On the Death of the CGT

So it looks like, after all the impending malice, that the CGT is properly dead (at least for another decade or two, but one never knows in NZ politics). I must say, it’s a huge personal relief for me, not because I am ‘rich’, but because the consequences and sheer complexity of such a system would have made my life harder.

As such, I think it a good idea to recap what would have happened:

DIRECT: The people owning certain types of assets (which would have become a political football) would have more complex affairs. We’d have seen a growth in the tax avoidance industry, with increased fees and costs for lawyers, accountants, and valuers. You’d end up with a decade of disruption, as people got their heads around it, and the necessary labour was trained up to handle this (as we simply wouldn’t have enough people to administer such a tax).

INDIRECT: I would have likely changed our saving arrangements away from shares (both inside and outside of KiwiSaver) towards paying down our mortgage and bank deposits (depending how flexible I need the cash). I would have considered switching part of our finances to an offset mortgage (again, a good means to avoid tax). These changes wouldn’t have been particularly helpful to the NZ economy, but they would have been personally sensible (along with many other people). We would have seen more money moving towards the banks and a return to bank focused finance (compare with money being invested in other areas, particularly equity finance).

ECONOMIC: The organisation of our economy would have changed. The proponents blew this sort of thing off under the slogan, ‘But other countries have CGTs, so don’t worry’, but that doesn’t really explain the situation. We have a market which is both very small and which is persistently under-funded in equity terms. The desire to tax equity investment, whether it be in larger companies or small businesses, would have been economically problematic for us. There are reasons NZ’s economy struggles to achieve the levels of output commensurate with our macroeconomic policy settings.

So it’s a rather good win, but it’s also very worrisome how close we came to a catastrophe. The lack of intellectual rigour on the part of so many people, and politicians, was truly astounding. The campaign against the CGT was about principles and simple points, which is heart warming in the sense that NZ still has debates about principle, but it didn’t even have to get into the real details (just simplified points). The real harm the CGT would have caused, the sheer complexity and structural problems that would have arisen, weren’t even really touched.

So I am very grateful, as I’ve seen the bloody things in action and do not want to suffer such nonsense again.

Advertisements

Firearms & Security Part 2/2

Prior to the draft legislation under whatever the Arms Bill will be called (I’m betting something poncey sounding), I thought I’d discuss the ‘elephant in the room’ for New Zealand when violence happens (whether a terrorist incident or just bog standard violence). We are, with little exception, entirely reliant on our police force to provide anything beyond a fisty-cuff response. This isn’t necessarily a bad thing (there are downsides to the alternatives), but what I find so surprising about the response to Christchurch is the complete and utter lack of a debate around actual measures to allow people, organisations, etc. defend themselves (which would actually achieve stopping, or limiting, certain types of events).

Before getting into the more complex discussion around allowing for greater security measures, a few basic points:

(1) We are not allowed to carry or possess arms for self-defence;

(2) This includes security officers; and

(3) It includes reasonably moderate weapons (such as Tasers and pepper spray).

These things, unto themselves, won’t stop all attack types (a lorry smashing into a crowded place isn’t likely to be affected by guards wielding Taser), but it would certainly reduce the utter helplessness everyone else has when someone has a stick, gun, or other personal weapon. However, on the downside of things, if you start arming (or allowing to be armed) every man, woman, and their dogs, you’ll get more misuse of weapons (even if just Tasering people who annoy them). So it’s not a silver bullet, unfortunately.

Now, that said, my suggestion would be (to avert major terrorist attacks, as occurred, not necessarily our more run of the mill issues) that we allow certain additional armaments for qualified security officers. I do not propose this lightly or in an unlimited capacity. My suggestion / opinion would be as follows:

(1) We allow for an additional classification of person under the Private Security Personnel and Private Investigators Act 2010, deemed ‘Armed Security Officers’, who are allowed to possess (while working) certain types of weapons (pepper spray, Tasers, and under strict circumstances, shotguns). This classification would require specific certification, additional training, on-going re-certification, and maintain employment with a certified security firm (so we’re not talking about every security officer suddenly wielding weapons).

