Tax cuts, the minimum wage, and incidence
The Standard has been stating that tax cuts should be “fairer”. Now in principle I have no problem with things being “fairer” – however, defining what is fair very is subjective, and what the Standard sees as fair and what I see as fair might be different.
Still, both the Standard and No Right Turn go on to quantify what they feel is an injustice – the fact that a greater proportion of the tax cut will go to the wealthy. However, for what they are saying to be true, the wage everyone is paid following a tax cut must not change (or must change by the same lump sum) regardless of their current income – yet this is not the case.
Many moons ago we discussed tax incidence – I think it is time to run with this again, taking for granted some of the assumptions about the labour market that the Standard has provided us with over time.
Metering and the market for water
The DomPost contained an article on the potential for metering Wellington’s water supply. The question is asked: should Wellingtonians pay for their water? This issue is a hot topic, having been discussed at Kiwiblog, Infometrics and TVHE earlier this year.
Historically, water has been provided for by the various Wellington councils out of rates. Water is not currently metered, which implies that regardless of how much water each household takes, their rates do not vary. This arrangement has led many to believe water is in some way ‘free’, as they are not forced to pay for their specific usage and the cost is embodied in rates which cover many council services across many households. With water use of 400 litres per person per day in Wellington, relative to the national average of 160 litres, it appears water users here are not internalising the cost of their water usage.
Current arrangements do not allow for the pricing of scarcity. Read more
Why politics and savings don’t mix
Over at the Standard they discuss Bill English’s statement that we will become a “nation of savers”. Now their attack line is relatively weird, especially given that he is just saying that if we need a bigger deposit to buy a house we will have to save it – he doesn’t say we should take on policy that imply “save more”.
However, he illustrates a strange view that National have of savings when he suggests that tax cuts will lead to an increase in savings – it will increase private savings but it is also dis-savings for the government, hence it will lower national savings (unless you believe it will magically cause a massive increase in economic activity).
Obviously the term “savings” is being used in a loose way – which is also “loaded” in the sense that these people assume that an “increase” in savings is a good thing.
I think it would be good if we review a series of posts which was (and eventually will be extended into) our “productivity series“. In the four posts here we discuss Kiwisaver, national savings, and what savings is.
Nats to bail out big business?
I was slightly concerned when I saw the headline on stuff this morning “Nats eye bailout of big business”
If the government is saying ex ante that they will bail out big businesses I would be concerned as this has the potential to cause a moral hazard problem. This is where firms know they will get bailed out and thus make riskier decisions. The actual quotes from Bill English don’t appear the be as explicit as I originally thought they might be
“You’re in an environment when almost anything any government could contemplate doing is getting done somewhere in the world,” he said.
“There is a small chance that events that have transpired elsewhere could transpire here. You can’t ignore that and so we need to give some thought to the extreme event.”
Are quotes like this enough to give the big companies in NZ enough comfort that they will bailed out? Only time will tell….
PPPs? Yes, please…..maybe
The Standard don’t see the point in them and Fletcher Building would rather have a standard construction contract that doesn’t transfer risk to them and doesn’t require them to incur costs setting the arrangement up.
I’m FAR from an expert on the issue of PPPs, and there may be some valid concerns using them for roads in New Zealand. However it is important to recognize that PPPs can take many forms with different levels and types of risk shared between the two parties. One of the key purposes of a PPP is to let the party that can best manage each source of risk bear it. if designed properly this doesn’t sound like a bad idea, if they aren’t designed properly it’s a bad idea!
Anyways, sorry I can’t provide more definitive commentary about this, if anyone wants to learn more about PPPs and there purpose/benefits I recommend checking out this report from Deloitte. It’s a couple years old now and I haven’t read it in a while so can’t really comment on its contents, but I remember it being a good coverage:)