Thursday, 29 January 2015


The Labour Party's come out against zero-hour contracts: an employment practice where employees have to be on call for what shifts might come, but with no particular guarantees of how many hours might come or when those hours may be required.

Jim Rose discusses things in a four-post series, which takes a more academic take on the question.

Here, Jim argues that a good start would be reckoning why employers and employees would agree to the deal in the first place. Unless labour markets are highly uncompetitive with employers having massive power over employees, employers should have to pay a per-hour premium if zero-hour contracts are a hassle for workers. If we see zero-hour contracts in Christchurch, for example, I don't think we can first-cut look to power as the answer: plenty of labour demand there.

In the second part, Jim notes that the fixed costs of employment are such that you shouldn't expect zero-hour contracts: you'll typically do better with one 40-hour worker over two 20-hour workers barring some kind of mandatory benefit for 40-hour workers. I don't think there's any set benefits threshold that obtains for 0-hour contract workers as compared to 20-hour workers though. Each additional employee means recruitment, overhead, HR and training costs; why pay all that out on somebody who might only work 3 hours a week?

You might do it if there are strong and somewhat unpredictable fluctuations in product demand. Jim notes premiums for part time jobs in seasonal industries; I'd also expect some of those employers could also see advantages of zero-hour contracts. If it's raining, you're less likely to send a team of fruit-pickers out; when it's sunny, you need all hands on deck. Jim expects, rightly I think, that zero hour contracts would be most likely in jobs with low recruitment costs and where specialised training needs are low. While you might think that could point to potential power issues, think twice: specialised skills can be more likely to make you beholden to particular employers.

In part 3, Jim expects workers with low fixed costs of working will flip into the zero-hour sector while those with higher fixed costs would prefer lower hourly rates but more guaranteed hours. Again, read "lower" here as meaning "relative to what they could elsewhere earn".

Finally, Jim relates all this back to problems of team production.

Jim makes one big and important point in all this: unless we have a good idea about why firms are moving to this contract structure, and why employees are sticking with it rather than flipping instead to other employers, meddling in the arrangements via policy is pretty risky.

Wednesday, 28 January 2015

Neo-lib anti-culture support for the arts

Ok. Since moving to Wellington, we've seen Circa Theatre put on a production of Little Red Riding Hood and Bats put on a production of Richard III.

We thought the former would be good for the kids: it was an early enough show and was advertised as pantomime. The opening musical number was a lengthy rant on the evils of the National Party. The Big Bad Wolf was a scary awful developer who wanted to collude with evil scary politicians to turn some park in Karori into apartment blocks. We ducked out at half-time as the show was running really long and we were past the kids' bedtime - they're normally to-bed around 7, and we'd been expecting an hour-long kids kinda show. Our fault on due diligence.

The final Act of Richard III had Richard the Third's face on a National Party 2014 election placard in place of John Key's, and Henry VII's face in place of Cunliffe's on a Labour hoarding. The play's leaflet apologised for the strong partisanship in this performance, but because they just hate National so much and because they thought it was so apt, they hoped nobody minded too much.

Both plays were fun and I enjoyed them, but it's hardly unprecedented for tax-funded arts types to go all-out on how much they hate the government (if National's in office), markets, economists, developers, and businessmen. I might be misremembering, but I thought I saw various government funding body seals on both programmes.

Anyway, today a bunch of people got mad on Twitter that Eleanor Catton, a NZ novelist, complained about NZ's neoliberal profit-loving, culture-hating politicians. Half of them were mad she'd said that; the other half were mad anybody might complain that she'd said it; and some other half entirely were mad at Sean Plunkett. My Twitter filters must be getting better as I didn't see any of it until somebody pointed me to it.

To resolve matters in everybody else is wrong except me fashion:
  1. Catton's complaint is self-refuting: no neoliberal, profit-loving, culture-hating government would keep giving so many grants to so many productions that spend so much time complaining about our neoliberal, profit-loving, culture-hating government. 
  2. John Key's disappointment that she doesn't like him is entirely unobjectionable.
  3. Complaining that artsy types are going to be loud and lefty... would you blame the birds for singing, the fish for swimming, or the children for laughing?*
  4. That so many got so riled up over this whole thing... I guess the summer stupid season isn't over yet. Wasn't there a state-of-the-nation address on or something that people should have been paying attention to? 
* Don't answer this last part if you live in Stonefields.

