Public Address - OnPoint (Home)

Sneaky brackets | May 26, 2008 02:20

It reared its ugly head with ACT's "bracket racket" speech two weeks ago. Full marks for the rhyming, less for the making of sense. I counted a dozen statistics describing the same phenomenon, and all of them were increasingly useless derivatives of the same two numbers.

But contrary to Fran O'Sullivan's claim that Treasury has been muzzled, fiscal drag is not a secret. It's not a conspiracy. It's a part of the Government's fiscal strategy. Like, *literally* a part of the Government's fiscal strategy. It's on page 35 of the Fiscal Strategy Report that was part of the 2000 Budget. The forecasts that Treasury supposedly weren't allowed to make is on page 55 of the 2008 Fiscal Strategy Report. That's not to say that fiscal drag necessarily a good thing. It *is* kinda sneaky, but let's put it into context here: It's a left-wing government effectively raising taxes. Let's ease off on the shock-horror, eh?

So, what kind of perfect utopia would New Zealand look like, if only we were able to rid ourselves of Satan's fiscal drag? Here're something I prepared earlier. The graph below compares the current tax regime with an inflation-adjusted version of the 2000 tax regime, Labour's planned tax regime, National's assumed tax regime, and Australia's tax regime. It tracks the average tax rate – the tax rate that's paid on the whole income. The lower the line, the lower the proportion of tax paid. It does not take family assistance into account.

(Boring explanation about assumptions that you can skip: 1) The 2000 tax regime adjusted by inflation is what we would have if there was no bracket creep (i.e. If tax brackets were inflation adjusted). It takes tax brackets in 2000 and adjusts them by CPI to 2008 values. The rates remain unchanged. This does not adjust the brackets for real wage growth, but that's a different argument entirely. 2) Labour's tax cuts are taken at 2011 (when it is fully phased-in) values, then adjusted back to 2008 dollars with an assumed CPI growth of 2.8% per annum. 3) National's tax cuts are assumed to be the same as its proposals in 2005. That plan was to take effect in 2006, so the brackets have been adjusted by CPI growth between 2006 and 2008. 4) Australia's tax regime is taken at 2008-09 values, and converted by OECD 2007 PPP figures. The Google worksheet is here)

(Please, pretty please, click through to the big one or you'll go blind trying to read this graph.)

The single most noteworth feature is that the Labour and inflation-adjusted lines converge at around $47,000, and are virtually identical (with a 0.2% difference) from then on. Prior to that, the rates under the Labour tax regime is much lower. It means that the latest tax cuts are designed to nearly exactly cover the bracket creep for everyone who earns over $47,000.

Focusing solely on the shift in the top tax rate overlooks (*coughSundayStarTimesandDavidFarrarcough*) the obvious point that the new 12.5% rate is a big deal.

It's easy to assume, though, that the drop in the 12.5% bracket would have meant that everyone was better off, but the sneaky thing here was that the 21% bracket was shortened, so the 33% rate kicks in earlier. It's no coincidence that the two cancel each other out. The size of the total take at the bottom two brackets is the same as it was in 2000, if we adjusted it by inflation.

This means that the rejigging makes no difference to everyone who earns over $47,000, but it does make a different to everyone who makes less than that. For them, this is a genuine cut, above and beyond bracket creep. To put this into perspective, 71% of taxpayers have a taxable income of less than $50,000 per year (22% have a taxable income over $50,000, while another 7% of taxpayers have a taxable income of zero, so they don't count).

A warning, though - none of this takes Working for Families into account, which would obviously tilt the scales towards low-middle-income families. I'll do the fiscal stuff later. But here's the cheat-sheet:

* Fiscal drag is the increase in the average tax rate (*not* the amount of tax paid) caused by the tax system failing to keep up with wage increases.

* Fiscal drag is not a right-wing conspiracy. It is real. It is significant. It's a part of the Government's fiscal strategy.

* Fiscal drag means people pay a greater proportion of their income in tax. That does not mean that people are worse off, since income is rising, too.

