You are subscribed as | Unsubscribe | View online version | Forward to a friend

Insights 10: 29 March 2018
Housing crisis: Dr Eric Crampton on whether banning letting fees will raise rents
America's Cup: Sam Warburton discusses whether the Government's investment is worth it
Latest report: Score! Transforming NCEA data

Changing the monetary guards
Dr Oliver Hartwich | Executive Director |
This week, the Reserve Bank finally got a new Governor. Adrian Orr, formerly chief executive of the Super Fund, replaced caretaker-governor Grant Spencer.

So first of all, congratulations to Adrian Orr who gave up the best-remunerated job in the public sector to serve as the Reserve Bank’s Governor for the next five years. With his financial experience in both public and private sector, he is the most obvious person the Minister of Finance could have chosen.

But beyond this changing of the guard, more significant reforms of our top monetary institution are on the horizon.

The first is the inclusion of ‘employment’ in the agreed targets for the new Governor. Though this deviation from orthodox monetary policy created a lot of noise, I believe that in practice it will not amount to much (if any) change. My NBR column this week explains why.

A more significant change will be the establishment of a monetary policy committee. Under current arrangements, the Governor alone is responsible for monetary policy. In the future, interest rate decisions will be made by majority decision in a committee.

Past Governors usually consulted with the Reserve Bank leadership. Adapting the single-person decisionmaker model to this reality is therefore not a huge step.

What will be much more problematic is the planned inclusion of external members in the new monetary policy committee. It will be difficult to find candidates for these roles who are qualified, available and non-conflicted by their other jobs.

But even if such people can be recruited (hard enough in a small country), it leaves a question of accountability. Establishing clear responsibility for achieving the Reserve Bank’s targets was the main reason given in the late 1980s for introducing the single decisionmaker model.

Adrian Orr has his work cut out. He will migrate the Reserve Bank towards a changed operating model while having to maintain its credibility for keeping prices relatively stable (depending on whether you regard an increase in the consumer price index by 49 percent over the past decade as a sign of price stability).

It is not a straightforward task and it will require all of Orr’s economic understanding and political skills. We wish him well for the coming five years.

Gravy trains
Sam Warburton | Research Fellow |
If you are as lucky as me and found yourself watching Parliament at 9pm on Tuesday night, you would have seen the debate on the Government’s proposed regional fuel tax legislation.

The legislation will allow Auckland initially, and other regions later, to tax petrol and diesel up to 10 cents per litre for transport projects. Auckland will use it to accelerate roads, trains, and walking and cycling infrastructure.

I am moderately in favour of regional fuel taxes. They are an improvement on property rates which are paid by many people who do not drive at all. But potentially significant risks and costs mean regional fuel taxes should only be a short-term measure before moving to road and congestion pricing.

In speaking against, National MP Matt King thought Auckland Council should live within its means rather than raising taxes. Of course, the last National-led Government put up transport taxes by 40% between 2009 and 2015, and directed a disproportionate share of revenue to Auckland at the expense of most other regions, including Canterbury which barely got back half of their tax in spending.

Speaking in favour of a regional fuel tax, Associate Minister of Transport Julie Anne Genter said the tax would not negatively affect low-income people. This is mistaken. Low-income people who can only afford an old, fuel-inefficient vehicle pay up to three times the tax of someone who can afford a new, fuel-efficient car. Analysis in my upcoming report shows that petrol tax hits Māori, the unemployed, and other disadvantaged people hardest.

Opposition spokesperson Jami-Lee Ross drew Parliament’s attention to Ministry of Transport concerns about price-spreading. Price-spreading involves fuel retailers increasing petrol prices by less than the 10 cents in Auckland and recouping the remaining tax from other regions.

This can only happen if petrol markets are uncompetitive – that is, if one company puts up taxes in, say, Waitomo rather than Auckland, and other companies fail to undercut them.

In its regulatory impact statement, the Ministry of Transport describes the risk of price-spreading as ‘a significant concern’.

My question to the Ministry is, if they think the fuel market is uncompetitive, what have they done to address it all these years? This issue extends beyond impacts on the effectiveness of petrol taxes. A lack of competition will mean drivers pay more for petrol itself.

In considering the question of regional fuel taxes at Select Committee, MPs and any Insights reader considering making a submission, should consider whether and how to address wider competition issues.

The dangers of foreign influence
Dr Eric Crampton | Chief Economist |
New Zealand’s republicans have a point. There is a nefarious foreign influence dictating too much in New Zealand. But it isn’t the Queen.

I am a rather strong supporter of the monarchy. You might be surprised to hear this, as three days of the week I flirt with the idea that the anarchists were right all along. But the monarchy solves a couple of rather serious problems.

First, constitutional government always has the problem of the infinite regress. That which guards the guardians is difficult to bind. New Zealand has solved the problem by vesting supreme executive power in a foreign potentate who is largely unwilling to wield it.

Should crisis ever demand it, we might hope that the Queen’s agent might intercede on our behalf. The potential of Royal intervention may help encourage our government to behave itself.
Australia is the exception that proves the rule. Their republican movement is too strong now. Royal intervention like 1975’s would be impossible. And just look at how silly Australia has become as consequence.

At least as importantly, the monarchy reminds us of the fundamental absurdity of government. All real-world political authority is at least as absurd as Monty Python’s description of the monarchy, but at least monarchy is obvious about it.

And the Queen’s demands here are simple. We respect one simple statutory holiday every year. It does not even fall on her birthday. It is a holiday in which we celebrate the Queen and her forebearers, on a date that is convenient for us. The first Monday in June, every year. Every time, it gives us the same long weekend. People can plan for it.

Imagine the horrors that would ensue if we decided that, because the Queen was born on the first day of the fourth Waxing Gibbous moon of 1926, we should time the monarchical celebrations to follow each year’s lunar calendar. It would be a disaster. Keeping track would be impossible. Planning school and university calendars around it would be pointlessly difficult.

The Republicans have it all backwards. The Queen gives much and asks little. The real foreign despots to whom we bend too much the knee, secular though a plurality of us may be, are Rome and Canterbury.

Fix the date of Easter and end the chaotic “movable feast”. It isn’t hard. The first Monday after the 8th of April sounds nice.

On The Record
All Things Considered
  • Graphic of the week: The rise of the ultra-long-haul flight.
  • Despite increasing restrictions, NZ's inward migration continues to rise.
  • Are plastic bags really all that bad?
  • People will soon be able to buy fake meteor showers on demand.
  • Austrian MPs vote to scrap the smoking ban.
Copyright © 2024 The New Zealand Initiative, All Rights Reserved

Unsubscribe me please

Brought to you by outreachcrm