The Greens on immigration: taking the low road

Earlier this week various media outlets were carrying reports of a new speech on immigration from Green Party co-leader James Shaw.  In both Stuff and the Herald articles were headed “Green Party apologises for anti-immigration pandering.   To be fair to Shaw, that wasn’t quite what he said.

A year or so ago, the Greens came out with a new policy on immigration.    The aim was to produce annual population growth of around 1 per cent, and they would adjust immigration policy settings (in light of changes in rates of natural increase or of the comings and goings of New Zealanders) to meet such a target.   At the time they talked a lot about the pressure points that really big net migration inflows caused.   Shaw told Radio New Zealand

“We know that immigration is becoming more of a concern for people and in my experience the vast majority of people aren’t concerned about immigrants, they’re concerned about the impact on house prices, and infrastructure.”

They seemed mostly to be about stabilising population growth pressures, rather than reducing average net immigration very much at all.   After all, average annual population growth in New Zealand in the 20 years prior to the current immigration surge was 1.1 per cent, and rates of natural increase are slowing.

But whatever their intentions, I think everyone who thought about the issue at all seriously, concluded that their policy was unworkable, mostly because of the big –  and not readily forecastable –  fluctuations in the comings and goings of New Zealanders.  I wrote about it at the time

In a sense the fatal conceit in the Greens new policy is the idea that New Zealand’s population growth rate can be held stable from year to year.  While New Zealanders are fairly free to move –  or not –  to the much larger Australian economy in response to changes in relative economic opportunities –  and while New Zealand incomes are so much lower than those in Australia –  we will almost inevitably have the sorts of swings in the net outflow of citizens I showed in the first chart above.  Trying to manage the inflow of non-New Zealanders year by year to offset those fluctuations would be (a) impossible, and (b) something of a fool’s errand even to try.

Others pro-immigration people have made the some point about the unworkability of the scheme.

So in that respect it is good that the specific formulation of a target has been dropped.  If they were serious about a population policy –  and I think they are the only party to have one –  they could have rephrased it to aim to produce average population growth of around 1 per cent per annum on, saying, a five year forward looking basis.    That would have been less unworkable.  But, instead, the numerical target has gone altogether.

From the tone and content of Shaw’s latest speech there must have been a huge backlash in some quarters against the party leadership, and probably Shaw in particular, over last year’s proposed policy.

Last year I made an attempt to try and shift the terms of the debate away from the rhetoric and more towards a more evidence-based approach.
We commissioned some research which indicated that immigration settings would be best if tied to population growth.
Unfortunately, by talking about data and numbers, rather than about values, I made things worse.
Because the background terms of the debate are now so dominated by anti-immigrant rhetoric, when I dived into numbers and data, a lot of people interpreted that as pandering to the rhetoric, rather than trying to elevate the debate and pull it in a different direction.
We were mortified by that

I guess I’m not a Green supporter, but much of this just looks unrecognisable.  Go back and look at the mainstream media coverage, and no one then seemed to think he was “pandering”.   It looked at the time like a serious attempt (apparently backed by some commissioned research) to grapple with some pressing issues –  especially around housing and transport –  and if the solution he came up with wasn’t very workable (and probably should have had a lot more internal stress-testing before it was released for public consumption), it was a serious attempt.  It didn’t blame migrants for New Zealand policy failures, it simply recognised that very rapid population growth can create stresses for us all.   As Shaw noted then

Mr Shaw said the aim of the policy was for better planning, and less hostility towards immigrants.
“The debate around immigration is kind of being captured by those voices who are just simply anti-immigrant, and we really want to make sure that doesn’t happen.

It all seemed pretty calm and rational (even if unworkable).   In fact, at the time so calm and rational that Shaw could even use the (relatively) moderate “anti-immigrant” to describe those who wanted to pull back more significantly on immigration.

There is none of that calm moderation in this week’s speech.    In a speech of only 1350 words, “xenophobia” appears four times, and “scapegoating” three times (admittedly “racism” gets in only once).    People who disagree with the Greens’ stance are, apparently, characterised by such evils.  And on the other hand, the Greens are the party of love

I’m proud to lead a party that stands for the politics of love and inclusion, not hate and fear

and

Openness, inclusiveness and tolerance must win out over racism and scapegoating and xenophobia.   Love and inclusion must win out over hate and fear.

If that isn’t pandering, I’m not sure what is.  And all the while attempting to secure the high moral ground.   Thus

We in the Greens are deeply concerned that the debate about immigration policy in New Zealand has, over the course of time, come to be dominated by populist politicians preaching a xenophobic message in order to gain political advantage.

This ugly strain of political discourse is quieter at times of low net migration into New Zealand, but rises at times of when net migration is high – as it is now, and so, at this election, sadly, the xenophobic drum is beating louder.

“Xenophobia” is one of the favoured words of the groups –  whether from the right or the left –  in our society who favour a continuation of our unusually large-scale immigration policies.