* Labour's tax cuts will negate the fiscal drag of the last eight years for everyone earning over $47,000 per year (22% of tax payers). For those earning under $47,000 (71% of tax payers), it will be greater than the amount lost to fiscal drag.

(In partisan terms: "Labour's rightthinking tax cuts have obliterated the fiscal drag which threatened the ability of New Zealand worker to buy cheese, while redistributing to the workers more of their rightful dues. Labour is for tax cuts. Labour has always been for tax cuts."

Or: "Labour's devious tax cuts have barely managed to keep the insidious fiscal drag in check, yet they continue to purchase votes from the underclass with the money of hard working New Zealanders. National will only use the money from hard working New Zealanders to purchase votes from hard working New Zealanders.")

In the meantime, check out the New Zealand Political Stock Market. It's just a game – there's no real money involved (yet – there might be prizes in the future). The idea is that you trade "stocks" of political parties based on what you expect they'll get in the election.

The game aspect of it draws people in, and then commentators can use it as a kind of punditry-aggregator. It's robust because it's self-correcting. If party hacks try to rig results by trading their own party at a very high price and the opposition at a very low price, then people will simply snap up all the underpriced stock and sell them the overpriced one. The result will be a lot of play-money changing hands (away from the party hack), but little change in the price. It also takes advantage of the Delphi Effect – the idea is that large groups of people in general, beloved Public Address readers in particular, will make more accurate predictions than, say, Bill Ralston.

Just remember that it's about "who you expect will win", rather than "who you want to win". I'm pretty pleased to have been able to unload all my National stocks last week at $48/share (i.e. Betting that National would win less than 48% of party votes). I was hoping that the National would have taken more of a hit post-Budget (which would allow me to buy back the National stock at a cheaper price) but that hasn't really happened yet. Just stocked up on the Greens, at $6.20, as long-term investment, but I'm hesitant about Labour at $35.

The plan is to hook the Political Stock Market with commentary here on Public Address, and get you lovely folks to do some trading after reading about political events. Essentially, get your feed of information here, quantify your predictions there. Good luck!

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Cheese, perhaps? | May 23, 2008 12:19

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Colby Blues | May 22, 2008 19:08

Every working mouse will get a tax slice from October 1 as part of a three-year plan which is the main platter of Finance Minister Michael Cullen's ninth Budget.

Dr Cullen told the Delicatessen this afternoon the three-year programme will deliver between 1 to 2.3 kg of cheese per week more in take home fondue from October this year, rising to between 1.8 to 4.6 kg a week by April 2011.

The long foreshadowed slices will cost 126,000 tonnes of cheese in first year and 883,000 tonnes of cheese in total.

The curdflation adjustment of Working for Cheese assistance has also been brought forward.

National Big Cheese John Key mocked the Government's offering as too little, too late and said Dr Cullen expected people to be grated after nine years for what amounted to no more than 28 "dollars", New Zealand's former currency. Key is expected to announce a tax slice "north of four kgs".

Dr Cullen has had to cut budget allowance for future cheese toppings and slightly increased debt levels to accommodate the tax slice. Gross Sovereign-Issued Debt is expected to rise to 2.9 million tonnes of cheese by 2012, 194,000 tonnes above previous forecasts. This figures excludes the 625,000 tonnes held by the Reserve Bank as settlement dip.

While the latest opinion polls have shown cheese to be the most important issue for voters in this election, none of the major parties have release details of their cheese policy at this point in time.

Technical note: For the purposes of this study, the standard value of the "dollar" has been measured against a 1 kg block of Alpine Tasty cheese, at an exchange rate of $12/kg. If Key is only getting an exchange rate of $16/kg, I suggest that he shops elsewhere.

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Media beat-off | May 12, 2008 01:09

It's time to pull the brakes on the latest meme-plague: Reports of New Zealand's death have been greatly exaggerated.

Exhibit A: "Average family in the red just to get by". According to the story, in 2004, the "average family" was just getting by, but in 2008, the "average family" was in deficit each week and getting further and further into debt.

Skyrocketing living costs mean the average New Zealand family is going into the red simply to cover everyday expenses, according to detailed new analysis."

