Kiwiblog

The HoS reports:

New Zealand university degrees are the most worthless in the developed world, an international report reveals.

The value of spending years at university has been severely dented by an OECD report that reveals tertiary study adds little to our earning power – less than $1000 a year for women, not much more for men.

New Zealand is at the bottom of the global league tables. The net value of a man’s tertiary education is just $63,000 over his working life, compared with $395,000 in the US. For a Kiwi woman, it’s $38,000 over her working life – that’s less than $1000 a year.

When I read this story, I was suspicious. I recall in the late 1990s looking at income data for graduates and calculating the average boost in income over a working life is around $500,000 (gross, not NPV), and having Ministers use this in 1999 to say that this was a good return on an average $10,000 student loan etc.

Danyl has beaten me to it, and blogged:

 The actual report is here. And the thing that they make really clear is that they distinguish between two categories of tertiary education. Type A – university degrees – and type B: (mostly polytechnics). Taken together New Zealand is at the bottom of the table. But if you look at degrees and advanced tertiary study then New Zealand isn’t doing that badly – and the countries that are doing extremely well on that metric are mostly countries with low rates of type A tertiary education. Their degrees are highly valuable because of their scarcity. Almost every statistic in the Herald story refers to non-university level education, but the entire story is about the alleged worthlessness of degree qualifications!

Yes, quite misleading to say degrees are worthless. We have a huge number of students at wananaga, with PTEs and the like who give non degree qualifications.

Tertiary education minister Steven Joyce, who has a zoology degree, said Government figures showing how much people earned four years after study were more positive. But even by that measure, those with a bachelor’s degree earned just 46 per cent more than those with a level-three school qualification.

Just 46%? That’s a huge difference.

Joyce said the Government kept an eye on under-performance at the lower levels of tertiary study. There was no improvement in pay for people who had done NZQA level-three and level-four certificates and diplomas. It was not until they reached a level five or six, or a level-seven degree, that earnings increased.

The point Danyl made.

The story generally had the right data, but it conflated tertiary study and getting a degree in an (unintentionally I am sure) misleading way.

The statement that university degrees are the most worthless is simply wrong. The 40% gain in earnings for a degree amongst 25 to 64 year olds is higher than Denmark, Norway and Sweden.

The Herald reports:

The average New Zealand earner’s total tax burden is second-lowest in the OECD when superannuation and other compulsory taxes are counted, according to a new report.

This is not a measure of the overall level of taxation in the economy. It is a measure of the difference between gross pay and net pay. There is a huge difference.

The report also said that New Zealand had the smallest tax wedge for  one-earner married couples with two children earning the average wage, at 0.6 per cent.

The OECD report includes welfare payments made through the IRD (working for families) as negative tax.

This does not mean NZ has low levels of tax. It means we have high levels of welfare delivered to families with children.

Many countries had lower tax rates than New Zealand, but had compulsory superannuation and social security payments that increased their tax wedges.

Indeed, so again not apples and apples. KiwiSaver is near de facto compulsory but not included. The Australian compulsory super is included as part of the “tax wedge” even though the amount deducted goes to you personally, not the Government.

The other aspect not included in the tax wedge is indirect taxes such as GST are not included in the tax wedge:

Green Party co-leader Dr Russel Norman said the report showed the Government was misleading people that New Zealand had high taxes, to justify tax cuts for the highest-earners.

This just shows Russel is trying to misled people, or does not understand what a tax wedge is. It is purely a measure of how much the Govt takes out of your pay. It is NOT a measure of the overall level of taxation in the economy.

Again for those who are really really stupid, the tax wedge:

1. does not include indirect taxes (those with GST are shown to be lower)
2. includes deductions made by the Govt, even though they are going to your own personal super account (ie those without compulsory super are shown to be lower)
3. includes welfare payments made through tax system (tax wedge would be much higher if they were done through WINZ)

So if anyone carries on claiming that a low tax wedge means a low level of overall taxation, they are lying.

The better measure to use is the OECD study of the ratio of overall tax revenue to GDP. Now this does have us (thankfully) in the lower half of the OECD, but not second to bottom.  In 2007 tax was 35.7% of GDP and the OECD average was 35.8%.  Note however that amongst OECD pacific countries the average is 30.4%. Australia is 30.8%.

Again comparisons can be difficult as state government revenue should be featured also.

The Dom Post reports:

“Unreasonably” high charges for using mobile phones and mobile broadband overseas could face the regulators’ axe under an OECD proposal.

Mobile network owners pay hefty rates so their customers can use the networks of overseas carriers while travelling, and these fees are usually passed on to the customer.

A report by the Organisation for Economic Co-operation and Development proposes several ways to reduce global roaming charges – including regulation of wholesale access charges by governments around the world.

