Matt Nolan

Budget 2010

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Apologises for the EPIC delay in doing this.  I wanted to have comments up by 6 (it was not out till nearly 10), but a meeting ran overtime, work servers went down, and my trip home from work on this was slower than expected. [ed. And the site went down …]

First here are links to other round up post round the country as of now:  Offsetting Behaviour, The Standard, Red Alert, Kiwiblog (*,*,*,*), Dim Post, NZIER, Infometrics, Rates Blog (*,*,round up post!), NBR, Not PC (*), Public Address, Education Directions (*,*,*).

So far we’ve done a review of the ACT and Libertarian alternative budgets.  Now it is time for the actual Budget, and then if we see any other alternative budgets we will have a look of them too 🙂  When reading all these reviews, keep in mind that I am aiming to be critical – I am putting up trade-offs so I will NEVER say “that is a good policy”.  I am not trying to say I hate any of these groups by doing this, I am just trying to describe other ways to look at policies to give them context.  If you keep that in mind when looking, then hopefully it will be useful.

Ok, so let me roll with my personal opinions – hopefully supported by a sound economic framework 😉

Also note that this is a first brush on what seem to be the main issues.  Over the next few days I plan to get down into more specific policies – and I will see if I can discuss some things through the weekend.

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Matt Nolan

You have thoughts on the Budget?

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I have seen Bernard Hickey discuss the Budget.  I am sure more will come.

I will write tonight, and other authors will pop things up today – I can’t do any sooner as I am out of the office.

It looks like it was a substantial change to tax rates – most of which were expected.  On the spending side things are how things usually are.

Matt Nolan

NZ Libertarian party alternate budget

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The Libertarian party is the next group to release an alternate budget for Budget 2010 with further discussion here.

I am glad to see more people doing alternative budgets, but as always I have some concerns:

  1. It is subject to the same criticisms as Sir Roger’s budget – namely the trade-off between equity and efficiency is not based on the revealed democratic process from the previous election … although having a transparent budget DOES mean that people know what they are voting for in the future.
  2. The limiting scope of government in there budget is far too extreme – even if solely on efficiency grounds.  Why?  It ignores any scope for co-ordination issues and the such in government policy.  However, the size of this issue depends on relative value judgments – so I really just think they are saying that they have a value judgment that other co-ordination issues are irrelevant, which is fair enough I guess.
  3. Also – it presumes optimal redistribution equals zero, which is highly unlikely given that luck and the such does exist.
  4. It targets a tax rate of zero while still having government spending – based on a belief that voluntary provision of funds will be sufficient.  However, I disagree.  If we want any central government we have to have some type of “coercive taxation”.  Setting the tax rate to zero is effectively the same as asking for anarchism as it implies that this specific governmental institution will disappear into irrelevance.

Fundamentally, redistribution is a valid role of government – and the libertarian party bases its policy on the idea that it is not.  There is no theory – even among many of the most right wing economists – that justifies zero redistribution.  However, they are transparent about their value judgment here and they are consistent between budgets, so that is good of them.

So now we have an ACT and a Libertarian budget – the National (government), Labour, and Green ones will be still to come (if there are any others yell out to me).  Very exciting.

Update:  Link for Libs release here and excel sheet here.

Matt Nolan

GST rise “helping the poor”

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Hone said that the increase in GST will hurt the poor.  His justification is:

GST hits poor people the hardest because nearly all of their money is spent on things that you pay GST on – food, petrol, electricity – so any increase is going to really hurt them

Interesting.  I was under the impression that low income households spent proportionally more of their income on “housing services” (read rents) which are exempt from GST …

Also if we believe that the poor have borrowed relatively more of their income in the past, then an unexpected decrease in a flat portion of income tax and an increase in the flat portion of GST will actually be a transfer too them from people who have saved.

It would be pretty easy to spin the idea that higher GST and broadly lower income taxes would help the poor … but I guess that wouldn’t roll with his politicking now would it 😉

Matt Nolan

Sir Roger’s alternative budget

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Notice that I just stole the title from Kiwiblog – as it was really the best title in my opinion 😉

This is the first set of policies for the Budget, so it is the first post for our “Budget 2010” series.

Kiwiblog has a great rundown, I’ve only got a few points to add:

  1. Yes it would increase efficiency and GDP.
  2. Yes it would have “equity” costs.
  3. Given that no party was elected on the basis of this sharp a change in “redistribution” between equity and efficiency it isn’t the budget I would recommend for actual policy at the current time.
  4. I do applaud Roger Douglas for doing a realistic run through of what his budget would look like though – I respect transparency.

As more Budget or alternative budget details come through we will have a crack at looking at them.

Matt Nolan

Motivating effort through flagellation

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Following yesterdays brainstorm on compulsory work, another post on NZ catching Australia has inspired a policy prescription.  State funded flagellation agents for firms.

Government has set a prosperity target, to match Australia’s GDP per capita by 2025.

Efforts to increase the availability of capital for productive firms and to innovate more effectively are important steps in the right direction, but effort improvement should contribute too.

Labour productivity, the output per hour worked, is the most significant driver of a nation’s GDP per capita. New Zealand performs relatively poorly on measures of labour productivity, ranking 22nd of 30 OECD countries, whereas Australia ranks 13th.

Improving labour productivity can be achieved by improving, amongst other factors, contributions from innovation, capital and effort.  Flagellation motivates managers and workers to find ways to produce more valuable output per hour worked.

Growing New Zealand’s prosperity depends on developing successful international businesses, and businesses will only be successful if they are competitive. Achieving competitiveness, by providing more valuable products and services or by having lower cost structures, requires world-class effort.

The target to match Australia’s GDP per capita by 2025 is ambitious. Effort improvement is only part of the solution but it is very important.

On a serious note, an individual’s decision to develop skills and the such is part of their choice given the payoffs available in the labour market.  If we are going to subsidise it let’s actually try to figure out what the “public returns” are from this education – rather than spouting off truisms regarding labour productivity or flagellation.

Again, remember that the purpose of policy is to improve/maximise welfare – not to meet GDP targets or redesign the economy/society in our own image …