The story was based on this analysis by Bernard Hickey. Hickey's analysis compared average income data from the Household Economic Survey with an independent estimate of the cost of maintaining an average mortgage. That is, he took the burden of the average homeowner, and compared it with the income of an average household.

Why is this a problem? Because the latter includes those who don't have a mortgage, such as those who don't have a mortgage because they can't afford one. So he included people who can't afford a mortgage in the averages, and the numbers show that the average family – woah – can't afford a mortgage.

Hickey's defence was that there aren't income numbers more accurate that the HES, and that it was probably a reasonable estimate. I agree. Hickey's number are not wrong, per se, but there are limitations to how his data can be used. He was clear about it, the Sunday Star Times wasn't.

These "average families" are statistical constructs. When independent data is introduced, the number they arrive at is not a measurement of anything in the real world – it's just a comparison of two different statistics. It is arbitrary, and can't be talked about as if it was real. That's why Hickey draws the conservative conclusion:

...the average household with 2 kids and a NZ$170,000 mortgage is now $38 a week worse off in the last four years because higher food, petrol and mortgage costs have overwhelmed wage increases and Working for Family tax breaks over that period."

He compared the same household using the same methods, noting the difference between the two, but not going any further. Whereas the SST say:

Where four years ago a family on the average income could each week expect to earn $23 more than it spent on its bills, that figure has now fallen below zero to $15 in the red."

What's "in the black" and what's "in the red" is simply arbitrary. If we change assumptions about taxes (e.g. Income split between two earners, etc.), or the mortgage, we could easily make both "in the black" or "in the red". Which means that you definitely can't say things like:

People wanting to maintain the living standard they enjoyed four years ago are being forced into debt or must face the difficult task of sacrificing day-to-day items."

Which is, plainly and simply, un-fucking-founded.

But one conclusion can be clearly drawn from the analysis: Mortgage, mortgage, mortgage. The biggest change in the four years is the cost of servicing the mortgage.

In 2004, spending on food was 15.6% of after-tax income. In 2008, spending on food was 15.4%. Expenditure on food has not grown faster than income. Petrol has, but remains small: from 4.4% in 2004 to 6.1% in 2008.

Mortgage costs, on the other hand, has risen from 24.7% of after-tax income in 2004 to 29.8% in 2008, according to Hickey's figures.

The upshot is that, before we start going on about food prices, GST and so on, let's keep our eye on the ball here: Housing cost is the biggest and has risen the fastest. So let's talk about interest rates, not bloody cheese.

--

The biggest BS of last week would have to go to Richard Prebble:

Mr [Richard] Prebble said it was a myth to say rail was environmentally friendly if the production of rail, locomotives and the need for trucks to take goods to destination were counted." – NZPA, 5 May

How does he know? According to Prebble, when he was the Minister of Railways in the late 80s, the rail bosses told him. It's hard to find any evidence to back him up, but there's a mountain of material to prove him wrong.

The most authoritative is a Energy Efficiency and Conservation Authority (EECA) report from 2000. It worked out the energy intensity of different kinds of transport, and found that freight transport by road used 3.10MJ/t-km (that's 3.1 million units of energy to move one ton of goods one kilometre), while rail only used 0.61MJ/t-km. And that took into account the energy used by trucks to get goods to the railway station.

Chris Kissling, Professor of Transport Studies at Lincoln University, says that the gap is probably not as big now. With rising fuel prices over the last ten years, fleet operators have worked hard to find ways to become more energy efficient. And although rail is New Zealand is less efficient than other countries because of our terrain, Kissling was unequivocal: "[Rail] is less energy intensive, and will always be less energy intensive."

But what about the cost of laying tracks and building trains compared with building roads and trucks? It's hard to find such studies, but this one conducted by the University of Karlsruhe estimated that the environmental cost of the "up- and down-stream processes" for heavy road vehicles was three time higher than similar costs for freight rail. All the evidence is weighed heavily in rail's favour – unless you count the dark horse of transport, coastal shipping.

