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Insights 24: 3 July 2020
NZ Herald: Roger Partridge outlines the border debacle and the opportunities for New Zealand going forward
Podcast: Bryce Wilkinson unpacks Modern Monetary Theory
Dominion Post: Eric Crampton discusses council consideration of carbon emissions

Bordering on conversations
Dr Eric Crampton | Chief Economist |
Some conversations are difficult, but critical. This week, Sir Peter Gluckman, the Rt Hon Helen Clark, and Rob Fyfe released a short ‘conversation paper’ called Re-engaging New Zealand with the World.

Rather than saying how and when New Zealand’s borders could safely be re-opened, it instead opens the conversation with some important questions.

The pandemic is likely to persist for years. Nobody has a vaccine yet and scaling up vaccine production after one is developed will take years. Over half a million Kiwis live in Australia and have the right to return, and up to half a million more live in other parts of the world where the pandemic rages more furiously.

Building systems to let Kiwis return home safely – and at scale – is incredibly important.

The shift to military oversight of New Zealand’s managed isolation system will strengthen processes at the border. Running that process well matters. The US is adding coronavirus cases at a rate of knots; half a million Americans tested positive in the two weeks from 15-30 June – that’s about fifteen Americans for every ten thousand. Many more are likely undiagnosed. If ten thousand Kiwis return home from the US, perhaps fifteen might bring the bug with them.

It’s easy to cast conversations about the border into political narratives during an election campaign.

Those wanting safer process at the border that can scale up to meet the need are framed as prioritising growth over lives. But those processes are needed even if New Zealand never allowed a single non-citizen to enter the country.

Because the system cannot manage large numbers of returning Kiwis, immense hardship is imposed. Grandparents cannot visit their grandchildren. Families are separated. Important events are missed. And there seems little hope any of this will improve in a reasonable timeframe – or even making progress on important issues before the election.

The lack of capacity to handle more arrivals also puts critically important projects at risk. This past week, the Government has been trying to figure out how to allocate scare isolation spaces among overseas experts who are critical to the Government’s prioritised shovel-ready infrastructure projects. It leads to impossible trade-offs across which no Minister should have to adjudicate.

We need to be able to have these conversations, despite the election. We at the Initiative have been thinking hard about these issues. Stay tuned.

A plan for poverty
David Law | Research Fellow |
The Green Party’s “Poverty Action Plan” is all about tackling poverty, although the outcomes may differ from what the party expects.

While it is meant to help struggling New Zealanders, the plan will instead disincentivise work, saving, investment in education and skills, capital, enterprise and innovation. 

Projected net government debt is already expected to balloon out to 54% of GDP by 2024, remaining high for decades. Never mind this, say the Greens. The party’s poverty plan will march ahead with permanent welfare spending increases and introduce a ‘guaranteed minimum income’ of at least $325 a week – along with further boosts to the minimum wage.

The proposal will cost the taxpayer an additional $6.6 billion in the scheme’s first year, jumping to $12.6 billion in 2023. (For reference, the entire New Zealand Superannuation bill topped out at $14.5 billion in 2019 and all other government transfers and subsidies to households combined totaled $13.5 billion).

To pay for its poverty plan the Green Party would introduce a wealth tax, raising $7.9 billion in its first year alone, with a 1% tax on net assets over $1 million and a 2% tax on net assets over $2 million. The party would also increase income tax, with higher tax rates on all income over $100,000 topping out at 42%.

It’s worth keeping in mind that unemployment could peak at 10% during this recession so creating new jobs, helping people transition to those jobs and ensuring their skills are up to par will be critical for a recovery.

Instead, the Greens’ plan to increase benefits will reduce incentives for low-skilled workers to return to work, while an irresponsibly timed and short-sighted minimum wage increase implemented during lockdown, together with further increases, will ensure fewer jobs are created.

It’s also well recognised that high relative minimum wage rates (New Zealand’s is already amongst the highest in the OECD) disproportionately hurt the job prospects of the young and vulnerable. Multiple rates can alleviate this risk. Instead the Greens’ poverty plan will scrap the starting out rate. 

In addition, higher relative minimum wage and income taxes reduce the value of additional education. A less educated and skilled workforce would help secure our status as a low-wage economy for decades to come.

Kiwis will have less capital to work with as wealth taxes discourage saving and result in capital flight. They’re also costly to administer and generate little revenue. A lot of countries have already abolished annual wealth taxes and the recent Tax Working Group recommended against them for precisely these reasons.

Supposedly the wealth tax would raise 2.5% of GDP in its first year, making it one of the most stringent in the world. European countries with similar taxes raise only about one tenth of that.

The Greens propose what few countries would dare to do in a recession, but incentives still matter – even during recessions. For this reason, expect the poverty plan to deliver a dose of poverty to all.

Statues, rice and ice cream oh my !
Nathan Smith | Chief Editor |
As a Millennial, a worrying new trend among my generation is to simply cancel what you don’t like.

Sure, some things might be outdated and it isn’t for me to tell a private company what it can or can’t do with a product. But at times like this, I’m reminded of the phrase, “those who do not learn history are doomed to repeat it.”
The early casualties of this cancel culture are beyond count. In the latest wave of childish insecurity, statues were the first to go. While some removals were reasonable, they quickly became ludicrous. Among the cancelled is now Abraham Lincoln for his crimes against slavery, Winston Churchill for being a fascist and soon perhaps Roman Emperor Constantine for not condemning slavery in the 4th Century.
Out of fear of being targeted, many firms have also decided to rebrand. Gone already are Uncle Ben’s and Aunt Jemima, although I suppose that was only a matter of time – both brand’s images do have slavery connotations. Gone too is the ‘Redskin’ confectionary, renamed to avoid offending Native Americans – and now even Eskimo Pies are a casualty.
So, due to my anxiety of being cancelled by my own generation, I’ve been spit balling ideas that I could help cancel.
First on my list is tax. Tax is inherently discriminatory on the poor. It takes their hard-earned money so tax should be abolished. I mean, didn’t the magicians pushing Modern Monetary Theory say the Reserve Bank can just print infinite money anyway?
Not stopping there, I think university should also be cancelled. The effect it has had on my mental health is beyond repair. To save others from trauma we should just give everyone a degree in whatever they want.
Or, one better, why not just cancel jobs? After all, wouldn’t it be easier if the Government gave us a weekly allowance to have fun spend responsibly for the rest of our lives?
While I understand and even support some of this cancel culture, when does it go too far?
As much as we want a world in which everybody feels safe and secure, we are setting a dangerous precedent – one where we simply triage anything that offends us. I don’t know about you, but I would much rather be aware of the atrocities of the past than be forced to forget them.
On The Record
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