The New Zealand Initiative

April 3rd, 2012 at 4:20 pm by David Farrar

I’m off to a function at 5.30 pm to launch the new thinktank, which is a merger of the New Zealand Institute and the New Zealand Business Roundtable.

It will be called the New Zealand Initiative, and will focus on raising debate on public policy and contributing ideas to achieve a more prosperous future for New Zealand.

I think the merger is a chance to get past the brands of the former organisations, and have more debates on public policy which focuses on the issues, rather than get fixated on who is saying what.

Roger Kerr was always going to be a very hard act to follow, but I’m delighted with the announcement of the inaugural executive director as Dr Oliver Hartwich. I know Oliver from his work as the Centre for Independent Studies and he not only has a first class mind and research credentials, but is also an excellent presenter and communicator. I am sure he will also manage to upset as many people here, as he has in other countries :-)

The Business Roundtable was both a think-tank and a lobby group, while the NZ Institute was just a think-tank. By the look of it, the new New Zealand Initiative will be primarily a think-tank, rather than a hybrid. I think this is a good thing, as I believe the attributes you need from a lobby group is quite different to what you need from a think-tank. To some degree, think-tanks are the wholesalers, and lobby groups the retailers. This merger also opens up an opportunity for a new lobby group to push for good policies on behalf of taxpayers.

UPDATE: Big whoops. This was embargoed until 6 pm. I missed seeing it – totally my fault. Apologies to anyone affected – it was accidental.

Tags: , , ,

Welcome to the blogosphere Roger

August 19th, 2010 at 1:56 pm by David Farrar

Pleased to welcome Roger Kerr to the blogosphere. Am looking forward to his contributions.

Roger has just blogged on the death of Tony Judt, described as a fearless Anglo-Jewish intellectual and academic historian who was one of the most brilliant and genuinely original thinkers of our times.

Judt caused great controversy, with this call in 2003:

Judt rocked the Jewish world in 2003 with an article in The New York Review of Books, Israel: the Alternative.

It described the Jewish state as “an anachronism” and argued that Zionism’s ethno-religious exclusivity be replaced by an inclusive liberal democracy. In effect, it called for a one-state solution to the Israel-Palestinian impasse, as he did again in a New York Times column only last month.

The so called one state solution, is ironically backed by elements of the Likud party.

The Business Roundtable has also just relaunched a refreshed website. Much more user-friendly.

Tags: ,

The Big Social Issues Debates

March 15th, 2010 at 11:00 am by David Farrar

The Business Roundtable is hosting the Big Social Issues Debates, with top university debaters competing and debating the big issues.

The heats are from 15 to 18 March at various schools, and then two semi-finals and a final.

The first semi-final is Thursday March 18 5.30 pm at Mac’s Brewery on Taranaki Street, Wellington. The topic is “Our Police Ought to Be Armed

The second semi-final is Tuesday March 23 5.30 pm at the Gus Fisher Gallery, Shortland Street, Auckland. The topic is “Our Liquor Laws are a Licence to Swill“.

The grand final is Wednesday March 24 5.30 pm at the Academy Galleries on Queens Wharf, Wellington. The topic is “We Should Look to the State for Moral Guidance“.

They should all be top debates, and well worth attending. There is no cost to attend but do RSVP by phone 04 471 8203 or e-mail.

Tags: ,

Kerr on Capital Gains Tax

October 8th, 2009 at 10:15 am by David Farrar

Roger Kerr writes:

A gains tax on housing would not reduce inflation. Inflation is an ongoing increase in the general level of prices, not a one-off change in some prices.

The introduction of the Goods and Services tax resulted in a one-off increase in the consumer price index – it did not lead to ongoing inflation.

Similarly, a capital gains tax might reduce property prices initially but it would not affect longer-term inflation.

True, and any increase in GST would be a one off bump.

Moreover, if such a tax on housing were applied only to realised gains as is likely, house prices could even rise. This is because of the lock-in effect, with owners holding on to homes to defer the tax on gains. Anything that reduces supply is likely to lead to an increase, not a decrease, in price.

One could do it on unrealised gains, but that would be pretty draconian.

Evidence confirms what theory suggests: the inflation performance of countries with a capital gains tax doesn’t differ systematically from countries that don’t.

Australia, the US and Britain, which tax capital gains, have all had large and volatile house price movements this decade.

I always like a look at empirical evidence.

A second mistaken assumption is that investment in rental housing enjoys tax privileges.

