book one of the lecture theatres. I think the student union restricted that to recognised student groups - but there was a broad set of recognised student groups, from ACT On Campus to Maoists. 

In any case, the guest was there because a member of the academic community thought they were worth hearing. 

For plenary speakers where there might be resourcing issues, or if it were part of a University named lecture series, that would need sign-off from whoever ran that series. Not getting signoff didn't mean the person couldn't speak on campus. It just meant they wouldn't speak in that slot. If other ways of financing a visit could be worked out, the academic could just book a room. 

The test shouldn't be some big public discourse about who is or isn't worth hearing, or who is or isn't presenting misinformation. 

There was useless, tedious discussion of whether Julian Bachelor (an activist favouring one reading of the implications of the Treaty of Waitangi) should be allowed to talk on campus. 

The only test should be whether a member of the academic community thinks he is worth hearing. Not whether his views are respected in, say, the Faculty of Law. I expect they think he's nuts, and they could well be right. It isn't my field. 

But I know that the Accounting Department regularly hosted speakers that folks in econ/finance thought were barking mad. And one fine Accounting colleague would often send all-college emails about how all of economics is wrong, as proven by their guest speaker who didn't have a clue about the content of intermediate micro, just that it was 'neoliberal'. 

The test wasn't whether we thought the speaker was an idiot, or wrong, or providing misinformation. Some of the Accounting guests were all three - at least in the view of the econ tea room. 

The test was whether the people in Accounting thought that the speaker was worth hearing. 

An equilibrium where we would have gotten to veto speakers that we thought were idiots and they got to veto speakers that they thought were idiots would have been terrible. 

So there's a simple answer on the Bachelor, or anyone else, question. They should be allowed to speak on campus if a member of the academic community has asked them to do so. 

That raises a separate question: would faculty still feel safe in inviting speakers that they think are very much worth hearing, but that might draw complaint?

Update:

After the session, I walked back toward the train station with a couple of Vic academics that I ran into outside the event. 

They noted that they’d been approached by a journo for their views.

They said they’d politely declined.

They also said that they hadn’t told the journo the reason for declining. Namely, that Vic is not a safe place for freely airing one’s views on such matters. They did not expect the Uni to have their backs if there were pushback, and they were surprised how many of their colleagues in the audience appeared supportive of restricting speech on campus. 

Free trade for free countries

Matthew Yglesias at Slow Boring reiterates the case for American free trade with likeminded countries. 

What we ought to be doing is trying to minimize the total amount of trade barriers, and thus the economic cost of pursuing competition with China, by reducing as many trade barriers as we can. We should stop complaining about cheap Canadian lumber. We should stop blocking imports of Latin American sugar. We should let Toyota sell cheap small trucks to Americans who want them. We should, frankly, probably start buying (or leasing2) warships from Japan and Korea, where they actually know how to build ships. America is toast in a conflict with China if we can’t count on cooperation with our friends, so we may as well optimize on maximum economic efficiency and the freest possible trade within the free world. This also applies to quasi-trade in professional services — we should make it easier for foreign doctors to practice here, and have the FDA and European drug regulators work together so approval by one agency will let you sell on either side of the Atlantic. There’s a lot we can do to work together internationally and increase prosperity.

It seems obviously crazy that the US wants countries to reduce trade links with China while setting tariffs on countries that it calls friends and allies that encourage them to trade with China instead. 

That was my column over in the Post on Monday. 

I think it's a bit crazy that New Zealand has been talking about tighter defence arrangements with the US without having a secure trade deal with the US already in hand. China is our largest trading partner. We have a free trade agreement with them. And while there have been occasional bits of weirdness facing goods entering, they don't stick giant tariffs on our exports. 

Easy to check this for yourself, even though MFAT in general seems to prefer not making a big deal about how protectionist America is (contrast MFAT's correct and explicit views on the evils of Canadian trade practices, with softpeddling on America's). 

MFAT has a Tariff FinderMFAT has a Tariff Finder. Click the Exporting button; you're pretending to be a NZ-based exporter. Then compare tariffs on your exports if you're exporting to China, and if you're exporting to America. You can find China among the FTA partner countries on the drop-down list; the United States is on the non-FTA partner list. 