(2) This would require that Tasers and pepper spray be re-classified from Restricted Weapons to a new Security category (Category S). Armed Security Officers would be allowed to possess such weapons, while on duty, and would be liable for their use, but with self-defence (including the defence of others) as justification.

(3) The possession and use of firearms is a bit more tricky, but where a security firm can show justification for a high risk location (with Police approval), and with an alarmed weapons cabinet (any access to the cabinet should trigger an armed police response, or if for cleaning and inspection, a police officer being present), then shotguns (as a short range, but highly effective, solution) should be allowed. The armed security officers in question would have to hold an endorsement, with additional on-going training, to be able to work at such a location.

I am not entirely enamoured with the idea of arming security officers, as we’ve had a peaceful society (for the most part), which hasn’t been prone to such extremist nonsense. But, equally, I don’t want people coming here and terrorising/killing us either (or, lest we be too complacent, someone from here doing it). So a measured response, which will reduce actual harm, would be a nice change (compared with all the chest-beating and grief porn that seems to be going on instead).

Firearms & Security Part 1/2

So the Government have announced they are going to ‘change the Arms Act’ and that, with immediate effect, they are moving ‘all MSSAs to Category E weapons’. Now, the actual the actual means they’ve used is through regulations under the Act and redefining MSSAs*. The new definition of an MSSA is:

(a) a semi-automatic firearm that is capable of being used in combination with a detachable magazine (other than one designed to hold 0.22-inch or less rimfire cartridges) that is capable of holding more than 5 cartridges:

(b) a semi-automatic firearm that is a shotgun and that is capable of being used in combination with a detachable magazine that is capable of holding more than 5 cartridges. 

In essence, they’re going for a mixed option of continuing to allow semi-automatics, but only for internal capacity weapons and lowered powered rounds (.22s). Otherwise, you’ll have greater restrictions and need to show genuine professional cause (such as being engaged in major culling work, etc.). For more common, lowered powered situations (such as possum clearing), you’ll still be able to use semi-automatics (as well as for target shooting, where it’s far cheaper).

The actual changes aren’t terrible (a change for this Government) and raise the question: Why do we actually need to change the Arms Act, given that they’ve implemented the changes they said they wanted (removing high capacity semi-automatic rifles, bar .22s, from the market)?

The Act itself is a reasonable means to control firearms use. What worries me is the amount of nonsense coming out about having a ‘register’ (even Judith Collins has gotten on board and dropped down my ranking considerably) and the complete impracticality of such a proposal (we have around 10,000 police officers and 250,000 – 300,000 firearms licence holders, let alone a purported 1.25m to 1.5m firearms). So going, ‘We’ll just have a register’ sounds fraught with problems and likely to be completely ineffective, along with entailing considerable costs.

It will be interesting to see what the supposed next steps are, but I imagine it will just be a re-hash of the previous Act (or a ‘major amendment’, given the complexity and timeframe involved), but meeting the ‘we’ve made changes’ slogan some people so determined to have (regardless of substance).

* http://www.legislation.govt.nz/regulation/public/2019/0055/latest/LMS173651.html

Possible Options for Firearms, Security, & Possibly Self-Defence

After last Friday’s horrible massacre, there has been a lot of debate and statements, be they on Facebook or by politicians, around ‘changes to gun laws’ (something the PM leapt on, the minute she could, and which was compounded by the AG saying he wants to ban semi-automatic weapons). Having mulled over this for a bit (rather than leaping to action), I am going to do a two-part piece on the topic, covering firearms regulations (what can actually be done and what will it actually achieve) and security regulations (what can be done to improve security, if required). I may also do a third piece around personal security / self-defence, but I am undecided, at this stage (the complexity is greater and I am not a specialist in NZ self-defence rules – beyond you can’t use firearms to defend yourself unless there is an imminent threat to human life, but possessing a firearm for such possibility alone is unlawful).