As the deputy commissioner of Inland Revenue, Robin Oliver, told a select committee in 2007: “Rules about expenses for deducting costs such as interest, upkeep and maintenance, as well as paying tax on income, are the same for investments in shares or anything else. In fact under the housing case … there are tighter rules regarding what is a capital gain.”

People are misled into thinking that rental housing is tax-preferred since highly geared rental property may record tax losses. This is because the full economic income (including the change in the market value of the assets) earned on rental property is not taxed.

However, this is a quite general feature of the taxation of real assets, including plant and equipment and farms.

A real issue though is whether it is sensible to allow property owners to claim 3% depreciation on their property annually, when the empirical evidence is that almost no residential property depreciates in value – in fact it appreciates.

Tags: , , , ,

Maori and Welfare

July 21st, 2009 at 3:00 pm by David Farrar

The Business Roundtable has published a paper by Lindsay Mitchell on “Maori and Welfare. It isn’t necessarily BRT policy, but published to encourage debate – which is excellent. We need more, not less, policy debates.

Mitchell has found that Maori were not always over-represented in negative statistics:

One of the few areas for which long-term Maori statistics were kept is crime. At the turn of the nineteenth century, Maori (defined as people having half or more Maori ancestry) made up 5 percent of the population. In 1898, 22,752 charges
were heard before magistrates and only 2.3 percent were against people of the “aboriginal native race”.

And this situation continued for many decades. Then:

By 1957, the Maori share of offences tried in the Supreme Court was 18 percent, but in just five years it climbed to 23 percent.5 In 1959, Maori made up 25 percent of the boys admitted to the correctional Owairaka Boys’ Home in Auckland. By 1969, the proportion had risen to 70 percent, and by 1978 it was 80 percent.6 By 1961, the Maori arrest rate for 15 year-olds and older was almost 5 times the non- Maori rate.7 Young Maori migrating from rural to urban settings were no longer
under the control of their elders. Young urban Maori increasingly joined emerging groups such as the Mongrel Mob and Black Power.

She quotes James Belich:

People avoid crime, not primarily because it is illegal, but because of the disapproval of those that matter to them – in the traditional, rural Maori case, the kin group.

Lindsay goes on to make a link to welfare policies being responsible for some of the problems, especially the DPB. A not inconsiderable number of Maori have said the same at various times. Now many will disagree with Lindsay, but I suggest you at least read her report – it is only 40 pages.

Mitchell states her view on welfare:

There exists an extreme view that the state has no role at all in welfare provision. It is not one I share. Nevertheless, the state should limit its involvement to that of providing a safety net of last resort. Self and family responsibility must come first. Middle class welfare – the provision of cash or services to those who can afford to meet their own needs – must be avoided. Welfare reforms that deter people from behaving in detrimental ways because there is no perceived risk should be made with those basics in mind.

I broadly agree with that proposition. Welfare should be trgeted at those in genuine need. It should not be dished out so families can buy a nicer ipod.

Lindsay then makes six recommendations:

  1. replace the DPB with temporary assistance only (max one year);
  2. replace state-funded unemployment benefits with private unemployment insurance;
  3. tighten eligibility for sickness and invalid benefits;
  4. consider assistance-in-kind and income management as stop-gap measures only;
  5. consider privatising income support delivery to improve efficiency and incentives and allow for Maori ownership;
  6. consider empowering employment entrepreneurs, and increased use of loans and opting-out as features of a future safety net system.

I do support reforms along the lines of what Clinton did, with a maximum time you can spend on a benefit. They have been a huge success. I think restricting the DPB to one year only though is impractical. Recommendations 4, 5 and 6 are worth exploring. The status quo is not exactly producing great results, and we should be open to looking at can we get better outcomes by doing it differently.

This is where I am a bit disappointed by the Government’s response:

Prime Minister John Key had not read the report yesterday but said it sounded “pretty draconian”.

Social Development and Employment Minister Paula Bennett said none of the ideas were on the agenda for the Government.

It would be nice if the response was that while the proposals were not current policy, we will at least read and consider the report, and respond to it after due consideration. As I said, the status quo is nothing to be proud of.

Tags: , , ,

Stephen Jennings

April 8th, 2009 at 8:39 am by David Farrar

Was a real privilege to listen to Stephen Jennings deliver the annual Sir Ron Trotter dinner last night. Somehow ended up on the Chairman’s tables so was only three metres away from the podium.

