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Insights 36: 28 September 2018
Read: Oliver Hartwich says in his Newsroom column it's time for a little game theory on Brexit
 
Read: Bryce Wilkinson argues in NBR that the lack of focus on value for money in government has high cost
 
Latest report: Fit for Purpose? Are Kiwis getting the government they pay for?

Celebrating Sisyphean Labours
Dr Eric Crampton | Chief Economist | eric.crampton@nzinitiative.org.nz
Today we offer thanks and praise to those undertaking the most thankless of bureaucratic tasks, forever rolling good policy advice uphill only to watch it roll back down again, seemingly ignored. The country would be far worse in the absence of their labours.

This week, MBIE released its advice about the coming ban on new offshore petroleum exploration permits.

The government did not make it easy for MBIE to do the work. Time limits imposed by the desire to legislate in haste, and constraints imposed by the government around MBIE’s consultation process, meant the advice came with more limitations and uncertainty than we might expect in more normal policy processes.

MBIE knew the advice would be unwelcome. The government committed to the policy without any serious consideration of the consequences. Any subsequent demonstration that the costs were substantial would be at least somewhat embarrassing.

The Regulatory Impact Statement suggests the Crown will lose out on royalties and tax revenue through 2050 with a present value of $7.9 billion (at a 3% discount rate) or $1.8 billion (at a 10% discount rate). As the revenue projections are far from certain, Treasury’s generally recommended 6% discount rate might have been a better choice – but MBIE’s choices may here have been constrained.

MBIE also warned that the policy could even increase global emissions, although that would depend on carbon policies in the countries to which production might shift.

On Wednesday morning, the Deputy Prime Minister lashed out at MBIE on Radio New Zealand, criticising the broad range of MBIE’s estimates. Sisyphus had rolled his rock uphill, to the jeers of its government master, then got to watch the rock tumble back down again.

Last week, Treasury’s Sisyphean labours in advising government about the proposed Fair Pay Agreements were released under the Official Information Act.

Treasury warned that there was no basis for thinking the Agreements might do anything to improve wages or productivity, and that international experience shows how easy it is for these kinds of arrangements to go badly wrong.

Even if government policy does not change with either bit of unwelcome advice, producing it was far from futile.

Voters are better informed about the quality of these policies and will hopefully weigh them against the good this government does in other areas.

Just imagine how much worse policy would be if the government knew no independent civil service advice about policy consequences would be forthcoming.

Showing Up Is Half The Battle
Joel Hernandez | Policy Analyst | joel.hernandez@nzinitiative.org.nz
Students who skip school are more likely to experience adverse life outcomes.

This is a fact. But it is not the complete story.

Research from the Ministry of Education has found that school truancy is a strong predictor of domestic violence, criminal behaviour, substance abuse, suicidal risk and unemployment.

The statistics and research are not reassuring. Unfortunately, we don’t know whether truancy is the cause of adverse life outcomes or just another adverse life outcome caused by unobserved background characteristics of students.

Principal Virginia Crawford was right when she addressed her students late last week.

Her controversial speech on truancy and its path to domestic violence, unemployment and rape has polarised both students at Fraser High and the wider public. Unfortunately, a few parents and students have taken offence to her speech, missing her point completely.

If you skip class a few times, it does not mean you will never find a job or become addicted to drugs.

But if you do skip class even once then it does mean you are not in school learning English, mathematics and science on that day.

If you skip class regularly, like many students at Fraser High School are, then you are more likely to leave school illiterate and innumerate. If you are illiterate and innumerate then it makes finding a job or going on to further education infinitely more difficult.

While the literature on truancy and later life outcomes is sparse, an abundance of research has concluded that truancy has a negative effect on academic performance.

It does not take rocket science to connect the dots, but it does take basic reading, writing and mathematics.

Principal Crawford made this speech for a reason.

She cares about her students and she can regularly see truant students out on the street smoking and loitering when she leaves school for meetings.

Truancy is not just a problem at Fraser High School, it is a problem for other New Zealand schools too. In 2017, the percentage of students attending school regularly (that is attendance of 90% or greater) has fallen to 63%.

Across decile 4 schools, of which Fraser High School is a part, only 58.9% of students attended school regularly.

Among Maori and Pacifica students, which make up 48% of Fraser High School’s student roll, only 50.6% of students attended school regularly.

These are the numbers that Principal Crawford was and still is worried about. They are numbers we should all be worried about too.

The Frugalist Revolution
Dr Oliver Hartwich | Executive Director | oliver.hartwich@nzinitiative.org.nz
It is a sure sign I am getting old. At age 43, I am still working and I do not think it is a problem.

If I shared the attitude held by a growing number of much younger people, I would have retired three years ago. Yes, you read that right: Retired. At 40.

Like so many other movements, the frugalist movement started in America. Also known as FIRE (Financial Independence Retire Early), it has since gained followers worldwide. Please google them, these people exist.

Their approach is simple. By living the most minimalist life in their 20s and 30s, frugalists save up to 70 percent of their post-tax income and invest it wisely. This way, they build up sufficient savings by the age of 40 to allow them a super-early retirement.

In theory, and perhaps even in practice, this is possible. The frugalists’ 4-percent rule deems it safe to spend 4 percent of one’s savings without ever running out of money. If you believe that 7 percent returns and 3 percent inflation are realistic in the long run, at 4 percent withdrawings per year any savings pool is a bottomless well.

From there, it is only a matter of preference. Some people might get by on $20,000 per year (and half a million in savings), others may need $40,000 (and a million in the bank).

Provided, of course, you own your home. Which makes FIRE difficult in most of New Zealand. But luckily house prices in Dannevirke or West Southland are much lower.

So if you are happy to live without a car, repair broken household items, buy second-hand, never eat out, forgo any holidays, and skip anything that makes life that little bit more enjoyable, retirement at 40 is doable.

Just do not have kids, these money-suckers. Or any hobbies. Or the odd bottle of Pinot. And get used to the thought of never seeing the Eiffel Tower, Machu Picchu or the Great Pyramids.

In this way, FIRE will not make you live any longer. But it will make the whole experience on this planet (well, in New Zealand) seem much longer.

There are just two things I do not understand. Why bother to learn and study hard if you will only use your qualifications for a few years?

And second, when I was young, we wanted to change the world. Or at least have a fulfilling life. Retiring at 40 would not count towards either.

As I said, I must be getting old.
 
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