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. 

Opposing bars

Health and police make a habit of trying to block licenses and license renewals for bars along Courtenay Place. 

Tom Hunt and Rachel Thomas at The Post have been checking into one bit of it. 

Health NZ has been claiming that there are 'just under 200' licensed premises in the area so the region is dangerously overserved; they pull out the number when objecting to licenses. 

Two owners started asking questions about the number. 

When asked to supply a list of the 200 premises, a Te Whatu Ora spokesperson asked, “are you actually questioning that there aren’t 200 licensed premises in this region?”, before treating it as an Official Information Act request.

That eventual response showed there were just 142 premises within the radius – leaving 58 phantom licences. Te Whatu Ora has now released that list, which actually includes 87 premises.

They include Molly Malones, which closed in 2015, Strawberry Fare, closed since 2016, and Reading Cinemas, closed since 2019.

At least three bars on the list were owned by publican Jordan Mills and his family: Siglo shut this year, Hummingbird closed in 2021 and Public Bar and Eatery shut in 2017. In each case Te Whatu Ora or its predecessor cited the 200 figure in evidence before the district licensing committee, he said.

Standard public health playbook really.  

Council ownership

A standard popular argument for public or council ownership over private ownership is that private shareholders are too short-term focused, at the expense of longer-term value. 

It's an eminently debatable proposition. But as always, Demsetz would say 'as compared to what?'. We always need to compare how the alternative works in the real world.

Here's Oliver Lewis over at BusinessDesk:

To mitigate rates rises and fund services, Christchurch City Council will be asking its commercial arm to frontload dividend payments and provide $47 million extra over the next three years.

The move, endorsed by councillors at a meeting on Wednesday, drew a forthright warning from Christchurch City Holdings (CCHL), which controls assets worth more than $5 billion on behalf of the council.

CCHL chair Abby Foote – who has repeatedly spelled out the constrained financial position of the group and the need to start paying down its $2.3b of debt, $440m of which was taken on at the bequest of the council for the earthquake recovery – said the new request placed the CCHL board in an extraordinarily difficult position. 

'Do not add up' 

“We cannot pay down debt, grow dividends to council and invest in the resilience and growth of our critical infrastructure,” Foote said. “These things simply do not add up. We cannot do them all, and that is what we have been saying for the last 12 months.”

...

Explaining the request for extra dividends, interim council CEO Mary Richardson said she and chief financial officer Bede Carran met with CCHL last week.  Staff believed the request for additional dividends, which was supported by councillors at the meeting, was doable to help restrain rates increases and allow the council to deliver on its capital programme.

When we lived in Christchurch, it always seemed as though Council was underinvesting in maintenance and keeping up with depreciation at the Port. 

If a private company is excessively sweating assets to benefit current shareholders, there are a few potential disciplining mechanisms. Shareholders have incentive to watch over management practice; behaviour that reduces long-term value will ultimately hit shareholders. And takeovers always remain a possibility.

A market test applies. If management is taking the piss when arguing for lower dividends, shareholders can check. Management can be replaced. Analysts skilled at figuring this stuff out can buy out existing shareholders and increase value. Nothing in this world is perfect, but there's a correction mechanism here. 

What disciplining mechanisms kick in if managers of a council-owned company say that the council owners are insisting on sweating the assets too hard? If they're right, no alternative owners can come in and replace the current ones. There's no discovery process to find out whether they're right. 

There's some chance that Council is running down the port to help pay for the new stadium. Does that seem like an entirely good idea, or an advertisement for the merits of public ownership?

Yes, it would have been tobacco prohibition

A living-wage campaigner didn't like my column on tobacco prohibition and complained to the Media Council. 

The Council didn't uphold his complaint on substance but did want the Post to have a disclaimer on our columns about the Initiative's membership base.

The Council's ruling is here. 

Here's what I'd told the Post, and the Council, in response to the complaint:

Please feel free to share this both with the media council and with Mr Herz-Edinger.

I viewed and continue to view the VLNC rules as prohibition on smoked tobacco.