A sad note was that for the first time ever, Sir Ron himself could not attend due to ill health. His family were there in numbers though.

Jennings is a former Treasury economist who before the global recession was worth $6 billion, so he has done well for a Taranaki boy.

Jenni McManus covers some of his thoughts on Stuff:

If New Zealand jettisons MMP and elects leaders who can move beyond placating minority interest groups, it might have a chance of arresting its 50-year decline and competing globally, he says.

Well there will be a vote on MMP in the next couple of years. Ironically the popularity of the Key Government may save MMP. With Winston gone, and a stable popular Government, a lot of people may say why change?

Since 1980, he says, economic power has begun shifting from the so-called rich countries of the West to emerging markets such as the former Soviet Union and Yugoslavia, Cambodia, Angola, Greece, Tanzania, Botswana, Ireland, Bhutan, Singapore, India, Malaysia, Indonesia, Chile, Sri Lanka, Vietnam, Lebanon, Trinidad and Tobago, Mozambique, Poland, Guyana and Tunisia.

Jennings spoke a lot about the opportunities we will have from a few hundred million more peple moving into the “middle classes” world wide.

“Today there are 5.5 billion people living in countries with growth rates higher than the average in the G7.”

Yep, they are catching up.

Mr Jennings is no fan of what he calls “missionary economics” the attempt to superimpose the “unadulterated adoption” of institutions and forms of government on countries with different economic, social and historical frameworks.

“The most successful emerging market businesses have evolved in a manner that is highly adapted to their local environment.”

Jennings clarified that the rule of law, property rights, independent judiciary are all very important but you can’t impose a model – it has to evolve.

New Zealanders needed to start talking about why the World Economic Forum ranked New Zealand 51st for burden of government, 67th for the extent and effect of tax, and 90th for hiring and firing practices.

Sadly I don’t see great improvements ahead. Maybe with time.

The country needed political leaders who could lead and manage change. “They need to be able to make policy choices quickly and efficiently,” Mr Jennings says.

“We know what kind of political behaviour our current constitution generates: gradualism, populism and the quasi-corruption arising from disproportionate pandering to tiny minorities.”

Is he talking Winston and Grey Power? :-)

Tags: ,

Kerr on Fiscal Stimulus

February 16th, 2009 at 5:59 am by David Farrar

Roger Kerr makes some excellent points in his NZ Herald op ed:

The Government is being urged to increase its spending to “stimulate” economic activity.

What seems to be overlooked is that the huge rises in core Crown spending in recent years – some $25 billion since 2000 – saw New Zealand “lead the world” into recession.

A very timely point. And that going into recession a year before most other countries has greatly affected our options.

Hundreds of economists in the United States are saying the Obama Administration’s so-called “stimulus” package is reckless.

The imperative now is to switch resources into the internationally trading sector so as to increase exports and cut imports. By marking down our exchange rate, the rest of the world is telling us that is what we have to do.

It looks likely to drive the US Budget deficit to about 12 per cent of gross domestic product, create huge public debt, and necessitate big tax increases or spending cuts down the track.

And NZ is already facing a decade of deficits. And if these deficits remain, tax increases are also inevitable in NZ.

For a small, open economy like New Zealand further increases in Government spending would worsen the balance of payments rather than do much to increase output, even in the short term. Longer term they would raise future tax and debt burdens and risk a resurgence of stagflation.

High levels of Government spending, already projected to be 45 per cent of GDP on the OECD’s measure (which includes local government), contributed to the balance of payments problem by driving up domestic costs, making exporting and competing with imports less profitable, and dragging resources (of capital and labour) away from those activities.

The imperative now is to switch resources into the internationally trading sector so as to increase exports and cut imports. By marking down our exchange rate, the rest of the world is telling us that is what we have to do.

Yep.

Australia’s overall Government spending ratio is projected by the OECD to be 35 per cent in the coming year, compared with New Zealand’s 45 per cent ratio.

The Government needs to reduce the Government spending share of the economy over time to below Australia’s level – and more like the ratios in Hong Kong and Singapore which are below 20 per cent – to match Australia’s performance.

The Governments of those countries are able to ensure the provision of high-quality public goods and maintain strong social spending programmes with Government spending at far lower levels than NZ.

The benefits include lower taxes and levels of wages and other incomes that are now much higher than ours.

This is key. Reducing Government spending as a percentage of GDP does not mean you are spending less money. If you get higher GDP growth, then you can still maintain social spending. The trick is to have spending increase at a slower rate than GDP growth.

