Thursday, 21 September 2023

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. 

Wednesday, 20 September 2023

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. 


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. 

Monday, 18 September 2023

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...

Thursday, 14 September 2023

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? 

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....

Tuesday, 12 September 2023

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:

Friday, 8 September 2023

Afternoon roundup

The closing of the tabs...

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.