The retailers respond

Retail NZ's Greg Harford replies to my piece on maintaining the GST-threshold:
While Government must balance potential revenue with the costs of collection when considering the GST loophole, the negative effects on local retailers are an important part of the equation. Difficult conditions for local businesses have flow-on effects that impact the whole economy including reduced employment (which results in reduced consumer spending), lower tax revenue and empty store fronts in our town centres.
GST is not a new tax. Introduced in 1986, New Zealand’s simple and broad-based GST policy was the envy of Australia and the United Kingdom. It was, until the advent of e-tailing, an easy to use and fair system that applied to all good and services consumed by New Zealanders.
The internet means that consumers are now able to easily avoid GST by purchasing from offshore retailers online, and they are doing so in droves. Nielsen estimate New Zealanders spent $1.3 billion on purchases from offshore retailers in 2013 and this is only expected to grow.

The confusing variable de minimis level for GST and duty on offshore online purchases further complicates our otherwise simple consumption tax system.
He goes on to make some reasonable points about Retail NZ's role in informing consumers about the benefits of buying locally. That's all fine; I'm happy with whatever choice consumers want to make about paying more and having all the local service or buying from overseas and potentially having warranty problems.

But I'll disagree that negative effects on local retailers are that substantial a consideration. Really, we need to be minimising deadweight costs here. The absence of GST on imports means some things get imported that, in an ideal world, would be purchased domestically. This distortion is inefficient relative to a blackboard ideal. But some inefficiencies are best left alone - where the cost of mitigating the failure exceeds the cost of the deadweight loss, it's best not to mess with it.

I've yet to see a mechanism for collecting GST on low value imports that does not induce more distortion in favour of NZ retail than the current system applies against NZ retail. If somebody comes up with one, fine. But just insisting that GST be applied without specifying a mechanism for doing it smacks of protectionism, not playing-field levelling.

Rob Salmond also took issue with my piece, though I'm not convinced he read more than the bits I'd excerpted for Offsetting. The Standard thought Salmond worthy of reposting. I left the comment below there for Salmond.

Hi Rob,
If you check the full op-ed piece, you'll note that my main argument is about the hassle cost that GST collection would impose on NZ consumers. I argue that the GST difference is trivial relative to the magnitude of savings from shopping online, and that retailers looking to blame the GST are missing the bigger problem of economies of scale available abroad.
You'll also find that I support applying GST on imports IF there's a mechanism that would impose no hassle costs on consumers and that wouldn't just eat up all the revenue in transactions costs for the government.
I'm not sure why you characterise the argument around extra customs fees as slippery slope. The Customs fact-sheet dated November 2014 says that they collect those two charges whenever they collect GST. I hardly thought it unreasonable to expect that they would continue with that practice. It's always possible that the government could tell them "And, don't charge any fees for collecting $15 on $100 purchase", but that just shifts the collection cost to the broader public, and it wouldn't be trivial. If the existing fees are cost-recovery per transaction, think a bit about how much the Customs budget will have to hike to cover $37 in real costs per processed transaction if they have to process all of them and are barred from recovering the cost. We can ban customs from charging for it, but we can't wave a wand to make the collection costless. We just change who pays.
But, again, that isn't the crux of it. Rather, it's the differential hassle cost imposed on online shoppers purchasing from abroad when they have to jump through additional GST hurdles.
Hey, if you come up with some actual real-world mechanism that works, that's great. I expect that if any such mechanism existed, IRD would already have done it. But you could be an entrepreneur in this space.
The other main point is that NZ retailers may be deluding themselves by laying blame on GST when the price difference between NZ retail and shipped-to-my-door-from-abroad is often 33%-50%. Rather, it's economies of scale from abroad that are the main source of the cost differences.
Anyway, you might check back on the full piece I'd written and linked. I say pretty explicitly that I'd support GST on imports were there a way of doing it without effectively just putting up a big hassle-cost non-tariff barrier.
I'm curious about your source on Amazon's willingness to collect foreign taxes. If it's just that collects VAT on goods shipped from the UK to other parts of the EU, I'm really not sure that's the same thing as agreeing to collect NZ's GST.
Finally, I'll note that where the NZ market is often pretty small and cannot sustain that much competition, it's fringe competition from online imports that help to constrain domestic prices. Make low-value imports a hassle to parallel import, and I'll bet you'll start seeing hikes in the local prices of those products.