Beyond those exercises, the Business Roundtable strongly supports the proposed Taxpayer Rights Bill which would cap increases in spending at the rate of inflation plus population growth, unless taxpayers agree to higher increases in a referendum.

That’s a great idea. The same should apply to local Government!

Tags: , , ,

Kerr comments on big money in politics

November 5th, 2008 at 2:36 pm by David Farrar

Roger Kerr commented on yesterday’s blog post about big money on politics. I think this is Roger’s first comment on a blog post!

Roger made a few observations:

(i) Representative business organisations today typically take a national interest perspective, not a narrow, self-interested business perspective as in Fortress New Zealand days. The rationale is that what’s good for New Zealand is good for business in the long run, not the other way round. (Of course whether their advocacy conforms with that perspective should always be open to challenge.)

Thankfully it has been a long-time since business groups have demanded special favours for this sector, or that sector.

(ii) Consistent with (i), they routinely both support and criticise policy positions taken by all political parties.

Indeed, and groups like Business NZ have worked closely with the Labour Government on many issues – some might even say too closely!

(iii) It’s hard to fathom why some unions (eg EPMU) are so overtly partisan. Can this really be in the interests of their members? Governments change, as they should in a healthy democracy. How can they expect a sympathetic hearing for their members’ interests when they have publicly campaigned against a party that ends up in government?

Well the EPMU is a member of the Labour Party and hence can only be partisan. It does raise the question of how should a National-led Government deal with unions who have said their job is to get National kicked out of office regardless of what their policies are.

And as amusing as I find the CTU ads, I do wonder about the wisdom of being quite so partisan, that their influence with a new Government could be greatly reduced.

(iv) Unions in other countries seem less partisan and more willing to criticise the policies of ‘their’ parties, eg US unions in manufacturing industries on climate change issues.

Yes, some of the Australian unions also have been critical of ALP policies.

(v) Donations by corporates now seem to be very small, and are often split between parties.

So far the largest reported donation to National is $30,000. And I agree they are split between parties.

(vi) It would appear that the largest reported donation to a political party in recent years from a business source was that by Mr Owen Glenn to the Labour Party.

$500,000 to Labour plus $100,000 interest free loan plus $100,000 to Winston’s legal fees.

(vii) The most blatant case of business cash-for-favours in recent years would appear to be from racing industry sources to New Zealand First, whose leader Winston Peters has railed against ‘big business’ influence on politics.

I’m not sure ironic covers this situation adequately. I’m not even sure gross hypocrisy covers it.

Tags: , ,

The big money in politics

November 4th, 2008 at 1:53 pm by David Farrar

Thanks to the help of some volunteers going through dozens of set of annual accounts, Kiwiblog is able to present some original research on big money in politics. We have gone through the annual accounts of every union and business group we could find.

The findings may surpise some. The unions are far wealthier than the business groups.

There have been 256 unions registered in New Zealand. To make it easy we have only focused on those that are millionairres – have more than one million in equity.  There are 19 of these, including the NZCTU – their federation.

We looked at three financial indicators:

  1. Income or Turnover – this gives you an idea of what they can do if they apply a percentage of their income to politics
  2. Current Assets – basically cash in bank plus debtors etc
  3. Net Equity – the total net assets of the union

The table is below:

So the top 19 unions have:

  1. $73 million of income
  2. $29 million in the bank or other current assets (note they may have current liabilities also)
  3. $63 million in equity or net assets

Also as a minor note, five unions have yet to file their 2007 accounts.

Now compare this to the major business groups:

There are various small town chambers also but they have little money. The Business Roundtable is as unincorporated society and the Wellington Chamber of Commerce a company so their accounts are not public. But in each case I have checked my ballpark estimates with the organisations and they have confirmed they are in the right ballpark.

So we can see that the business groups have under half the income of the big unions. And the Business Roundtable has less turnover than some student associations. The CTU has a bigger budget than Business NZ.

So there is no doubt unions have far more income and money than business groups. So the next question is do they spend it on politics and elections?

If we look at the Electoral Commission’s register of third parties, we see not a single business group listed but 12 unions (including NZUSA) listed.  So they have the ability to spend $1,440,000 on direct election advertising.

