In a recent Herald article (found on interest.co.nz, where I find it easier to read straight from the screen) Bernard Hickey discusses the increase in the goods and services tax and savings. The article makes a number of good points, but I do not agree with the conclusion. For my thinking read below 😀
One quick point. Everyone keeps telling me “but in political reality” whenever I say that there are trade-offs being missed in political party discussions.
I would like to point out that when an economist does analysis they don’t give two-cents worth of a care to this. When it comes to making a policy it is essential, but it isn’t part of the first stage of description.
It is just like the “equity” trade-off with efficiency in economic analysis. Economists focus on efficiency when describing a situation – but there are welfare trade-offs which imply that a policy based solely on efficiency is unlikely to be socially optimal. An economist can go so far as discussing the trade-off by describing how deviations from the efficient allocation work – but they can’t sit down and say “this is what society wants”.
In the same way, I have no doubt that political actions are politically optimal – they are being determined by utility maximising individuals after all 😉 . However, just because it is politically optimal doesn’t mean anything to me when I’m trying to discuss the framework and trade-offs inherent in the policy.
However, I have noticed that pointing out these trade-offs relative to the way political parties have been marketing themselves leads to a HEAVY amount of emotion and argument – which is fun. I suspect this is part of the partisan nature of politics. I hope that people from each party understand that I attack all political parties on this blog with equal boring economic analysis, and some (hopefully transparent) priors.
Over the last few weeks it has also taught me that there are a number issues many of the parties don’t understand very well – even regarding their own policies.
Update: To be absolutely clear here, I am talking about the political parties – not the excellent comments and emails that I have received from people about the issues. The comments and emails have been intelligent and balanced, and I appreciated them greatly. Furthermore, the criticism is not just of ACT and the Greens (given my recent posts about those parties) it is equally about ALL parties. Fundamentally the discussion around policies has exposed confusion all around the show in my opinion.
This is fascinating, as I had assumed the parties were being manipulative rather than confused. If I had to vote right now, I would struggle to pick anyone :/
Of course, I’m not too worried about this feeling – as I think political parties try to give the impression that they do a lot more than they actually do, be it the result of abridled ego or straight self-deciption 😉
Ok, first off, I’m sorry I haven’t done a post-budget thing for a Green’s alternative budget yet – it will come, I’ve just been really really busy.
Second, this talk on the ETS is irritating me. And it isn’t because of the description of what it will do to prices – this is true, the price of stuff that uses carbon will go up when you put a price on carbon. The problem is the “frame” its being put into, which ignores trade-offs. Here is the frame:
What is it?: A market-based approach to reducing greenhouse gas emissions. Emissions units, or carbon credits, are traded between participants.
People see this and then they say “global warming isn’t real” or “we are too small to impact on global warming” and then they say “NO ETS!”. However, this isn’t the point of the ETS.
The ETS is a scheme to raise the funds to pay for our Kyoto Liability. Even if you don’t believe in global warming, we have a liability that is based on carbon emissions. As a nation, either people who produce the carbon pay for it – or everyone pays for it through higher taxes.
So here in lies the question – do we want higher prices for carbon goods or lower incomes because of higher taxes? Given that the liability is a function of the amount of carbon we produce, it follows that pricing carbon on the basis of this will lead to the “best” solution – no matter what political party you support. I know that National, Labour, and the Greens all understand this – so if you guys could like, explain it to the ACT party, and then like, explain it to the public, I’ll be very happy 😀
Update: Fuller points discussing the arguments around this in more detail in this comment. Amazed at the strength of feeling around the ETS when all the impact studies suggest that the costs aren’t nearly as substantial as many other policies that are out and about …
In a shocking report on Scoop (ht GLS) I heard the following:
A recent report revealed New Zealand has some of the lowest taxonomy rates in the OECD.
:O
If we are going to catch Australia in taxonomy rates, we need to have higher taxonomy rates!
Bill English also made the following excellent point regarding spillovers from taxonomy adjustment:
You’ll have to wait until Budget day, but I can say taxonomists not having to faff about with the difference between Archaebacteria and Eubacteria would boost productivity as much as any other change we’ll make.
Agree 100% …
Ok, I haven’t seen an actual alternative budget – but given they are the main opposition I’ll turn what they have said into one, so that I can give them the same airtime as others. We have already discussed Act, Libertarians, and National – and I aim to get something on the Greens out by week end.
So judging by this speech here, post Budget
Labour will take a different approach
to savings,
to exports
to foreign investment,
to monetary policy, and
to support for research and development, and innovation and skills.
How are these policies different – and what trade-offs are involved. That is what we will discuss here.
Bill English has been quoted as saying the Government is considering the sale of certain state owned enterprises in its next term. Apparently the Government are currently preparing an “investment statement” that will outline what it considers possible.
Currently a significant portion of Government capital is tied up in the SOEs, around $40 billion dollars (around four times the size of the largest projected Government deficit).
SOEs perform, as a class, very poorly. Recent reports suggest that in the last financial year they returned 1.5% on equity. This is below the risk free rate of return.
Such poor allocation has real costs to the New Zealand economy. The opportunity cost of maintaining investment in such low returning assets (as a whole) effectively amounts to taxpayer resources being wasted.
It is therefore very worthwhile that the Government looks at its investments and considers whether SOEs might be better placed in the private sector’s hands.