Matt Nolan

Stats NZ is politically neutral … Labour isn’t

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Look, I have no idea why Labour feels it is necessary to run their election campaign as a bunch of muppets – but they have, and in order to keep surprising everyone with their ridiculousness they have attacked the political neutrality of Statistics New Zealand.

The complaint is that Statistics New Zealand said that their trend measure of building activity was crawling up, at the same time there was a sharp seasonally adjusted drop in consents in September.  The reason for this was that August was “strong” (relative to recent history) – so even with the decline September was a stroke higher than we have been used to, and the real “trend” measure of activity they have (and have always talked about) did increase.

Look, this isn’t just a case of Phil Twyford not being able to understand data – I mean, that is part of it it seems, but that isn’t the whole issue.  I’ll even ignore that fact that Twyford seems to think political parties run the economy – a fallacy among politicians that gives them a sense of unwarranted self importance.  The most confusing issue for me here is that anyone would think this is the best use of scarce time on the campaign trail – you can arbitrarily attack Statistics New Zealand and get zero votes (as it is such a non-issue), or you can be a competent politician and go out to try and get votes by talking to the public and showing them that you are the best option in terms of meeting their interests.

If Labour was a real opposition party, their members would be doing the second.  Hopefully they will be by next election, so that I actually feel like I have a choice when that election comes along – a competent opposition is essential for democracy … just saying.

Matt Nolan

RIP Roger Kerr

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Over the weekend Roger Kerr passed away.

This is extremely sad news for both the family, and the wider community.  During his lifetime Roger did a significant amount to improve the level of debate around policy in New Zealand, and his efforts have helped to improve the shape and strength of New Zealand’s policy framework incredibly.

I never had the good fortune to meet Roger, but I was lucky to grow up in a country that has transparent fiscal policy and robust monetary policy – in a large part thanks to his efforts.

The Hand

Have you read the PREFU yet?

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Below is an excellent guest post from Andrew Coleman on the PREFU – pointing out one of the weird assumptions that the government is relying on to “balance the books”.

“Have you read the PREFU yet?” bellowed one of my colleagues as he sauntered down the corridor at Otago University last week. “Of course not – why would anyone do that,” was my glib response.

The answer, of course, is that the PREFU is one of the great components of New Zealand’s modern democratic process. It requires that the Government provides an internally consistent set of projections about the likely state of the fiscal position over the next four or five years. Internal consistency is a marvelous thing. It means if the government announces a tax cut, the direct and indirect implications of this cut for growth, tax revenues, and the government deficit are properly calculated.

It means if the Government projects a surplus, the assumptions on the evolution of different classes of government spending are clearly portrayed. In short, it provides transparency.

Internal consistency is hard work, and we should be genuinely grateful to the Treasury analysts who do this work. All the assumptions are clearly laid out for anyone and everyone to see. If the Government is going to balance the books by imposing significant real cuts on health and education expenditure, then it will be reported and no-one has any excuse for not being provided with the information or for not having a model able to do the complex arithmetic.

Actually, it does appear that the Government is claiming the books will be balanced because of significant real cuts in the health and education sectors. This is not directly mentioned in the Executive Summary, where the focus is on the predicted growth rate (2.9 percent per annum from 2012 to 2016) and the return to surplus in the operating balance in the year to June 2015. (Mind you, the summary does mention that core Crown expenses will decline as a percentage of GDP.)

Read more

Matt Nolan

No wage growth was not 2%

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Before the stream of articles come out saying:

Wage growth was 2%pa

Wage growth was less than inflation

Let’s just say that Stat’s got the title wrong on this in strict terms.  “Productivity adjusted” wages rose 2.0% … the LCI is a quality adjusted measure, just like the PPI, and the CGPI – it is supposed to measure inflationary pressures stemming from the labour market, not how much more money people have in their pockets.

Average hourly wages actually rose 3.2% (the QES), as the composition of labour changed and productivity increased.  Furthermore, this is a gross wage measure – given that income taxes were cut to meet the increase in GST, we need to take GST out of the CPI number.  As a result, average hourly wages rose more strongly than consumer prices.

Actually, wage growth has been very strong over the last two quarters while employment has been weak – this is starting to look more and more like a “two-speed labour market” … which is a pain.  However, I doubt this real story will make it out as people are busily just going to use the LCI measure and CPI growth inappropriately to push whatever agenda they already wanted.