But that is only part of it. The unions try to influence the elction in multiple ways. For example:

  • Donations to political parties
  • Direct election advertising
  • Use of union vehicles for hoardings construction
  • Allow staff to work on election campaigns as part of their day jobs, using union e-mail addresses
  • Supplying staff to Labour’s factory to sort and fold over one million direct mail envelopes

The worth of the staff contribution especially can not be easily estimated but it is massive. readers have sent in several photos of union vehicles beign used by Labour candidate and union e-mail addresses being listed as campaign contacts for various electorates.

If even just 200 union staff (three per electorate) spent 160 hours on the campaign, that is equal to a million dollars equivalent wages.

Of course we don’t know the total amount of money spent by unions on electioneering. Perhaps any successor to the Electoral Finance Act should force unions (and other bodies that get involved in election campaigns) to disclose their total involvement. That would be a step towards transparency you could argue.

Now this is not unique to New Zealand. In the last Australian election, the uniosn spent over $10 million campaigning to help the Labor Party. The total spending by business groups was $32,000. So unions outspent business groups in Australia by 300 to 1.

The purpose of this article is not to advocate that unions should not be able to spend their money campaigning. Far from it. It is to reinforce two points:

  1. Unions have significantly more money than business groups
  2. Unions get engaged in election campaigns at multiple level, in a very partisan way, while business groups tend to just publish manifestos, push policies and organise seminars and forums

I actually think NZ needs a pro-business, pro-market, low-tax lobby group to match the unions in terms of involvement in campaigns. A NZ version of the Americans for Tax Reform or UK Taxpayers Alliance. It wouldn’t be a thinktank (NZBR and CIS do wonderful jobs there) but an aggressive lobby group that would aim to lower taxes, keep government spending under control and support policies good for taxpayers.

Without such a group, the big money spending in elections will continue to be dominated by unions.

Tags: , ,

Also on tomorrow – discuss the brain drain

September 17th, 2008 at 12:03 pm by David Farrar

5.30 pm at Mac’s Brewery on Thursday with free beer and pizza. I might even pop along :-)

Tags: ,

Dunes Symposium continued

August 26th, 2008 at 5:00 am by David Farrar

Fran O’Sullivan has written a column on the Dunes symposium, which we both attended last week, put on by the Business Roundtable. A lot of focus was on how to lift NZ’s productivity record (and hence national income) and Fran list’s six examples of bad behaviour:

  1. How the current Government has ignored the lessons of the 1980s-1990s relating to public sector management, to the detriment of economic efficiency.
  2. Alarming incursions by Cabinet ministers who have arbitrarily encroached on private property rights in the commercial arena.
  3. Cabinet ministers bypassing Treasury and commissioning advice elsewhere for the re-nationalisation of the railways, without any cost-benefit analysis of whether it made economic sense to do so.
  4. Telling examples of how Kiwi businesses are being tied in regulatory knots by the devolution of powers to overly aggressive bodies.
  5. The major decline in the health sector, where the budget has increased by 54 per cent in recent years yet the amount of elective surgery has declined.
  6. How the Beehive leaned on bodies such as the Electricity Commission and power generators to push prices up during the recent power “crisis” so that the Whirinaki back-up plant could be pulled into action, and then hammered them to drop prices.

I touched on some of these also, in my blog post on day one.

Also on day one was a good session on “bad law making” with several MPs (including one from Labour). Three examples were given of bad laws, and what drove them:

  • Dog control – a response to demand
  • Anti-smacking – elitism
  • Electoral Finance Act – partisan politics

The dog control was cited by all sides as the classic “bad law” where a little girl gets bitten by a dog, the public demand the Government/Parliament do something, and hence micro-chipping is proposed as that “does something” to show MPs care about little girls bit by dogs. Only ACT voted against, and hence they are at 1% because the public think they don’t care about little girls being bitten by dogs!

Some incomprehensible or bad terms which should be avoided in laws was given, such as:

  • Intrinsic values
  • Treaty principles
  • Sustainability
  • Workable competition
  • Price sensitive info
  • Must not abuse a dominant position

They all detract from the principle that the law should be obvious and certain.

One participant suggested that a Regulatory Responsibility Bill was needed to protect the public from “good intentions” of MPs, and that it would have a similiar effect as the Reserve Bank Act and Fiscal Responsibility Act.

The session on taxation was of course also interesting.

One senior partner in a major accounting firm talked about how he always welcomed new staff members by telling them, they had three duties – in order:

  1. A duty to themselves. A realisation that people work to further themselves, and that an employer needs to recognise this – that working for an employer is not the most important thing for an individual.
  2. A duty to New Zealand – that employees (and employers) should look at how they can contribute to New Zealand, that there was a moral obligation to contribute – not just to make money.
  3. A duty to the employer – this comes after the duty to yourself and New Zealand.

