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Insights 32: 26 August 2016
Dr Oliver Hartwich: The illusion of Germany's Jobs miracle
 
Roundup of media coverage from Decade of Debt report
 
Roger Partridge - Avoiding the next planners' nightmare

The costs of Free
Dr Eric Crampton | Head of Research | eric.crampton@nzinitiative.org.nz
Interest-free student loans have been very costly. The billions spent over the past decade subsidising student loans is only part of it. 

As we explain in Decade of Debt, the government had to layer controls onto student borrowing, and onto the tertiary sector, to contain the costs of the interest-free subsidy. 

When every tuition increase means a substantial cost on the student loan balance sheet, tertiary tuition caps become more binding. 

Graduate students needing longer terms of study butt up against constraints on the maximum number of years of allowed borrowing. 

And students in real financial hardship, as explained by the Child Poverty Action Group, turn to rather more expensive sources of credit when they cannot cover their real accommodation costs through the student loan scheme.

But it would be even worse under zero-fee schemes. 

Labour has occasionally mooted free tuition as a solution to rising tertiary costs, citing free tuition in countries like Sweden. And both baby boomers and current students note the free tuition enjoyed by generations past. But those systems also come at a cost. 

The costs of those systems, for students, are most obvious in the OECD’s most recent Education at a Glance report. There they tally up the private costs and benefits of getting a tertiary degree in a range of countries. 

The direct costs of study, including tuition and course fees, are well known. Less well recognised, but far more important, are earnings forgone by students while in study. The extra earnings that come with a degree have to be at least enough to compensate for the time spent in study. And, critically, those benefits have to be measured after taxes. 

The tuition-free system enjoyed in New Zealand by the baby boomers and much envied by many current students came at a rather substantial cost: a 66% tax rate on leaving university. It is simplest to think of our student loan scheme as imposing a 12% surtax on earnings above $19,084 until the loan is paid off. And then that surtax goes away. 

Looking across the OECD tables, Kiwi students earn a greater return on their investment than many students abroad facing no tuition. 

Be careful what you wish for, as free is rarely costless.


A penny saved is a penny earned
Dr Oliver Hartwich | Executive Director | oliver.hartwich@nzinitiative.org.nz
A penny saved is a penny earned. This should be the motto of regulatory reform.

When it comes to regulatory burdens, it is not necessarily the cost of a specific regulation that matters. It is the fact that many such seemingly trivial regulations taken together impose substantial costs on businesses.

And so Matt Doocey’s private member’s bill drawn from the ballot this week is most welcome.

What is this bill about? Well, under section 209 of the Companies Act 1993 companies must send their shareholders either a hard copy of their annual report or a written notice asking them if they would like to receive it.

At first, this provision sounds plausible. Of course shareholders have a right to be informed about the performance of their companies.

The question is whether the procedure prescribed by the Act is still appropriate in today's digital age.

Last year, the Initiative published the report Reducing Unnecessary Regulatory Costs. It collected recommendations from our members for regulatory reform. Abolishing section 209 of the Companies Act was one of them.

The report noted that, for example, one of our members had to post more than 22,540 notices to their shareholders of whom only 378 then requested a hard copy of the annual report. Most new Zealand companies experience the same lack of demand for printed material.

Shareholders would not need to miss out by going paperless. Any relevant information can be provided, virtually costless, on companies’ websites.

Postage and administration costs can easily add up to tens of thousands of dollars for large companies. Across the economy, we are talking about a few million dollars of unnecessary costs – not to mention hundreds of thousands of pages of printed paper.

Despite this financial and environmental waste, Labour’s Chris Hipkins slammed Doocey’s bill. Hipkins said it only amounted to “more time set to be wasted debating nothing”.

Not quite. It only shows why the likes of Hipkins should never be put in charge of regulatory reform. They do not even recognise wasteful spending when it is bleeding obvious. And they do not care about the regulatory costs they impose on others.

Matt Doocey, meanwhile, ought to be congratulated. If only more parliamentarians paid attention to such details, the effect on regulatory efficiency could be substantial. His penny saved is a penny earned.

For Chris Hipkins, meanwhile, that penny still needs to drop.


Jealous of Venezuela?
Jenesa Jeram | Policy Analyst | jenesa.jeram@nzinitiative.org.nz
In this age of ‘post-truth politics’ (which, by the way, must be one of the greatest tautologies of all time) I guess all truths can be relative. 

North Korea is magnificent because Gareth Morgan told us so. Our state houses are contaminated by methamphetamine because why would experts lie?

In between the gratuitous Olympics coverage, and hopefully-but-probably-not ironic coverage of the Real Housewives of Auckland, there have been some more shockers in the media these past couple of weeks. 

Let’s start with the heart-warming news that the Herald insists will make New Zealand athletes jealous. 

All 87 of Venezuela’s Olympic athletes will win an extra prize. Even the losers who didn’t win medals. 

Courtesy of the government, they will all receive a free house, so that ‘…the athletes will feel the love of their country’. 

Good for Venezuela. And all thanks to the socialist revolution.

What the Herald forgot to mention was that getting a free house in Venezuela is a bit like getting a free supply of tap water from Havelock North. The Olympians might receive a house but that is poor compensation when socialism has made the country a terrible, terrible place to live. 

New Zealand athletes might be jealous of their Venezuelan counterparts, but only if they’ve never picked up the international news section. Feeling the love of your country is nice, of course. I’d argue that access to food, toilet paper and essential medicines is probably higher on the priority list for most.

The truth isn’t any safer closer to home, either.  Last week we learned about the plight of the Saitu family, whose story of abject poverty in South Auckland was apparently being ignored by those in government.  

You might not have heard that the Ministry of Social Development has responded to the accusation that they are not doing enough. The Ministry points out that in fact they have granted support, and they are working hard to accommodate the family’s specific and complex needs at short notice. 

Now, I understand that ‘Ministry of Social Development doing their best with a complex case’ probably doesn’t make the best headline. But I’d hate to think there are people who could walk away from the news thinking the Venezuelan government is great while the mean, cold-hearted New Zealand government is turning a blind eye to real need.

Hopefully those who are simple-minded enough to jump such conclusions can be distracted by the copious Real Housewives of Auckland coverage.
 
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