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

Insights 21: 18 June 2021
Newsroom: The next Euro crisis has just begun, says Oliver Hartwich
Podcast: Lyn McMorran, Financial Services Federation on the practical problems of the new 'feebate' scheme
NZ Herald: Bryce Wilkinson says the case has not been made for an electric vehicle subsidy

Feebate follies
Dr Eric Crampton | Chief Economist |
The vehicle feebate scheme announced Sunday might result in more electric vehicles, but it cannot affect net carbon emissions.

Transport is covered by the Emissions Trading Scheme’s binding cap on net emissions. So if a petrol company purchases one fewer permit, someone else can buy it instead.

Tightening the cap is the only thing that reduces net emissions within the sector covered by the ETS. The government can always tighten the cap even without the feebate scheme.

But leave aside for now that the scheme will not reduce net emissions. And that higher emitting vehicles’ drivers wind up bearing what Treasury called a double burden: they pay an up-front tax on their vehicle, as well as carbon charges when they fuel up.

We might at least hope that the policy would be implemented well. Unfortunately while the subsidy scheme sounds simple in principle, things are always a bit trickier when you lift the hood.

On Wednesday morning, we met with Lyn McMorran of the Financial Services Federation. Her members handle the financing or leasing of most vehicles on the roads.

Sunday’s announcement came as a surprise and raised important questions.

Does the subsidy for a newly important leased electric vehicle go to the finance company as the vehicle’s legal owner or the registered driver? It will matter in revising lease contracts. Drafting those to comply with plain English requirements takes time.

How does the subsidy interact with Fringe Benefit Tax rules if the registered owner draws the subsidy?

At what point does the subsidy apply? When a car is ordered and paid for, or when it arrives in-country?

She had been unable to find any answers but may find some next week. They might then have a week to update contracts before the scheme comes into effect on 1 July.

Important details like these should have been presented as part of Sunday’s announcement if they had been thought through. Had the government consulted with affected sectors before the surprise announcement, it might have learned what needed to be pinned down.

Instead, we had a Sunday morning surprise announcement of a policy that cannot possibly work towards its stated objective, and that might, at least in the short term, make it harder to lease an electric vehicle because nobody knows what the rules are.

It is not a good way to run a country.

Listen to Lyn McMorran, Financial Services Federation, as she explains the practical problems of the Governments feebate scheme in our Initiative podcast.

The Literacy ‘Reset’
Steen Videbeck | Research Fellow |
There are many ways a Minister can communicate with their Ministry. From an email from an advisor to a quiet word with officials (or sometimes a not so quiet word). Some are discrete, while others are meant to send a signal.

This is what makes a Minister’s handwritten notes on briefing papers so interesting. Ministers know they will be publicly released at some stage, meaning that, for shrewd ministers at least, they are meant for a wider audience.

A few weeks ago, the Ministry of Education proactively released a ministerial briefing on Primary-Level Literacy. On the briefing note from 2020, Chris Hipkins jotted “… prepare the ground for a literacy ‘reset’”. This was followed by “with a scaling up of initiatives that are working and a scaling down of ones that aren’t”.

To make things even more interesting, the proactive release also contained a refreshingly frank Ministry of Education report from late 2020 that includes a preliminary paper called “Shifting the dial on literacy”. In this paper, they acknowledge that “[o]ur current system for literacy learning is clearly not working for a reasonably large group of students.” The phrase “systematic failure” even appears.

Both Minister Hipkins and the Ministry of Education should be applauded for their candidness. A ‘Literacy Reset’ is long overdue as the way many New Zealand schools teach reading and writing is based on an outdated belief rather than science or evidence.

But resets also come with some trepidation. All too often, a reset is followed by the same problems or even makes things worse. Twenty years ago, New Zealand faced a similar decision and unfortunately chose the wrong path.

So, what would a true ‘Literacy Reset’ look like?

Over the last six months, I have visited some amazing schools and got a glimpse into what is possible for all New Zealand children. These diverse schools have changed to an evidence-based approach called Structured Literacy, which is based on the science of how children learn to read. The teachers involved are part of a growing movement. The Structured Literacy Auckland Facebook group, started last year, now has over 3,000 members.

The Ministry of Education has also been sending some encouraging signals. This year, they produced a Dyslexia guide that promoted the use of Structured Literacy (although the evidence shows this approach is best for all learners, not just those with dyslexia). The Ministry also has released decodable books, that align with Structured Literacy. While these books are not perfect, they are a step in the right direction.

A ‘Literacy Reset’ provides an exciting opportunity to look closely at the reading research and re-evaluate our current practices. Moving towards the science of reading will benefit all New Zealand children for years to come.

When is a tax a tax?
Dr Oliver Hartwich | Executive Director |
The Government’s so-called clean-car ‘feebate’ scheme has copped a lot of criticism.

However, the Government at least deserves credit for its creativity. The ingenuity in concealing the nature of the programme demonstrates sheer political brilliance.

Once upon a time, we would have called a government payment to some people a subsidy. And we would have called a compulsory payment to the government a tax.

The feebate scheme contains both these elements. Some people must pay for buying petrol cars, while other people get paid for buying electric vehicles.

Yet, the words ‘tax’ and ‘subsidy’ are carefully avoided.

It is understandable why the Government would not want to talk about subsidies. Subsidies always sound like an undeserved favour.

A rebate, on the other hand, is much more positive. It also makes it a bargain. Or, as a TV news bulletin phrased it, “it’s about putting money into Kiwis’ back pockets”. Who could be against that?

Not calling the tax component of the scheme a tax also makes sense, at least from the Government’s perspective.

The Government had explicitly ruled out a car tax before the election. Indeed, it had ruled out any new taxes.

And so, obviously, the ‘feebate scheme’ could not possibly contain a new tax. Transport Minister Michael Wood repeated this ad nauseam in many interviews this week.

The justification for not calling the fee a tax is genius. According to Wood, no-one will be forced to pay the fee. Simply by opting not to buy a petrol car or a very low emissions car, people would not be liable to any payment.

By the same logic, no-one has to pay income tax. By refusing to have any income, no-one has to pay income tax. In that sense, there is no income tax in New Zealand. We are inhabiting a tax haven. We just never thought about it that way.

According to the Government, an even better argument for not calling it a tax is that people get something in return. And it’s true, some people will pay a fee while others will get their electric vehicles financed. Is that not a positive?

Again, it is the same with income tax. Though some of us voluntarily pay it, we will also get something from it: the police, the America’s Cup (well, not anymore) and subsidised Hollywood films.

Imagine your dues to government not as taxes. Just as payments with benefits. Bliss.

On The Record

Other Initiative activity:
  • Podcast: Lyn McMorran, Financial Services Federation on the practical problems of the Government's Feebate scheme
  • Podcast: Oliver Hartwich on the next Euro crisis
  • Podcast: Matt Burgess, Eric Crampton, Oliver Hartwich and Bryce Wilkinson on the Government's Feebate scheme
All Things Considered
Copyright © 2024 The New Zealand Initiative, All Rights Reserved

Unsubscribe me please

Brought to you by outreachcrm