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Insights 16: 11 May 2018
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Getting the kludge out of the rivers
Dr Eric Crampton | Chief Economist | eric.crampton@nzinitiative.org.nz
Kludges are short-term fixes that can patch things over until the main problem can be addressed. If the latch for the rear hatch on your people-mover breaks, a kludge that ties it shut until you can get it to the garage for repairs is just the thing.

But kludges should not be permanent solutions.

There is a lot of kludge in New Zealand’s lakes and rivers. It is in the aquifers too.

Environment Minister David Parker this week pointed to a lot of the symptoms of New Zealand’s kludge-style approach to water management. In some areas, there are more cows on paddocks than the waterways can really deal with. Nutrient limitation regimes put in by Councils attract litigation.

And water allocation must ensure that aquifers are sustainable and that rivers can run.

Government and councils have used kludge solutions to freshwater management because better solutions would require first sorting out iwi water claims.

Iwi and hapu may have freshwater rights that were not extinguished by Treaty, that were not purchased by the Crown, and that were not resolved through the treaty settlement process. Te Maire Tau’s recent discussion paper, Water Rights for Ngai Tahu, provides a compelling case – but one that still needs to be tested.

Avoiding settling those claims has restricted government to kludge solutions. And the costs of the kludge are mounting.

Better environmental management is possible. But doing it without compromising other important values requires a different approach.

Reasonable solutions in freshwater management combine catchment-level controls on the amount of water that can be extracted from rivers and aquifers with catchment-level controls on pollution. If water users can trade extraction rights and emission rights with each other, then the system as a whole can afford to do far more to improve environmental quality. People who can reduce their environmental footprint at lowest cost will be able to profit by doing so.

But we cannot get from here to there without finally addressing the underlying property rights issues. Minister Parker this week recognised that when he said that iwi rights had to be sorted out as part of establishing nutrient limits.

There is a lot of work yet ahead. But it seems we have a government that might finally be interested in getting the kludge out of the rivers.


Small was beautiful in 1908, gross is great today
Dr Bryce Wilkinson | Senior Fellow | bryce.wilkinson@nzinitiative.org.nz
Government was vastly smaller in 1908 than now. The tax-and spend state was vastly smaller, but so was the regulatory state.

In 1907-8 central government taxation was around $780 per capita in today’s dollars, 6.3% of GDP. In the year ended March 2017 it was around $17,800 per capita, 29.6% of GDP.

The rise of the intrusive redistributive state largely explains the change. Spending on Statistics New Zealand’s measure of “collective consumption” was only 5.1% of GDP in the year ended March 2017. (Think of this as ‘core government’.)

Why pick 1908? It is the earliest year for which we have a consolidated statute book. It comprises 208 parliamentary Acts. This provides a historical perspective on today’s regulatory state.

The number of principle public acts in force in May 2019 is almost five times greater, at 1,009, according to the database on the Parliamentary Counsel Office’s website.

Happily, the diligent public servants in that Office have also made it easy to retrieve each of the 1908 Acts and compare them with today’s counterparts.

Changed social norms and a massive move to more ambitious, intrusive and prescriptive government have left their mark. To illustrate:
  • The Land and Income Assessment Act 1908 was 39 pages. The Income Tax Act 2007 is 3,351 pages.
  • There was no 505-page Social Security Act in 1908, but there was a 15-page Destitute Person’s Act.
  • The Education Act in 1908 comprised 70 pages. The Education Act 1989 is 694 pages.
  • The Monopoly Prevention Act in 1908 was 5 pages. The Commerce Act 1986 is 270 pages.
  • There was no Local Government Act in 1908, but there was a 12-page Town Boards Act. The Local Government Acts of 1974 and 2002 comprise 384 and 444 pages respectively.
  • In 1908, there was nothing like the 796-page Resource Management Act 1991.
The Destitute Person’s Act illustrates the change in social norms. It is not about state financial support. Instead, it assigns liability for the upkeep of children or a destitute person on a spouse, co-habitant or near relative. The penalty for deserting a wife or child could be up to 12 months imprisonment.

Of course, children are doing much better today, aren’t they? Big government works. The old-timers would never have believed it.


Baked bean market 'broken' (or at least half-baked)
Roger Partridge | Chairman | roger.partridge@nzinitiative.org.nz
“Local competition” is among factors cited by dairy owners for wildly varying prices for every-day grocery items like baked beans.

The issue came to light in a leaked email from a dairy-owner in the lower North Island to her partner. Instead of reducing prices in response to dwindling sales of baked beans, the email proposed to increase prices across the dairy’s entire range to recoup lost sales margin. The pair hoped competing dairies would follow suit.

Responding to media disquiet, the dairy owner said she had “no option” but to lift prices on other essential grocery items to compensate for the drop in baked beans volumes. “Competition is particularly intense for Watties family-sized tins but less intense on other products, where I can achieve higher margins,” she said.

After a meeting with dairy-owners at the Beehive to discuss pricing tactics, the Minister said the baked bean market is “broken”. “What we’re seeing here is an example of a market that isn’t working for consumers. I think we’ve seen some pretty cynical behaviour. I don’t think this is isolated” she said. Former minister Judith Collins expressed similar concerns.

And Prime Minister Jacinda Arden was having “trouble trusting” dairy-owners after the leaked email spilled the beans on dairy pricing policies.

The Minister of Commerce and Consumer Affairs said that the government was looking at giving the Commerce Commission more power to investigate businesses and the high prices they charge. “What we’re seeing… is price setting going on to actually take prices up to the highest level” he said (clearly not impressed with the approach of the corner store’s bean counters). The Commission’s proposed new “market studies” powers will expose this type of profit-maximising behaviour.

In a pre-prepared media statement, the dairy-owner claimed she was “only trying to achieve a sustainable return.” This prompted her decision to lift prices. She was unaware this was no longer acceptable.

Market commentators observed that there is nothing saying businesses “must set a certain price”, and cautioned against re-introducing price controls. “Uniform pricing could mean parts of the North Island, where costs are lower, might end up paying more for beans than they are currently. Half the country will be happy, and half the country will be unimpressed.”

With no obvious pricing solution, the government may have to look elsewhere to address the pricing differentials. Perhaps a regional bean tax?
 
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