My Oxford dictionary defines xenophobia as a “morbid dread or dislike of foreigners”.   I’d challenge Mr Shaw, or others in the media and lobby groups who like to the fling around the word –  or cognates like “fear” (widely used in this year’s New Zealand Initiative report) – as if the only basis for questioning New Zealand’s immigration policy can be something irrational, to produce some evidence for their claims.    I presume Shaw isn’t wanting to apply this description (“xenophobia”) to his Labour Party allies who recently came out with some proposals designed to reduce the net inflow of migrants (at least temporarily), using much the same sort of arguments Shaw himself was articulating, calmly and reasonably, only last year.  No doubt he intend his comments to apply to Winston Peters –  also the avowed target of the New Zealand Initiative’s report.   I’m no fan of Peters, but I’ve read various of his speeches over the years, and listened to him in interviews, and the “morbid dread of foreigners” seems to bear no relationship at all to what Peters is saying.    Do the Greens recognise any legitimate reasons for being sceptical about the merits of the large scale non-citizen immigration programmes New Zealand runs?

“Scapegoating” is one of Shaw’s other favourite words.   Here, there was a section in Shaw’s speech that I totally agreed with

Migrants are not to blame for the social and economic ills of this country.
Migrants are not to blame for the housing crisis.
Migrants are not to blame for our children who go to school hungry.
Migrants are not to blame for the long hospital waitlists.
Migrants are not to blame for our degraded rivers.
It is the government’s failure

But again, is anyone engaged in the public debate saying anything different?   I was flattered to be described recently by the New Zealand Initiative as “New Zealand’s most articulate critic of immigration”.  I’ve said repeatedly that migrants are just doing what all of us probably seek to do –  pursuing the best opportunities for ourselves and our children.  The problem isn’t the individuals, it is the policy choices governments make.  Again, is anyone who is critical of current immigration policy saying anything different?

Shaw seems to have abandoned what he described as

an attempt to try and shift the terms of the debate away from the rhetoric and more towards a more evidence-based approach.

and tried to cover his own poor specific policy proposal last year, by adopting instead the politics of the slur.   And all while pretending to claim the high moral ground.   Perhaps naively, I’d always thought the Greens –  much as I disagree with them on most things –  were better than that.

As it is, we are now left unclear what the Green Party’s immigration policy really amounts to.  To their credit, there is a 10 page densely-typed immigration policy document on their website, but neither it nor the two page summary give us much clarity at all.

They begin

We support an appropriate and sustainable flow of migrants

Which differentiates them from who how?   “Appropriate” is one of those words bureaucrats use when they don’t want to be specific.

And among their three ‘key principles’

Maintain a sustainable net immigration flow to limit effects on our environment, society and culture.

Surely any possible worries about the impact on “society” or “culture” could only stem from “xenophobia”?  Or is that only when other people make such arguments?

There are strange observations such as

Only make decisions to use immigration as an instrument of economic policy openly by an Act of Parliament

I don’t really disagree, but…..immigration policy operates under the Immigration Act, passed and amended by Parliament.  And among the purposes listed in that Act is

contributing to the New Zealand workforce through facilitating access to skills and labour

The Immigration Act, at least in its modern guises, has always been substantially an instrument of economic policy.

There is lots of detail on various aspects of the policy, but no sense at all as to how many permanent non-citizen migrants we should be seeking to take each year.  We know they are keen to take more refugees, but it isn’t even clear whether that increased intake would be in addition to the total number of non-citizens we take in each year at present, or whether additional refugees would replace some others.

On voluntary migrants they say

an open immigration policy would be unmanageable, and it is the Government’s duty to ensure that voluntary immigration is managed in the national interest. Although ‘national interest’ can mean different things to different people, the definition that has informed our national immigration policy for many years is that we should accept people who will bring skills, capital, or other desirable attributes with them.

And they have a view on the types of skills which should be favoured

Give priority in the skilled migrant category to skills needed for a sustainable society and economy, such as scientists, engineers and other trades with specialised skills applicable to fields including — but not limited to — organic farming, biodegradable materials, recycling, and renewable energy and fuels.

But there is nothing, at all, as to whether current target levels (around 45000 per annum residence approvals) is too high, too low, or about right.

Not even their general stance towards the environment gives much clue.   In discussing “yearly immigration quotas” they say we need

an assessment of the ability of our environment to cope with population increases, taking into account changes in energy use and other behavioural and infrastructural factors;

but they also talk in the same breath of

the need to have spare environmental, social and cultural ecological capacity to accommodate potential returning New Zealanders and people displaced by climate change

But what does it all mean?   You could mount a good argument, on environmental grounds, for a much lower annual target for new residents.   And the likely economic costs of meeting our climate change emissions commitments –  made more difficult by rapid increases in population – would just reinforce that, especially as the Greens are explicit that immigration policy needs to be managed for the interests of New Zealand, not the world.   But that doesn’t seem to be the Greens approach at all.

And then of course, there are the cultural dimensions.  Here is what they have to say

The Taonga of our people, and sites of historical, cultural, environmental, recreational, and general emotional significance for resident New Zealanders, should be protected from adverse impact as a result of immigration, and should not be seen as up for sale to wealthy newcomers. The Green Party will:

1. Take all reasonable steps to prevent immigration numbers, and the sale of land to rich immigrants, from having an adverse impact on Taonga.