When NZ got its FTA with the UK, people made a big deal about onions now getting tariff-free access to the UK. So let's check onions. The US charges 0.83 cents/kg; no tariffs for entry into China. 

Is the Chinese ambassador wrong when he says that China has been a more reliable trade partner for New Zealand than the US has been? 

NZ trade with China can be subject to holdups at the ports if the Chinese government is mad at us - and what happened with Australian wine is concerning. 

But NZ trade with the US depends on madness in American farm states and whatever populism Congress wishes to appease [and trade with Canada is even worse - America at least tries to do its protectionism within the rules; Canada signs agreements it knows full well it will immediately break]. 

Anyway. 

If US trade policy really were about global geostrategic stuff, rather than mainly being protectionism, they would be opening trade as Yglesias suggests. 

And while neither the Republicans nor the Democrats show much interest in being reliable trade partners for anyone, I'd be a bit nervous about AUKUS. 

Contestable advice

Danyl McLauchlan over at The Listener on the recent shift toward more contestability in public policy advice in education:

Education Minister Erica Stanford, one of National’s highest-ranked MPs, is trying to circumvent the establishment, taking advice from a smaller pool of experts – some linked to right-wing think tank the New Zealand Initiative – instead of the traditional so-called experts. The Education Ministry itself is facing heavy job losses – 755 staff. Many of its core functions will be contracted out to consulting firms, especially in areas linked to Stanford’s reform programme: rebuilding the curriculum; an emphasis on reading, writing and numeracy; consistent assessment and reporting; better use of data and analysis.

There’s also a focus on improved teacher training. A recent Education Review Office report said 60% of principals believed their new teachers were unprepared to enter a classroom. It urged the sector to adopt stricter entry criteria for training programmes and to conduct exit exams.

The universities rejected the criticism, and the government is now considering expanding private-sector training.

If one cluster of advisors centered around MinEd has been providing advice that leads to terrible outcomes, good idea to seek advice elsewhere.

Afternoon roundup

A closing of the browser tabs:

• New Zealand's space industry keeps growing. Here's BusinessDesk on Dawn Aerospace. So neat. 
• America's economists are very sceptical about the latest round of tariffs on imports from China.
• Ancient bugs hiding in NZ amber.
• Statistics New Zealand is shifting out of central Auckland because of increasing levels of 'intimidating behaviour' in the neighbourhood. Police victimisation stats had a surge in crime in Auckland Central West in 2023 that's since abated, but the number of victimisations there remains far higher than in the Lambton area around the SNZ Wellington office. 
• Easy to find claims that public ownership is better than private because private operators are too short-term oriented. Meanwhile, half the board of Christchurch City holdings has resigned. Why? "...the decisions council has subsequently taken over 2024 to maximise short-term dividends at the expense of paying down group debts and investing in the future of its companies has caused us to lose confidence in council's ability to responsibly own core strategic infrastructure."
• Satya Marar at Mercatus on America's populist turn in antitrust policy. 
• Modern desalination is pretty cheap. The energy required for desalinating a household's water is roughly on par with the power needed for its refrigerator.
• Whenever you're depressed by NZ problems like deteriorating council infrastructure, messes in government IT systems, and crises in public media funding, always worth checking over at Canada's seemingly worse problems in the same areas.
• Concrete is neat.
• There is no good version of a central bank digital currency.
• Eli Dourado wants floating cities.
• Worried about the de-banked - people who can't reasonably access normal banking serives? Fix AML.
• If I were still teaching Public Choice, this would be added to the syllabus. If you want the implicit models behind critiques of the left's shift into identity politics from folks like Chris Trotter, it's a good read.
• Cass Sunstein's 'Economic Constitution of the United States' would also hit the syllabus. I've viewed the Public Finance Act and Reserve Bank Act as being part of New Zealand's economic constitution. Sunstein here makes the case around the rules around regulation and regulatory impact assessment.

Paper-clip monitoring departments

Great piece by Adrian Wooldridge at Bloomberg, syndicated at BusinessDesk, on the dangers when corporates shift into stakeholder management.

