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This is a “sister post” to a discussion on the adult community education market over at the Education Directions blog. Dave Guerin has substantially more knowledgeable about the industry then I do, and his comments are well worth reading. I offered to do a small post discussing the “benefits of ACE” which have been bandied about.
Eric Crampton also takes the report to task here.
We (the Phoenix) have a home “semi” today. Now the use of the word semi is strange – if we win, we play the Newcastle Jets. If we win that we play the loser of the two legged playoff between Sydney and Melbourne. If we win that, we play the winner of the two legged playoff and are champions.
Anyway, we have a home game today in the finals round. So get down to Westpac Stadium and support the Phoenix – the game is at 5pm.
That is all.
PS Actually, I think if we win today then we have another home game – spectacular!
David Farrar states that this is how Labour has framed the idea of tax cuts – a $150,000 pay increase for Jack Paul Reynolds, and only a few dollars for the rest of us. David states that we must look at the macroeconomic impact, and that we can’t focus on who gets what, specifically he says:
If the debate becomes one of simply who gets how much, they will have problems
However, I think the debate about who gets what is important. However, I do not think that it actually falls in Labour’s favour.
Jack Paul has specific skills, he is hard to replace, and is seen to add a lot of value. The “elasticity of demand” for his service is very very high low. Furthermore, he has a lot of high paying outside options – he has a good reputation as a CEO. This means that his “elasticity of supply” is very high (note that I am using quite a discrete margin in this case).
What does this mean? Well, when he labour income is taxed, the FIRM will pick up the tab – as a result his gross wage is representative of this. Now this also indicates that, when taxes are lower, the tax payment by the firm will be lower. As a result, over time his gross wage will adjust DOWN to represent this lower tax rate.
As a result, the direct impact on Jack’s Paul’s pay packet is likely to be very low proportional to both income and what other people receive. It is Telecom that faces most of the “incidence of tax” in this case – not him.
As a result, a tax cut isn’t a $150,000 pay increase for Jack Paul. Nowhere near in fact. National should be using basic economics to debunk these sorts of myths, so that Labour can’t try to pitch it as a class war.
Nick Rowe has a great post on technology and labour. Fundamentally, it states that, one day, increases technology and improving capital will replace labour, destroying demand for labour. I was discussing a similar issue with Linuxlover on Twitter (and who blogs here).
Both men seemed to imply that such a situation could be a bad thing. Linux lover told me of the “legion of unemployed”, while Nick mentioned a book that states:
It describes life in the near-future when technology and machines have destroyed the demand for nearly all human labour, except for the labour of a small, highly-educated minority. The vast majority of the population would be unemployed, but for government make-work projects
However, I am not afraid of such an occurrence per see – in fact I am excited. Why? What is wrong with me?
I have nothing against the idea of a “financial hub” per see. We can make an argument for “infant industries” or “positive spillovers” to justify government involvement. However, the burden of proof is on those making the claims.
That is why the Herald story on this makes me suspicious.
Making New Zealand an international finance centre with “middle and back-office functions” in the funds management industry was one of the recommendations of the Capital Markets Taskforce report last month.
It found the “hub” notion viable but kept the detail of its advice on how to implement the plan out of the report, giving it directly to Mr Key instead.
Usually, people avoid putting things into reports and give them straight to ministers when their analysis is suspect …
Furthermore, look at these claims:
Mr Key says early advice is that between 3000 and 5000 jobs could be created if the plan comes off.
…
The benefit would be the creation of back-room jobs and taxing the fund administrators. The funds themselves would not be taxed.
On the face of it this is fine. We shouldn’t tax the funds as we are just an intermediatary – we should tax the value added bit. Cool. Furthermore, there are jobs, implying that value is being added which creates labour income, cool.
However, HOW do they plan to make us a hub. This is the important question. Do these jobs come from subsidising an industry and thereby moving workers from one sector to another. If so there are opportunity costs – and we better well have some damn good analysis about why market prices aren’t providing the right signal.
Now, it is trivial to state that a government action COULD have a positive impact – give me a possible policy and I can make up a model that would make it sound like a good thing to do. In truth, we need details so we can ask if we think it WILL have a positive impact – a situation which is only a small subset of all the “could” situations.
And of course, to do that we would actually have to see some analysis – which we have been told was not put in the report.
Hmmmmmm
Further to our discussion of New Zealand doing a compensated shift of taxes from income to GST (see here, here, here, here, here, here, here) we come to the issue of economic imbalances in NZ.
Ok, so the imbalance has something to do with tradable sector activity flatlining while non-tradable sector activity increased – meaning that we have more non-tradable activity as a % of total activity. There is a feeling this isn’t sustainable. In part this might be true, but to be honest we have also had a massive increase in our terms of trade – which implies we can sustain more non-tradable activity for each unit of traded activity.
However, I digress. If we accept that there is an imbalance, if only for the sake of argument, we can say that the higher exchange rate is a symptom of this imbalance. Given this, what will GST do?
Now, changing from income tax to GST is likely to bump up the domestic price level immediately. The increase in the domestic price level will then translate into a lower dollar – however, since this is because of a lift in domestic prices, is will not help competitiveness in any way. Namely the real exchange rate remains unchanged
However, correct me if I’m wrong, but there is one way that shifting to GST promotes exports and discourages importing. I believe that GST does not tax the “value-added” from exporting. This is effectively subsidising exports.
Furthermore, I think that firms do get GST rebates on imports – but if they don’t that implies that the change in the price level, which goes through the exchange rate, does act like a tax on imports. If this is the case it would discourage importing.
If anyone has any more details on the tax treatment of exports and imports I would like to hear about it – as this is the way that the tax shift could change structure, not through an adjustment in the exchange rate per see.