I shall try to get around to them over the next week, but am just outlining at this stage. Areas for consideration are:

FIREARMS

(1) Banning semi-automatics (particularly given their practical uses – compared with all the chatter about ‘nobody actually needs them!’);

(2) Extending Category E licensing to all semi-automatic weapons (regardless of other functional or cosmetic considerations);

(3) Limiting foreign ownership of firearms (such as restricting non-NZ citizens to low-powered bolt action rifles); and

(4) Banning all foreign ownership of firearms (in essence, only NZ citizens would be allowed to hold firearm licences).

SECURITY

(1) Creating a new classification of ‘Armed Security Officer’, or as an endorsement to the current legislation, under the Private Security Personnel and Private Investigators Act 2010 (as we simply do not have a means to handle the sort of terrorist event that occurred);

(2) The de-restriction of Tasers as a Category R weapon (under the Arms Act) under a new ‘Category S’ (for Security), allowing Armed Security Officers to have Tasers under specific directions; and

(3) The potential for certain types of firearms to be used by Armed Security Officers (probably as an enhanced endorsement and with very specific limitations and conditions – for instance, locked in alarmed cabinets – straight to Police – and limited to shotguns).

I, like so many New Zealanders, have been both shocked and horrified by what happened in Christchurch, but I have also been alarmed by the number of axes that have come out to be ground and the number of people willing to use such a horrible tragedy for their own ends. While there may be things that need to change in NZ, I am very worried when people start using slogans, rather than reason, and when their proposals are so undefined that they are meaningless (‘change’ means exactly what again…?). Equally, I am a proponent of outcomes, not inputs, and simply changing laws for the collective ‘feeling of good’ isn’t my cuppa.

Introducing Mortgage Payment Deductibility

Now, ordinarily, I am not in favour of encouraging an increase in the demand side equation of the housing market, but I’ve been pondering what would happen if we introduced mortgage payment deductions for home owners. This is similar, in concept, to what the US offers (and what the UK used to offer – I don’t know NZ’s history in this area). The basic arrangement would be that the interest component of your mortgage would be deductible from income tax (so if you paid $5,000 per annum in interest on your home loan, you’d be able to deduct that as an expense against your income tax liability).

Now, in order for this not to advantage rental property owners, the effect would need to be limited in two specific ways: you’d need to limit the deduction to only a mortgage over your current ‘home’ (the property you maintain your physical presence at) and you’d need to limit it to the loan taken out at the time of purchase (if you allow top up loans to be counted, you may end up partially subsidising consumption, renovations, etc.).

What would be the effect of this be? You’d get a deduction on your income tax (possibly one which could be applied directly through your bank – a reverse of your RWT rate, in effect) and this would reduce the burden of a new mortgage on first time buyers (and going forward). This isn’t a fool-proof plan, but if the state is going to ‘encourage’ home loans, with a specific target of new buyers, wouldn’t it be best to simplify this, not be directly involved (beyond offering the tax credits), and in a way which doesn’t complicate matters?

I am not particularly inclined to increase demand incentives at this point (as I think most of our problems stem from the limitations in the supply side), but I often wonder how much thought actually goes into our tax system (beyond finding ever new and innovative ways to tax us).

After the Common Market

So the UK has voted to leave the EU* and will now have to negotiate what a ‘Brexit’ will look like. That’s a daunting task (in domestic, European, and international terms) and one which is going to consume a considerable amount of resources (Bastiat would point out this is no free lunch and all the work involved is self-imposed, rather than specifically being for the enhancement of the country – so a lot of work just to keep things consistent). However, as a ‘Leaver’, I think there are some fundamental points that need to be outlined.

Isolated View

One of the staggering features of the campaign was the extremely isolated view portrayed by the Remain campaign. Europe, apparently, is the centre of the universe and not being ‘in’ is the equivalent to economic death. The ‘free movement of people’ means European Union people and nobody else. An isolationist bloc, which ignores so much of the rest of the world (and often imposes trade and economic policies which are designed to hinder other areas), is apparently ‘free trade’ and ‘free movement’ and plenty of good people got wrapped up in that.