State's gonna State

I was surprised on Monday that the flag at Parliament went to half-mast for the Saudi dictator. Graeme Edgeler pointed out on Twitter that the flag does that on the death of every head of state.

I suppose if you do it for one, you kinda have to do it for everybody. Otherwise, you wind up in a big Parliamentary scrap on the death of each and every foreign Head of State. Given the absence of Twitter outrage over the flag-lowering for equally repulsive Hugo Chavez, I expect the general outcome of a "recognise some" rule would be mouth-frothing at the death of every US-allied dictator and silence on the death of every left-wing one, until the whole thing turned into team-based culture wars with the right working to object as strongly to the death of the next socialist tyrant as the left had objected to the last US-allied tyrant. And that would be no fun at all.

I'd prefer a no flag lowering rule. But I'm not sure that wouldn't unravel were there to be a Commonwealth PM, or American President, who died in office. And as soon as that happens, we're back to the bun-fights.

Sending the NZ Governor General out for the funeral does seem a bit much though.

I'd tweeted:
Not much we can do about Club State always choosing to mourn other Heads of State. At least in the movies, Mafia families would always show up to pay their respects to fallen heads of other families; States are gonna State too. But we can choose how we interpret those symbols.

The Herald picked up that tweet; they didn't note it was a tweet.

I'm cool with that, but I'm not sure I'd be always happy with other tweets being cited as though they were official NZ Initiative comment. I'd had tongue-in-cheek comments in twitter replies last week suggesting that instead of reducing immigration to ease pressure on housing, we could deport anybody who objected to a notified consent, whether or not they were NZ-born, which would both free up one NZ house AND make it easier to build new houses. In case it isn't clear, that's neither my official position nor that of the Initiative. But it is kinda fun to think about.

Update: Thanks to Stephen Hickson for pointing out that the first line in the paragraph above was originally missing the critical "not".

Tuesday, 27 January 2015

Online GST revisited

While pretty much all goods and services consumed in New Zealand attract GST, imported goods under $400 are GST-exempt; IRD generally reckons the cost of collecting the tariff to be higher than the taxes collected.

As Australia's debates around reducing or abolishing its GST-free threshold have sparked renewed NZ-retailer pushes for its removal here, I wrote a short piece for NZ Retail, the local retail trade magazine. Their news story is here. Here's the op-ed. A snippet:
Does this create an uneven playing field for New Zealand retailers? Yes, as compared to a world in which tax could be collected costlessly. But consider the real world!
Ordering higher valued products from abroad means they will be held up at Customs until GST is paid. The quickest payment option is the online credit card service which attracts a 2.5 percent convenience charge. Internet bank transfers are cheaper, but require the customer to take the separate step of logging into online banking, making the payment, then waiting for Customs to notice that payment has been made.
Or, you can drive across town to your nearest Customs office. All of these methods also attract a separate Import Entry Transaction Fee of $29.29 (including GST) and a biosecurity levy of $17.63, regardless of the value of the import. That hundred dollar import that was undertaxed by $15 suddenly would attract not only $15 in GST, but also $47.29 in transaction charges.
It often seems like local advocates of a lower GST threshold really just want importation of foreign goods to be such a hassle that customers give up on trying. That world is the one I lived in in Canada in the 1980s, when I would stare longingly at American computer magazines and know that getting anything across the border involved at least $200 in brokerage fees.
I worry that too many local retailers focus on the GST issue when the underlying issue is rather more troublesome. New Zealand simply is not large enough to be able to achieve the economies of scale that foreign warehouses enjoy. Even if GST could be applied on foreign imports, today, with zero hassle-cost imposed, the foreign cost advantage is not likely to decline over time. The problem really isn’t the GST, or at least not in cases where consumers can easily save at least a third by shipping goods in from abroad. Domestic retail of easily shipped goods that do not require specialised local advice is not going to get easier. Recognising that rather than blaming the GST will be an important part of a reality-based reassessment of retail opportunities in the coming decade.

Saturday, 24 January 2015

Costs, benefits, and apartments

Yes, the Motu report on the costs of Auckland's urban planning regulations does not include a measure of the benefits. In some cases this will not matter much; in others, it might.