Regulation not only diverts companies’ focus from outside (serving customers and mastering technological change) to inside (monitoring internal processes). It also contributes to internal bureaucratisation.

After the government creates a department of paper-clip regulation, the corporation must perforce create its own internal department of paper-clip monitoring – and soon the head of the paper-clip monitoring department is demanding a seat on the executive committee. A second culprit is the shift from shareholder capitalism to stakeholder capitalism.

Shareholder capitalism provided companies with an external discipline: If CEOs diversify into unrelated businesses or engage in vanity projects they are soon punished by the market and disciplined by their boards.

But stakeholder capitalism weakens external discipline and increases the power of jostling pressure groups. CEOs can claim they need to engage in this or that grand project to earn their licence to operate regardless of the short-term impact on shareholders. Pressure groups can argue the company needs to pursue this or that good cause to satisfy this or that stakeholder group.

New Zealand's External Reporting Board requires so much paper-clip monitoring.... 

Afternoon roundup

The closing of the tabs...

• Transport is in the ETS. Therefore, bus networks do not need decarbonisation strategies. Councils can just assess the all-up costs of different options - with a measure for the cost of particulate matter pollution in places that are less windy than Wellington. I don't know why NZTA has funded research to models weighing up 'different bus decarbonisation strategies'. 


• Canterbury's Mike Grimshaw on the fundamental underlying problem with NZ's universities.


• Ryan Bourne on the War on Prices


• The CFTC had been the safe harbour that let the IEM run. They've since been taken over by Vogons. 

Robertson's Seventh Budget?

Dan Bunskill reports on Finance Minister Nicola Willis's speech this week:

Willis said it wouldn’t be a “big-spending” Budget, knowing that Crown finances could get worse before they get better, but she wouldn’t “overreact” to worsening forecasts either.

It will not be “an austerity Budget, of the sort suggested by a few commentators seemingly enthusiastic to see the mistakes of history repeated”.

“Our Government knows how devastating it would be if we were to give up on overdue tax relief, to drastically cut-back on investment and public services, and to downsize our ambitions for growing New Zealand’s economy”.

"Drastically cut-back". 

Right. 

National hopes to get core spending down to 30% of GDP, sometime. 

Ardern's 2019 Wellbeing Budget was forecast to cost 28.8% of GDP over the medium term. Willis wants to avoid "drastically cutting-back" to a level higher than Ardern had set. 

Pretty easy to read those lines in Robertson's voice really, maybe other than the bit about overdue tax relief. 

As I'd put it in The Post earlier this week:

Tax revenue and government spending are both substantially higher than they were before 2020’s Covid lockdown – whether measured as dollars collected and spent, or as a fraction of overall economic activity.

Core tax revenue rose from just under 28% of GDP in 2019 to just over 29% of GDP forecast for 2024. But core government spending increased from 28% of GDP to 33.4% of GDP over the same period. The difference between the two is a problem.

Government spending increased by over six percentage points of GDP in 2020. Spending to deal with the worst parts of lockdowns and border closures mattered. But wage subsidies are now gone. Borders are open. And core government spending, as a proportion of GDP, is forecast to be only about a percentage point of GDP below its peak.

If you think the continued increase is because government has had to put more money toward healthcare, in the wake of Covid, and toward education, for dealing with the lingering effects of Covid through the school system, check the figures.

In 2019, education and health together were about $30 billion of a $100 billion government budget – 30% of the total. If education and health were pulling spending upward, they would now be a larger fraction of the larger budget. But Budget 2023 had education and health as about $44 billion of a $176 billion government budget – about 25%. Health and education are not what has driven the overall increase.

Compare growth in health and education spending with growth in other areas.

Spending at the Ministry for the Environment increased from $708 million to just under $3.5 billion over the same period. Transport’s budget also more than doubled – from just under $5 billion to just over $10 billion.

The Ministry for Social Development went from $26 billion in 2019 to $41 billion in 2020 – understandable when the wage subsidy was in place and lockdowns blocked jobseeking. But MSD’s 2023 budget was $43 billion, despite relatively low unemployment rates.

