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Insights 2: 4 February 2022
NZ Herald: Matt Burgess on why inflation looks here to stay
Oliver Hartwich on the leadership of Prime Minister Boris Johnson
Newsroom: Omicron response madness - Eric Crampton

Insuring against OECD’s blindspot
Roger Partridge | Chairman |
The OECD’s country report for New Zealand always reveals sobering home truths. This year’s was no exception. If the pandemic was not enough of a threat, the OECD warns of a deluge of other risks. A large and sudden fall in house prices. Unsustainable levels of Government spending. And terms of trade susceptible to a global slowdown.

Yet, OECD officals themselves are not immune to self-delusion, and this year’s report is littered with mistaken beliefs. At least on one matter – unemployment insurance – Minister of Finance Grant Robertson will have been delighted by the OECD’s myopia.

On Wednesday, Robertson announced details of the Government’s proposed compulsory unemployment, sickness and disability insurance scheme. Foreshadowed in the May 2021 budget, the proposal involves ACC-style insurance for workers who lose their jobs or face long-term sickness or disability.

Those laid off or who have to stop working because of a health condition or disability will receive 80% of their usual salary for up to seven months, subject to a salary cap set at the same level as ACC. A compulsory levy (a tax by any other name) of close to 3% will pay for the scheme, with workers and firms both contributing.

The OECD has long supported unemployment insurance schemes. Many developed economies have them, especially in Europe.

And like the Government’s innocuous-sounding “Fair Pay Agreements”, unemployment insurance sounds good. Who would not want to receive up to 80% of their income for seven months if they were laid off or could not work due to ill health?

But as with FPAs, there is a catch. Indeed, several of them.

First, New Zealand suffers from no identified problem for compulsory unemployment insurance to solve. Our welfare system is well targeted by international standards. We have comparatively low levels of unemployment (including less than half the OECD average level of long-term unemployment).

Secondly, Robertson’s scheme is estimated to cost firms and workers $3.5 billion a year – a hefty bill for insurance most workers have chosen not to purchase for themselves.

More importantly, as the Initiative showed in our 2021 research note, Unemployment insurance – more tax for more unemployment, the international evidence reveals costly unemployment schemes like Robertson’s lead to increased unemployment, including long-term unemployment.

Only a moment’s thought reveals why. If the Government increases the generosity of the unemployment benefit, the incentives for the unemployed to seek work are relaxed. And the longer workers stay out of the workforce, the harder it becomes for them to return to it.

Unemployment is a peril for workers. But Robertson’s compulsory insurance is worse.

Overseas investment red tape harms New Zealanders
Dr Bryce Wilkinson | Senior Fellow |
Officially, New Zealand governments welcome overseas investment. In practice, they do much to thwart it, for no good reason.

Businessman Andrew Barnes highlighted a case in point in an article last week in the Herald. Last year he negotiated the sale of the New Zealand Guardian Trust to a global company, Tricor. The intensive and complex process took 12 weeks.

Then both parties had to wait 22 weeks for the Overseas Investment Office to determine that Tricor was an appropriate buyer under New Zealand’s Overseas Investment Act. Why take so long when the New Zealand Guardian Trust had been overseas owned for much of the last 20 years, with OIO’s approval? To hold a company in limbo for five months is to put it at risk.

The question is particularly concerning because in May 2020 the government had taken some measures to make New Zealand’s regime more efficient.

These measures were summarised well in the Organisation of Economic Co-Operation and Development’s latest Survey of New Zealand that was published this week.

Regrettably, the OECD’s Survey failed to assess the materiality of these measures. Instead, it meekly nudged the government to monitor its changes and to “streamline them further if needed”.

How could the OECD not think further changes were needed? For over two decades now it has assessed New Zealand’s regime to be extraordinarily restrictive. In 2020 only eight of 84 countries were more restrictive than New Zealand on the OECD’s measure.

The key culprit is New Zealand’s onerous screening arrangements.  The OECD has deemed them to be the most restrictive of all the measured countries for decades now. In contrast, the UK has no screening restrictions on the OECD measure.

Such undue red tape must make New Zealand firms less entrepreneurial and resilient. To plagiarise one wag, “ when the going gets tough, the tough start applying for resource consents”.

The OECD’s Survey opines that New Zealand’s GDP per capita could be 4% higher in ten years if our regime was no more restrictive than Australia’s.  Imagine having a government that would be interested in that.

Final food for thought on materiality. In 2005, the stock of foreign direct investment relative to GDP in New Zealand was marginally higher than in Australia. In 2019, it was 52% of GDP for Australia against an unchanged 38% of GDP for New Zealand. Such differences matter. Ask Andrew Barnes.

Intentionally blank
Dr Oliver Hartwich | Executive Director |
After weeks of waiting, a heavily abridged report into Downing Street’s party culture was finally published on Monday.

The investigation was meant to determine whether UK Prime Minister Boris Johnson and his staff broke their own Government’s lockdown rules.

That said, the highlights of the 12-page Cabinet Office document were pages 2 and 12.

Page 2 says, “This page [is left, sic] intentionally blank”. Technically, that is not true since it contains that statement.

Meanwhile, page 12 is actually blank (except for the page number), but there is no such statement. Which probably means the page was left unintentionally blank.

The rest of the report is neither blank nor clear. It was prepared by senior civil servant Sue Gray, but one is not supposed to have fun with names.

Still, one cannot help but wonder why an unprinted and unbound document, released as a PDF, should even contain blank pages. It is not as if the blank pages were needed to allow printing, folding or binding. Because that would have created a 16-page document, presumably with six blank pages.

Thus, there must be a different reason for the opacity of the investigation. What is the message hidden in the white pages?

The author might have signalled her constraints in what she could write, not least because of the simultaneous Scotland Yard investigation.

Perhaps it was meant as a placeholder for a dedication to Dominic Cummings?

Or maybe the latest Covid rules required some social distancing between the cover page and the contents?

Whatever it is, perhaps Sue Gray’s report sets a precedent for future government publications. Let blank pages do the talking, here in New Zealand too.

An inquiry into KiwiBuild could consist entirely of white pages and perfectly sum up the policy and its results.

A report into the new Auckland light rail scheme would consist of many blank pages, but at least they would be on recycled paper from the last term.

The Government could also document its actions into getting Rapid Antigen Tests into the country with plenty of empty pages, only to have the conclusion boast of millions of such tests consolidated and secured.

Blank pages could also be used in manifestos and coalition agreements. Instead of using weasel words to hide disagreements, just leave the contents to voters’ imagination.

The world needs more courage to draw a blank. Intentionally.

On The Record

Initiative Activities:
  • Podcast: Matt Burgess on why inflation looks here to stay
  • Podcast: Matt Burgess talks about energy and emissions policies in 2022
  • Podcast: Oliver Hartwich on the leadership of UK Prime Minister Boris Johnson
All Things Considered
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