But, again, what does it mean?   And why isn’t it what the Greens themselves would refer to as “xenophobia” if anyone else was raising the issues?

Perhaps one can only conclude that answering fairly basic questions like how many non-citizens we should take in each year, or even just what rationing devices we should use to decide which migrants to take, is altogether too hard.  That isn’t promising for a party that wants to be in government only a few months hence.

Reading Shaw’s speech the other day, I did notice this line

in fact, the Greens have the ambition of being the most migrant-friendly party in Parliament.

I did carefully note the potential distinction between “migrant-friendly” and “migration-friendly”, but when I first read the line I was struck by how similar it was to lines one sometimes sees from ACT.   David Seymour obviously thought so too, as he was soon out with a release casting doubt on the Greens’ claims in this area, and suggesting that ACT really was the most pro-immigration party.    Perhaps the Greens just want to be known as nice, while Seymour explicitly eschews niceness

We stand up for productive immigrants and the businesses that employ them, not because it feels nice, but because New Zealand needs immigrants

In fact, I suspect both parties have quite strong globalist leanings –  more so than a concern for the interests of existing New Zealanders –  but neither can quite bring themselves to consistently adopt such an approach.  Curiously, both also seem keen on values statement and the indoctrination of immigrants –  even if they probably couldn’t agree much about what ideas they’d indoctrinate the immigrants with.

If it weren’t for such leanings, it is hard to imagine the Greens –  vocal champions of clean rivers etc –  wouldn’t be much more strongly advancing an agenda that avoided government policy exacerbating population pressures on the environment.    Whether on economic grounds, or environmental grounds, the immigration programme we’ve run for at least the last 25 years (through all sorts of year to year swings in the overall net inflow or outflow) simply doesn’t look to have been working in the interests of New Zealanders as a whole.  If the Greens disagree, it would be good to see the argumentation and evidence.

 

 

 

Emissions again

After my post the other day, I pricked up my ears when I heard on the radio this morning that new data on greenhouse gas emissions had been released, and at the same time heard various industry lobby groups calling for more government support (money or regulation”) for this, that or the other mitigating measure.  It is the costs of meeting the New Zealand government’s emissions reduction target that worries me.

(As it happens, I was emitting carbon at the time, driving home from the supermarket in a petrol-fuelled car.  But I had already walked up the (rather steep) hill carrying several kilos of groceries home earlier in the morning.)

Today’s release consists primarily of a 542 page report from the Ministry for the Environment (MfE).  But they also had a convenient eight page summary document.

In my post the other day, I included this chart of GDP per capita for OECD countries, in the most recent year for which there is data, 2014.

emissions per GDP

New Zealand was second only to Estonia in the level of emissions per unit of GDP.

I was interested to see that MfE made reference to this measure in their snapshot report.  Under the heading “New Zealand’s economy is growing faster than our emissions”, they included this chart.

MFE emissions

That looks quite good on first glance.

But how, I wondered, did New Zealand compare to other OECD countries?  You’ll notice that on that chart emissions per unit of GDP fell in 2015.  Since the OECD databases aren’t yet updated for 2015, and we don’t know what happened to other countries in 2015, the following charts use the data only for 1990 to 2014.    (MfE also report a rebasing of the entire series, slightly lowering New Zealand’s estimated emissions over the whole 25 year period.  But relative to the charts below this rebasing would worsen  New Zealand’s relative performance, since the revision downwards for 1990 was a little greater than the revision downwards for the more recent years.)

Here is emissions per unit of GDP for those OECD countries (all but one) for which there is 1990 data.

emissions 1990

In 1990 we were only sixth highest in the OECD.   And by 2014 we were second highest.  I guess the Ministry for the Environment (and their Minister) weren’t too keen on highlighting that point.

Here is the percentage changes in emissions per unit of GDP to 2014 (for a small number of countries only 2013 data is available).  MfE highlighted that New Zealand’s emissions fell by 35.9 per cent from 1990 to 2015.

change in emissions

Only 10 OECD countries had smaller reductions in emissions per unit of GDP than New Zealand over this period.  Of them, one might reasonably think that severe economic stresses (falls in GDP) in recent years might help explain Italy, Spain, Greece and Portugal.  And as Japan’s emissions rose a lot in 2011,  the year of the earthquake/tsunami, the enforced shift away from nuclear power at the time probably explains what is going on there.

Of the five countries that were to the right of New Zealand in 1990, four had among the largest percentage reductions among OECD countries.  Even Australia’s reduction was around the median.  It does leave New Zealand rather standing out.

(Perhaps some of this is covered in more depth the 542 page report.  I went through the Executive Summary and the table of contents and couldn’t see any likely references, but I may have missed them.)

In the snapshot document, straight after the emissions per unit of GDP chart, MfE does have a brief section on

Some of the challenges New Zealand faces when reducing emissions include:

  • a growing population
  • almost half our emissions are from agriculture where there are fewer economically viable options currently available to reduce emissions
  • an electricity sector that is already 80.8 per cent renewable (meaning that we have fewer ‘easy wins’ available to us compared to other countries who can more easily make significant emissions reductions  by switching to renewable sources of electricity).

