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Insights 7: 8 March 2019
Oliver Hartwich explains on Newsroom the unenviable situation the British Prime Minister finds herself in
 
In the media: "Give councils more control, but watch them closely"
 
New report: #localismNZ: Bringing power to the people

Oh Canada
Dr Eric Crampton | Chief Economist | eric.crampton@nzinitiative.org.nz
Partisanship is a powerful and deadly drug. Canada is the latest in a too-lengthy list of places badly in need of rehab.

In response to harsh criticism of his involvement in and handling of a corruption scandal, Canadian Prime Minister Justin Trudeau told his Party’s supporters this week his policy agenda is too important to risk.

Canadian political parties have been too quick to identify the good of the party with the good of the country. As Canadian columnist Paul Wells put it, “a country gets into trouble when it turns every question into an electoral question.”

So what happened?

Last week, Jody Wilson-Raybould, Trudeau’s former Attorney-General and Minister of Justice, testified that the Liberal Party hierarchy, from the Prime Minister down, pressured her to go easy on the politically powerful Quebec-based engineering firm SNC-Lavalin.

Facing Canadian prosecution for bribery abroad, SNC-Lavalin threatened to shift its headquarters out of Quebec. With a Quebec election in the offing and a federal election to come, the loss of a corporate headquarters and jobs was too great a political threat. So the Liberals’ enforcers strongly suggested the Attorney-General enter into a more accommodating arrangement with the firm. Wilson-Raybould resigned from the Cabinet in mid-February.

This week, a second cabinet minister, Jane Philpott, stepped down over the same issue, saying she could not defend the Cabinet’s decisions as required under Cabinet responsibility without compromising herself, or the Constitution.

On Monday, Prime Minister Trudeau noted that he regretted Philpott’s decision, that his government was thinking hard about the SNC-Lavalin case, but that it is vitally important to the national interest the Liberals be re-elected.

In short, good Liberals should be happy to sweep the matter under the carpet to avoid letting the Conservative Party win the coming election.

No price of power is too high to pay if you have convinced yourself that the entire fate of the country is at stake. What is a little erosion of constitutional norms and the rule of law if the nation hangs in the balance?

The question should really be reversed: What is a nation if its political elite condones gross impropriety in pursuit of partisan interest?

We in New Zealand are fortunate nobody can credibly pretend a change in government portends the end of days.

But it is up to all of us never to allow our politicians to use partisan electoral ends to justify questionable policy means.

Faking a wellbeing focus?
Dr Bryce Wilkinson | Senior Fellow | bryce.wilkinson@nzinitiative.org.nz
The government is hyping Budget 2019 as a world-leading “Wellbeing Budget”. The December 2018 Budget Policy Statement proclaims the government’s key focus on improving the wellbeing and living standards of New Zealanders.

Do the public have any real evidence of any substance behind such froth? It appears not.

Government policies can be expected to improve overall community wellbeing if an authoritative analysis demonstrates that the benefits will exceed the costs to those affected, in some overall sense.

The government’s credibility concerning the wellbeing and living standards of New Zealanders suffered a crippling blow with its early on-the-hoof ban on offshore oil exploration.

That decision was not informed by any supportive wellbeing assessment worthy of the name. The New Zealand Institute of Economic Research’s (NZIER) subsequent analysis indicates a net cost of the ban to the community of perhaps $28 billion by 2050. I have no view about the accuracy of that estimate, but the NZIER has both expertise and a reputation to protect in such matters.

The Treasury’s CBAx tool seems to be at the centre of its hopes to get agencies to focus on New Zealanders’ wellbeing. Yet its 20 February 2019 Explanatory Note to a select committee states that agencies are not required to use the tool for budget bids. This is not encouraging.

One test for Budget 2019 will be whether the proclaimed intensive wellbeing focus has caused a reversal or modification of earlier policies, such as the exploration ban.

I do not expect it to, but it would be good to be proved wrong.

Another test is whether Budget 2019 will focus on measures to raise economic growth – in the sense of securing greater future benefit from given resources.

That also seems unlikely given the following rather disparaging comment about economic growth in the Budget Policy Statement:
 
... our recent history shows that focusing on it alone can be counterproductive and associated with poor outcomes such as greater inequality and pollution.

Our recent history cannot possibly show that. No earlier government has focused on it alone, if at all. Roughly $2 of every $3 of government operating spending is redistributive. Productivity growth has become anaemic. The large income gap with Australia continues.

Further, low growth can accompany worse environmental outcomes. Compare the pollution in East Germany under Soviet rule with that in West Germany.

Hopefully, Budget 2019 will be more than mere froth about wellbeing.

Death and taxes… and other family matters
Patrick Carvalho | Research Fellow | patrick.carvalho@nzinitiative.org.nz
Benjamin Franklyn is famously credited with writing “in this world nothing can be said to be certain, except death and taxes”.

That may be true, but a cynic might retort that at least death does not get worse every time governments look for extra funding.

So it was with trepidation that I read the Tax Working Group’s recently released Future of Tax report.

As I chewed through the 200-plus pages of the report, I muttered to myself: “What future?!”. Lower taxes were clearly not on the menu.

In fact, it was more of the same: If you do something wrong, the government will fine you; if you do something right, it will tax you.

Frankly, I fear the next tax review will come up with a system where you toss all your money into the air, and whatever lands in your pocket, you get to keep. (To be fair, at least this new tax collection would be a simpler and more transparent form of money grabbing.)

Alas, if only complaining about taxes were tax deductible.

The other day I grumbled to a friend: “It is getting harder and harder for me to support a family and a government on the same salary.”

In reply, the insensitive devil said: “It’s an accrual world, mate!”

Nope, I did not find it funny. That’s for sure.

So what will I say the next time my two-year-old daughter asks for a new unicorn: “Sorry sweetheart, but the taxman has just taken your unicorn money.”

To avoid that awkward situation, I decided to proactively teach her about taxes.

On a beautiful sunny day, I took her to Wellington’s Waterfront for some chocolate ice cream (her favourite) and an informative session on the principles of taxation.

Just as she was about to take her first taste of the delicious gelato while basking in the warm Wellington afternoon – I swiftly scooped away a third of her cup! And then father explained that’s what the taxman does.

Well, she did not take it well, I can tell you that. Neither should you.
 
On The Record
 
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  • The whys and wherefores of short-time work: evidence from 20 countries.
     
  • How will the energy transition unfold in 2019?
     
  • Aldi, Lidl and the beauty of competitive capitalism.
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