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Insights 19: 31 May 2024
Newsroom: Dr Oliver Hartwich on European far-right parties split over political strategy
 
NZ Herald: Dr Oliver Hartwich on the tune-up that New Zealand's sputtering economy needs
 
New report: City and Regional Deals: Unlocking NZ's potential through localism - Nick Clark

The endless inflation budget charade
Dr Eric Crampton | Chief Economist | eric.crampton@nzinitiative.org.nz
And so, the state advances. Thirteen steps forward, four steps back, then onward again.

From 2011 through 2023, failure to index the income tax thresholds pulled about a million wage and salary earners from the bottom 10.5% tax bracket into the 17.5% range and another eight hundred thousand from the 17.5% range into the 30% tax bracket.

It is hard to say how much the state has profited from the bipartisan refusal to automatically index the income tax thresholds. If you plug adjusted thresholds into Treasury’s tax calculator, you get a warning that the results are unreliable because the changes are too big.

But with that caveat, the calculator tells you it’s on the order of $6.5 billion per year - compared to a world in which the bottom tax bracket continued to catch only the bottom 29% of earners, as it did in 2011, and in which the 33% bracket did not catch anyone in the bottom 86%.

When National says that people are due for tax relief, they’re absolutely correct.

Unfortunately, every bit of that extra government revenue has been spent – and the government has borrowed to spend more. Unwinding only a small part of inflation’s accumulated effect on the tax system required the government to borrow even more money.

As Jenée Tibshraeny put it, “the situation is a bit like someone taking out an overdraft to cover their living costs because they’ve taken a pay cut, and then stopping their Netflix subscription to pay for a new couch.”

The government is working to reduce spending and will end the structural deficit in 2027/8 if it sticks to its plans – a year later than had been expected in December.

But Budget 2024 entrenches the government’s share of overall economic activity at levels well above Labour’s so-called 2019 ‘Wellbeing Budget’. Labour had promised government spending would make up about 29% of economic activity – a substantial increase on 2017.

During the election campaign, National promised to return spending to below 30% of GDP, without saying when. The Budget forecasts show government spending below 30% of GDP in 2034 and not reaching 29% of GDP until 2038.

Despite the tax threshold adjustment, core tax revenue will be a larger share of GDP than it was in 2019 – all the way through to 2038. Inflation will again keep pulling taxpayers into higher tax brackets.

Automatically inflation-adjusting the tax thresholds would end the charade.

Unlocking growth through local deals
Nick Clark | Senior Fellow, Economics and Advocacy | nick.clark@nzinitiative.org.nz
New Zealand is heavily centralised. This stifles local initiative and contributes to sluggish productivity and anaemic economic growth.   
  
There is now an opportunity to change this. In the lead-up to the 2023 election, National Party leader Christopher Luxon promised city and regional deals for infrastructure investments. Despite generating lots of interest in local government circles, they are not well known or understood.  
  
The Initiative's latest research note, “City and Regional Deals”, published this week, casts light on these ‘local deals’. It explains what they are, how they fit with our earlier work on localism, and explores international experiences and lessons. The note also surveys the interest in these deals and options for implementation in New Zealand.  
  
City and regional deals are formal agreements that align central and local government, with other stakeholders (like businesses, tertiary institutions, and iwi) around agreed strategies and investments for a geographic area. They can provide a pathway for devolving powers and funding from Wellington to the local level.  
  
International experience shows promise. Done well, city and regional deals have enabled coordinated and streamlined investment in infrastructure, workforce development, and programmes catalysing growth. The 2014 Greater Manchester Devolution Deal unlocked billions in investment by giving the city region control over areas like transport, housing, and skills training. Robust evaluation metrics hold local leaders accountable for delivering results.  
  
In New Zealand, the benefits of local growth flow to central government, while councils and ratepayers mainly bear the costs. It is little wonder that many councils seem unwilling or unable to embrace growth and development, reinforcing perceptions they are incompetent and unfocused.   
  
Local deals could change this by better aligning council incentives. Central government should provide revenue shares and allow additional funding tools so councils can enjoy the benefits of growth. But in return, deals need to be carefully designed and negotiated with strong accountability measures to keep all parties focused on what they need to do to deliver results.  
  
Years of centralisation and imposition of legislation and regulations, mostly unfunded, have reinforced mutual suspicion and mistrust. Making local deals work requires rebuilding trust between central and local governments. This will not be easy, given the lack of capability and capacity in many areas.  
  
The New Zealand Initiative believes localism is a promising way to boost productivity and living standards across the country. Prosperous communities will be those allowed to chart their own paths forward through local deals.   
  
They should be given a chance.  
 
Nick Clark's report, City and Regional Deals, was published on 28 May. 

Elizabeth University's free speech panel
Dr James Kierstead | Research Fellow | james.kierstead@nzinitiative.org.nz
After criticism of his decision to postpone its free speech event after a student protested the involvement of ‘big meanies,’ Elizabeth University of HAMILTON Vice-Chancellor Jac Jones proved the nay-sayers wrong, showcasing diversity with an event at which 80% of the speakers took exactly the same view.

‘My critics didn’t think I had the cojones – sorry, the courage (I really do apologise),’ Jones said. ‘But I was determined to see this through and ensure our students were exposed to familiar viewpoints and worldviews with which they deeply agreed.’ (Is this right? -Ed.)

Two free speech advocates were joined on stage by activists who thought free speech had gone too far, journalists who thought free speech had gone too far, and academics who posited that liberty of expression had advanced excessively.

To ensure that the event was open to all comers, it had been moved from the university’s open central ‘Square’ to the well-known Lecture Theatre Baxter 47.A and restricted to members of the university in good standing, of good faith, and with an interest (but obviously not too much of an interest) in free speech.

All the panellists (except for two) quickly agreed that there was no threat at all to free speech at our universities, except for the very real threats posed by neo-liberals, wealthy donors, and evangelical Christians, who were known to dominate contemporary academia.

All the panellists but two also agreed that they themselves were always scrupulously balanced in their teaching, especially when teaching modules on Free Speech As Hate Speech, Gender-Engendering Embodied Bodies, and Decolonising the Capitalist Thanatocracy.

Virtually all the panellists also agreed that the university should be open to speakers of a wide range of different views, as long as any external speakers showed good faith and were of sound morals and religion (Check this? -Ed.)

Finally, every panellist worth mentioning agreed that there was nothing to see here and that New Zealand taxpayers and the government could move right along thank you. Taking any steps to ensure that universities actually do what they’re paid to do would, of course, constitute a horrific violation of their authority. (Shouldn’t this be ‘autonomy’? -Ed.)

Following the debate, Jac Jones was beaming. ‘I think we’ve really shown the country,’ he told the journalists he’d invited, ‘What kind of university Eliza- eek! I mean He Waka Kore Hoe is, and what its true values are.’

 
On The Record
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