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Insights 21: 16 June 2023
Research Report: Learning from NZ's past to build back better, by Matthew Birchall
The Common Room: Oliver Hartwich on Ardern's economic legacy
Newsroom: Oliver Hartwich on Europe’s consensus on a new refugee policy

Once were builders
Dr Matthew Birchall | Research Fellow |
While it is easy to lament the current state of New Zealand’s infrastructure, it is important to remind ourselves that we were once builders.
On Wednesday, we launched a new report, Paving the Way: Learning from New Zealand’s Past to Build a Better Future. It explores how New Zealand effectively tackled infrastructure projects in the past and offers guidance on how the country can rediscover its mojo.
In fact, we still use much of the infrastructure that our forebears built in the 19th century. The Lyttleton Tunnel dates from 1867, for example. And our train network and major urban centres also date from this period.
How did New Zealand’s early settlers achieve these remarkable feats? And what lessons can we learn?
Paving the Way identifies three key takeaways.
Lesson 1: Embrace the private sector
New Zealand infrastructure policy has been most successful when it has leveraged the resources and expertise of private enterprise.
However, we seem to have become allergic to it. That would flummox those who came before us.
The first bridge across the Waimakariri was built by a hotel owner from Kaiapoi named William White. White recognised the potential benefits and stumped up his own cash to finance its construction.
We need to rekindle the spirit of William White if we are to plug the $210 billion infrastructure deficit.
Lesson 2: Locals know best
Localism is the lifeblood of responsive and targeted development.
While Wellington will always play a role in the provision of big-ticket items like our national road network, shifting power away from the capital when appropriate can lead to better results.
New Zealand once understood this.
The Auckland Harbour Bridge was built and maintained by what we would now call a special purpose vehicle.
Just imagine if local authorities were empowered to do something similar today. It would solve a lot of problems.
Lesson 3: Reignite the passion for building
New Zealanders used to take pride in getting things done. The “No. 8 Wire” mentality loomed large in the national consciousness.
Nowadays, we’re immediately negative about growth and development.
That would have shocked Julius Vogel, architect of New Zealand’s railways. Back then, there was no equivalent of the RMA to stop him in his tracks.
New Zealand has faced infrastructure dilemmas since the arrival of the first waka. We would do ourselves–and future generations–a disservice if we ignored the lessons of the past.
Research Report: Paving the Way: Learning from New Zealand's Past to Build a Better Future

Rates of Return and Rates of Exit
Dr Eric Crampton | Chief Economist |
Labour really should rule out any chance of the Green Party’s proposed wealth tax being part of any coalition agreement.
Just consider some of the numbers on what it would do for hurdle rates for wealthy investors in the top income tax bracket. Their next million in investment is hit by the wealth tax. What does that look like?
If inflation is 2%, then an investment must earn at least 2% in nominal returns just to stand still.
Income tax is due on the nominal returns, including inflation. So the investment has to earn at least 3.3% nominal interest, just to stand still and not lose value due to tax, inflation, and the tax on inflation.
Now add a wealth tax of 2.5% that applies to the starting investment, to earnings on it, and to inflation.
That investment must now earn a 7.6% return, just to stand still.
We can put it more concretely. Invest one million dollars (above the tax-exempt threshold) at a 7.6% return and you have $76,000 in nominal earnings. Income tax, at 39%, takes just under $30,000, leaving you with just over $46,000. A 2.5% wealth tax on the investment at the end of the year takes just over $26,000, leaving you with $20,000. And you needed that $20,000 just to keep up with inflation.
Those numbers get worse under the Green Party’s proposed 45% top income tax rate.
If you cannot find investments yielding at least 7.6%, you will be stuck watching the value of your assets slowly decline until you no longer have wealth above the threshold to be taxed.
Or, more likely, you will have fled the country along with your moveable assets before it could happen. Investing in New Zealand would be a lot safer if done from Australia or elsewhere.
It is hardly the only problem with the policy. Valuation across any comprehensive asset base gets very tricky, especially for unlisted companies and small businesses. Trusts would not have the same exclusion thresholds as other wealth holdings, but trusts can be complicated to unwind. New Zealand startups would have a harder time finding investors.
But requiring an investment to hit a 7.6% hurdle rate just to stand still seems sufficiently damning, all on its own.
Ruling this out well before the election would be reassuring.

A defence of Comrade Rashbrooke
Dr Tony Burton | Research Fellow |
Sometimes you just have to accept that the devil has the best tunes. That Australians are better than Kiwis at some sports. That people you profoundly disagree with sometimes offer the best presentation of the facts.
Many subscribers to Insights will disagree with Max Rashbrooke’s faith in the state to save us from ourselves. But credit where it is due: Unlike many of his colleagues among Victoria University’s policy academics he presents the facts and asks us to think about policy. We need that now more than ever.
Rashbrooke’s latest articles for The Spinoff looked at the Labour government’s record on one of its target policy areas, poverty and inequality. (See “All Things Considered” below for the links.) This policy area is not one where a couple of well-informed articles will generate political consensus.
What he does offer is an accessible discussion of how the government’s indicators of poverty and inequality have changed, and a description of what can and cannot be attributed to this government that will make both sides of politics squirm.
Throughout, he is clear about his perspective. In the end Rashbrooke admits, “There is no neat story to say that Labour has increased or decreased inequality, in toto – but then life is not much given to neat stories.”
The title of this piece is a reference to an article by George Orwell, author of 1984. Despite being a staunch anti-communist, Orwell wrote in defence of the honest approach to foreign policy of a defender of Stalin’s Russia.  
People Orwell otherwise agreed with were offering a fantasy view of what was possible in Cold War Europe. He disagreed with the politics of the person presenting the facts, but wanted political decisions based on uncomfortable reality rather than agreeing with those whose conclusions he liked.
Strangely, although political differences in New Zealand are nothing like as profound as Orwell’s differences with the communists, fewer people want a factual basis for policy discussion.
Max Rashbrooke is honestly presenting facts on poverty and inequality in New Zealand. He is honestly presenting his views on what they mean and explaining why, in an imperfect world, he has come to those views.
In an election year already plumbing new depths in personal attacks and slurs, we should all praise Rashbrooke’s efforts to make the facts matter.

On The Record

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