I was very pleasantly surprised to find the “growing population” as the first item on the list (it isn’t particularly relevant to emissions per unit of GDP, but is very relevant to total emissions –  the variable in terms of which our government’s target is expressed).

It is hard to disagree with them  But it does leave one wondering what advice or research/analysis they have done, and provided to Ministers –  including when the target was being adopted –  about the implications of New Zealand’s immigration policy.  Our non-citizen immigration policy pushes up the population by almost 1 per cent per annum (against an, admittedly unrealistic, benchmark of zero inward migration of non-citizens).  Have they analysed the potential costs and benefits from lowering the non-citizen immigration target relative to other possible abatement (or compensation) mechanisms?  Perhaps there is credible modelling that suggests the overall abatement costs to New Zealanders would be lower through other plausible mechanisms.  But given that population increases appear first, and without further commentary, on their lists of “challenges” it would be good to know if they have done the work.

On reflection, I think I will lodge an Official Information Act request to find out.

(And it still leave me mystified why, when even the government’s own Ministry for the Environment is citing continuing population increases as a constraint on meeting the emissions reduction target, the Green Party continues to support large non-citizen migration inflows.  Migration might only transfer people from one country to another but given (a) the issues around agriculture, and (b) the reasonable notion that New Zealand members of Parliament should be looking out first for the interests of New Zealanders, it shouldn’t be a consideration they can simply ignore in thinking about New Zealand’s ability (and at what cost) to meet the emissions reduction target.)

More people means more emissions. So how about fewer people?

I’ve never had that much interest in climate change.  Perhaps it comes from living in Wellington.   If average local temperatures were a couple of degrees warmer here most people would be quite happy.    And as successive earthquakes seem to have the South Island pushing under the North Island, raising the land levels around here –  you can see the dry land that just wasn’t there before 1855 –  it is a bit hard to get too bothered about rising local sea levels.  Perhaps it is a deep moral failing, a failure of imagination, or just an aversion to substitute religions.  Whatever the reason, I just haven’t had much interest.

But a story I saw yesterday reminded me of a post I’d been meaning to write for a few weeks.  According to Newshub,

In documents released under the Official Information Act, a briefing to Judith Collins on her first day as Energy Minister says the cost to the economy of buying international carbon units to offset our own emissions will be $14.2 billion over 10 years.

In the documents, officials say “this represents a significant transfer of wealth overseas”, and also warn “an over-reliance on overseas purchasing at the expense of domestic reductions could also leave New Zealand exposed in the face of increasing global carbon prices beyond 2030”.

The cost amounts to $1.4 billion annually.

The Green Party says the bill will only get bigger if no action is taken by the Government to reverse climate pollution, and it continues to open new coal mines and irrigation schemes.

Roughly speaking, this suggests we’ll be giving roughly 0.5 per cent of GDP each year to people in other countries, just because of an (inevitably) somewhat arbitrary emissions target.   Many useful economic reforms might struggle to generate a gain of 0.5 per cent of GDP.  These are large amounts of money, inevitably raised at a still larger real economic cost.   And this is on top of the economic costs of domestic abatement policies.

Of course, whatever New Zealand does in this area makes no difference to the global climate.  We are simply too small.  Most people recognise that we sign up to arbitrary targets through some (not unrelated) mix of wanting to be a good international citizen and (perhaps as importantly) being seen as a good international citizen.  If we were regarded as not “doing our bit” there might be a risk of trade restrictions or other adverse repercussions a little way further down the track.

If one is an emissions and climate change zealot, the New Zealand data looks like it could give you grounds for zealotry.   For example, here are total emissions (in CO2 equivalent terms) per unit of GDP (using PPP exchange rates), from the OECD databases.  Why per unit of GDP?  Well, generating GDP takes various inputs, and emissions of greenhouse gases are often one of them.

emissions per GDP

But emissions levels are, at least in part, about geography and industry structure.  They aren’t just a matter of “wasteful” choices.   Thus, steps to reduce emissions might also reduce the number of units of GDP.   (In emissions per capita terms, we don’t rank as far to the right –  being quite a lot poorer than (say) Australia, Canada and the United States).

The self-imposed emissions reductions targets are, I gather, expressed in terms of total emissions.    Again using OECD data, here is how the various countries have done on that score since 1990 (the typical reference date –  and a somewhat convenient one for the former eastern bloc countries, which often had very inefficient heavy industries).

emissions total

But one of the things that marks us out relative to most of the OECD (and certainly relative to those former eastern bloc countries on the left of the chart) is the rapid growth in population we’ve experienced since then.   In fact, New Zealand’s population has increased by more than 40 per cent since 1990.  By contrast, all the world’s high income countries’ population has increased by only around 15 per cent over the same period.   And all else equal, more people tend to mean more emissions  (although no doubt it isn’t a simple one-to-one relationship).

