Alex's politico-economic blogroll: Labour's death tax; Hypocritical Greens; Joyce's uses wrong spreadsheet for debt claims; Shipley's payday; Cartoons

Here's my blogroll for the week. Have a good weekend all.

From the left

1. Why is Shipley being paid so much? Idiot Savant at No Right Turn got the ball rolling on this story that made it to the top of mainstream media bulletins this week about how CERA advisory board members are being paid much more than it seems they should.

I was curious about how this appointment was made, so I asked about it, requesting all advice and communications about the appointment process using the Official Information Act. The resulting documents - a paper to the Cabinet Appointments and Honours Committee [PDF] and several letters - are quite revealing. They show that

• Brownlee had decided who he would appoint before the law had even been introduced to Parliament;
• The appointment process does not seem to have followed SSC guidelines [PDF]. It does not seem to have been advertised, even in the broad sense used by SSC; no long or short-list of candidates was drawn up [PDF]; no interviews appear to have been conducted to confirm the suitability of the candidates. It appears as if Brownlee pulled these names out of his arse, and then imposed them on us. The people of Canterbury, of course, were not consulted.
• To add insult to injury, having appointed these people with no proper process, Brownlee then decided to pay them at triple the normal rate [PDF], on the basis that "it will not be possible to secure their services under the current fees range". No effort appears to have been made to find candidates who would do the work within the government's budget. This was agreed to by State Services Minister Tony Ryall [PDF].

2. Govt procurement policy should include Kiwimake provisions. Labour released a new procurement policy to little fanfare this week. Eddie at the Standard rounds it up.

The detail of Labour’s policy is here.

The logic of a procurement policy that compels government bodies to make decisions on more than a narrow commercial basis is obvious.

The new Auckland railcars could have been built in Dunedin, creating hundreds of jobs, boosting the economy, and ultimately bringing more tax into the government’s coffers. Instead, Kiwirail went for the ‘cheaper’ option: cheaper for it as a company in isolation but more expensive for the government and the country as a whole. Now, another 44 jobs have been lost at Hillside with 16 of the redundancies announced just before Goff arrived.

Kiwirail shouldn’t just be a company that we own, it should be about investing in and building New Zealand.

3. Joyce used the wrong spreadsheet. Stephen Joyce's claim that Labour's tax policy would leave a NZ$15 billion hole in the budget was a claim based on the wrong figures, Keith Ng explains at Public Address. Hilarious if this is the case. If the Associate Finance Minister doesn't know what figures and spreadsheet to use, how can we be confident in his own budget figures?

Joyce reckons that Labour grossly underestimated the cost of their tax-free threshold, and overestimated the revenue from their new top tax rate. Unfortunately, Joyce used the wrong spreadsheets. In particular, he missed the bit which said:

Larger changes require more complex modelling than is shown here.

But that’s just some nerdy ass-covering technical caveat, right? Well, Joyce punched in the numbers and came out with an estimate that costs will grow rapidly, doubling by 2025.

Let’s think about how this would work in the real world. Everyone earning over $5000/year would get the benefit of the whole tax free threshold. That’s pretty much everyone in the workforce. So if everyone already gets something, how would more people get it?

The cost of a tax-threshold only grows when new people enter the workforce.

So unless Joyce thinks he can create 3 million jobs (and find 3 million workers to fill them) in the next decade, this is a patently stupid and ridiculous result. Common sense would tell you that it is impossible.

This one goes firmly in Labour’s favour.

4. Republicans won't allow Treasury to default. US-based Kiwi Phil Quinn says the fact the Republicans are playing hardball during the US debt ceiling talks is what was expected for the show, but they won't let Treasury default.

This was bound to happen as it has, really.  Conservatives had their fun trying to bully Obama into linking big spending cuts to the debt ceiling vote and using the standoff to bleat their case.  

But the White House knows that, when the rubber hits the road, the GOP is not yet so beholden to its tobacco-chewin’, gun-totin’, Jesus-Lovin’ faction that it would allow the US Treasury to default. They therefore understood that, by drawing out the negotiations over a spending-cuts deal, they would hasten the moment that the GOP’s position would inevitably implode — but not before inflicting some serious internal damage.

It is quite beautiful to watch.

From the right

5. The Greens should stop inviting journos to their Christmas Parties. David Farrar at Kiwiblog isn't too fussed about the NZ Debt Management Office being taken out to events by the banks.

The Greens say the jobs of the banks is to maximise the cost of debt and are oppossed to the Government wanting to minimise it. By that rationale no customer and no supplier should ever be hospitable to each other.

The Greens put on a couple of parties a year to which they invite the media, and even me. Now the job of the Greens is to maximise their party vote and the job of the media is to scrutinise MPs and hold them accountable. So by Green logic it is inappropriate for journalists to attend the Green xmas party.

At a certain level, hospitality can become inappropriate. But worrying about the fact the BNZ took the head of the debt management office to a children’s pantomime is ridiculous. That’s like worrying about who paid for the coffee.

6. Taxes are like acorns, they grow. Cactus Kate picks up on ACT founder Richard Prebble's comments on Backbenchers about capital gains taxes.

Prebble comes out firmly opposed to Capital Gains Tax. Prebble even reminds his old colleague Sir Roger of the nightmare that the introduction of GST and even income taxes has become. Prebble is a man who has grasped lessons from history. His quotes:

"If you could tax your way to prosperity the Soviet Union would have won the Cold War" and;

"Taxes are like acorns... they grow..when the Labour party brought GST in it was 10% and it was never going to be increased and it's now 15%" and;

"When income tax was introduced all the politicians said it was only going to be on the wealthy and of course now it's on all of us".
Rounded off with the grand finale:

"You have Capital Gains tax and it will be on your family home, I'm telling you".