I'd there concluded:

Basic maths lays out the options. Spend less, take more in taxes, or a bit of both. Anything else reeks of denial. But surely a May budget set by a National-led coalition Government ought to balk at setting a core spending path entrenching government spending as a larger share of the economy than Finance Minister Robertson promised in 2019.

What I'm really hoping for in Budget 2024 signaled strong consolidation for Budget 2025. Set each budget line for 2025 as the same fraction of GDP as it was in Budget 2019 - as a baseline starting point. Ditch programmes that don't make sense to maintain stronger funding for ones they want to keep. 

I'll be at the lockup. The last lock-up was really rather fun. At least for me. Maybe less so for a few others. 

Fashionable follies

A fashion industry group is lobbying for protections. They make the usual arguments and a newer one. None of it makes sense.

An industry group says it pumped $7.8 billion into the economy last year - that's 1.9 percent of New Zealand's GDP.

They could be right; I'm not going to check the figure. But if the industry entirely disappeared and we relied on greater imports of clothing, GDP would not drop by 1.9%. Capital and labour would shift to other sectors, which would expand.

"What we really need is someone to take us under their wing and fight for us," designer and Mindful Fashion chair Juliette Hogan said.

"From the beginning with a levy on garments coming into the market, then at the end that levy is actually used to invest in recycling technology."

This is protectionism wrapped in circular economy nonsense. Setting a fixed per-garment charge raises the relative price of low cost product relative to higher cost products. 

Suppose that it currently costs $20 to get a garment of similar quality to a $10 import. If you buy local, you're sacrificing two shirts or whatever to get one local one. If a $10 fixed charge is set on every garment, then imports rise to $20 and locals rise to $30. You now only have to sacrifice 1.5 shirts or whatever when choosing to buy local. 

The fixed levy shifts relative price ratios between local and foreign-sourced goods. And that's the protectionist point of the thing. Or, if they've convinced themselves that that isn't really what they're doing, it's nevertheless the effect.

In any case, garments do go through a life cycle. New, to used, to thrift shop, to rags, to landfill. Landfills charge on amount disposed. It's all fine. If there really were a more cost-effective way of reusing, people would be doing it already. 

The Government has ruled out putting levies on products from overseas.

That's a relief!

Another challenge it wants help with is training. 

Tim Deane owns Norsewear, a company that uses top-end knitting machines to make merino socks. 

He's trying to find ways to teach his 20 staff to use new and complex machinery.  

"It's almost impossible for me to find any technical courses that can be used to upskill them. Now there is nothing," he said.

If a polytech put on a course training people to use very specific industry machines, could it recover the tuition cost? Courses for forklift operators can make sense - the country has a lot of forklifts and there are basics that transfer across the things. 

It could be that there are enough top-end knitting machines across the country that a polytech could put on a course and not lose money on it - oughtn't that be the test? 

Update: Haimona Gray on it here. 

Inflation and GST thresholds

I hadn't thought about this one until a helpful email showed up in my inbox.

It's pretty obvious that income tax thresholds should automatically index with inflation - whether to anchor the thresholds in percentiles of the income distribution, or to anchor against a real consumption bundle. 

But what about the threshold for filing GST?

My correspondent notes that when GST was first set in 1986, the threshold was $24,000. $24,000, CPI-adjusted to today's dollars, is $65,000. But the GST filing threshold is $60,000. So should it go up? There's a petition before Parliament on it. 

That's a far more fun question than inflation-adjusting income tax thresholds. 

The threshold for filing GST, as I've understood things, tries to balance the cost imposed on small businesses against revenue lost from failing to impose GST. If, as a small trader, you do not file for GST, you cannot claim back the GST on your inputs. The government loses only the 15% of the value that your firm adds in transforming inputs into goods or services for others - not 15% of your turnover. 

If you're at the threshold and purchase inputs equal to half your turnover, then not filing means that the government misses out on 15% of $30,000: $4500. If it costs that business more than $4500 to deal with the GST system, then making them file destroys value. 

When the threshold was set in 1986, accountancy software like Xero didn't exist that lets you submit GST by clicking a button, so long as you're keeping the rest of your accounts up to date in there - which many companies would want to be doing to simplify their year-end company accounts. 

