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| Dr Oliver Hartwich | Executive Director | oliver.hartwich@nzinitiative.org.nz | ||||||||||||
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Commentators have interpreted the Prime Minister’s clean-up as a dumping of unpopular policies ahead of the election. But that is only part of the story. In Hipkins' policy reset, one can see that he has a deeper interest in policy than most other politicians. Let’s take the most innocuous announcement as an example: the end of the biofuels mandate. Most voters would have never heard of these mandates. Consequently, they would not have cared if they had gone ahead. There was little to gain for the PM by scrapping them, at least not politically. Still, scrapping them made good sense. Transport emissions are part of the Emissions Trading Scheme. This means an additional biofuels mandate could not have reduced overall emissions. But it would have increased fuel prices. Policy wonks always knew this. Even government ministers privately admitted it. And no doubt Chris Hipkins would have been aware of it, too. By getting rid of an obscure and ineffective policy, the Prime Minister sent an important signal: his new Government is getting serious about good policy development. The decision not to introduce Social Unemployment Insurance is similar. Technically, this policy is only on hold for now. As the Prime Minister correctly stated, economic circumstances are not ideal for introducing a new tax on labour. Finance Minister Grant Robertson introduced the Social Unemployment Insurance scheme with much fanfare in last year’s budget. Pushing the pause button instead of killing it outright may have been an attempt to enable him to save face. As recently as December last year, Robertson and Social Development Minister Carmel Sepuloni expressed their strong commitment to the initiative. Hipkins had other ideas. He not only paused the scheme, but also stated that it would not be reintroduced in its present form. Reading his statement carefully, he is not convinced by the policy. Besides, the Prime Minister acknowledged that a major change to New Zealand’s welfare system needs public backing. “We have to recognise there isn’t the public support for this scheme,” Hipkins said. Indeed, as opinion polls showed, the public was unwilling to accept the scheme. A scheme, incidentally, whose alleged merits have been debunked by Initiative research (see below). Even though policy wonks do not always come up with good policies, the new Prime Minister’s interest in serious policy work is a welcome change. This can only benefit future policy debates. It may stimulate other parties’ policy development as well. Let’s hope this is not just wishful thinking. Well, we shall see what happens to Three Waters and the resource management bills. |
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| Dr Bryce Wilkinson | Senior Fellow | bryce.wilkinson@nzinitiative.org.nz | ||||||||||||
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Central banks failed to forecast the rise in inflation caused by easy money. When the rise was apparent in 2021, the US Federal Reserve Board and the European Central Bank declared it was temporary. That was also wrong. Interest rates were too low for too long because of these forecasting errors. Inflation took off. Central banks have now lifted their interest rates, but are they lifting them too much or not enough? The former represents overkill, the second underkill. Overkill means a sharper downturn than necessary, underkill means higher interest rates and inflation for longer than necessary. These forecasting errors have undermined confidence in central banks. Our Reserve Bank of New Zealand faces this problem. Last November it published a useful review of its monetary policy decisions from 2017. It conceded what could not be denied -- that it failed to predict the rise in inflation in New Zealand. Even as late as August 2021 it forecast consumer price inflation would be 4.1 percent in 2021 and back to being within its 1-3 percent range target in 2002. In the event, New Zealand’s CPI rose 5.9 percent in 2021 and 7.2 percent in 2022. Such major forecasting errors have consequences. The review reported that a majority of those it surveyed in 2022 “had little or no confidence in the Reserve Bank’s ability to bring inflation within the target band by 2024”. Uncertainty affects interest rates. The review provides little confidence that the RBNZ has learnt much from these bad forecasting errors. At one point it explains that its forecasting framework presumes that inflation will return to its target range “over time”. At another point it says that monetary policy has “on average” been set “such that forecast inflation returned to the target midpoint”.[1] This unacknowledged circularity is unnerving. The forecasts assume that what is desired from existing policies will be achieved, and policy decisions “on average” assume that the forecasts are right. If this is an accurate description of the RBNZ’s approach, an optimistic bias is built into its decision-making structure. There is a risk of underkill. Overkill is a risk too, but underkill has been the pattern. [1] Remit review, page 87.
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| Dr Eric Crampton | Chief Economist | eric.crampton@nzinitiative.org.nz | ||||||||||||
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Peaches come from a can.
They were put there by a man. In a factory in Greece. When they made their little way out to brighten a Kiwi’s day, they got hit with a 34% punitive anti-dumping duty. If the cost of living is the government’s number one priority, why do we have anti-dumping duties? Anti-dumping duties rarely make sense. The theory is that a foreign company will sell here, below cost, for long enough to drive Kiwi competitors out of business, and then jack up prices. It’s more than a bit bonkers. Consider coated steel from Korea – a kind of steel used in roofing. From 1 January this year, imports from one Korean company were hit with a renewed 12.6% punitive tariff, and two other Korean companies are subject to smaller tariffs. Under anti-dumping theory, selling steel below cost could drive the Kiwis out of the market, with the foreign company profiting when Kiwi competitors fail. But a quick Google search finds 998 suppliers of the stuff across 55 countries. The 997 other suppliers would be the ones to benefit. And, of course, if it really were being sold here below cost, anyone, including Kiwi steel producers, could put up a shed and store tonnes of it for later resale. Inflation is high and the government says we’re in a cost-of-living crisis, with groceries and building materials front and centre. But those Korean companies’ roofing steel, along with galvanised wire from Malaysia and China, are hit with anti-dumping duties. So you’re protected from affordable building products. Doesn’t it warm your heart? Tariffs are love. And consider the peaches. Everyone loves canned peaches. The ‘90s band The Presidents of the United States of America even wrote a song about them. I ripped it off (and tweaked it a bit) to lead this column. In May last year, the Government reimposed antidumping duties on preserved peaches from Spain. In December, they started investigating Chinese peaches. Peaches from Greece? 34% duty. And there have been anti-dumping duties on South African peaches for close to twenty-seven years. Meanwhile, the Commerce Commission’s been investigating why groceries and building materials are so expensive. So I’ll end with another bit of appropriation from the Presidents, suitably modified: Govt lingered last in line for brains
And the one that it got was sorta rotten and insane |
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