Why do I have to repeat this every quarter …

Matt Nolan

Disgusting, barefaced, manipulation of the day: Labour on Kiwisaver

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I was browsing the Herald to keep abreast of national events when I ran into this new set of policies from Labour.

I saw they wanted to gradually increase the retirement age, and I was thinking “this is good stuff”.

Then I saw that they have absolutely no moral fibre and have decided to package a tax-savings change for Kiwisaver members as money for nothing.  The moment I read this:

Employee contributions remain at 2 per cent, “because we know families are finding it hard to make ends meet right now, let alone save”.

However, employer contributions would increase by 0.5 per cent a year from 3 per cent in 2014 to 7 per cent by 2022.

I stood up and started swearing loudly at my workmates.  Calming myself to the point where I was only enraged, I explained to people at work what they already knew – it doesn’t matter who pays the contribution/tax in name, as over time wages will adjust so that the incidence of the tax is different.

This isn’t a complicated idea, I remember racing through it in test while I was in secondary school and thinking it was one of the easiest things we have to cover.  However, it is only taught in economics – and as a result, politicians can just blatantly lie about the impact of policy without the public realising.  And f**k, people in the party have studied enough to know this – they KNOW they are lying to the public, but they are happy to do it because they want to get elected.

Lets look at this case.  If as Labour says things are really a struggle for households, labour supply is likely to be very inelastic.  This would suggest that a significant amount of the “burden of tax” would in fact fall on them.  In essence, they are just increasing the minimum amount you have to put into the scheme to get your “sweeteners” back … which you are being taxed to provide in the first place.

This sort of rubbish makes me feel ill – it is deception, it is lying, and its straight out immoral.  This is why I dislike politicians.

Update:  Via Kiwiblog I see that they did sneak in an admission that it will impact on wages – look this is fine, but when you make your main selling point that you are increasing employer and not employee contributions, you make it sound like they have a different impact.  Which they don’t.

How about, instead of packaging your policy in a way to trick people you are just honest about it – and then you will see if people actually want it.  Its this thing called democracy.

Matt Nolan

Careful discussing a “dollar policy”

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I see there are further calls for NZ to look at its “dollar policy”.  I do not believe that an investigation will sensibly suggest we should change much in terms of “direct” policy – and I think it is important to try and understand what is going on here before saying we shoudl control anything.

Remember, the relative value of the dollar (the exchange rate) is really just a “price” we have for swapping currency and to buy goods and services (and the such) off each other.  Like any price we need to determine “what is the market failure” before we mess around with it – the default “policy” IS to not interfere, we need a well articulated market failure that we feel we can deal with in a favourable way.

Now, the failure that gets identified here is “dutch disease” (or as I like to term it, the dutch issue).

It is UNDENIABLE that the rising terms of trade has pushed up the real exchange rate.  However, whether the change in relative prices that has occurred in the economy is a negative or positive IS NOT clear.  In fact, the default argument would really be that it is a GOOD thing.  [FYI, I would suggest reading this for a discussion around the evidence – and policy relevance – of “dutch disease”]

Manufacturers complain about the fact that they are less competitive – which is true.  However, as a country we have a comparative advantage at making something that the world values – as a result we want resources to move away from manufacturers in industries that are not part of the industry that is experiencing higher prices.  As technology, tastes, desires, preferences, populations, and the allocation of resources all change in the global economy we want to be able to respond to changes in scarcity – changes in price.  It is BAD to try and keep the structure of the economy the same and not allow adjustment – lets not forget about the Muldoon era.

Now you might think you are very clever, and you might say “aha, but what about if the price increase is temporary, and people invest too much, and then we lose our manufacturing and sell lots of worthless commodities”.  My response would be to say – people are reacting to expected changes in prices in the future, as they are investing.  There are solid reasons why commodity prices will stay “on average” higher then they have, and people in all industries are responding to that expectation – unless we think everyone is stupid, and that government knows better about the future, there is no case for intervention.

To me this implies there is no case for intervention.  Sadly for some people, this is the real case they have in their heads for intervention 🙁

Note:  This is not to say that, in the face of a massive change in the terms of trade, there is no role for monetary and fiscal policy to improve outcomes – after all, it is a clearly recognisable shock, and the cyclical and distributional consequences of it can be dealt with using policy.  However, it is to say that directly f’ing around with our exchange rate in order to “help manufacturers” is likely to be bad policy – based more on a status quo bias among people than on sensibly policy design.