Matt Nolan

RBNZ liquidity measures: What do they mean?

/6 Comments/in , , /by

This post is more of an open discussion post. I want to know what YOU think about the new Reserve Bank liquidity measures.

We know that BNZ, Goldman Sacs, the Press, and fellow bloggers such as the Hive and Mish believe that this (and yesterdays financial market review) illustrates a significant change in stance by the Bank. However the Bank itself believes that this illustrates no change in stance, but is simply mean’t to keep our monetary policy practice in-line with other countries – in the words of CPW, they wish to sit at the big boys table.

My knowledge of such things is decidedly limited – however, I’ll tell you what I think they mean, then you can correct me 😉

The main changes according to the Bank are:

  1. Extension of the range of securities eligible for acceptance in the Reserve Bank’s domestic liquidity operations to include: NZ-registered NZ dollar AAA rated securities, including Residential Mortgage-backed securities, and AA rated NZ government sector debt – including Government agencies, SOEs and Local Authorities.
  2. The discount margin applied in the Bank’s Overnight Reverse Repo Facility will be 50 basis points for all eligible securities.
  3. A graduated ‘haircut’ regime will replace the existing limit structure for all securities eligible for domestic liquidity operations.
  4. Extension of Overnight Reverse Repo Facility from 1 day to a maximum of 30 days.

Read more

Matt Nolan

Why is the NZ government buying the rail network?

/20 Comments/in , /by

So its official – our government has repurchased the rail network (blog commentary here, here, and here). Now such a purchase only makes sense if there are positive externalities from rail that the market was not accounting for (or if the horizon of the company was too short-term, but I don’t get that feeling). These externalities all stem from rail being a substitute to other forms of transport, namely road transport. This is covered in detail in this article by Andrew Gawith.

A list of the potential positive impacts are:

  1. Rail has lower carbon emissions,
  2. Industry has already sunk infrastructure around rail lines (namely dairy) so it allows them to increase capacity,
  3. Rail is less congested than the roads,
  4. Network effects.

Read more

Matt Nolan

Emissions trading scheme: The NZIER model

/7 Comments/in , , , /by

NZIER has released a very interesting report on the ETS (emissions trading scheme) in New Zealand (see their reports page – April). In this report they find that the economic cost of the emissions trading scheme will be eight times the cost of the “government paying” for the scheme. Although this eases to 4-5 times the cost in the long-run (which is the cost we should be interested in if we believe climate change policy will continue indefinitely) this is still a significant cost.

Although I think this is an interesting and important point to raise, and that it will add greatly to the debate to climate change policies – I get the feeling the result is slightly exaggerated by some of the underlying assumptions. Here’s the areas that I think are important to revist:

Read more

Matt Nolan

Financial transaction taxes and New Zealand

/21 Comments/in , /by

Given my uncertainty about who to vote for the the next New Zealand general election I’ve been exploring registered political parties wikipedia pages. While looking I noticed that a number of smaller parties tended to favour a financial transactions tax (Progressives, Alliance, Democrats, and Direct Democracy). Looking at the parties websites, the only party I could find that mentioned the Financial Transaction tax was the Democrats.

The reasons they gave for the tax were:

  1. It will reduce businesses compliance costs,
  2. Reducing collection costs by having the tax administered through banks,
  3. It will increase everyones spending power as the tax rate will be lower than the GST rate but raise the same amount of revenue.

However, I’m not sure I entirely agree, here is why:

Read more

Matt Nolan

Household structure, economic units, and income splitting

/15 Comments/in , , /by

There is talk in the air that the New Zealand government may one day look at “income splitting” as a form of providing tax relief.

Income splitting changes the fundamental economic unit that is taxed from the individual to the household. The most likely form of income splitting we could see in New Zealand would see the gross income of the main income earner and their partner (either through marriage, civil union, or some other definition) aggregated and then split evenly between the two partners before being taxed at the individual tax level. As tax rates increase with income, this would lower the tax liability of all two-person households.

However, is this policy fair, or even sensible?

Read more

Matt Nolan

OCR review preview: April 2008

/2 Comments/in /by

Tomorrow will see the Reserve Bank make a decision on whether to change the official cash rate from its current level of 8.25%.

Although some commentators believe that the slowing pace of domestic economic activity merits a rate cut, most economists agree that leaving rates unchanged at the moment would be prudent. Here’s why:

Read more