In per capita terms, our greenhouse gas emissions have actually fallen since 1990.  Of course, so have those of most OECD countries.  Here are the data.

emissions pc

Our average per capita emissions have been falling less rapidly than many other OECD countries, but not that much less rapidly than the OECD total.   And all this in a country where I gather –  from listening to the occasional Warwick McKibbin presentation –  that the marginal cost of abatement is higher than almost anywhere in the world.  Why?  Well, all those animals for a start.  And the fact that we already generate a huge proportion of our energy from renewable sources (all that hydro).  And, of course, distance doesn’t help –  aircraft engines use a lot of fuel, and neither a return to sailing ships nor the prospect of, say, solar-powered planes at present seem an adequate substitute.

So you have to wonder how our government proposes to meet its self-imposed targets, without doing so at great cost to the living standards of New Zealanders.

In fact, it seems the government is wondering just that.   A few weeks ago,

The Minister for Climate Change Issues, Hon Paula Bennett, and the Minister of Finance, Hon Steven Joyce, today announced a new inquiry for the Productivity Commission into the opportunities and challenges of a transition to a lower net emissions economy for New Zealand.

The terms of reference are here.    As they note

New Zealand has recently formalised its first Nationally Determined Contribution under the Paris Agreement to reduce its emissions by 30 percent below 2005 levels by 2030. The Paris Agreement envisages all countries taking progressively ambitious emissions reduction targets beyond 2030. Countries are invited to formulate and communicate long-term low emission development strategies before 2020. The Government has previously notified a target for a 50 per cent reduction in New Zealand greenhouse gas emissions from 1990 levels by 2050.

Which does look a little challenging (in 2014 total emissions were about 3 per cent lower than 2005 levels –  30 per cent looks a long way away).  That isn’t too surprising.  After all,

  • the marginal cost of abatement is particularly high in New Zealand
  • the rate of population growth in New Zealand has been rapid, and
  • the rate of population growth is projected, on current policies, to continue to be quite rapid.

In fact, SNZ project another 25 per cent population growth by 2050 –  quite a slowing from here, but still materially faster than the populations of most other advanced economies will be growing.  And, recall, more people typically means, all else equal, more emissions.    The 2050 target, in particular, requires quite staggering reductions in per capita emissions –  actual emissions now are a quarter higher than in 1990 –  if anything like these population increases actually occur.

The terms of reference for the Productivity Commission inquiry go on at  length about all manner of things, including noting (but only in passing) that there may be “future demographic change”.

Recall that New Zealanders are actually doing their bit to lower total emissions. Our total fertility rate has been below replacement for forty years.  And (net) New Zealanders have been leaving New Zealand each and every year since 1962/63.    If New Zealanders’ personal choices had been left to determine the population –  the natural way you might think –  total emissions in New Zealand would almost certainly be far lower than they are now.   Check out the low population growth countries’ experiences in the second chart above.

Instead, we’ve had the second largest (per capita) non-citizen immigration programme anywhere in the OECD (behind only Israel),  a programme that (as it happens) got underway just about the time (1990) people benchmark these emissions reductions targets to.

As I’ve noted repeatedly, neither the government (or its predecessors), nor the officials, nor the business and think tank enthusiaists for large scale immigration, can offer any compelling evidence for the economic benefits to New Zealanders (income and productivity) from this modern large scale immigration.    And when they do make the case for large scale immigration, they hardly ever mention things like emissions reductions targets (I’m pretty sure, for example, there was no reference to this issue in the New Zealand Initiative’s big immigration advocacy paper earlier in the year).    Even if, to go further than I think the evidence warrants, one concluded that the large scale immigration had made no difference at all to productivity levels here (and remember that, for whatever reason, we have actually been falling slowly further behind other countries over this period despite all the immigration), once one takes account of the substantial abatement costs the country is likely to face if it takes the emissions reduction target seriously, the balance would quite readily turn negative.    We would need to have managed quite a bit of spillover productivity growth from our not-overly-skilled immigration programme (and recall that no gains have actually been demonstrated)  just to offset the economic costs, direct and indirect, of meeting emissions reduction targets which are made more onerous by the rapid increase in population numbers.

So I do hope that as the Productivity Commission starts to think about how to conduct their emissions inquiry, they will be thinking seriously about the role that changes in immigration policy could play in costlessly (or perhaps even with a net benefit) allowing New Zealand to meet the emissions reductions targets it has set for itself.  On various assumptions about the economic costs or benefits of immigration, how would the marginal costs of abatement compare as between lowering the immigration (residence approvals) target, and other policy mechanisms that are more often advocated in this area?   It would be interesting to see the modelling work on these issues.  If the Productivity Commission doesn’t take seriously the reduced immigration option, it would be hard not to conclude that ideology was simply trumping analysis.

Of course, reduced population growth through lower immigration isn’t a solution for every country.  On the one hand, people who don’t come here, stay somewhere else.  And on the other, most advanced countries have much smaller immigration programmes than we do.  But if it isn’t a solution for every country,  it looks like a pretty sensible and serious option for New Zealand specifically.  And the interests of New Zealanders should be the primary focus of our policymakers, and their advisers.