What’s worse, Remain supporters often portrayed anyone who isn’t ‘pro-Europe’ as being a xenophobic, economically illiterate, ‘Little Englander’. The fact that an isolationist view was being taken by Remain (isolated within the EU) wasn’t even seen as ironic (in fact, any such suggestion incurred yet more wroth at the ignorance of Leavers). The world outside of Europe was ignored, in terms of how Britain would be involved in it, beyond a few statements from the US, a few other ‘world leaders’, and so forth about how remaining was ‘important’.

Negativity

The sheer negativity, on both sides, was impressive. Oddly, subjective assessments were presented as definitive arguments. Lots of economists didn’t believe ‘Brexit’ would be good for the economy. The long-term economic consequences of leaving were discounted in favour of immediate impact (a what is seen, versus what can be foreseen problem). Endless unpleasantness, name-calling, and so forth came out of the Remain camp (which is a great way to alienate people who are, otherwise, willing to listen). While the Leave camp was focused on how bad the EU was, it often seemed as if the Remain camp was focused on how bad the Leave camp was. Thus, the debate had a nastiness to it that didn’t leave me, at least, with any sense of positivity.

To the ‘Remainers’

When I was a young man I read a copy of ‘After the Common Market’ (written by an ex-chairman of the Board of Trade, who was old Labour). The book looked at the negatives of the EEC and the likely problems it would mean for Britain (as it said, a small free trading nation). The arguments then are very similar now. Yes, Europe will continue to make up an important trading partner, but it will no longer be something which is going towards ever closer social and economic ‘integration’. Britain will be free to trade with whoever it wishes, to set standards of its own again (and see if anyone wants to follow them), and to be, simply put, British again. It has more in common with Canada, Australia, and New Zealand than it does with France, Germany, and Spain. That doesn’t mean it should return to isolationism, but it can move forward now as a free state (free to choose, on its own, what it does and with whom). At this rate, they might even get me back at some point.

* I should note, as a dual national of the UK and NZ, and having been resident in the UK in the past 15 years, I was eligible to vote and did (voted Leave).

Spark’s CEO gets a basic economics fail

The Herald (I know, I got roped in) has an article from Spark’s CEO. Forgetting my broader opinions about the subject matter, this statement really got up my nose:

‘And not only that, cause New Zealanders to pay more tax to make up the difference required to fund our schools, hospitals and welfare.’

Sorry, but that is a basic fail. If you increase their tax, we’ll end up paying for it, one way or another. There is no free lunch. If they’re making a 30% margin at the moment, they’re hardly likely to just go, ‘Oh, heck, we’ll just take 21.6%’, let alone now charging GST on top of that. We are a microcosm and they’ll just charge us more for the services, either through higher prices or +GST.

Our ‘Little New Zealand’ mentality, as an import from England, is a major fail and what’s being advocated here. We should be utilising our position to encourage more business here, including through improving our tax system, not trying to rope foreigners into complying with our tax laws for the sake of ‘fairness’.

And, in the end, if we wanted them to pay more tax, we’d simply change our tax laws. Enforcing it would be nigh on impossible, and would probably result in a withdrawal of services from our market (or loss of future services), but it’s doable. So stop complaining about how little tax foreigners pay and accept that the GST and income tax nets just don’t work so well online (and we should be looking at alternative tax methods to deal with base erosion).

Refuting the Economics of Star Trek

So a good friend of mine (my roommate at university) recently posted on Facebook about the supposed economics of Star Trek. The basis of this is notionally that money has been eliminated and sufficient material comfort is available that we no longer have ‘want’. Thus, we end up with endless amounts of sanctimony (on television), while humans look down on people who are less evolved and not as morally superior as we have become. However, at the same time, this was later lampooned (to varying degrees) on Deep Space Nine, as the inherent contradictions were show (‘What does “we work to better ourselves” actually mean?’, ‘It means we don’t need money!,’ ‘Then you obviously don’t need any of mine’). The simple premise, as I’ve just stated, is that with the advent of technology which eliminates certain aspects of material depravity (in terms of there is endless food and basic comforts). As a consequence, man is now free to pursue all his own interests, without the need to worry about the basics of life (and by basics, we are understood to mean a living standard superior to modern Western countries).

