Matt Nolan

Taxing height and utilitarianism

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The blogsphere has been a flutter about “the optimal taxation of tall people” (here, here, here, here, here, and here).

The way I see it there are two debates going on here:

  1. Do we see it as fair to tax tall people/why not just tax income,
  2. Should we be using utilitarianism to figure this out.

Now Rauparaha covered off the first issue back in March last year here. Many people are saying “why target height when you can target income.

One answer is that you can’t change your height, but you can fiddle your income. A slightly better answer (although the other one is fine) is to note that there are two ways of getting income, luck and effort. Generally policy makers think it is good to redistribute luck but they also want to avoid penalising effort (that is why we talk about keeping effective marginal tax rates down). What height you get is the result of genetic luck at birth. Assuming that height conveys an advantage to earning income we can tax height directly, thereby redistributing and not influencing individuals incentives to work. This is the argument Rauparaha made. [Note: I am short but Rauparaha is tall 🙂 ].

Whether this is fair or not is a moral question to be sure.  However, there is definitely an argument for taxing fixed variables related to income rather than taxing income itself.

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Matt Nolan

New Zealand budget 2009

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So, we’ve had the Budget.

The one time that we need a shift in government policy – and nothing happens.

Treasury believes that the size of our economy is fundamentally smaller, that there has been a permanent shock to our income. As a result, spending needs to fall or taxes need to rise – 11 years of operating deficits isn’t good enough. And I’m not sure that S&P will let us get away with it …

I don’t agree with David Farrar when he says:

There’s not much one can argue should be done differently.

As a commitment to cut spending or lift taxes from 2011 would have been the way to go. However, he does give a good summary of what was in the budget.

Update: Miguel noticed that S&P put us back on stable outlook. Story here. Good news and congratulations to the team, but to be honest I have no idea why.  Unless …

Matt Nolan

New Zealand budget 2009: Downgrade alert?

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From a member of S&P, Mr Curry:

It is hard to put a timing on it, but we would expect that over the cycle of the Government [it] would be recording operating surpluses within, I guess, the next three to five years.

So that is the requirement to avoid a downgrade.

From the government:

Asked if surpluses could be achieved in five years, Key it might take longer.

Hmmmm.  Thursday will be very very interesting.

(ht Nigel Pinkerton for the pointer to these quotes)

Matt Nolan

Responsible credit?

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Kiwiblog has an interesting post on the Credit Reforms Responsible Lending Bill.

The post tackles the four main outcomes of the policy. I agree with what David Farrar has to say – and would only add that the maximum interest rate cap is very stupid, as it is the same as setting a lower than market price for some types of credit, which will lead to a suboptimal amount of lending to people who value short-term credit very highly.

My interest lies with what such a bill is missing. Education and information.

The current issue in New Zealand credit markets is illustrated by the recent Morningstar ratings that gave NZ’s fund management industry a D-. A big problem here was a lack of transparency and information.

If the government pushed organisations to provide clear, concise, and easy to digest information on risks then it would greatly reduce abuse in the whole industry.

For example, when these firms say “only 8% interest” they are confusing people – as they are charging 8% per week, when people are used to hear about the amount of interest per year. The best way to fix this is the make it that firms HAVE TO write down interest charges in per annum terms.

Education and information are far better solutions than price caps and restrictions on the ability to enforce contracts – and that is why this responsible lending bill should be heavily changed from its current format.

Update:  Paul Walker takes the interest rate idea to task here – completely agree with him.

Matt Nolan

NZ budget 2009: Most important since 1984?

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Kiwiblog brings up some great points about the importance of this years budget.

It turns out that the head of Treasury stated that this was the most important budget since 1984.  Wow.

So he’s saying that this is more important than the “mother of all budgets“.  When National came to power in the early 1990’s they faced threats of a credit rating downgrade and forecasts of huge budget deficits – which forced them to cut spending sharply.  In conjunction with HIGH interest rates (even in real terms, we are talking like 8% real!!), a lift in petrol prices because of the gulf war, and weak other commodity prices, this saw the New Zealand economy suffer a huge contraction and unemployment went over 11%.

Now, real economy prospects aren’t quite as bad this time.  Unemployment is at 5%, relative to 7% at the start of the 1990’s.  Real interest rates are very low (hitting at around 1-2%).  Some of our commodities are doing well, and even though some have experienced a sharp fall in price oil prices have also tumbled.

However, obviously there is a feeling that the threat on the currency from government policy is at its highest level since we floated the currency – intense.

Matt Nolan

How dare they compete!

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Another article on alcohol retailing provides this “beautiful” quote (FYI this follows on from a previous post):

The end of loss-leading was welcomed by Glengarry product manager Liz Wheaden, who said the practice had the potential to lower customer expectations at the same time as it “destroys” brands.

Loss-leading made customers come to expect to be able to buy a product cheap, Ms Wheaden said.

While her company had never used loss-leading, the practice had forced Glengarry to offer more variety and improved customer service to compete.

How dare supermarkets push other retailers to cut prices, increase choice, and improve service. Have they no shame!!