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Insights 32: 25 August 2017
Manifesto 2017: What the next New Zealand government should do
Public Meetings Future of Recreational Fishing
Jenesa Jeram: Is NZ's sensible drug policy Dunne for good?

Two RONS donít make a right
Sam Warburton | Research Fellow |
A hard task for government is getting the books in order after a recession. A harder task is choosing how best to distribute tax revenue once stability is restored.

The National Party’s Roads of National Significance (RONS) are a case in point.

Started in 2009, the original RONS committed $12 billion to upgrade roads from two to four lanes and reduce travel times for freight operators. National’s newly proposed RONS would commit $11 billion to upgrade roads from two to four lanes and reduce travel times for freight operators.

Apart from the lack of imagination, the new RONS offer a worryingly low economic return.

To be worthwhile, it is commonly understood that a project’s benefits should exceed its costs. In technical terms, a project should have a benefit-cost ratio (BCR) greater than 1.

There are, however, a host of real-world reasons why we should aim higher – factors National Party leader Bill English will have had to manage in every Budget he authored. Not least of these is that project costs routinely turn out higher, and benefits lower, than anticipated.

Even during the surpluses of the last Labour-led Government, some government agencies were shy to seek funding without a BCR of at least 3.

Businesses are similarly hesitant when their own money is at stake. The proposal to shift the inter-island ferry terminal from Picton to Clifford Bay had a BCR of 1.3. But, when asked to contribute, businesses baulked and the project collapsed.

So, how does National’s new roads package stack up?

Public information about the value-for-money of the new RONS is sketchy, and sometimes non-existent. For those projects where information is available, most languish with BCRs between 0.8 and 1.3.

Of the ten new RONS, only a new Manawatū Gorge route looks promising, with an indicative BCR of 6.5. For comparison, about half of the original RONS offered a reasonable return on investment.

The original RONS was largely funded through a near 20% increase in petrol tax. Round two means maintaining those tax levels and likely increasing them further, but for much less return.

If, as Bill English insisted on Radio New Zealand this week, these are truly the most pressing projects, perhaps it is time to cut road taxes.

NCEA: A question of trust
Briar Lipson | Research Fellow |
Last time you booked a hotel or restaurant, you may well have checked it out on TripAdvisor first. Whatever your price bracket, if a place was rated below about a three out of five, then the chances are you’ll have discounted it. The same goes when you buy a book on Amazon, or order an Uber.

Ratings are useful for consumers. After all, thanks to TripAdvisor, great restaurants in hidden-away locations can still thrive, and we rarely subject ourselves to books that are poorly researched or written. These advances can only be a good thing.

And yet, in education, where outcomes are infinitely more important, and children only ever get one chance, New Zealand has made an art out of obfuscation.

There can be no more powerful symbol of New Zealand’s refusal to call a spade a spade than the great befuddlement that is NCEA.

NCEA was originally conceived as a replacement for the old university-dominated trio of School Certificate, University Entrance and University Bursary. Growing discomfort with the old system’s insistence on only 50% passing every year, meant that the winds of progress and change began to blow.

NCEA, and the National Qualifications Framework (NQF) in which it sits, have come to symbolise that change. Nowadays our children inhabit a bright new era of flexibility, choice and more opportunities for success.

However, NCEA also marked a move away from rating students against one another, or any broadly-shared expectation of school success. Instead, NCEA measures students against a bounty of incomparable standards, with only the scrawniest skeleton of minimum requirements.

It is little wonder, therefore, that NCEA outcomes are difficult to understand.

On top of this, NCEA’s validity has been seriously challenged. The OECD’s PISA data indicates that the performance of New Zealand’s 15 year olds has fallen steadily in maths, reading and science since 2009. Over the same period NCEA Level 2+ achievement has risen from 68% to 79%.

Some argue that this disparity exists because PISA measures different things to NCEA. However, if our national assessment cannot help us infer even the most basic trends in reading and maths, not to mention comparative judgements, then what ultimately is the point of having it?

We would not trust TripAdvisor if it told us all hotels were rated five stars. So why should our children and employers trust a system that levels all differences that exist between subjects and students?

Smashed avocados
Oliver Hartwich | Executive Director |
Nearly a decade ago, I first encountered millennials’ strange fascination with avocados. A younger colleague in Sydney often prepared her office lunch with fresh avocado, spread thick across a slice of bread.

Until then, it had never occurred to me that this was a good use of this odd fruit.

And I felt somewhat sorry for it: my colleague mixed it with an equal amount of Vegemite.

I am not a great fan of either so I cannot tell which was made to taste worse.

What I do know, however, is that avocados have become a cultural phenomenon.

Hardly a week goes by without an avocado related story in the news.

Last year, New Zealand’s avocado shortage made headlines. Prices exceeded $23 per kilogram. Some supermarkets sold them for up to $7.50 – a piece.

Prices have since fallen but demand remains strong, especially among young Kiwis and Australians.

Their taste for the expensive fruit has not gone unnoticed. Commentators wishing to point out how financially hopeless millennials are have an easy time by pointing out their avocado consumption.

Demographer Bernard Salt, for example, had a go at the increased consumption of fancy avocado sandwiches (with or without Vegemite).

As he put it in one of his columns: “I have seen young people order smashed avocado with crumbled feta on five-grain toasted bread at $22 a pop and more. I can afford to eat this for lunch because I am middle aged and have raised my family. But how can young people afford to eat like this? Shouldn’t they be economising by eating at home?”

A millennial might respond that, as a baby-boomer, Salt is having his guacamole and eating it. When he bought his first home, house prices probably did not require cutting back on much. Avocado and feta would not have been a staple dish in the 1970s anyway – and cutting back on them today would hardly yield a deposit on a home.

The latest news from the avocado front comes from New Zealand. Police have warned orchard owners from East Cape down to southern Hawke's Bay to pay attention. Thieves are stealing their expensive fruits and sell them on Facebook.

As an economist, I am puzzled. If avocados are so expensive, why don’t we grow (or import) more? And if houses are so expensive why don’t we build more?

I’ll ponder it over a ham and cheese sandwich.
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