|
Dead horses do not build houses
|
|
Dr Oliver Hartwich | Executive Director | oliver.hartwich@nzinitiative.org.nz
|
Talk about a capital gains tax (“CGT”) as a solution for the Auckland housing market has heated up again over the past couple of weeks.
The Reserve Bank’s Deputy Governor, Grant Spencer, suggested that the tax treatment of housing needed to be changed. Treasury Secretary Gabs Makhlouf, Housing Minister Nick Smith and ex-central bank economist Michael Reddell all refuted the idea, whereas the NZ Herald’s Fran O’Sullivan and economist Gareth Morgan came out in support. So far, so predictable.
Frankly, I find the debate over a potential CGT tedious, and not just because we are flogging a horse so dead it should have been composted years ago.
The first reason CGT is a non-starter is political. In order to make it work properly, it would need to include owner-occupied housing. On this point, most supporters and opponents even agree. The political reality, however, is that no political party would ever touch it. Gareth Morgan deplores this as “populist leadership”, and perhaps he has a point. But like it or not, the likelihood of a comprehensive CGT is practically zero.
The second reason a CGT is not the best answer to New Zealand’s housing crisis is more fundamental. It may come as a surprise to CGT fans, but taxes do not build houses.
There is no doubt that Auckland house prices are spiralling out of control in front of our eyes. Yet there is a very simple explanation: construction is not keeping pace with population growth.
As Auckland’s population will grow by around half a million people over the next 15 years, it is obvious what the real challenge will be: Not to suppress demand but to build the houses that a growing Auckland needs.
One cannot repeat this often enough: If there is a housing shortage at the root of our affordability crisis, the best response is to increase housing supply.
Incidentally, by turning on the supply tap, we would also deal with some demand-side factors that the CGT brigade is concerned about.
Put simply, the moment you increase supply, housing is less attractive as an investment. Increased supply immediately reduces the potential of future capital gains so there will be little left to tax (if you do not believe it, read my column in Interest).
There is no need to exhume the dead horse CGT. Instead, let’s build more homes. Now.
|
|
|
Will the BAT span its wings?
|
|
Dr Petra Butler | Associate Professor, School of Law, Victoria University of Wellington | petra.butler@vuw.ac.nz
|
There is a new kid on the block to settle cross-border commercial disputes.
At the moment, when businesses negotiate a cross-border contract, they can choose between agreeing to cross-border litigation, international arbitration, or international commercial mediation. However, that requires a willing counterpart. If the parties do not agree on a dispute resolution process, international litigation is the default.
Not many businesses agree on a way to resolve disputes before they happen. When they do, the clause is often invalid or wide open to interpretation which is unhelpful. This happens even during high-stakes negotiations when businesses have good legal advice. The consequence is getting caught up in unwanted, unfamiliar, and unfavourable litigation in foreign courts. And, when the dust has settled, foreign judgments can be difficult to enforce. This is time-consuming, expensive and inefficient.
A solution is on the horizon: the Bilateral Arbitration Treaty, or BAT. The BAT is an agreement based on international arbitration principles that would operate between New Zealand and other countries. While businesses are free to opt out, the BAT would replace international litigation as the default dispute resolution regime between the treaty parties.
The BAT incorporates the neutral principles and capitalises on the flexibility of international arbitration. Businesses are free to choose the procedure to solve their dispute under the BAT. Importantly, the BAT will allow for the quick enforcement of awards in more than 150 jurisdictions.
Like its animal counterparts, the BAT is of economic importance. The former is essential to reduce the need for pesticides, whereas the latter is vital to reduce the costs of cross-border trade and to expand the potential of New Zealand’s enterprises. SMEs in particular will benefit from the BAT. The BAT removes some of the significant costs associated with cross-border litigation.
By providing a predictable dispute resolution regime, businesses will not have to learn about one foreign justice system one day and another the next. They will only need to familiarise themselves with the BAT. In countries where the enforcement of judgments has been traditionally rather difficult, like China, the BAT will span its wings. It will make the enforcement of decisions child’s play.
The New Zealand Initiative will be hosting international arbitration expert Gary Born, where he will speak on the BAT regime. To attend, register here for Auckland on 6 May at 5:30, or here for Wellington on 8 May at 12:15.
|
|
|
A 'boring economics' piece
|
|
Jenesa Jeram | Research Assistant | jenesa.jeram@nzinitiative.org.nz
|
For those outside the discipline, economics is notoriously boring. From personal experience, I can attest that economics rarely makes for tantalising pub talk with anyone but the equally dedicated.
Writing for the American Enterprise Institute, Arthur C. Brooks concedes that in the business of public policy, “boring” may be preferable. Inspired by postmodernist Andy Warhol’s declaration “I like boring things”, Brooks claims people must change their thinking towards the new and exciting. When it comes to public policy though, it is the old and reliable that serves the community best. Brooks uses the example of free trade as a reliable means of pulling people out of poverty, but is a policy that often gets overlooked.