In the same way that near-beers with less than 0.5% alcohol were allowed under American alcohol prohibition, near-cigarettes with less than a tiny amount of nicotine would be allowed under the VLNC rules. It is not prohibition of nicotine, which would continue to be available in vape form. But it would have been prohibition of smoked tobacco.

If we compare 0.5% alcohol beer to the average strength of beer, and the VLNC-allowed levels of nicotine in cigarettes to the average strength of a cigarette, it is roughly equivalent to a 0.2% alcohol rule for beer. So I do not think I am exaggerating here. I went through that calculus here:

“The legislation sets limits on nicotine allowed in cigarettes. The US Centres for Disease Control estimates that the average cigarette has just over 19mg of nicotine per gram of tobacco. From April 1, 2025, Very Low Nicotine Content rules will apply. Under those rules, no tobacco product can have more than 0.8 mg of nicotine per gram.

If a standard beer is 5% alcohol, the VLNC rules are roughly equivalent to banning the sale of beer with more than 0.2% alcohol.”

Those wishing to do so can check the math with a calculator. It isn’t complicated. The VLNC rules set a tighter standard for nicotine allowed in cigarettes than American alcohol prohibition set for alcohol allowed in near-beers.

Had American prohibition included a ban on the sale of near-beers to those born prior to 1900, the creeping increase in the proportion of population forbidden against buying near-beers would have been the minor point

I very much hold that prohibition on cigars, pipe tobacco and cigarettes would have begun the instant that the VLNC rules took effect: 1 April 2025. If that is incorrect, then America never had alcohol prohibition. And my article, here disputed, very clearly set out that I referred to prohibition of tobacco, not prohibition of nicotine. Nicotine would not have been prohibited. I was not taking license or exaggerating for effect or generalising. Smoked tobacco would have been under a prohibitionist regime from 1 April 2025 if the rules maintained a 0.8mg/g threshold. The effects would have been different from American alcohol prohibition, because nicotine would still be available in vape from. But it would nevertheless be prohibition of smoked tobacco.

I had thought that I had made this very clear in the disputed column. I wrote,

“Under prohibition, the illicit market would not just be a way of avoiding excise. It would be the only way of getting a real cigarette. It would be remarkable if Australian crime syndicates, or others, did not plan on supplying the New Zealand market from 2025 – had we gone ahead with prohibition

Tobacco prohibition would not have prohibited nicotine – vaping would remain legal. But illicit tobacco does not carry excise. Shifts to the illicit market provide no health benefits while reducing excise revenue. And because illicit tobacco is cheaper than taxed tobacco, smokers who shift to the illicit market would have one fewer reason to flip to vaping.”

I would have written exactly the same thing regardless of who our members are, because I believe it to be true.

It's a bit funny where total membership subscription fees from our two tobacco company members, over the entire lifespan of the organisation, are a tiny fraction of the amount that the Health Research Council gave to Janet Hoek in a single grant for anti-tobacco work and nobody ever seems to consider that a conflict. One-sided skepticism reigns.  

Competition in Consenting

This week's column over in the Stuff papers wonders about getting some competition into building consenting. A snippet:

Getting building consenting authorities out from under joint and several liability would help. And especially where the government is keen on encouraging the use of quality, lower-cost materials certified overseas.

But so too could easing the local monopoly on building consent and code of compliance issuance.

Government has already recognised that building consents and sign-offs are part of the problem. Kāinga Ora, the government’s housing provider, has its own arms-length consenting authority: Consentium. It provides consents for Kāinga Ora developments along with building inspections and code of compliance certificates.

Consentium then provides a small bit of contestability in the market for building inspection certificates. Kāinga Ora developments can ignore idiosyncratic local interpretations of the Building Act and build to a common national standard. It can also decide to try out new and innovative materials to help bring costs down while improving quality.

But only buildings that will be owned and retained by Kāinga Ora can apply for consenting through Consentium. If a private developer is building two adjacent identical houses, one for Kāinga Ora and the other for private sale, Consentium would only provide consenting services for the Kāinga Ora home. One potential reason: Kāinga Ora is not likely to sue Consentium if they discover a problem down the track.

