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Insights 25: 13 July 2023
Research Note: Funding the Future - The case for special purpose bonds
Podcast: Part two of Eric Crampton and Prof Rhema Vaithianathan's discussion on data-tools with a human touch
Newsroom: Dr Michael Johnston asks whether lessons from the ‘reading wars’ can help schools better teach science

Irish luck or Kiwi good fortune?
Roger Partridge | Senior Fellow & Chairman |
According to American folklore, Irish gold miners were notorious for striking it lucky. Yet, historian Edward O’Donnell claims the phrase ‘The luck of the Irish’ comes with a hint of derision. It’s as if to say, ‘Only by sheer luck, as opposed to brains, could these fools succeed.’
A hundred years or so later, the Irish are still accused of dumb luck. At the end of the 20th century, Ireland leapt up the OECD’s GDP-per-capita ranks to sit alongside a handful of nations at the top of the table.
Depending on who you ask, this was down to Ireland’s good fortune in having the European Union subsidise its infrastructure. Or to Ireland’s luck in being an English-speaking access point for foreign firms wanting to do business with Europe. Or perhaps more scandalously, it was because Ireland had the gall to set low corporate tax rates – and the luck to get away with it.
But you will hear a different story from the three dozen or so business leaders settling back into their day jobs after The New Zealand Initiative’s members’ delegation to discover Ireland’s secrets.
Ireland has implemented a multi-decade strategy of targeting foreign direct investment and foreign expertise to boost its economy. Its Investment Development Agency has attracted global companies in key high-tech sectors. FDI has transformed cities like Dublin, Cork and Galway into international hubs for technology, pharmaceuticals and medical devices.
It has not been “Irish luck” that has attracted these investments. Ireland has deliberately created a business-friendly environment. Low tax rates have been part of this. But Ireland has done nothing other countries could not do. And as corporate tax rates in Ireland move upwards in response to a US-led multilateral corporate tax treaty, Ireland’s pro-business policy settings continue to attract foreign capital.
A second strand to Ireland’s success is its pursuit of educational excellence. It is not ‘luck’ that has led Ireland to invest in the quality of its education system. Nor to the teaching profession being held in high regard. Nor to Ireland’s focus on STEM subjects to align its workforce with the high-paid job opportunities created by the industries it targets for FDI.
The Irish may be enjoying their good fortune, but they haven’t struck it lucky. They have crafted a compelling narrative of economic prosperity through smart regulatory settings and educational excellence.
The lucky countries are those that can learn from Ireland’s success.

Ruling out a wealth tax
Dr Dennis Wesselbaum | Adjunct Fellow |
The Prime Minister has ruled out a wealth tax so long as he is leader of the Labour Party. The promise may have been driven by recent polling, but it is sound economics nevertheless.
A wealth tax is defined as a tax on the ownership of net wealth: a person’s assets minus debts.
The tax would apply to various asset types. It is, therefore, different to other taxes, which either tax the transfer of wealth (inheritance tax) or the increase in wealth (capital gains tax).
Proponents of a wealth tax see it as a way to increase tax revenues and reduce (wealth) inequality.
But implementing an annual wealth tax would bring problems.
Regular wealth assessments create high administrative costs. People with a high share of illiquid assets, which can be hard to value, might not have sufficient cash to pay their tax bills. The tax would change behaviour and lead to tax evasion and tax avoidance (the wealth tax elasticity estimated in the literature can be as high as 43%).
A wealth tax could lead to disruptions of savings, an incentive to spend wealth, a reduction of labour supply, emigration, and shifting wealth into exempt asset classes (or offshore).
And remember that the wealthiest do not mainly own property. They own shares, and they are mobile.
The incentives and disincentives created by a wealth tax could have adverse macroeconomic effects and reduce long-term economic growth. Furthermore, it is unclear whether a wealth tax is the most efficient way to achieve desired outcomes compared to other taxes.
In principle, a one-off wealth tax could avoid creating distortions. It would have much lower administrative costs and a negligible effect on behaviour. But government would need to find a way to credibly promise that the measure would not be repeated – a very hard trick to pull off. An annual wealth tax would be very different from a credible one-off.
Proponents of an annual wealth tax typically want to redistribute wealth rather than achieve better economic outcomes. In Germany, the debate about a wealth tax is typically framed as a “Neiddebatte”, a debate which is fuelled by jealousy.
The evidence suggests an annual wealth tax has little economic benefit to offset its substantial economic downsides and significant administrative costs.
The Green Party continues to support a wealth tax. Labour would be on solid ground if it kept a coherent tax system as a bottom-line.

Not too excellent please
Dr Michael Johnston | Senior Fellow |
NZQA would like help deciding what excellence means.
The trouble is, too many students have been achieving it.
So, NZQA has published a discussion document. Presumably, they want people to discuss what excellence means and let them know.
Before NCEA was implemented 20 years ago, we didn’t have to worry about what excellence meant. Grades were allocated to fit pre-determined distributions. A few percent would get grades of A, a few percent more, grades of B, and so on. It was called ‘norm-based’ assessment.
A lot of people thought norm-based assessment was unfair. It rationed the best grades so that only the best students could attain them, they said. NCEA was designed to fix that.
NCEA is a ‘standards-based’ system. That means students are judged only on their own performance, rather than relative to the performance of others.
That was the idea, anyway.
Some starry-eyed educators looked forward to a day when everyone would get Excellence. Under a standards-based system, that is possible, in theory.
Twenty years on, it’s becoming true – in practice. In some assessments, Excellence is now the most frequent grade. As it turns out, though, that’s not so excellent after all.
In its discussion document NZQA puts the problem like this: “Excellence has now become the goal for many students … While this is very acceptable as a goal, many students expect and do receive it.” This, they say, “lowers the standing of Excellence, as it no longer discriminates good from superior performance.”
NZQA has quite the dilemma on its hands.
Under our standards-based system, if students show excellence (whatever it may mean), they should get a grade of Excellence. On the other hand, if too many students get Excellence, then it isn’t special anymore.
So, we need to define excellence in a way that allows all excellent students to attain it. But we also need to define it so that not too many are excellent.
What NZQA doesn’t seem to have considered is that, however we define excellence, it will not only be a goal for students. It will be a goal for their teachers too.
Teachers like their students to be excellent. That means, when it comes to marking, teachers will always be inclined to give them Excellence.
So, whatever NZQA decides excellence is, in a few years we will be having this discussion again.
Maybe they should just go back to using a norm.

On The Record

Initiative Activities:   
All Things Considered
  • Graph of the week: How to use bogus criteria to drive a result
  • Documentary? Comedy? Horror? Australia’s Utopia is now on Netflix
  • Canada’s link tax on internet searches means more Canadians will be getting their news from the US
  • California needs real math education. So does New Zealand
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