It is also brings to mind the old question as to why the Green Party in particular seems to remain so committed to large scale immigration, and the “big New Zealand” mentality, that has driven politicians here (of all stripes) for more than a century.  Not only would a lower population be consistent with New Zealanders’ personal revealed preferences (birth rates and emigration) and actions, it would assist in meeting emissions targets.  Perhaps to idealistic Greens that seems like “cheating” –  it doesn’t reduce global emissions, although it may put the people in places where the costs of reducing global emissions is cheaper than it is here.

But even if so, then what about one of those other pressing Green concerns –  water quality and the pressure on the environment from the increased intensity of agriculture?  There is increasing recognition across the political spectrum that there is a major issue here, and it is an area where New Zealand actions and choices make all the difference.   Cut back the immigration target and, over time, we would see lower real interest rates and a lower real exchange rate.   Against that backdrop it becomes much easier to envisage governments being able to impose much stiffer, and more expensive, standards on farmers (the offset being the lower exchange rate).      With a less rapidly-growing population, the (probable) reduced growth in agricultural output would be less of a concern (economically) and real progress could be induced on the environmental fronts (emissions and water pollution etc), without dramatically eroding the competitiveness of New Zealand’s largest tradables sector.

(Much the same sort of argument can be advanced in respect of congestion and pollution costs associated with growth in tourism: less rapid immigration would result in a lower real exchange rate, making it more feasible (economically and politically) to levy the sorts of charges that might effectively deal with pressures that the sheer number of tourists is imposing in some parts of the country –  in a country where the natural environment is really what draws people.)

It is past time for a serious debate on just what economic gains (if any) New Zealanders as a whole are getting from continued large scale non-citizen immigration.  The emissions reduction target might be seen by some as an arbitrary, even unnecessary, intervention, and is no doubt seen by others as a moral imperative, perhaps the very least we could do. I don’t have a dog in that fight.  But the targets are a fact –  a domestic political reality, and probably an international constraint we have to live with even if we didn’t really want to.  Against that background, and given the high marginal cost of abating greenhouse gas emissions in New Zealand, and with little or no evidence of other systematic gains to New Zealanders from the unusually large scale immigration programme we run, we really should be taking more account of our immigration policy in thinking about how best (most cheaply) to reduce effectively greenhouse gas emissions, as well as the water pollution that increasingly worries many New Zealanders.

Labour/Green Budget Responsibility Rules

Grant Robertson, for Labour, and James Shaw, for the Greens, released on Friday a short document on the “budget responsibility rules” the two parties would adopt if they are in a position to form a government after the election.

As others have noted, it was PR win for the two parties, in what was in any case not a great week for the government (Afghanistan and all that).    If one criticism of the left-wing parties in the 2014 election was that no one seemed sure what a Labour-Green government might look like, or how the key figures might get on, this is the sort of initiative that helps build confidence and makes people nearer the centre, or just tired of nine years of a government that has accomplished little, think harder about the possibility of voting for a change.   Whatever their other specific policies, whatever their other limitations, in this release –  and, for example, in the double-page spread in the Herald, – Shaw and Robertson looked and sounded like plausible responsible senior ministers.

On the substance, I think it is only fair to note that for 30 years or so there hasn’t been a huge difference between the two main parties on the overall approach to fiscal policy, and that has been to the credit of both parties.  Roger Douglas and David Caygill broke the back of our record of fiscal deficits, and Ruth Richardson and Bill Birch finished the job.  Both parties ran surpluses through much of the 1990s and the 00s.  The budget was run badly into deficit late last decade, through some combination of poor official forecasting, the global recession and productivity slowdown, and the earthquakes.  Policy played a part –  Labour in government was responsible for a large increase in spending (advised by Treasury that it was sustainable). But had National been in government in 2005-08 it is difficult to believe that fiscal bottom lines would have been much different.  They’d have been getting the same Treasury advice about revenue sustainability, although presumably they’d have done more about tax cuts than Labour did, and put through fewer spending increases.   Since then both main parties have had a shared commitment to get back to surpluses –  helped along by relatively favourable terms of trade, and unexpectedly strong population growth, which tends to flatter the fiscal position in the short-term.

Of course, the Greens have remained a bit of an unknown quantity in the broad area of economic management, not helped by for example the flaky suggestion from their former leader that New Zealand should have been adopting quantitative easing, at a time when there was still plenty of scope for conventional monetary policy.  But that now seems to be in the past, and in this new agreement the Greens have pretty much signed on for an orthodox and fairly sensible approach to broad fiscal management.  Perhaps they always were, but sometimes writing things down and stating them openly matters.

There are six points in the Budget Responsibility Rules document.  I’m mainly interested in the sixth of them –  the genuine and welcome innovation.    My comments on most of the others are mostly around the margins, intended as constructive technical points rather than any very substantial disagreement.

The first two points are

1. The Government will deliver a sustainable operating surplus across an economic cycle.

An OBEGAL surplus indicates the Government is financially disciplined and building resilience to withstand and adapt to unforeseen events. We expect to be in surplus every year unless there is a significant natural event or a major economic shock or crisis. Our surpluses will exist once our policy objectives have been met, and we will not artificially generate surpluses by underfunding key public services.