Now, setting the stage for such a fantasy world, let us look at some of the simpler problems.

Buildings & Land

Who allocates or decides on the quantity of buildings and land which are to be available to whom, when, and why? If I want a flat in London, a flat in New York, and a farm in New Zealand, who is to decide whether I can or can’t have them? The counterargument that, with space travel, near infinite amounts of space make land become irrelevant are simply foolish: someone will always want a certain piece of land more than another. The fact that land at the outskirts of Auckland is cheap does not mean the price of all land in Auckland is cheap. Providing more land will certainly reduce the total value of land, but the relative value will remain constant (if someone wants a piece of land in the inner city twice as much as on the outskirts, than a price equivalent to 2x is sensible). No mechanism is catered for this is the Star Trek universe.

Transport

One of the key features of space transport is that it tends to be bulk / large scale. How often, beyond capitalist species, do we see individuals with their own starships? How do they even procure these in the future? What if I decide I enjoy flying, who decides that I can or cannot do so? What if I want to do long-distance travel? Who determines that’s ‘acceptable’ or not? In our world, I purchase a car, a yacht, or an aeroplane based on my available funds and skills. In this future, we’ve just glossed over that. The military are the only people who seem to have access to reasonably unlimited hardware and even they don’t have anything resembling the degree of transport which we are accustomed to now (everyone doesn’t have their own, personal, shuttle). So how transport actually works is simply ignored in favour of plots in which everyone is, literally, stuck on the same boat.

Services

How human initiated services are supposed to be achieved is never specified. Why do doctors do their jobs? Why do they even train to be doctors? Because it merely ‘benefits humanity’? You can imagine such naïve people flying around space buying ever bridge someone has to sell them along the way. But in all serious terms, robotics are advancing sufficiently fast that a lot of services will simply be eliminated, and whatever else isn’t possible will be handled through holographic means (something which Star Trek did cater for). However, whatever remains for people to do, we will no longer have a means to recompense them, and that creates a real problem. Why would anyone work if they were not required to? Why would they do what others even wanted? (For instance, we might still need computer programmers, but why should I do any of the tasks which others want of me? – I can just program along as I see fit).

Conclusions

So we are left with a set of basic economic problems which cannot, as yet, be overcome. Money exists because, as a means of transaction, is allows us to place values on things that we may want, and while reducing the cost of some things to zero (or near zero) will certainly cause some economic change, it will have no effect on the means of value assignment itself. I have ignored resource extraction here, but it’s another valid area. The simple reality is that Star Trek, for better or worse, is a television show, and was written by nominal ‘Progressives’ (at different points in time, thus different perspectives as to what the future of economics will look like). What’s fascinating is that people spend so much time trying to convince themselves that reasonably straightforward fantasies are, actually, deeper in meaning and explain to us more about the world than we really see (regardless of how silly that really is).

The Joys of a New Labour Government

So the earlier announcement around ‘plain packaging’ is the final straw for me. The once ‘National Party’ will now be New Labour from now on. They can claim to be free markets, but their decisions and thinking have been fundamentally nanny-statist and bureaucratic (and the word ‘free’ next to markets seems to have taken the same turn as with trade). The constant battle cry seems to be ‘let’s see if we can make the government work’, which doesn’t mean they look at structural changes, but instead that they take the existing apparatus of state and continue to development it (but with a ‘blue bent’). I simply cannot support that. We’ve lampooned NZ First in the past for living in the 1980s, for Labour living in the 1970s, but I am not really seeing where the difference is anymore. The solution is constantly to erode personal choice and to create ‘solutions’ to problems which are well outside of the role of the state (I should note I don’t smoke, nor find it very nice when people smoke around me, but that doesn’t mean we should be banning a company from legally displaying anything but plain sodding text).

This is an extremely dangerous development, as we are now going down the thin end of the wedge. When Coke and cheese can’t have anything but plain packaging, and you’ll need to ask for them out-of-sight, we’ll go, ‘That’s just stupid’. Well, this is just stupid (who actually buys fags on the basis of how pretty the colours are?). So a pox on them, I guess they don’t need my vote anymore (as they’re getting lots of new Labour voters to join them).

