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Insights 3: 9 February 2024
Newsroom: Dr Oliver Hartwich on Europe's defence dilemma
Podcast: Dr Oliver Hartwich talks to marine scientist Dr Regina Eisert about NZ's engagement in Antarctica
NZ Herald: Dr Eric Crampton on the problem with council zoning methods

Reconsidering AUKUS
Benjamin Macintyre | Research Assistant |
In a welcome development, Winston Peters and Judith Collins flew to Australia last week to discuss joint foreign policy concerns.

The purpose of their trip was to meet with their Australian foreign and defence minister counterparts. On the agenda: mutual foreign policy and defence interests. The most notable topic of discussion? AUKUS.

AUKUS is the trilateral partnership agreement between Australia, the UK and the US. Its flagship policy is that the US will sell to Australia nuclear-powered submarines.

After their meetings, it was announced that Australian Defence Minister Richard Marles and Australian Foreign Minister Penny Wong would soon fly over the ditch to speak to our officials about the ins and outs of the 2nd pillar of AUKUS, which covers sharing of non-nuclear military technologies.

This clearly signals that New Zealand is moving towards re-alignment with its traditional allies. Due to our history of being nuclear-free, it is the second pillar that interests New Zealand.

The development could represent a sharp turn in New Zealand foreign policy. The previous government’s foreign minister, Nanaia Mahuta, clearly stated that New Zealand was not considering engagement with AUKUS.

It seemed that New Zealand did not want to risk jeopardising its relationship with China or any consequent economic damage.

This risk assessment was not necessarily inaccurate. Ex-National party leader Don Brash has also argued against engagement with AUKUS on these grounds. In the wake of New Zealand’s potential rapprochement with AUKUS, China’s Ambassador to New Zealand called the agreement “divisive” and said China is watching closely for New Zealand’s decision.

China doesn’t want New Zealand to engage with AUKUS. It would much rather we remain beholden to our trade ties with them than see us form a united front that challenges China’s interests in the Indo-Pacific region.

Of course, it is important not to count one’s chickens before they have hatched. Having conversations about AUKUS is an improvement on slamming the door shut. Still, there is no guarantee that the new government will decide in New Zealand’s interest to formalise engagement with the 2nd pillar.

In any case, open dialogue and a potential re-alignment of interests with our traditional allies is reason for quiet optimism.

In a recent essay published in the Australian NAVY magazine, I argued that for as long as New Zealand depends on Chinese trade, we would never join AUKUS.

Perhaps I was wrong.

You can view Benjamin Macintyre's award-winning essay Priced out: Why New Zealand will not join AUKUS here.

What!? Does Treasury really favour a comprehensive capital gains tax?
Dr Bryce Wilkinson | Senior Fellow |
Last Friday, Treasury “pro-actively” published its November 2023 Briefings for the Incoming Government. One was on the economic and fiscal context. It was for the new Minister of Finance. 

Its headline message was that macroeconomic and fiscal restraint is needed. Treasury recommends a return to fiscal surpluses by 2026/27. It  considers that both spending cuts and higher tax revenues will be needed.  

On tax, Treasury’s “first best advice” is to address the following two “structural issues”: 
  • The “non-alignment” between the company tax rate (of 28%) and personal tax rates (of up to 39%); and 
  • “The lack of a comprehensive capital gains tax”. 
The first point is unexceptional. The fourth Labour government sensibly aligned the company rate, the rate for trusts and the top personal tax rate at 33%. Along with its new fringe benefit tax, that greatly simplified tax administration and compliance.  

Subsequent governments have wrecked that alignment.  

Treasury’s second point is more surprising. The problems with a comprehensive capital gains tax are practical, not ideological: 
  • How are year-to-year gains and losses in intellectual capital and in many other hard-to-value capital items to be valued?  Valuations will be costly to defend.  
  • What is a capital gain when inflation is taken into account? Which price index is to be used, and why? 
  • How are widows and others going to get the cash to pay the tax without selling the family home, farm or business? 
  • Will Inland Revenue pay out symmetrically for capital losses? Probably not, but a failure to do so reduces the incentive to invest in risky assets. 
For these and other equally non-ideological reasons, a political party that promises to apply a comprehensive capital gains tax in New Zealand has yet to make itself felt. The family home seems to be sacrosanct.

In any case, we do not have fiscal deficits today because revenues are low. In 2016-17, tax revenue amounted to 27.5% of GDP and the government was in fiscal surplus. Treasury forecasts a substantial deficit in 2023-24 despite forecast tax revenues of 29.1% of GDP.  

The real problem is that forecast core Crown spending for 2023-24 is a staggering 5.7% of GDP higher than in 2016-17.   

Today’s fiscal problems are the product of wasteful and ill-justified spending on a grand scale.  

Treasury can hardly tell the public this bluntly. It needs to be seen to be politically neutral. 

A tale of two tonnes
Dr Oliver Hartwich | Executive Director |
The Revolution’s catch-cry of ‘Liberty, equality, fraternity’ is still France’s motto. It seems, however, that ‘equality’ doesn’t get you very far in Paris. Some cars are more equal than others.

In a world first, the city’s people voted to triple parking fees. The referendum was strange, however. Less than 10 percent of eligible voters turned out - and of those, just 55 percent supported the bill.

In any case, it is not an increase across the board. The rule only applies to heavier vehicles (not only SUVs, as some media reports suggested).

Petrol vehicles over 1.6 tonnes and EVs over 2 tonnes will be charged three times as much as lighter vehicles, even if they take up no additional parking space.

Liberté, égalité, fraternité? Perhaps one shouldn’t take everything too literally.

Parking for six hours at $190 will prevent the owners of large SUVs from driving into town.  Liberté feels different.

Owners of heavier cars will also struggle with the égalité bit. Why is a Tesla Model 3 at just under 2 tonnes paying the standard parking tariff but a slightly lighter VW Passat paying much more?

And finally, fraternité. When a tiny part of the resident population can impose such draconian fees on the rest of their fellow citizens, it may not quite seem like an expression of brotherly (or sisterly) love.

But perhaps we have read the French motto wrong all these years. Perhaps liberté is the freedom to pass any laws you like, even stupid ones? And do égalité and fraternité mean that anyone can have a go with new nonsense schemes?

In a sense, it barely matters what Parisians charge for parking spaces. I have never in my life paid for a parking space in Paris, and I want to keep it that way.

But in our interconnected world, ideas travel fast and stupid ideas even faster.

The mayor of Hanover, Germany expressed interest after Paris’ ridiculous scheme went viral. London was watching the Paris example with interest, according to The Guardian.

Meanwhile, Newshub has reported that even Wellington is considering the idea.  Rumour has it that that Paris might also be interested in our water management policies.

As absurd ideas crisscross the globe, one wonders whether common sense has gone on holiday.

Perhaps the true spirit of liberty, equality and fraternity lies in the freedom to question such folly before it parks itself on our doorstep at our own expense.

On The Record

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