So the question isn't whether inflation has reduced the real value of the filing threshold as compared to 1986. The question rather is whether inflation has reduced the real value of the filing threshold by more than tech has reduced the real pain of filing GST for small traders. Filing GST can still be painful. But I have no sense of how much less painful it is now than it would have been for a small trader in 1986. 

If tech has simplified things enough, you could even imagine a case for reducing the filing threshold rather than increasing it. 

I wonder whether anyone's able to compare the pain of small-trader-filing for GST in 1986 as compared to now. Is it 10% easier? 50% easier? Or has something else dumb happened that made it actually harder despite tech?

I don't have any answer here. Just the way of framing the question. The relevant question isn't inflation per se. It's the real value of the filing threshold relative to the cost of filing. 

Deeply unserious country

Every bit of this seems insane. And people wonder why productivity is falling through the floor. 

Energy News reports that the Environment Court finally threw out Allan Crafar's appeal against a solar farm.

From the story:

• Consent was granted in 2022.
• Crafar appealed November 2022. On what grounds? That turning a dairy farm into a solar farm would mean the effort of turning it into a dairy farm would have gone to waste. In his view, there would be a $30m annual loss to the country.
• Competing experts provided evidence about whether there would be a net national benefit. I don't know why this was a consideration.  
• Bryan Leland, for Crafar, insisted that solar farms ought to have their own backup energy storage.
• James Findlay, for Crafar, claimed that agricultural returns are commonly believed to 'have six-times multiplier effects'.
• Crafar claimed the Paris Agreement means a dairy paddock (in a country that doesn't have a carbon price on ag emissions and in a part of the country trying to push down nutrient load from runoff from dairy farms) can't convert to solar panels because of effects on food production. 
• Judge Tepania dismissed the appeal.

It isn't crazy to object to a land use change that would have substantial adverse flow-on effect on your land use. 

It's nuts that the system entertains objections like this one where there is zero reported real effect - only what amounts to a view that the outfit putting in the solar farm might lose money as compared to keeping it as a dairy farm. 

It's nuts that Todd felt they had to commission an economic analysis to prove net benefits.

It's nuts to invoke Paris Agreement as a reason to block a reduction in dairying. 

And it's darned weird to say that, at current system balance, a solar farm ought to have its own specific backup. When the sun is shining, solar is low-cost power and the hydro lakes spin less water through the turbines, saving it for when the sun isn't shining. 

Deeply unserious system. And environmentalists wonder why National is pursuing a fast-track consenting process that cuts all this crap out (along with potentially less unreasonable objections). 

Fun minor grudges

Grudges are bad. Better to move on. But it can be fun to keep a couple of really trivial ones, so you're not tempted to have other ones. 

For example, because of the rootkit fiasco of 2005, no Sony products in our household. 

It's a low-stakes grudge. Differences across major brands aren't huge; I forgo little by dropping one brand when considering the next TV or headset. 

I'm thinking of taking up a second one. 

I mean, just look at this.

A neighbourhood fish’n’chip shop, trading as Popeye’s for at least 30 years, has bowed to the legal threats of a fried chicken chain, forsaking its name.

...

It was not a brand known to Bill Cao and May Zhou, who have owned and operated Popeye’s Takeaways on North St in Feilding since 2008, until they were served with a cease and desist request from its lawyers in late April, claiming unauthorised use of a registered trademark.

The letter from AJ Park, which has been sighted by Manawatū Standard, expressed concern consumers would mistake the two businesses as being connected as they offered “identical” products and services.

It ordered the owners of Popeye’s Takeaways to stop using and displaying its name, which had been registered in New Zealand by its client in 2022, and to provide a written declaration they would never seek to register it themselves.

Failure to comply would lead to further action, such as seeking damages and even the shop’s profits.

Zhou and Cao were stunned. The shop had been Popeye’s when they bought it, and customers we spoke with recalled the name being around for at least a decade before that.

It was named after Popeye the Sailor, the spinach-munching comic strip character.

Feels like the kind of thing eminently suitable for a low-stakes grudge.  

