Should we offer higher benefits to those over 55?

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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Effective tax rates

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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The Parasite law of the Soviet Union and MMT theory

I have just bumped into an interesting twitter thread where an MMT theorist justifies their job guarantee by pointing to the Soveit Union’s Parasite law. 

Being born in the old Soviet Union, and having talked to my parents about their experience with it, I thought it might be useful to share my views on the topic. 

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Retirement income and the choices of youth

When you get to a certain age, anyone under 35 seems young.

People born after 1984 have different preferences and a different life experience than people born earlier. Their phones are better, their clothes use less cloth, their cars are more fuel efficient, and they probably left home at a later age. They may eat less meat, be more concerned about global warming, and have a longer life expectancy.

Firms design products for these cohorts that are very different to the products they designed for young people a generation or two ago.

Strangely, however, the government obliges these cohorts to use a similar retirement income policy as their parents. Sure, they occasionally argue over small details such as whether the age of entitlement (on young cohorts) will be raised from 65 to 67, but they never ask: is the current system fit for purpose for a new generation?

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Taxing capital incomes – are we doing it the right way?

About fifteen years ago, the new Secretary of the Treasury, Dr Caralee McLeish, was part of a World Bank team that put together a dataset measuring the regulations and taxes that small businesses face in different countries. In conjunction with Price Waterhouse, this group (including an extremely famous Harvard economist) worked out the taxes paid by a standardised 20-person business in its first two years of operation, as well as the taxes its employees pay. 

The authors then used this data to ascertain if there was a consistent relationship between the taxes and regulations that businesses in each country face and the amount of investment taking place in each country. There was: the countries with lower tax rates and less onerous regulations tended to have more investment and more foreign investment. The data were considered so useful that the exercise is now repeated annually. One of the original papers by this group of authors, “The effect of corporate taxes on investment and entrepreneurship” (published in 2010) has been cited more than 750 times. 

New Zealand has low levels of capital for a country of its income level and quite high corporate taxes. 

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Optimal capital tax

Personal literature review.

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