This might seem as a surprising position for a senior member of the Roundtable, but most of them are passionate about advocating for policies which will result in a better NZ, and that pushing for better tax policies, is part of this. That pushing for better tax policies, is not about pushing for more or less tax, but a more efficient and equitable tax system.

He defined the efficiency of a tax system as how to collect maximum revenue at minimum cost, and that the current system was a long way off this. The equity side can be met through a combination of tax and welfare.

Day Two also saw a debate between the Victoria and Auckland University Debating Clubs on the moot that Australia is the luckier country. Auckland affirmed and Victoria negated.

Auckland were somewhat helped by Roger Kerr introducing the topic with some slides which basically showed how Australia was kicking NZ’s arse in most areas. This didn’t stop Victoria University from a spirited defence of NZ.

In debating you often have to argue a proposition you don’t personally believe in. But never has this been funnier than seeing Christopher Bishop not just argue for how NZ in the last decade has done better than Australia, but when he starting promoting the benefits of the Swedish big state model, it was just too much for me. Maybe I could handle Bish promoting Swedish models, but not The Swedish Model. When they asked for questions at the end of the debate, I could not resist asking him if he actually believed a single word he had uttered during the debate. He could find only one sentence he stood by :-)

I used to take part in debating at school and university also. Back then (God that makes me feel old) you could interject at any time, so loud funny interjectors could be devastating. It did often stop the smooth flow of a debate, so I was interested in the convention that has developed where if you wish to interject you stand up, and the speaker at the rostrum either tells you to sit down, or allows your interjection. It looks bad to refuse all interjections so each speaker normally allows a few and responds quickly to them.

The way the speakers dismiss an attempted interjection is quite amusing, as they just say “No, sit down” or make a sit down signal with their hands as they continue speaking. Polly from the Vic team was the best at dismissing interjections as her “No thank you Sir” was delivered with wonderful contempt, and in a tone you would use to instruct a canine.

The honours were shared, with attendees voting that they agreed with the Auckland team, but that the Vic team had performed the best with their argument.

Also on day two, the participants heard from a National and Labour candidate who talked about and answered questions about the future faces and directions of National and Labour. Both candidates were in their 20s or early 30s and performed well, with an interesting observation that as the newer candidates were at school during the ideological big battles of the 1980s and 1990s, they expect there will be less acrimony between them as the start to move into Parliament over the next few years.

People have all sorts of pre-conceived ideas about the Business Roundtable. Some on the left try and paint it at the centre of every conspiracy theory they have. But the reality is the NZBR is quite ordinary. Like thousands of other organisations they divided into small breakout groups, and workshop on flipcharts ideas for improving public policy which get reported back into the main session. There is no secret cabal setting the agenda – in fact the senior established order at the Roundtable seem more open to new ideas and new ways to operate, than most organisations I have observed.

I don’t agree with the NZBR on every issue. Far from it. But I do think our public policy debate in NZ is much stronger for having their input, and that it will be a welcome day when people debate their ideas, not supposed agendas.

Tags: , ,

Productivity

August 21st, 2008 at 1:48 pm by David Farrar

Very interesting session on the economy, with a focus on how to increase productivity. The guest speaker highlighted five issues:

  1. Changing the balance of exposed and sheltered sectors, as exposed sectors tend to have higher productivity
  2. The behaviour in the sheltered sector and how it imposes costs on the exposed sector
  3. Market and Government failures
  4. Capacity constraints
  5. Random luck, culture

There was an in depth look at the health and electricity sectors. The health sector has had a huge decline in productivity. Now it was acknowledged that some of this is simply having to pay higher wages to retain staff.  But reference was made to an upcoming study which is looking at outputs per medical staff, and that the findings are quite depressing – something like a 15% decline. There are real structural problems in health.

Also of concern was the detail of how the Health Ministry has stopped publishing much of its data, and how they tried to charge $12,000 under the OIA for supplying some productivity data. The speaker advocated amending the OIA to force more info into the public domain, and also amending the Statistics Act to increase the power of the Government Statistician to force Govt Depts to supply info for statistics they feel are of public interest.

