As regular readers will know I have been uneasy about whether the Minister of Finance’s recent appointment of Grant Spencer as acting Governor of the Reserve Bank (while pragmatic) is in fact lawful. I dealt with the issue first on the day the appointment was announced, and again when the Bank’s Board, the Treasury, and the Minister of Finance released material in response to my OIA request.
What made me most uneasy is that there was no suggestion in any of the papers – whether the Board’s recommendation to the Minister, the Minister’s Cabinet paper, or in any of the various Treasury papers – that officials, the Board, or the Minister had even considered seriously the lawfulness of such an appointment. There is no summary of any legal advice in any of the papers, and no reference to the issue. This is so even though the Act quite clearly makes the Policy Targets Agreement (PTA) the centrepiece of the balance between autonomy and accountability, and yet it makes no reference to the possibility of a PTA in a case where an acting Governor is appointed after a Governor’s term, and that Governor’s PTA, expires. As an expression of good intent, the Minister of Finance and the incoming acting Governor have indicated that they expect policy will continue to be conducted according to the current PTA, but……(a) the whole point of the acting appointment is that Grant Spencer will take office a few days after the election (so the current Minister of Finance may be irrelevant) and (b) none of this is legally binding, even though the monetary policy provisions of the Act are built around quite detailed, and legally binding, rules.
All three agencies/people noted that they had withheld legal advice (from the Reserve Bank’s in-house lawyer and from Crown Law). That wasn’t a surprise. Protection of legal professional privilege is a grounds on which material can be withheld under the OIA. But it is not an absolute grounds, and any possibility of withholding such material on that ground must first consider whether the public interest is such that the material should be released. Recall that the whole point of the OIA is to allow more effective public scrutinty, accountability, and participation in public affairs.
I was initially inclined to let the matter lie. But on further reflection, and having a look at some of the material the Ombudsman has put out in recent years (and a report of an even more recent decision), in which it has been ruled that either legal advice, or a summary of it, should be released, I have decided to lodge an appeal with the Ombudsman in this case. It isn’t a case where, for example, the legal advice is contingent on facts known only to the parties commissioning the advice. The relevant facts are all in the public domain already. All that is being protected is the assessment of the interpretation of legislation on which powerful government entities are acting/advising. If their interpretation of the acting Governor provisions is robust – and it may well be – then the Act is less robust – in ensuring that the monetary policy decisionmaker is at arms-length from the Minister (not eg subject to six monthly rollovers), and yet is at all times subject to a legally binding accountability framework – than had previously been thought. There is a clear public interest in us being aware of any analysis the government, the Board, and the Treasury are relying on in making an appointment of this sort. They act on those interpretations, and in so doing create “facts on the ground”.
I suppose it will take some considerable time for the Ombudsman’s office to get to this request – perhaps even after the acting Governor’s term has ended – but with the possibility of reviews to the Reserve Bank Act governance provisions in the next couple of years, it would still be valuable for this advice and intepretation (in full or in summary) to be put in the public domain. This is, after all, about the appointment and accountability provisions for the most powerful unelected public office in New Zealand.
On another matter altogther, I noted the other day that one of my readers, and periodic commenter, Blair Pritchard had published his own set of policy proposals for New Zealand. Blair sets out seven policy goals and 15 policy proposals under the heading What’s a platform Kiwi Millenials could all get behind? There is lots to like in his agenda – and he graciously refers readers to some of my ideas/analysis – although I’m sure most people, even non-millenials, will also find things to strongly disagree with (for me, cycleways and compulsory savings – although I’m also sceptical of nominal GDP targeting). But I’d commend it to readers as a serious attempt to think about what steps might make a real and positive difference in tackling the challenges facing New Zealand. And I really must get round to a post on a Nordic approach to taxing capital income – one of the topics that has been on my list for two years now, and never quite made it to the top. Cutting company taxes is the headline-grabbing option, and it would make quite a difference to potential foreign investors, but for New Zealanders pondering establishing and expanding businesses here, the company tax rate is much less important than the final rate of taxation on capital income which, in an imputation system, is determined by the personal income tax scale. The Nordic approach quite openly sets out to tax capital income more lightly than labour income. It isn’t a politically popular direction at present, but is the direction we should be heading, if we want to give ourselves the best chance of closing those persistent productivity chasms.
16 thoughts on “Bits and pieces”
Thanks Michael. I was trying to come up with a combination that would benefit younger people but was also internally consistent, and consistent with what we know about how economies work. I will keep pushing nominal income level targeting in my periodic comments; it just seems to me like an underrated idea. For example, another 0.5% inflation undershoot would be great for retirees (via house prices) but bad news for anyone under 30, because they bear the brunt of unemployment.
Good article Blair and great idea for people to think about -what set of policies would most benefit millennials -or the future generations in general.
I would agree with your urban planning type recommendations -except for unimproved capital value rates -which I think all urban councils should switch to -but they are already revenue constrained so I see no point in them sharing this revenue source with central government -in fact central government should share some other forms of revenue with local government to fund proper infrastructure provision.