It’s a bit of a shame.

Consentium is hardly perfect. It was reported earlier this month that it took almost two years for Consentium to decide that an above-ground stormwater storage tank didn’t impose a fire risk. But council consenting systems can be even more broken.

If building consenting authorities had to compete for business, outcomes could be different. If private developers had the option to seek consent from Consentium, both Consentium and councils could have reason to improve performance – so long as the liability issue were sorted out.

I recently returned from Vancouver where the Squamish Nation has autonomy over its Sen̓áḵw apartment tower development near Vancouver’s downtown. A New Zealand equivalent could allow iwi to establish themselves as building consenting authority on iwi-held land. In places where councils were underperforming, iwi might take up consenting for their own construction projects. That too would provide greater competitive discipline on building consenting.

Afternoon roundup

A closing of some of the tabs

First, a set from closing a pile of the week's accumulated stories from the Stuff papers. I wonder whether the people who complain about the absence of real journalism bother reading what The Post and Sunday Star Times have been putting out lately. 

• National's 'tax relief' won't be a tax cut "because the only real cut is a spending cut, anything else is just rearranging who pays what and in which generation."
• "If Health New Zealand can't find doctors, his iwi will." Some of the social services already being provided by Ngāti Toa.
• Andrea Vance asks "How did the cost of moving two schools blow out to more than $400m?"
• Promising work on methane vaccines for cows. Including great context from Dave Frame. [And here's Dave Frame and Adrian Macey over at Business Desk on methane]
• A path from John Birch through to anti-fluoride activism in NZ that runs through ZAP - a group I'd not heard of for at least a decade. Just great stuff from Charlie Mitchell here. 
• Poor response rates in the 2023 Census, and speculation that it might be the last census as we know censuses. 
• This one is just beautifully written. Joe Bennett on a walk up a hill.

  There’s a lot to be said for being a cattle beast. You live with friends. Your food is all about you. You own nothing but an ear tag. And castration frees you from the main source of worry and expense. Admittedly you make one bad journey in the end, but you don’t see it coming, and your mates go with you. And you’re spared the horrors of old age.

And the rest of the tabs. Or some of the rest. I'm drowning here but the computer needs to be rebooted.... 

• One hypothesis on why Google Search doesn't work as well as it once did.
• Another climate stress test, another finding of zero systemic risk justifying RBNZ's continued prudential excursions into climate issues. Unless prudential reg now is meant not to guard against systemic risk and instead starts from assuming that bank directors are idiots and that bank shareholders need to be protected against bad decisions.
• NZ's NPS-UD doesn't go hard enough. British Columbia's enabling apartments up to 20 stories near transit stations. 
• A new (to me anyway) metastudy on workforce diversity. Effects are significant and positive, "but insubstantial."
• "If the government believes making it more difficult to recruit offshore is going to get 50,000 people off the dole they are as deluded as all those who came before them who wanted to believe the same thing. I get the politics. I don't get the economics."
• RBNZ now investigating whether we should have a central bank digital currency.
• The Government really ought to push ahead with the Rule of Two for Medsafe Approvals. It would unlock access to RSV vaccines. Come on......
• Taiwan wants NZ to do more in supporting anti-authoritarianism. I wonder whether we ought to be doing more in supporting scholarships for promising students from the Islands to study in NZ.
• After my Insights column on the Christchurch Cathedral cost-benefit assessment, a reader pointed us to the business case for a major Tauranga city redevelopment project. I'd hope that, if central government is putting money into this, it pushed hard on checking whether the increases in tourism are plausible (and net national rather than within-country diversion). And whatever arguments one wants to have about appropriate discount rates for social projects as compared to infrastructure projects, expect infrastructure spending (like museums) to be portrayed as social investment where the lower discount rate allows a higher NPV for purported benefits. Bit of a Lil Lisa's Slurry problem here.