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

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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Matt Nolan

Effective tax rates

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I just spotted in the news that the New Zealand IRD and Treasury “effective tax rate” reports have been released. The IRD report is here and the Treasury report is here. I also see that OliverShaw slipped out a report a week prior.

I will read both policy reports in the future. I know both the policy teams well, they are smart, have integrity, and provide genuinely useful insights. And my interactions with OliverShaw have always been reasonable, so I’m sure that report is of interest also. As a result, I don’t have much interest in giving a knee-jerk reaction to anything until I’ve had a chance to read the work and to educate myself a bit.

The headline results from all the reports sound pretty plausible – my key concern is that people who aren’t the researchers might start talking about them without understanding what the numbers mean. And man, I don’t want to be one of those people!

How can I say all these different results sound plausible when they are all quite different?

Well, how about we chat about effective tax rates a little bit first to discuss how there are different measures – and why they are different!

I’m pretty into the topic (i.e. my studies, my hobbies) and for those who know me I have a more respectable brother who arguably gets even more excited when he hears about this topic. So it is something I enjoy thinking about and chatting about. Lets have a go.

Note: I have not read any of the reports that are online yet – so please don’t read these as comments about any of the work, as it will be out of context. They are comments about me being a nerd.

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Matt Nolan

Compulsory income insurance submissions

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Hey all, just a reminder that submissions are currently open on quite a major policy change – the introduction of large scale fully funded income insurance in New Zealand. So if you have thoughts or feelings on the issue, make sure to get a submission in before Tuesday.

In the lead up Simon Chapple has posted a good article on the issue, and I’ve posted up my own article as well. This is a major policy proposal that is being pushed through under de facto urgency without a proper policy design process – and with lots of unintended consequences. As a result, even though we both agree with looking at improving support and transitions for individuals facing hardship – in fact this is an issue we have both focused on in the past – this ain’t it son.

For those who do not want to trudge through text, the thoughts can be boiled down as follows:

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Matt Nolan

RBNZ’s 50bp hike

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The RBNZ increased the OCR by 50 basis points to 1.5% – to someone from three years ago that level might not sound strange, but just take a look at this 10 year government bond rate track. Highest 10 year rate since 2017 and, given when the cash rate is, an indication that higher average rates are expected in the future.

The last time there was a 50bp increase was May 2000. If you want to understand what was going on there take a look at inflation and the exchange rate during that period – a drop in the dollar was stimulating activity while inflation was high and climbing, so the Bank responded.

The exchange rate isn’t doing that now, but the world (and NZ) opening up post-COVID is filling that role – while core inflation is high, and headline inflation is at levels a lot of people have not seen before. In this way, the Bank is tightening – makes sense, and I trust they’ve worked it all though.

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Matt Nolan

NZ Public Service and Economics

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Robert MacCulloch has written an interesting piece on economic advice within the public service in New Zealand (free link), with Eric Crampton noting a lack of trained economists in government as a key concern. Given the recent incoherent experience of rushed policy and advice on fuel taxes this seems like quite a pertinent discussion.

I’m a trained economist. And I’ve been working in government in New Zealand fairly recently, and am now actively employed in the private sector. So do I have juicy gossip?

No, not at all. I do have a perspective however that isn’t just about some arbitrary lack of hiring “well trained economists” – lets have a chat.

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