Matt Nolan

Was the New Zealand 2023/24 Budget inflationary?

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Yesterday the New Zealand Budget was released and described as “surprisingly frilly” for a no-frills Budget. As a result, is it inflationary?

My answer is “no idea” – I just wanted to use the same title as the Australian Budget post. You yell inflation at me and I say “monetary policy offset through higher interest rates” – and the monetary and fiscal authorities can argue about that. New Zealand based economists can describe that for us.

Instead I’m going to have a think about a couple of the policies: game subsidies and the higher top tax rate.

I also see that they are ramming from the Tax Principles Act. I’ll save thoughts on that for its own post later on.

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Matt Nolan

How much does benefit abatement influence labour supply?

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A common refrain when talking about unemployment benefits is the Iron Triangle of Welfare.

If we are only going to spend a fixed amount on welfare payments, then there is a trade-off between the size of the payment and the incentive to work – where the incentive to work is captured by how much of their new found labour earnings they get to keep. It is even a common point that I make when I’m off lecturing on the topic.

But what if I told you that empirical evidence suggests unemployment benefit recipients who are working don’t appear very responsive to what are essentially huge (50 percentage point) increases in their tax rate?

Well that is indeed what I find here, as discussed by the AFR here.

What does this mean? A number of things so lets have a chat.

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Matt Nolan

Was the Aussie 2023/24 Budget inflationary?

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Last night was the Australian 2023/24 Budget. Like all Budgets it existed and was filled with politics – but I was surprised to find my twitter filled this morning with people calling it highly inflationary, and others saying it would reduce inflation.

The arguments appear to be:

  • Government spending more, inflation!
  • Government surplus and energy subsidies, disinflation!

I’m a bit slow, so I wanted to think things through a bit step-by-step to figure out where people were coming from.

If you’re keen to come on that journey, then let’s go!

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Matt Nolan

Should we offer higher benefits to those over 55?

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In the last blog post I noted that there were rumors of a higher benefit rate for those over 55. Since then we’ve been thrown into an information vacuum in Australia, as noted here by David Plunket.

After some detailed discussion in the e61 offices my boss (Gianni La Cava) snuck off and pulled together a micronote indicating why this policy might not be the right way to go – namely, the average person on the benefit over the age of 55 is much less likely to be in financial stress than a young Australian who is reliant on the benefit. The note isn’t saying that a higher rate isn’t beneficial – it is saying that we should be consistent when applying these arguments to younger Australians! Update: ABC coverage here.

I suggest you go read the note. As I like to pretend to add value I’m going to take a wee bit of a step back to try to contextualise why we are chatting about the payment in this post 😉

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Matt Nolan

Assessing benefit eligibility and adequacy

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Last week we’d been chatting about the unemployment benefit in Australia and the reasons why some unemployed people don’t get it, while some people who aren’t unemployed do.

Everything boiled down to eligibility criteria – criteria that are intended to exclude those that aren’t deemed to need it.

After realising this, my colleagues and I at e61 were interested in using available data to provide an assessment of the whether these eligibility criteria were effective at this stated aim. So here is the note, and here is the appendix. We also used a similar method to evaluate outcomes for those who did receive the payment.

The key result – judging by consumption responses, there are a group of single Australian’s (likely older and without kids) who appear to go through greater hardship following job loss.

[Update: After setting this post to go up I’ve been sent that the government is going to increase payments for those over 55 – I’m guessing for single individuals. Not the biggest fan of highly bifucated rates, but will wait for the proposal and discuss – and would note that outside of the consumption responses we yarn about the international labour supply evidence on this is quite mixed and hopefully we can comment a bit on Australia in a few months 😉 ]

Before jumping to the post I want to note a couple of things:

  • You might believe that irrespective of means this should be a payment for job loss, or a provided minimum income – in this case you’ll still want to scrap criteria no matter what this research says. And that is legitimate.
  • You might weigh the costs from individuals missing out much more highly than the provision of a payment to someone who doesn’t need it – in this case you’ll want to dig in further to identify very narrow groups of individuals who may be excluded. This is also legitimate, but the data sources aren’t quite ready to go that deep … yet!

Given this, lets chat.

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Matt Nolan

What is income for tax?

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I’ve now read the IRD and Treasury effective tax rate reports, and they’re good. I’ll read them a few more times before writing anything on them in a couple of weeks – but the authors of all these reports were really careful to provide rationale and scenarios to explain what all the different numbers meant. It’s pretty awesome to see things so carefully described and released in public like this – and it would be great to see even more of it.

For this reason I initially found the discussion I’ve seen publicly – and via people contacting me – a bit perplexing. That was until I read the release from the minister – David Parker. Although I thought it was quite a polite release, it did take a particular view about how we should consider measures of progressivity – for both consumption and income taxes – as if it was a matter of fact.

And, in truth, these things can be a bit contensious – a reason why it appears both reports spent a lot of time discussing how the estimated tax rate would change depending on what we view as income. So let’s have a yarn about what income is shall we 😉

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