What caught my eye this holiday weekend was some audio podcasts produced by MacroBusiness -which I comment on here.
View at Medium.com
And I help edit a friends -Phil Hayward post on economic rent. I am less anti trains than Phil is, so I question some of his detail but his general conclusions I think are sound.
View at Medium.com
P.S Blair -your numbering sequence in the platform section goes a bit out of whack.
Thanks Brendon, I am also a fan of Macrobusiness. For a tiny team their coverage of quite technical issues, like wholesale energy markets, is outstanding. I find them a bit bearish in macro forecasting though.
For medium-sized cities (say 1-5 million) my preferred urban form is medium density (small apartments and terraces), supported by an underground Metro. I like trains but if you are going to copy the UK instead of best practice providers like Japan and Spain then get out of the game. Bent Flyvbjerg found the average train project got something like half its targeted patronage, even worse than roads.
Succesive Labour and National governments have targeted budget surpluses but at the expense of infrastructure spending. Also, the Christchurch Earthquake is a massive reconstruction which depleted EQC and requires the government to borrow anywhere upwards from $15 billion and by the time completed would be $30 billion by the time it’s completed 30 years later. Kaikoura earthquake has added another $8 billion to the debt demands.
Len Brown’s intercity rail initially $8 billion estimate is now likely going to cost $5 billion just to get to Mt Eden and likely another $10 billion on top to connect the metropolitan cities and the Auckland airport.
Auckland’s infrastructure such as a aging Bridge crossing and water, sewerage is going to cost upwards from $20 billion.
Your 1st target to reduce debt to zero will make it even more difficult to build houses.
Infrastructure is expensive but if we charge market prices for it we will need less of it. Right now we are giving a lot of things away for free – roads, water, health care – so of course demand tends to be pumped up.
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It has to be built first before you can charge market prices for it. The problem now is that existing ratepayers and developers are being made to pay for something in the future which does not service or maintain existing infrastructure. So you have a situation where new infrastructure is being built and paid by existing ratepayers for future not existing ratepayers but existing infrastructure is left to rot and not properly maintained.
NZ house values have exceeded $1 trillion with Auckland house prices averaging about $1 million. A policy to exclude people with $1 million assets from NZ super would exclude most Aucklanders. The difficulty is policing the cutoff. Most people would gift their assets to trusts or children which would then make them eligible for NZ super.
Trusts, estate duties, and gifting need addressing anyway. The opportunity to pass things on free of charge concentrates wealth and distorts markets.
Something that strikes me about the current low tax rates that are fairly common across the OECD is how they are seen as fairly normal, and that raising taxes is something to be feared. I’ve lived through relatively high levels of tax, and apart from secondary tax, I can’t recall people seeing them as onerous.
Don’t forget that we have now have high and very comprehensive GST, which we didn’t have anything like in the days when income tax rates were higher. On OECD numbers, general government revenue, from all sources, as a share of GDP is around 40% now even in NZ.
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True, which raises a point that interests me. Other than the boiling frog effect, is there any great advantage to GST, given that VATs are widely regarded as regressive now?
They are really hard to avoid (appealing in this age of concern about base erosion and profit shifting etc) but there is also good theoretical reason to prefer expenditure taxes over income taxes (eg they don’t penalise saving). In the abstract – it is hard to make them work well – I’d favour a moderately progressive consumption tax.
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I’ve just read that there isn’t much empirical evidence to support the theory that consumption taxes increase savings. Assuming those savings are often for retirement anyway, I note that you would be paying the consumption tax the moment you start spending those savings. I note as well that at an equal rate, consumption taxes raise less than income taxes. I’m at a loss to see an advantage economically, unless somehow the greater cost to low and middle income earners is.
Tax deferred is tax saved…….
I’m more interested in replacing income taxes with consumption taxes for business investment reasons. Business investment in turn tends to be self-financing over time (thru increased business savings).
But for most individuals (but not most money) there is little effective difference between income and consumption taxes – they earn labour income and spend almost all they earn.
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KiwiSaver is in the management of private fund managers because no sane kiwi will trust any greedy and poverty stricken government to have free access to their retirement funds ever since Muldoon pinched New Zealanders private retirement fund which was under government management.
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Compulsory KiwiSaver up to 8% employer contribution is an area that both of us are in agreement. John Key suspended KiwiSaver at 3% company contribution on the excuse of the GFC when it was originally intended to rise to 5%. I agree 8% should be the target in a growing economy. It is clear that the RB is poised to increase the OCR as inflation in a growing economy tends to put upward pressure on consumer consumption. Best time to increase employer contributions. Singapore has now moved its employer contributions to 17% from 8%.
I’d be keen to continue to see NGDP targeting thought about, but especially in countries with fairly stable terms of trade. I’m less convinced it is a particularly good option for countries like NZ and Aus (and I thnk Sumner shares that view), and if I could be persuaded that there were material net gains from changing the target variable it would most likely be in favour of some sort of nominal wages target (which has a number of the advantages that advocates often claim for NGDP targets).