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Insights 17: 17 May 2019
Oliver Hartwich discusses in his Newsroom column a UK election outcome that would practically destroy the Conservatives
Latest report: Refreshing Water - Valuing the priceless
Read our submission to the RBNZ on the review of the capital adequacy framework for locally incorporated banks

NCEA changes a welcome start
Briar Lipson | Research Fellow |
This week, we were happy to see the changes to NCEA announced by Education Minister Chris Hipkins.

It is encouraging that the Minister’s NCEA Change Package mirrors so many of the recommendations in our 2018 report, Spoiled by Choice: How NCEA hampers education, and what it needs to succeed. For example, the announced package includes:
  • Strengthen literacy and numeracy requirements
  • Re-establish coherent subjects
  • Reduce the number of standards, and
  • Reduce reliance on internal assessment
Since NCEA testing began in 2002 the performance of 15-year old New Zealand students in the core areas of reading, maths and science has consistently declined, according to international benchmarks. Assuming it is robustly implemented, what the Minister laid out today should help reverse this downturn.

The Minister’s Change Package is a meaningful step in the right direction. It trades a little of NCEA’s vast flexibility for greater rigour and reliability, better teaching and less assessment-workload for teachers. There are still many details to be worked out through the review of standards and re-design of external assessments, but this marks a promising start.

On the role and importance of subjects, encouraging signals have been made. Subjects exist in the school curriculum for well-established and helpful reasons. A review that strengthens their role, and the voice of subject experts, will improve NCEA for everyone. It could also make teaching more appealing to the passionate graduates we need to attract to the profession.

Spoiled by Choice unpacked the various reasons why NCEA’s unique design undermines high expectations and encourages teaching to the test. Highly predictable external assessments and over-reliance on internal assessments were two of the causes.

What is proposed is not radical or an overhaul, just common-sense. Hopefully, Minister Hipkins will stay close to the implementation and adopt a similarly incremental approach to the Tomorrow’s Schools review.

The final recommendation in our report Spoiled by Choice called for the Ministry of Education to commission independent analysis. By using an evidence-based approach the Ministry, and the Minister will be able to monitor whether these reforms are having the desired effect on the educational performance of our students.

In the coming months, The New Zealand Initiative will be publishing a sequel report on the New Zealand curriculum. In the meantime, we are happy to see education policy move in the right direction.

Briar Lipson’s report Spoiled by Choice: How NCEA hampers education, and what it needs to succeed and a two-page summary are available here.

Financial stability and due scrutiny
Oliver Hartwich | Executive Director |
During the Global Financial Crisis, many banks around the world failed spectacularly (though fortunately none in Australia or New Zealand). Some financial institutions were bailed out at enormous costs to taxpayers. Others went under, causing severe disruption to their economies.

To prevent such a scenario ever playing out again must be a constant worry for any financial markets regulator and central bank.

This is why the Reserve Bank of New Zealand (RBNZ) published proposals last December to increase the amount of capital banks must hold.

The idea is straightforward: Higher capital buffers would act as shock absorbers during the next financial crisis. They would stabilise the banking system, prevent bank runs, and reduce the risk of costly bailouts.

The RBNZ would not fulfil its role as our prudential regulator if it did not consider such scenarios and policies.

Fortunately, New Zealand is showing no signs of financial instability. The ratings of our banks are investment grade, and the four big banks passed the RBNZ’s latest stress test last year.

Since there is no urgency, there is time to give the RBNZ’s capital proposals careful scrutiny.

As with any insurance policy, higher capital requirements come at a price. Here, the costs are reduced bank profits (which may not concern ordinary New Zealanders). But they also include slower economic growth and higher mortgage rates, which would affect everyone.

The RBNZ’s consultation began in December last year and was initially to conclude in March. It has since been extended until today. But only in early April did the Bank deliver the first fragments of an analysis of costs and benefits.

Though a welcome first step, it is just a precursor to a full cost-benefit analysis, which the Bank has now promised for a time after the consultation period.

We believe it would be desirable and indeed legally necessary for the RBNZ to allow the public and itself more time. A consultation exercise without a cost-benefit analysis is pointless.

We at the Initiative have explained our concerns to the RBNZ’s Governor Adrian Orr, and we have appreciated his frank feedback.

We understand the RBNZ’s concern for financial stability. We now hope it will also share our concern for establishing a better and more informed process for consultation based on the cost-benefit analysis it is about to prepare.

It is in this spirit that we have made our submission to the RBNZ’s capital requirements consultation.

You can read our submission to the Reserve Bank of New Zealand here.

The wisdom of cows
Natanael Rother | Research Fellow |
Especially since the Brexit vote, policymakers aiming for political stability might be reluctant to ask citizens about their opinion.

They should not feel that way. As with sports, practice makes perfect when it comes to voting. The Swiss lead by example. They vote on everything, even the silly stuff.

In November last year, for example, the Swiss voted on cows and their horns. Allegedly, owning a full set of horns is about bestowing dignity to the cows. The cows need the horns to feel like their true self and be able to rub horns with their fellow ruminants. Swiss farmers who do not dehorn their cows wanted more state compensation for not interfering with nature – and the resulting cost.

You see, having horns comes with a price – cows with horns need more space to live peacefully and move around as they wish than those without horns. Naturally, farmers face a trade-off between happy cows and making money.

This was a tough choice for the Swiss. In the end, a close majority of 54.7 percent of voters said no to subsidising intact horns. This left the poor cows at the mercy of their farmers having to decide on dehorning without further public support.

Nationwide ballots on horns are exactly why referenda are not worth the effort, you might think. And referenda are sometimes about meaningless issues initiated by whoever has the biggest horns. So why bother asking citizens for their opinion – or worse, letting them propose referenda?

It is not about the horns.

It is about letting people mooooo out. There is no better way to deal with a malcontent bull in a china shop than to give him a voice.

Referenda are nothing new to New Zealand. For example, we had one on the flag four years ago and one on cannabis is in the works.

Such sporadic referenda are not a useful way to exercise people’s will. 

So let us take the bull by the horns and have more referenda. For the most part, asking people about their thoughts is worthwhile. Look at the rest as training. Just as the one about cows and their horns in Switzerland.

When fenced wisely, more referenda could hit the bulls’ eye for making New Zealand an even happier place. It is better to trust the wisdom of the cows than to follow one angry bull.

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