Andrew Geddis focuses on building height limits which impose about $18-32k per apartment and chides me for ignoring the benefits of those for the potentially otherwise shaded. But look at the main cost categories in the list. Floor-to-ceiling height limits impose $21-$36k per apartment. There is absolutely no offsetting benefit of floor-to-ceiling height limits that is not fully incorporated into the price of the apartment. Sure, the eventual residents will get some value out of the higher ceilings, but there will be plenty of buyers who'd have wanted to save money and to have a lower ceiling. The costs have to be in excess of the benefits for these things. There is no external benefit that comes into play.

And same for balcony area regs that tally $40-$70k per apartment. The only people benefited by these regs are the ones buying the apartments. In the absence of this regulation, they could either buy an apartment with no or small balcony, and save $40-$70k, or one with a big balcony and pay the extra. Some people will be made no worse off due to the reg, as they'd have bought a big balcony anyway; others are being forced to buy a Mercedes when they really wanted a Toyota.

These were two of the biggest per-apartment cost items, and there is no way that benefits can possibly exceed costs unless we think people buying apartments systematically err on the side of buying ones that are shorter than they really want and with less balcony than they really want.

In all these cases, the ideal measure would be a net cost one that said "Ok, so we forced you to buy a Mercedes instead of a Toyota and so you're going to be paying a pile more in mortgage interest than you otherwise wanted, and it's going to cost you more in fuel too. But let's think about how much more fun you'll have driving that Mercedes and count that against the extra price we forced you to pay. And let's think too about how much nicer the place looks when we don't have a bunch of Toyotas driving around."

And sure, you can get some non-crazy benefits from things like viewshafts that wind up putting in height limits. But prior to the Motu report, planners were operating in absolute ignorance of the costs these things imposed. Nobody had any clue; the Auckland stories I've heard suggested that they then didn't put much weight on that there could be any cost. Now they can at least look at the existing viewshafts, tally up the costs they impose, and start thinking about whether it's really worth tens or hundreds of millions of dollars to maintain particular views from particular places.

Geddis is right on this though:
Because irrespective of its source, the value conferred on a property by restrictive planning rules is perceived by the home owner as being "theirs", which then creates the problem for RMA reform that Rob Salmond outlines here:
Per unit apartment costs in high-demand areas line (sic) Parnell would certainly be lower if the developer could build 30 or 40 stories of apartments there, right. And the homeowners of Parnell hate the RMA and its requirements for consent before making a greenhouse, right? But I'm willing to bet the homeowners of Parnell aren't at all in favour of having their tomatoes' sun blocked by a series of large apartment blocks. Dilemma, dilemma.
Which actually is a part of a wider dilemma. Because everyone wants "affordable housing", so long as it doesn't cause the current value of their home to go down. Which, in a housing market that in Auckland is looking more and more like a bubble, poses a real problem for policies that are aimed at increasing housing affordability. 
There is a way around this. Upzone EVERYTHING, make everything tall be subject to notified consent, but restrict standing for objection to directly affected neighbours. And, make it easy for developers to buy options from neighbours saying "Ok, I don't know whether I want to put an apartment building here. I'm paying you $1000 now for the following deal: if I build it, I pay you $50k compensation and you don't object; if I don't, you keep the $1000."

If standing for objection is limited to those directly shaded and incurring real effects rather than made-up stuff, this can work.

Friday, 23 January 2015

RMA changes and council incentives

Me in The Initiative's weekly newsletter:
If councils are determined to commit absurdities, they’re going to do it regardless of fixes to the RMA. After whatever legislative tweaks are enacted, and new Environment Court rulings come through, it will take councils a little while to figure out how to restart the micromanagement that pushes up costs and helps make New Zealand the seventh least affordable place to live in the world.

Councils don’t care about the effects of their planning rules on the macroeconomy, what it does to Reserve Bank policy, or whether it utterly ruins the economy. For them, that’s all under a great big Somebody Else’s Problem shield of invisibility. Councils’ problem is making sure that councillors get re-elected. That means not hiking property taxes too much (and so loading costs onto new developments) and making sure that the short term interests of current voters, and of the loudest voters, are prioritised over the interests of those who might be in town after the next election, if development were allowed. Dumb rules that hike costs could be the desired outcome, not an unintended consequence.

This basic calculus will not change much until councils’ incentives are fixed.
Read the whole thing, or, better yet, subscribe to Insights!