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Insights 15: 4 May 2018
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Caution needed on value capture
Dr Oliver Hartwich | Executive Director |
Last week, the National Business Review reported that the New Zealand Government is considering introducing so-called land value uplift charges to finance new infrastructure projects.

Papers obtained by the NBR under the Official Information Act show that the New Zealand Transport Agency and the Ministry of Transport are weighing the pros and cons of making property owners bear the costs of projects that increase the value of their land.

Before anyone now cries out that this is just another tax grab not flagged by this Government, this is not quite fair. Transport Minister Phil Twyford has long signalled his interest in alternative financing proposals like this. And there are good arguments on the economist’s blackboard for them if they are done well.

Doing it well is harder in developed parts of Auckland today than you might expect though – and especially when a lot of the infrastructure going in has been long-anticipated.

On the blackboard, we can assess the value of a piece of land before a piece of infrastructure has been announced and compare it with the value of that land after the announcement. That uplift is due to the infrastructure, and part of the uplift can be taxed by the government to help fund the infrastructure.

It can work well where the new infrastructure is a surprise. And a different variant on it works very well too where the land enjoying the value uplift is owned by the company putting in the new rail line. That model provides much of Tokyo’s rail network, where the rail company funds the line by building the apartment towers on the land it owns beside the stations.

But it does not work well where the infrastructure has been long-anticipated.

Taxing the uplift in value in that case will never recoup the cost of the infrastructure because the price of land, prior to the announcement, already reflected market expectations of the new infrastructure. The windfall gain was already captured ages ago by whoever owned the land when the project was first listed in the long-term plan.

And setting a tax on current owners sufficient to recoup infrastructure costs will not be taxing windfall gains but rather will impose windfall losses.

As tempting it may appear to tap into land value uplifts, we need to be cautious. The model can work – but we need to apply it only in the cases where it can work.

Dual education lesson one: Early beginnings
Martine Udahemuka | Research Fellow |
When my colleague Oliver Hartwich first tried explaining the German school system to me, he might as well have been speaking German. It seemed entirely foreign.
Germany’s vocational education system, like some others in Europe, combines on-the-job training with study for many teenagers who would be sitting their first year of NCEA in New Zealand.
In March, I travelled to Germany, Switzerland, Austria and Denmark to learn about their approaches to vocational training.
New Zealand has vocational training. But what happens in secondary school before students start a vocational programme matters. The difference between our system and their systems was striking.
While New Zealand secondary schooling is generally comprehensive from age 13 onwards, the European counterparts are split into different types of secondary schools.
German ten-year-olds finishing primary school enrol in one of three types of high schools.
Gymnasiums are for students wishing to pursue a traditional academic curriculum over eight years in preparation for university study.
Realschules also offer an academic curriculum, but with fewer subjects. After five years, the students can either transfer into a Gymnasium or pursue vocational training.
Finally, the Hauptschules provide training in academic subjects similar to those at the Realschule, but at a slower pace. At the end of five years those students can also head to a vocational school.
This is by no means the end of their education though. Instead, it marks the point of transition from the compulsory school system into the ‘dual vocation education’ system.
The typical German fourteen-year-old who is not at a Gymnasium will be supported to choose a vocational profession and to find an apprenticeship to begin when they complete high school the following year.
So, while European youth have clear post-school pathways, their counterparts here learn about options, typically, in one of two ways. Either in a piecemeal fashion depending on the quality of the career advisors or when they suddenly realise they have no idea what to do next.
Likely as a result, the average age of an apprentice in New Zealand is 26 years-old compared to 19 years-old in the European countries.
An Education Ministry staff here said, ‘it is like a maze, it is a wonder how young people can navigate the smorgasbord.’

What's in a name?
Ben Craven | Project Coordinator |
We New Zealanders are a funny bunch.

People make fun of Canadians for being too apologetic. In Weird Al’s song Canadian Idiot, Yankovic complains, “Break their nose and they’ll just say ‘sorry’ – what kinds of freaks are that polite?”

One explanation is that Canada deported its rudest people to New Zealand and only the polite ones are left there.

But, if that were true, could we really explain this one? It looks like we are about to out-accommodate the most accommodating country around.

Just this week, Victoria University of Wellington’s Vice-Chancellor, Professor Grant Guilford, proposed that Victoria University change its name. Why? Because it’s too potentially confusing for foreign students.

There’s a tendency to think the next generation of graduates are getting worse, but I really do hope that they would be able to find Victoria University of Wellington on a map. The name kind of gives it away.

But for the small number of the more geographically-challenged, I can see how there could be a bit of confusion.

Commentators were quick to point out this week that there is a Victoria University in Melbourne, Australia; a University of Victoria in British Columbia, Canada; and a Victoria University in Kampala, Uganda.

None of that is surprising – Queen Victoria ruled for a very long time.

What they weren’t so quick to point out is the other thing these institutions have in common. All were founded after our very own Victoria University of Wellington. Including British Columbia’s University of Victoria.

New Zealand does have a bad history of being accommodating like this though. Not that long ago, we spent a cool $26 million in a bid to stop the rest of the world mistaking our flag for that of Australia. Wikipedia tells us that Australia’s flag came from a design competition run by the Melbourne Herald in 1900 and was adopted in 1903. But New Zealand’s flag was adopted in 1902 and had been in use since 1869.

So because Australia adopted an uglier version of our own flag, we agonised about changing ours.

Maybe if New Zealand imports enough of the less-accommodating Canadians and turns them into Kiwis, we can be a bit stroppier about defending our turf.

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