The analogy with Warhol is certainly apt in this respect; many of the free-market economic forces that shape our world do indeed appear mundane. I have yet to see free-trade advocates gather with the same kind of energy and emotion as those at a Live Aid concert.
But if you scratch beneath the surface you will find that those economic forces are complex, often miraculous, and sometimes even beautiful.
Don’t believe me? Let us look at the common pencil.
Originally written as an essay, which now appears in movie form, I, Pencil tells the origins of the lead pencil.
Told from the pencil’s perspective, Pencil traces back its family tree, describing its origins from a number of sources. In fact, the resources and manpower that go into making a single pencil are truly extraordinary: logging, millwork, and mining are just a few steps in the process.
No single person could make a pencil from scratch. Pencil argues that “actually, millions of human beings have had a hand in my creation, no one of whom even knows more than a very few of the others”. This collaboration illustrates Adam Smith’s ‘Invisible Hand’ at work.
The humble pencil is a physical manifestation of human creativity, technological progress, cooperation and reciprocity, and many times, pure chance. The ‘miracle’ of the pencil’s creation is testimony to what can be created with faith in the free market.
The very essence of the free market is one of continuous human innovation. If something is mundane and appears ineffective, then new approaches should certainly be experimented with.
I am still not sure if discussing how a pencil is made counts as interesting pub talk (perhaps I, Whiskey is more appropriate); but I am certain that characterising the free market as “boring” either means proponents are misrepresenting its creative beauty, or the peak of human creativity has not yet been reached.
|
| |
| On The Record |
- Budget must value social investment, Jenesa Jeram, The National Business Review, 24 April 2015.
- Britain’s choice between the devil and the deep blue sea, Dr Oliver Hartwich, Business Spectator, 23 April 2015.
- Dr Oliver Hartwich talks about the Kiwi dollar, Dr Oliver Hartwich, SBS Radio, 22 April 2015.
- Victory for the workers, The New Zealand Herald, 20 April 2015.
- Oliver Hartwich disagrees with the RBNZ over how long it would take to fix the housing supply problem, Dr Oliver Hartwich, Interest.co.nz, 20 April 2015.
- Free Press – ACT’s new regular bulletin, ACT New Zealand, 20 April 2015.
- Is there a case against global mode? A neutral lawyer’s analysis, The National Business Review, 20 April 2015.
- Outgoing environment watchdog boss talks about walking the tightrope between keeping NZ clean and green and enabling cash to flow into our coffers, Interest.co.nz, 17 April 2015.
- Embattled former MP Mike Sabin heads luxurious golf resort, ONE News, 15 April 2015.
|
|
|
| Upcoming Events |
|
|
|
Gary Born speaks on Bilateral Arbitration Treaty Regime in Auckland and Wellington
6 – 8 May 2015.
Register for Akld, 6 May at 5.30pm
Register for Wgtn, 8 May at 12.15pm
|
| |
| Latest Publication |
|
|
|
|
From Red Tape to Green Gold is the second report on regulation and resource extraction in New Zealand. Download PDF.
|
| |
|
|
|
This report tours through the evidence to demonstrate the very real gains that economic growth has brought, and to dispel a few myths about economic growth. Download PDF.
|
| |
| |
| Latest Video |
|
|
|
|
Meet the team of The New Zealand Initiative. Hear from some of our members and partners, find out what research areas we are working on, and see more about our team culture.
|
| |
| All Things Considered |
|
Graph of the Week: Graph of the week: As the Huffington Post puts it, “Sometimes life seems really short, and other times it seems impossibly long. But this chart helps to emphasize that it's most certainly finite. Those are your weeks and they're all you've got.”
In case you missed it: The Telegraph reports on the world’s most powerful passports. But, what exactly makes a passport ‘powerful’?
According to this South Island businessman, his mishap with weedkiller has given his once pristine lawn a “polynesian look”. We’re not too sure it’s going to take off…
Tomorrow marks 100 years since the ANZACs landed on Gallipoli. Stuff has put together a powerful interactive to commemorate the historic event.
Thought the internet and new technology was largely responsible for the notion of crowdfunding? Not so – crowdfunding is so old, it helped build the Statue of Liberty.
In rural China, the practice of hiring strippers to attract mourners to funerals is being outlawed. It is apparently “uncivilised”. You don’t say…
Believe that you lose body heat fastest through your head? Or that chameleons change colour to match their surroundings? The Daily Mail reveals 50 most common misconceptions.
April 22 marked the 45th Earth Day. Here are 45 striking images of our world and environment.
Noisy poll results and reptilian muslim climatologist from Mars.
Could passenger aggravation be eased by something as simple as changing the way we talk about airline delays?
How can we tell the difference between lady and gentleman dinosaurs? According to the Economist, Stegosaurus plates come in two shapes, but assigning them to either gender is not an easy task.
|
|