GST back to councils?

If a localist agenda involves punting more responsibility down to councils, then central government assistance in funding some of those responsibilities could make sense. 

If councils were only responsible for core infrastructure, that can and should be covered by rates revenue and user charges on use of the infrastructure. If the resulting rates charges are unaffordable because of low income in the district, that's generally a problem for central government redistribution policy. Central government takes a lot of money from higher earning households and redistributes it to lower earning households, particularly lower income households with children. 

And if central government wants the council to provide infrastructure services to a higher standard than the council's residents would choose for themselves, because of central government priorities, it's appropriate for central government to assist with the cost difference. 

But if a more localist approach would have councils taking on more responsibilities over social services, that should not be funded through rates. Social services are inherently part of the state's vast redistribution mechanism. If local councils funded education, or health, or other such services out of local revenues, then central government would need to look to mechanisms like those used in Canada for topping up the accounts of poorer councils so that comparable bundles of those services could be provided in different places. The education system is already fairly redistributive, with a lot more central government funding for schools serving poorer communities' needs than those serving richer communities - whether it's done through decile measures or the more recent index measure. 

Anyway, that's just background and what I've thought is fairly settled standard local public finance in NZ. 

A couple years before I joined the Initiative, Jason Krupp at the Initiative had been arguing for giving the GST on new housing builds back to councils. I argued against it because it's impossible to track GST that way. But they were simply using GST as shorthand. What they were, and have continued, to suggest is taking the value of new housing construction in a district, multiplying it by the current GST rate, and sending it to council as a grant to help encourage them to build more housing. They could put it toward defraying the cost of necessary infrastructure; they could build a golden statue of the mayor with it. So long as it made councils more likely to say yes to housing. And I think that all makes sense - there are substantial spillover costs on the rest of the country and on central government when councils don't enable enough housing in places where people want to live - up and out.

Yesterday, Politik newsletter reported on some work by Infometrics on returning the GST charged on local council rates back to councils.

This seems a tremendously bad idea. 

Brad Olson was quoted:

"Rates should still be charged GST, as councils are providing goods and services for local residents, ratepayers, and others. But given the constant discussion about the need to fund local Government differently, perhaps GST on rates should be collected and then returned to local councils," says Mr Olsen.

I completely agree with the first line. There's a populist line about GST on rates being a tax on a tax, but if it weren't there, it would cause no end of distortions. There are all kinds of margins on which ratepayers might prefer to shift service delivery from the private sector or from households over to council provision if council-provided services had a preferential tax treatment, and from user-charges set by council to general rates funding for things already provided by council. 

As simple example, Wellington currently charges a per-bag collection fee for trash and people can choose to contract with private waste collection services if they prefer that instead. It's all fine. User charging like this recovers the cost of landfill services while providing incentive to avoid generating more trash than would otherwise be optimal. I don't know whether council is charging the right amount relative to a full cost recovery model, but the bones of the thing are right.

And suppose that an average household spent $100 per year plus GST on trashbags from council for collection services. 

If council shifted that service to just being rates funded - put out as much trash as you like, and it's covered in your standard rates bill! - and if households did not change the amount of trash they put out, then council could charge the $100 extra on rates and get $15 back from central government. Or charge a bit less and get a bit less back such that they were back to cost-recovery. 

If households put out more trash because they faced no marginal cost, council would still be better off - so long as they didn't increase trash generation by more than 15%. But more likely, households would generate more trash than that, and then either rates would have to increase by a greater amount, or councils would start rationing trash bags by non-price mechanisms, or some combination of the two. It would be a mess. 

Don't do this.

Basic drill on local public finance, or as best I've understood it, is:

1. Set appropriate user charges on everything that can reasonably be user charged.
2. Use rates to cover the cost of services that cannot reasonably be user-charged. 

Rebating GST on rates to council pushes councils away from user charging on stuff that can reasonably be user-charged. It also distorts toward council over private service delivery - at the margin, some things best provided privately get shifted into council's wheelhouse because council provision is tax-preferred. 

And if you set it instead such that councils get a GST rebate on both rates and user charges, you still have the distortion toward council over private provision.