7. Labour's death tax. That's what Adolf at No Minister says Labour's capital gains tax will be. Is inheritance income? Untaxed inheritance is one of the best ways to create wealth inequality I reckon.

If you are one of two or more siblings, upon the death of your last surviving parent, it is likely the executors of his or her estate will sell the assets in order to make a distribution according to the terms of any will. (Adolf has been though this drama in the role of executor and beneficiary.)

It is common practice to sell property and shares, using the cash sale proceeds as a simple and practical means of orderly distribution. From the day Labour is re-elected, God forbid, their rapacious administration will take a skim of 15% before the family starts to get a look in. Goff has conceded this point in recent clumsy interviews.

So we have on our hands a new campaign:-

STOP LABOUR'S DEATH TAX

They should sell the bus and buy a fleet of socialist hearses to take them round the country selling their funereal death taxes.

Economics blogs

8. Did Brash really change his tune on capital gains tax? Paul Walker at Anti-dismal delves a bit deeper into Don Brash's comments a decade ago about CGTs, and his recent opposition to them.

Let me add in more of what goes before the piece quoted by The Standard,

On the other hand, the interaction of inflation with the tax system penalises savers. As an illustration, assume inflation is zero and a saver is receiving 5 percent on his or her money. In that case, he or she pays income tax on that 5 percent. However, if inflation is 5 percent, then interest rates have to be 10 percent to ensure the real interest rate, after inflation, remains at 5 percent. Yet in that situation income tax is paid on the full 10 percent, even though the real interest rate has not increased at all. The real return hasn’t changed, but the tax bill has doubled, so the post-tax return has declined significantly.

With inflation, this perverse tax effect penalises interest-bearing savings and investments. I strongly suspect that one of the reasons why we are still paying such high real interest rates in New Zealand is that for much of the seventies and eighties the after-tax-and-inflation return on interest-bearing savings was substantially negative. New Zealanders are still very wary of being caught with fixed-interest savings again.

These biases against fixed-interest investment and in favour of borrowing, the absence of a capital gains tax, and the over-taxation of many types of productive investment (largely because of depreciation allowances based on historical cost), together mean that inflation creates a strong bias in favour of real estate investment and against investment in plant and equipment. Regrettably, real estate investment generally contributes little to increasing the economy’s output.

(Emphasis highlights the part of the quote used by The Standard)

So the point Brash was making is that in a world of high inflation the lack of a capital gains tax is just one reason that could result in a basis in favour of real estate investment.
But also note this comment from a 1998 Reserve Banks publication The Real Story – saving and investing now that inflation is under control:

On the flip side, because New Zealand does not have a capital gains tax, when inflation was high capital gains were particularly attractive. With inflation now low, capital gains are much reduced. The lack of a capital gains tax no longer matters so much when people are making investment decisions.

So a capital gains tax may have a place when inflation is high but is not an issue when it is low. Thus the obvious response to The Standard is that as we now we are in a low inflation environment a capital gains tax isn't the issue it was when inflation was higher. Thus is Brash really a hypocrite? Or is has just noticed a drop in inflation and changed his view accordingly?

9. Labour's tax plan just silly. Seamus Hogan at Offsetting Behaviour isn't too fussed about Labour's NZ$5,000 tax free threshold policy. But he's not too fond of raising the top rate, or taking GST off fruit and veg.

The proposed increase in the top rate is silly. There is such a small proportion of the country’s income earned at those levels that the policy can hardly be expected to bring in a significant amount of revenue, but will surely lead to the usual tax avoidance games. It is hard to escape the conclusion that this is a purely symbolic policy designed to make people with incomes less than $150,000 feel good that those with more income are being taxed more. If so, it is appealing to a rather ugly side of human nature. 

The zero-rating of fresh fruit and veg might just about be the most appallingly cynical election bribe the country has ever seen. I am not saying that it would be the most costly election-bribe policy enacted; that mantle would have to go to either National Superannuation or interest-free student loans. Rather, I suspect that this policy would have the highest cost relative to benefits, with benefits defined according to a policy’s proponents’ underlying preferences. Consider first the costs of the exemption: of relatively small importance is the lost revenue that will need to be made up elsewhere. More important, is the additional transactions costs in compliance, enforcement, and definitions that the policy would introduce.

Much worse, is the erasing of the line in the sand that currently stands between a clean GST and one with messy exceptions; once we start on this slippery slope, there will be no clear line left to defend against creeping exemptions and tweaking of the GST system likely to be proposed in the future. Against this, are two putative benefits. First is the idea that the exemption will make the GST more progressive.

I haven’t seen any data on this, but I would extremely surprised if taxing fresh fruit and were not a progressive tax; if one wanted to use the tax system to redistribute from poor to rich, I suspect the proposed exemption would rank second only to high cigarette taxes as a method for achieving that objective. The second supposed benefit is the health benefits from eating more fresh fruit and veg.

The trouble is that nutritionists tell us there is no nutritional advantage to fresh over frozen or canned, so unless someone can show some convincing data giving a significant elasticity of demand for fresh fruit and veg that does not result from a substitution away from preserved fruit and veg, we would need to dismiss this benefit as well. 

Video

10. Talking John Birch Paranoid Blues. With all this Mossad hype doing the rounds at the moment, here's an old favourite written by Bob Dylan about being paranoid. The best version's on his live Philly album from (I think) 1964.

Have a good weekend.