2. The Government will reduce the level of Net Core Crown Debt to 20% of GDP within five years of taking office.

To give future generations more options, reducing government debt has to be a priority. By setting a target, provided that economic conditions allow, we will be able to make responsible debt reductions and invest in housing and infrastructure that strengthen our country and prepare us for future challenges.

On which I would make just two points:

  • if nominal GDP is growing at, say, 4.5 per cent per annum (say, 2 per cent inflation, and 2.5 per cent through some mix of population and productivity growth) then a stable debt to GDP ratio of 20 per cent is consistent with annual deficits of 0.9 per cent of GDP.  I’m not opposed to the commitment to run surpluses in normal times –  presumably offset by deficits in years with serious economic downturns –  but since those severe downturns typically come less than once a decade, and a parliamentary term is only three years, they will need to do some hard thinking about how to operationalise these self-imposed rules jointly, as the 20 per cent target comes into view.   There is a real risk of seriously pro-cyclical fiscal policy quite late in economic cycles, compounded by the fact that the commitment to run surpluses is not expressed in terms of a structural balance (ie stripping out the estimated budgetary effects of the state of the economic cycle).
  • what is a sensible debt target with, say, zero population growth would, all else equal, be too low a target if population growth was to continue at 1.5 or 2 per cent per annum.   The Greens have announced a net immigration target which is consistent with population growth of on average around 1 per cent per annum.  We don’t yet know what Labour immigration policy is.      (I should add that this technical point is relevant to the current and past governments’ specification of debt targets as well –  such targets typically arose more out of political framing etc than out of robust economic analysis.)

The third of the rules is

The Government will prioritise investments to address the long-term financial and sustainability challenges facing New Zealand.

The Government will prioritise responsible investments that enhance the long term wellbeing of New Zealanders – such as restarting contributions to the Super Fund. In addition we will invest in infrastructure to support our growing population, and reduce the long term fiscal and economic risks of climate change.

I’m not going to get into debates about NZSF here (the bigger fiscal issue is how much overall public sector saving there should be, not the institutional form it takes), and presumably no one is going to quibble with the high level of generality in the italicised commitment.  All the arguments –  including those within any future government – will be about the details of specific policies, values, and preferences, and about how hardnosed project evaluation and cost-benefit analyses should be.

The fourth rule is interesting and somewhat surprising

4. The Government will take a prudent approach to ensure expenditure is phased, controlled, and directed to maximise its benefits. The Government will maintain its expenditure to within the recent historical range of spending to GDP ratio.

During the global financial crisis Core Crown spending rose to 34% of GDP. However, for the last 20 years, Core Crown spending has been around 30% of GDP and we will manage our expenditure carefully to continue this trend.

Here is the chart of core Crown spending as a share of GDP.

core crown expenses

The average over that full period has been 30.8 per cent of GDP.

I’m more hesitant about this “rule” or commitment than you might expect.   On paper it looks like a timely recognition of the cost to productivity and real future incomes of too large a state.  But when, thinking about fiscal rules, it is really important to think about (a) how they might be gamed in future, and (b) how they might lead even the authors of those rules into decisions that might less than ideal.  I’ve also not seen anyone ask Labour, in particular, how they square a semi-commitment to hold core Crown expenses to around 30 per cent of GDP with doing nothing about NZS.  Even the most enthusiastic supporters of the NZSF recognise that it will make only a modest contribution to covering those ageing population costs  –  and probably none at all in the life of any Labour-Green government elected this year.

But even setting that specific issue to one side, this is a commitment around core Crown expenditure, but there are other ways to skin a cat.  If a future government feels bound by an expenditure commitment, why not try regulation.  There doesn’t appear to be anything comparable limiting future extensions of the regulatory state (thus, say, in a US context a statutory mandate compelling people to buy health insurance might be a substitute for more direct government spending on health).  And it isn’t clear that this commitment by Labour and Greens would limit the use of tax expenditures.  And people closer to the details of how governmemt activity is classified might want to pay attention to the possibilities in the distinction between core and total Crown.  Finally, expenditure to GDP ratios can be flattered by the state of the cycle –  a ratio of 30.000 per cent late in a big boom, can quickly transform into one of 32 or 33 per cent without any new discretionary fiscal choices if there is a serious recession.

These comments are, mostly, not intended to take away from the welcome overall thrust of the Labour/Greens commitments, but they are some details to think about when it comes to firming up what the commitments might mean if/when they are in office.  Under pressure, ministers and smart bureaucrats find “outs”.  For now, one should welcome the fact that the parties believe it is politically advantageous to commit to something like an expenditure (share of GDP) ceiling.

I’ll pass over the tax commitment quickly

5. The Government will ensure a progressive taxation system that is fair, balanced, and promotes the long-term sustainability and productivity of the economy.

The Government will ensure a progressive taxation system that is fair, balanced, and promotes the long-term sustainability and productivity of the economy.

Since no one –  apart perhaps from one or two lump-sum taxers lurking under rocks somewhere –  will disagree, it means very little in substance and constrains no practical choices.  The substance of any tax reform will no doubt flow from the tax working group they propose to establish –  where the terms of reference and the people they agree to appoint will matter rather a lot.

My main interest in the whole document is the commitment to establish a fiscal council.

