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Insights 37: 7 October 2022
The Dominion Post: Dr Eric Crampton on moving goal posts of the emissions trading scheme
Podcast: Dr Oliver Hartwich and Simon Court on the clean car rebate, red tape and regulation
Newsroom: Dr Oliver Hartwich on Liz Truss introducing Thatcherite policies in reverse

Government should not profit from inflation
Dr Eric Crampton | Chief Economist |
The Crown Accounts are in better shape than had been expected when the Budget was set.

That’s the good news.

But the Reserve Bank this week warned, while increasing interest rates by 0.5 percentage points, that “overall spending continues to outstrip the capacity to supply goods and services.”

The deficit still stands at $9.7 billion dollars. Core crown expenses, in 2022, were some $17 billion higher than they were in 2020 and 2021, when lockdowns and wage subsidies warranted substantial fiscal support.

Fiscal policy continues to provide too much stimulus in an overheated economy.

And at least some of the Crown accounts’ improvement comes down to inflation working its magic. Inflation has been higher than Treasury expected in May and higher inflation currently helps the Crown accounts. Income tax thresholds do not move while inflation pushes wages up.

Median full-time weekly earnings for wage and salary workers, in 2017, were $1,100. A worker on that median paid $10,200 in income tax for the year: an average income tax rate of 17.8%. If that worker’s wages had only kept up with inflation, never touching the next tax bracket, they would pay $12,900 in income tax in 2022 and an average income tax rate of 19.5%. Parliament never authorised that tax increase. It simply failed to prevent it.

Running deficits to cover necessary pandemic costs is eminently defensible. Debt-funding make-work projects, like the $1.2 billion Jobs for Nature programme, when the economy is substantially overheated, is not.

RBNZ’s job is hard enough. It has been working to re-establish credibility as an inflation-fighter after years of caring about everything other than core business. That removes some flexibility that could have been valuable; a European winter energy crisis is coming.

Having to lean against continued unnecessary fiscal stimulus makes the job harder.

While less government spending has been debt-funded than had been expected in May, paying the bills through bracket creep combines inequity with opacity.

At Budget 2022, the Government projected a return to surplus by 2025, with Core Crown expenses levelling off at about 30% of GDP.

At Budget 2023, the Government should end spending that mainly serves to worsen price pressures.

It should set income tax rates and thresholds to match its desired levels of spending, in ways it considers fair.

And it should inflation-index the tax thresholds, so future happy surprises in the Crown Accounts reflect real strength rather than inequitable tax bracket creep.

Why I can’t quite stop worrying and learn to love the PM’s UN speech
Dr James Kierstead | Research Fellow |
Our Prime Minister is a real star on the world stage. Capable, articulate, and charismatic, it’s no surprise that her latest foreign trip has won her further plaudits.
So, why did I feel more worried than proud when I listened to her recent UN speech?
The Prime Minister was as measured as ever, making sure to refer to ‘values of free speech’ in the same breath as she targeted online ‘disinformation.’
The modern internet does present some dangers. Authoritarian states use social media as a weapon. The Prime Minister clearly had Putin’s Russia in mind when she asked how we can end wars that combatants have come to view as ‘not only legal but noble.’
So far, so good – if Ardern is signalling a renewed effort to think hard about Russian bots and other online dangers, balancing our desire to do something about the problem with long-established rights to do with freedom of expression.
It was the next couple of questions that gave me more questions about what Ardern really has in mind.
‘How do you tackle climate change if people do not believe it exists?’ she asked. ‘How do you ensure the human rights of others are upheld, when they are subjected to hateful and dangerous rhetoric and ideology?’
Dealing with nay-sayers and holdouts can definitely be frustrating, especially when the need for change seems urgent. But disagreement is part and parcel of the democratic process, not to mention something that’s protected by the fundamental liberal right of free expression.
As the Christchurch massacre made clear, there is also a very real danger of ‘hateful and dangerous rhetoric and ideology’ prompting horrific acts. But as the government’s recent efforts to frame new ‘hate speech’ laws showed, attempts to set limits on speech invariably raise a host of complex issues to do with where those limits are placed, and who patrols them.
The Prime Minister is reportedly working on some new suggestions for online content regulation with her cabinet. Hopefully they will take the issue with the seriousness it deserves, and make a genuine attempt to deal with online risks while also preserving the benefits of online expression. They should also make sure any major new limits on free speech have significant buy-in from New Zealanders.
Until we get more clarity on exactly what they have in mind, though, I’m going to go on feeling more worried than proud.

The serious business of satire
Dr Matthew Birchall | Research Fellow |
It’s hard to write satire when politicians do all the work for you. Take the UK’s embattled Chancellor of the Exchequer, Kwasi Kwarteng. The guy wrote a PhD thesis on a currency crisis in the 1690s. His first act as Chancellor? Unleashing one of his own.

So much for learning the lessons of history.

To be fair, his boss hasn’t fared that much better. As the self-appointed heir to Margaret Thatcher, Liz Truss has already been forced to disown her controversial plan to scrap the 45p top rate of income tax. It turns out the lady is for turning.

But it’s another trend that has me concerned. Astonishingly, it seems that many people no longer know what satire is, let alone why it matters. How we have fallen since the good old days of Horace.

Cue The Onion’s decision this week to file an amicus brief before the US Supreme Court.

The satirical news site made the highly unusual intervention after an appeals court prevented Anthony Novak from suing the Parma Police Department in Ohio for a breach of his First Amendment rights. Novak was arrested in 2016 for creating a Facebook page that lampooned them.

Many won’t find Novak’s gags funny. I didn’t much care for the mock police order to “stay inside and catch up with the family day”. It sounds tedious and more than a little irritating, plus it bears an uncanny resemblance to how I spent a good chunk of my time late last year holed up in Auckland.

Others might find his jokes in poor taste. Too bad. That’s the price of admission to a free and open society.

The Onion’s spirited defence of satire is therefore a tonic for those worried about the health of democracy across the globe.

This is about far more than one’s right to take the piss. Satire has endured as a literary genre for a multitude of reasons, but one of the more compelling is that it allows us to capture the absurd in a way that literal representation cannot.

In the post-truth era, it’s hard to think of anything more important.

As the leading voice of the progressive left, The New Zealand Initiative takes your right to satire seriously.

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