The role of the Electricity Commission was also focused on, and the mounting evidence that it has been removing transparency with caving into private pressure from Ministers and, in turn, applying pressure to generators to put prices up (so backup supply can be triggered) and then pressuring them to put prices down again. I am leaning towards the view the Commission can not be reformed, and should simply be abolished. For $90 million a year it is not adding value.

Tags: ,

The Dunes Symposium

August 21st, 2008 at 10:49 am by David Farrar

Today and tomorrow I am attending The Dunes Symposium on Waiheke Island, so will be blogging about some of the sessions.

The symposium is not primarily for members of the actual BRT, but for new and emerging business leaders, and is a sort of introduction to public policy issues, and how they can impact business. The opening session had a good quote from James Madison in 1788:

If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself. A dependence on the people is, no doubt, the primary control on the government; but experience has taught mankind the necessity of auxiliary precautions.

Following that stressed that the majority of interactions today are voluntary co-operation, but when there is market failure, intervention can be justified. The test should be whether the intervention actually produces more benefits than costs.

We have sessions later today on constraining government regulation and an economic state of the nation analysis by a former Treasury Secretary. Tomorrow addressees by a Labour and National Party candidate, a university debating team debate on if Australia is the luckier country, a tax policy session, a Maori Economic Development session, and a session on the buy back of Rail.  I really enjoy these policy discussions and debates, so always appreciate when I get to attend.

Tags:

Sunday Snippets

June 8th, 2008 at 12:40 pm by David Farrar

For that long Sunday afternoon:

The NZ Book Council have a very cool website to encourage reading. They’ve done it as a Windows operating system.

Scrubone does a fisking of No Right Turn’s outrage at National over citizen juries. Also on that issue, Russel Norman at Frog Blog agrees with some of my suggestions around Citizen’s Juries – specifically the need for multi-partisan agreement not narrow agreement.

Paul Walker responds to Matt McCarten’s hysteria over the Business Roundtable.

Whale Oil likes his stats comparison with Kiwiblog. Obviously girls and guns work :-)

Craig Foss looks at how Dr Cullen is financing his tax cuts – he is borrowing $6.4 billion and also selling $6.4 billion of financial assets breaking one of his four tests. This last one is particularly cunning as it allows him to claim gross debt remains on track. This si why net debt is the better indicator.

Colin Espiner reviews the Reserve Bank MPS and the polls.

Bernard Hickey believes Alan Bollard has gone soft on inflation, as does the Westpac Chief Economist.

Tags: , , , , , , , , , , , , , , ,

Blog Bits

April 30th, 2008 at 2:52 pm by David Farrar

David Cohen at NBR covers the apology from Hot Topic to the Listener and notes that by allowing a comments section on your apology, you sort of undermine it.

Rod Drury tries out his Freeview box. He likes the high definition but given a choice between HD and being able to time shift on MySky, he puts the time shifting as more important.

Martin Hurst asks whether shorthand should still be taught in journalism schools, with the greater use of digital recording devices.

David Weigel at Reason looks at most over-rated Presidents. He chooses Abraham Lincoln, Theodore Roosevelt, and George HW Bush.

Conrad Reyners at Salient blogs on the Business Roundtable forum on public policy held last night. Sounds like Rod Deane stole the show.

Tags: , , , , ,

Interns wanted

March 25th, 2008 at 9:09 am by David Farrar

The Business Roundtable is seeking one or two interns for the next year.  If you have a passion for public policy issues, then the BRT can be a great place to work – they produce a staggering amount of research on various issues, and also bring over to NZ some world class speakers. The requirements are:

Applications should demonstrate a genuine interest in public policy, strong research and writing talents, excellent communication skills, strong computing skills and willingness to pay careful attention to detail. We are looking for fun people who are motivated, well organised and willing to work hard.

Details on how to apply are on the linked page.

Tags:

A decent cobber

February 29th, 2008 at 1:46 pm by David Farrar

One of the pleasures of attending the NZBR Retreat was meeting Andrew Bolt, who gave a superb talk about Kevin Rudd. Andrew is a former Labor staffer (and still good friends with several Labor Ministers), and now a columnist and blogger. His last book was “Still Not Sorry” which gives a clue as to his current views.

Andrew gives me a small plug on his blog.

His talk on Rudd was fascinating, as it was flavoured with a lot of inside info from within Labor.  Also discussed the current Liberal Party which is looking very very dismal. I predict they will allow Nelson to lose the next election then Turnbull will roll him.

The funniest thing was when I first met Andrew.  He was furiously trying to calculate something on a large pad, and was down to around line 30.