The Cost of Public Transport

So someone on the Rodney District Facebook page today put up a petition about ‘North Shore Rail’ (1). I’d never actually seen this before (every previous reference I thought was a joke). Apparently, what we need to do is take the money proposed for the second crossing between North Shore and Auckland CBD and use it to build a railway system on the North Shore (ripping up the busway in the process) and connected to the CBD (a rail bridge…yay). Now, having questioned what the actual capex and opex were, and pointing out that we remain a car driving nation, I was told that that’s 1960s thinking and that we need to move on (at great public expense, but we won’t quantify that). Now, I am not a proponent of ‘public transport’, as I believe that if something is a good idea, it should be self-sufficient (thus, we don’t call Air New Zealand public transport, as it’s private – so if someone wants to set up a bus or train company, that’s fantastic, but I don’t see why this should involve the council or state). Then there is the fact that railways are a 19th Century solution…but I digress. So let’s look at some of this logically (rather than the emotions often shown around ‘public transport’):

Simple Disruption of Replacing the Busway

The first, and simplest problem, is that the existing busway is in actual use and there will be disruptions if you decommission it. Buses go down that route already and while you’re ripping it up, they won’t. That isn’t a light disruption if the supposed 40% people volumes are pushed onto the existing motorway. Equally, the current system is more flexible (buses can come on from a variety of starting points, rather than just Albany, as is currently proposed). Equally, if railway was put in between Auckland CBD and Albany, you’d end up with people who currently have a single journey from Orewa, Silverdale, and Whangaparaoa now needing to take a bus down to Albany, then switch, and take a train to the CBD. The ‘future extension’ may go to Orewa, but that still shafts a lot of people in Whangaparaoa. Every time you add a switch, it adds cost and complexity to the system (and means people lose their seats, potentially get wet and cold, etc.). So this sort of thing really needs to be factored into any planning.

Cost of the Existing Busway Wasted

We’ve already stumped up $290m to build the busway. Granted, you don’t have to rebuy the land, but the point is: a huge amount of capital cost was already put into the existing route and that will now be wasted (in fact, you’ll have to pay to rip it up, first). I have a real problem with completing a major project in 2009 and then saying, in 2016, we should tear it down and build something new (is that how little regard people have for the public expense?).

Using AT Rates, the Cost-Benefit Doesn’t Add Up

Even Council’s own financial statements for 2015 (2) say that they require, on average, 27c per kilometre (fares only representing 47% of the cost, the rest is subsidies). So a 30km journey between Orewa and the CBD is going to have a, minimum, $8.10 subsidy (each way). I would imagine that the marginal subsidy cost for trains is a wee bit higher than buses (which don’t require capital maintenance on the roads to be factored in). So let’s say we get another 10,000 people to take this journey to work, every day of the week. That’s another $38.8m of subsidy required, and probably significantly more (on top of the $6bn that’s been spent just to get the network built to Albany). The existing users will also cost us more, as they’re going from a lower cost transport option to a more expensive one. I am failing to see why we want this to be brought about.

Conclusion

These aren’t ‘small’ problems. The proposal is to waste vast amounts of existing investment, replace it with a more expensive option, disrupt the bus network that is already in place, and then add significant operating costs. I know that I am not supposed to take this serious, but a friend of mine at work made a similar argument last week (and he’s usually a reasonably right-wing person). My problem is that people have started talking about public transport as if it’s some kind of panacea, without ever looking at the details (or the cost!). Hence, we should consider building railways to Orewa, when (even forgetting the billions required) it will land us with significant operating costs and it will cause further disruptions to existing transport options (again, you knock out the busway, any bus service is going down the motorway with the rest of us). I have a real problem with this kind of muddled thinking and wish we’d ban councils from doing this sort of thing (endless public subsidies, all justified by emotional ‘it’s the right thing to do’ rubbish). Personally, I think this is just a means to keep people from thinking about how silly the busway is in the first place, as now we’re forced to justify it.