Measuring our success in government

  • The credibility of our Budget Responsibility Rules requires a mechanism that makes the government accountable. Independent oversight will provide the public with confidence that the government is sticking to the rules.
  • We will establish a body independent of Ministers of the Crown who will be responsible for determining if these rules are being met. The body will also have oversight of government economic and fiscal forecasts, shall provide an independent assessment of government forecasts to the public, and will cost policies of opposition parties.

It isn’t in the official document, but in another interview with Robertson he confirmed that the body would not be located inside Treasury.

The establishment of a body of this sort would be entirely conventional for an advanced, open, economy.  It is something the OECD, for example, has recommended for some time and (from memory) the Treasury’s own external reviewer a couple of years ago also favoured establishing one.

Early last year the Green Party came out advocating the establishment of an independent policy costing unit.  I wrote about the proposal here.  It was a well-intentioned, but somewhat flawed, proposal – including because, somewhat surprisingly, it had proposed locating the independent unit, to cost opposition party policies, inside the Treasury.

I noted at the time that

I reckon that if New Zealand is going to establish such a unit it should be done as an office of Parliament, and I wonder why the Greens chose not to take that option.  Perhaps they took the view that such a unit would be cheaper if it operated within Treasury (drawing on the corporate functions of a larger organization).  But even if that were true, I suspect it would be a false economy.

On the overall proposal, I noted

But is it worth going down this track?  I’m still ambivalent.  I don’t think there is enough thoughtful scrutiny of macroeconomic policy issues in New Zealand (and touched on some of that here), and before the Greens proposal goes any further it would be worth looking carefully at what is done in other countries.

Before concluding

On balance, I still think there is a role for something like a (macro oriented) fiscal council in New Zealand, perhaps subsumed within the sort of macroeconomic or monetary and economic council I suggested here (but perhaps that just reflects my macro background).   And there is probably a role for better-resourcing select committees.  But when it comes to political party proposals, if (and I don’t think the case is open and shut by any means) we are going to spend more public money on the process, I would probably prefer to provide a higher level of funding to parliamentary parties, to enable them to commission any independent evaluations or expertise they found useful, and then have the parties fight it out in the court of public opinion.  The big choices societies face mostly aren’t technocratic in nature, and I’m not sure that the differences between whether individual proposals are properly costed or not is that important in the scheme of things (and perhaps less so than previously under MMP, where all promises are provisional, given that absolute parliamentary majorities are very rare).  If there are serious doubts about the costings, let the politicians (and the experts each can marshall) contest the matter.

I presume Labour and the Greens are still some considerable way from pinning down all the details of how the proposed body would work.  I remain a bit sceptical about the policy costing dimension of the proposal, for reasons outlined at greater length in the earlier post, and suspect that if they do get the unit up and running it will be a distinctly secondary function.

The main area where a fiscal council –  or indeed, a broad macro policy advisory council –  could add value is around the bigger picture of fiscal policy (not just rule compliance, but how the rules might best be specified, and what it does (and doesn’t) make sense to try to do with fiscal policy).

But there are still important caveats.  For example, it is fine to talk in terms of the council having “oversight of government economic and fiscal forecasts”, but quite what level of resource would that involve?  Does the proposal envisage that the core forecasting role, on which government bases its policies, would move outside Treasury?  Even if there was some merit in that, it would be likely to end up with considerable duplication –  since neither the Treasury nor the Minister is likely to want to be without the capability to have their own analysis done, or to critique the work of the fiscal council.  The UK’s experience is likely to be instructive here, but we also need to recognise the small size of New Zealand and the limited pool of available expertise.  Our population –  and GDP –  are less than a 10th of the UK’s.

Again, I think Labour and Greens are moving in the right direction here, so I’m keen to see a good robust institution created, not to undermine the proposal.   The success of such a body over time will depend a lot on getting the right people to sit on the Council, and to keep the total size of the agency in check.   Too large and it will be an easy target for some other future government –  no doubt enthusiastically offered up by a Treasury keen to remove a competing source of advice.  But make it too small, or with too many establishment figures on the Council, and people will quickly wonder what is the point.  As it is, we don’t have a lot of independent fiscal expertise in New Zealand at present (as distinct, say, from specific expertise on eg aspects of the tax system).   I presume that if they form a government later in the year, Labour and the Greens will be looking quickly to the experiences in this area of small advanced countries like Ireland and Sweden.

My other caveat isn’t a specific criticism of this proposal, but rather a more general one. It is always easy to establish new, small, government entities.  Each on its own doesn’t cost much, but they all add up.  Perhaps there would be something to be said for a one-in one- out “government entity budget”, to parallel the “regulatory budget” approach being tried in a few places.  I wonder which entity Labour and the Greens would kill off to make way for a fiscal council?   It would be easy for someone on the more sceptical side of the debate around the role of government, and the incentives/capabilities of government, to come up with a list.  But that isn’t usually where Labour and the Greens are coming from and in time layer upon layer of marginally useful government entities provide lots of jobs for the boys (and girls).  It has been a while since there was a good quango-hunt.  Perhaps we are overdue for another?