Who Needs Economics, Anyway?
New Zealand’s economic fundamentals are under threat from a government determined to tax and spend more of your money. All of the evidence suggests that will make us much poorer. This week, Free Press looks at some of the recent local developments and international evidence with regard to Government spending.
Cullen’s Tax Speech
Michael Cullen says our attitude to tax is “atavistic,” and complains his Tax Working Group will be misrepresented as a “tax grab.” After he suggested we don’t pay enough tax, and then floated at least eight new taxes, Free Press wonders what might give New Zealanders the idea that this working group is a tax grab.
What is a “Behaviour Tax?”
Politicians and bureaucrats love nothing more than drawing up new social engineering plans. Cullen’s speech referred to “behavioural taxes.” Nanny’s back. One such tax will be on sugar. You see, you can’t be trusted to control yourself. There’s a catch with sugar taxes, though – they don’t work.
Whoops – The Evidence on Sugar Taxes
NZIER recently completed a report for the Ministry of Health on sugar taxes. Its conclusions were pretty damning. After reviewing forty-seven studies, NZIER concluded that no study based on actual experience with sugar taxes had identified an impact on health outcomes, and that it hadn’t seen any evidence that imposing a sugar tax would meet a cost-benefit analysis.
Robertson wants a Capital Gains Tax
There’s no doubt that Grant Robertson wants to slap a capital gains tax on New Zealanders. On Q+A this weekend he complained there wasn’t enough “balance” in the tax system, and that the system favoured property speculators. Robertson has misdiagnosed the problem as one of demand when in fact supply is the real issue.
Whoops – The Evidence on Capital Gains Taxes
Putting aside the fact that capital gains taxes are incredibly complex, there’s no evidence that a CGT would help house prices. You only need to ask the people of Sydney, Vancouver, Los Angeles, or London whether or not a capital gains tax has any noticeable effects on price levels in housing markets.
Lower Government Spending Good for Growth
The International Monetary Fund has published a study looking at the best way for countries to reduce their level of debt. It found that cutting spending is less harmful to economic growth than raising taxes. This contradicts the message of Keynesians on the political Left who suggest spending cuts lead to deeper recessions. The Labour-NZ First-Greens recipe of higher taxes and higher spending will deliver lower economic growth, fewer jobs, and lower wages.
Wasting 100K a day
Chris Hipkins’ didn’t get the IMF’s memo, but Free Press will send him a copy. Hipkins has confirmed the Government will this year waste about $38 million of your money on its flagship fees-free policy. In official documents, Hipkins confirmed the dropout rate for first year students studying a bachelor’s degree was 14 per cent. ‘Fees-free’ will cost $275 million this year, so New Zealanders can except about $38 million of their taxes to deliver nothing whatsoever.
We literally taught Econ 101, explaining concepts like elasticity to students. Elasticity measures how much more of a thing is supplied or demanded when the price changes. Things that are supply inelastic get more expensive when demand increases. It would be much easier to explain to students in Wellington today. Student flats are supply inelastic because it’s nearly impossible to build anything under the RMA. As a result, giving students an extra $50 per week has put the price up $50 per week.
Families Commission Makes Useful Contribution to Debate
It caught us off guard too, but we don’t judge the source if the policy is good. Superu (as the Families Commission was renamed a few years back) showed that land use regulations – rules that determine what can be built and where – are choking the ability of the private sector to build new homes.
Supply can’t keep up with demand and so prices are going through the roof. In Auckland, land use regulation could be responsible for up to 56 per cent, or $530,000, of the cost of an average home. Even if Superu have doubly exaggerated the effect, and bad land use planning has only added a quarter million dollars to the average house price, it would be the most economically vandalous policy we have.
No Move on RMA
ACT can reveal from Written Parliamentary Questions that Cabinet hasn’t even decided whether to think about the RMA, after more than four months in the Beehive.
Will the Nats defend limited government and free markets?
National’s track record as a party of the status quo suggests they will disappoint. They had 9 years to deal with the ballooning cost of Superannuation, meaningfully cut taxes, reduce corporate welfare and corporate taxes, and replace the RMA to deal with house prices. Amy Adams’ elevation to Finance spokesperson isn’t likely to represent a radical break with the Nats’ woeful record. A few days ago, we set out some of the things Adams should do, but won’t.
ACT would cut election bribes and other wasteful spending to deliver a top personal and company tax rate of 25 per cent. That would make the economy hum. Our tax package is here.
ACT Regional Conferences
Our next regional conference is in the Central North Island region in Hamilton this Saturday. If you’re a member anywhere between Taranaki/Hawke’s Bay and the Bombays, you should have received an invitation. If you have not, please email the General Manager firstname.lastname@example.org.