The report urges telcos to better educate customers about roaming charges so as to avoid “bill-shock”.

Wellington businesswoman Liz Price says she was horrified to discover she had been charged $3500 for two hours of internet use while on holiday in Australia.

The charges of $30 a MB are highway robbery, and represent massive profit margins.

Let’s say the cost of international bandwidth is US$1,500 a month for 1 Mb/second. That means it takes 8 seconds to get 1 MB of data, which is then charged to the customer at NZ$30.

US$1,500 a month is US$50 a day. That is a cost of US$2 an hour or NZ$3 an hour.

The cost per minute is 5c so the cost for that 8 seconds of bandwidth is basically NZ1c and you pay NZ$30 for it.

Now of course a pipe is not perfectly used at 100% capacity the entire time, but you get some idea of the massive over-charging in place for international roaming.

This OECD chart shows that NZ’s fiscal stimulus is in fact the 6th largest in the developed world, as a percentage of GDP.

Hat Tip: The Visible Hand in Economics

The full OECD report is here. One key aspect:

The country appeared to be on the right policy track with its earlier market-oriented reforms. But the policy focus on productivity and growth eroded during the years of economic buoyancy, while other countries advanced.

The 2000s were the wasted years. Complacency ruled, and the rest of the world left us behind.

Auckland University’s Retirement Policy and Research Centre has done a report based on a 2008 OECD survey of income distribution.

They first note that the Tier 1 pension (NZ Super) for a single person living alone is 46% of the median GDP per capita. By comparison, the UK is 13% and US 17%.

The OECD studied how many people of retirement age (0ver 65 in NZ) were below the relative poverty line of 50% of the median equivalised household disposable income. So this is not a study of absolute comfort, but how those of retirement age in a country fare compared to the overall country.

NZ has the lowest level of elderly people in relative poverty. Only 1.5% of those aged over 65 have an income below 50% of the median income. Also at around 2% are the Czech republic and Netherlands.

I’ve often said we have the most generous schemes in the world. The average poverty rate in the OECD was 13%.

Incidentally our poverty rate for elderly has got slightly worse under Labour – it was 1.3% in the mid 90s and is now 1.5%. But not a big change and still way less than almost everywhere else.

Australia has an elderly relative poverty rate of 27%. So wages may be higher there, but the pension is not as generous relative to wages.

Interesting we spend around the same amount as Australia on social spending for the elderly, as a percentage of GDP.

I recommend people read the full report. Good food for thought.

Paul Walker takes a long hard look at the causes of global food inflation. He looks at the three theories:

1. Newspapers have cited an internal World Bank document as having found that 75% of the price increase was due to biofuels
2. Several governments and commentators see speculation as a major driving force.
3. Widely held view has it that rapidly growing food demand in the emerging economies is pushing up global food prices.

So how does theory 2 hold up:

Yet, there is no hard evidence that “speculation” has added much to the price increase on spot markets. After all, it is only when “speculators” actually buy produce on the spot market that they can drive up the price, and this would have to be reflected in growing stock levels – but stocks appear to have declined throughout the period of rising prices

So how about theory 3 – blame China and India:

Food demand in China, India, and other emerging economies is rising as their incomes grow. However, domestic food production in most of these countries is growing in parallel. China, for example, has been a consistent and growing net exporter of cereals (including rice). The Agricultural Outlook expects China’s net cereals exports to decline only very gradually in the coming decade. For India, the picture is similar, though there was significant variability in its net trade position in the past. In short, growing food demand in the major emerging countries cannot be held responsible for the rise in world market prices for cereals.

So that leaves theory 1 – biofuels:

The use of agricultural products, in particular maize, wheat, and vegetable oil, as feedstock for biofuel production has expanded dramatically in recent years. Between 2005 and 2007, i.e. in the period when food prices began to explode, nearly 60% of the growth in global consumption of cereals and vegetable oils was due to biofuels. Global output of cereals and vegetable oil did not decline during that period, but just grew slower than the rapid expansion of use.

In a situation of depleted stocks and very low demand and supply elasticities, this gap between use and output growth has pushed prices up very strongly.

And the conclusion:

Thus we find that there cannot be much in the way of doubt that biofuels are a significant factor in the rise of worldwide food prices. Add to this the fact that other research suggests that biofuel support policies are disappointingly ineffective on environmental grounds, then it should be clear that governments need to reconsider their support for biofuels. But many governments, including New Zealand’s, seem to want to push ahead with such policies despite the kind of evidence Tangermann brings to bear on the issue.

Stefan Tangermann, quoted by Walker, is Director of Trade and Agriculture for the OECD.