Upon enquiry I found out he was trying to work out how big China’s economy will be in 100 years time if it keeps growing at 10%.  So he was calculating it manually line by line over 100 years.  The look of relief on his face was palpable when I said I had a laptop with excel on it – took around 30 seconds.  I think he had spent 20 minutes already on it! Still good to see someone who knows how to do maths the old fashioned way.

Tags: , , , ,

An economic outlook

February 27th, 2008 at 10:31 am by David Farrar

A leading economist did a presentation to the Business Roundtable Retreat on Friday. It was Chatham House Rules so I can report some of the detail – but not who said what. It was an analysis of the trends and issues in the economy, and then some possible solutions.

  • The 90 day bill rate predicted to drop in 2009 to 6% but then to increase and stabilise at 7%
  • A small increase in the unemployment rate reaching 4% in 2010
  • The equilibrium level of inflation may have increased from 2% to 2 1/4 to 2 1/2 per cent.
  • Migration to Australia would continue and this would be of the relatively “more productive” New Zealanders. This isn’t a judgement on education levels or intelligence as much as recognising they are people with “skills established in this economy” so generally more productive here than any replacements.
  • Mining in Australia is only 7% of GDP and 2% of their workforce so incorrect to credit the minerals boom for their economic growth.
  • The big challenge for NZ is to increase our productivity, and it is hard to do this with a declining talent pool. Hence we have a vicious circle – the more people who leave, the harder it is to increase productivity so incomes can increase to keep people here.
  • Agricultural Protectionism is a real issue and hurting the agricultural sector
  • Multilateral trade deals and plurilateral trade deals are better than bilateral deals
  • NZ needs to shift focus in trade deals from purely agricultural access to also have investment rights in agricultural processes and storage facilities.

He also did a very nice summary of one of the problems with the current macroeconomic model. Basically, if I recorded it correctly, it is:

  1. Increasing Inflation –> Increasing Cash Rate
  2. Increasing Cash Rate –> Increasing Interest Rates
  3. Increasing Interest Rates –> Increased NZ$
  4. Increased NZ$ –> Decreasing Exports
  5. Decreasing Exports –> Decreasing Economic Growth
  6. Decreasing Economic Growth –> Decreasing Investment
  7. Decreasing Investment –> Decreasing Productivity Growth
  8. Decreasing Productivity Growth –> Decreasing Aggregate Supply
  9. Decreasing Aggregate Supply –> Increasing Inflation

In one sense it is an argument why it is important to keep inflation under control from the beginning, but it does highlight a weakness in the current monetary policy cycle. Whether there is a better solution though is the real question.

It was suggested that the RBNZ targets should have the emphasis on targeting inflation over the medium term removed, as it has led to timidity with the RBNZ late to act, with the consequence being inflation and interest rates stay higher for longer than they otherwise would have been.

He also highlighted some ways to increase productivity:

  1. Encourage people to stay in NZ
  2. Increase the returns for effort
  3. Reform and reduce tax levels
  4. Get rid of redistribution policies which just redistribute money back to those who pay it, and adds a deadweight cost to the economy
  5. Reduce the rate of growth in the public sector relative to the private sector
  6. Make it easier for employers to release lower productivity staff

Now people can make arguments against each and every one of these on grounds of social justice or fairness etc. I mean for example I wouldn’t advocate being able to get rid of staff at whim. But the point the economist was making is that if you don’t do these things, you will find it harder to increase productivity growth. So it is all a trade off – if you do not do any of the above you’ll watch the gap with Aussie grow even faster.

There is also a list of what not to do:

  1. Don’t discourage the able from staying
  2. Don’t discourage more effort
  3. Don’t discourage investment
    1. Don’t ignore property rights
    2. Don’t have costly planning requirements
    3. Don’t increase the regulatory burden
    4. Don’t impose climate change policies which have large risks for investors

It was clarified this wasn’t an argument for having no policies to mitigate climate change. It was for uncertainty and risks to be minimised.

And again people can argue for or against each of the above – it was just a reminder that there is a cost to productivity growth if you do discourage effort and investment etc.

To some degree it was a bit gloomy.  The vicious cycle with migration and the impact of monetary policy on productivity growth make it very clear that closing the gap with Australia will not at all be easy.  It won’t just happen by chance without a change in policies.  And there will be no one or two simple things to do – it will only happen as a result of taking action in a dozen different ways, each incrementally helping increase productivity growth.

Tags: , , ,