It has even lower energy intensity than rail, but is currently held back because of dirty fuels. While Kissling was optimistic about the rail buy-back, he says that it needs to be well-managed, otherwise, New Zealand would be better off turning to the sea.

--

My Herald on Sunday columns are now here on Public Address. Feel free to peruse. If you are interested in the topic and would like to get your hands on the source material, please let me know. I'm happy to talk with anyone, regardless of political or media affiliation. I'm too lazy to link/reference everything properly, but will endeavour to do posts like this one on a regular basis.

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复杂关系 (Relationship Status: It's Complicated) - 1 | May 08, 2008 09:39

上周六的华侨学生集会是一个令人深深不安的经验；有许多比肉眼可见更深入的问题都浮现了。

首先，学生们都摆出了一张给公众看的面孔，倒不太真诚的。他们高呼英文口号：「We Love China, We Love New Zealand」，但集会的宣传单张上却以中文写着：「维护祖国统一」。有人拿着说明政治不应与奥运相提并论的告示牌及T-恤，但却有示威牌写上：「一个国家，一个家庭」 (One Country, One Family) –是非常明确并具很强政治性的讯息：西藏应继续是中国的一部分。学生可能试图以新西兰国旗等淡化火红色的民族主义讯息，但当数以百计的中国人挥舞着巨型中国国旗，开始唱中国国歌，这讯息就已大声清楚了。

(cont.)

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复杂关系 (Relationship Status: It's Complicated) - 2 | May 08, 2008 09:34

不难理解，学生要强化了讯息来动员人群，但他们努力把语气淡化下来，显示出他们也理解讯息可造成的一些问题。
这份民族主义的演示表明了他们要优先认同自己的中国国民身份；不只在任何对新西兰的情感之上，而是在更广泛的西方关注之上。没有更强的方式去说：「我不是你的一份子」。更重要的是，推广这种民族主义，令集会变得无谓了。他们的信息是：「我们不关心你所关心的（西藏／人权），但我们希望你关心我们所关心的（中国的威信／领土完整）」。他们不关心世界其他地方的，又如何能期望其他人关心中国呢？

他们缺乏自我意识，这是一个事实：中国民族主义完全只关于中国的福祉。

你要怎说现代美国和法国的虚伪也可，但最少他们对民族的想法，以及表达的方式，跟自由和民主的概念联系在一起；新西兰和澳大利亚的身份则充满着平均主义。而中国的民族主义就完全只顾中国。这当然使得西方关注和怀疑中国的民族主义，而面对人权的挑战时，被中国民族主义包围着的，只能确认那些怀疑。

但现在是西方重新看看中国民族主义的时候。答案非常明显：它是实实在在的。传媒报导示威由中国政府支持或主办的声闻，令事件增添了公信力，这意味着：一）中国政府有足够的控制权，可在一星期内动员600名在惠灵顿和3000名在奥克兰的学生，及；二）中国的民族主义在某程度上是人工制成的，仅存在于政府的指令下。
是的，中国的民族主义是通过学校积极推动的，但每一个民族主义的产生，取决于选择性和自觉性的历史复述，而中国没有什么不同。它教授的历史，叙述中国从前是一伟大的权力，在腐败和内战中被削弱，受到一系列当权殖民国家的屈辱和征服：这叙述以孙中山先生开始，绘画现代中国的一个以加强及保护祖国，远离内部腐败和分裂，以及外国势力干涉的大计划。

这些都不是想像出来的历史怨气-有部分仍是犹新的记忆，而怨气的影响已传接过几代人了。更重要的是，现在这成为了个人关注的事。它是仍以西方文化为主导的世界里赋予力量的来源，也可让中国人了解他们作为强大、正崛起的中国的一部份，在世界上的地位。当越来越多中国人出来融入世界，正如这些国际学生，这事便更重要了。他们虽然年轻，但受过教育并有国际化的体验。他们也是一组平常不会涉及公众示威的人，因此，有这么多人现身支持，就显示他们对此事有多关注。

要求西藏独立，必须先看这方面的历史背景。除了很大机会激起中国民族分裂主义，还有象征的意义是，会把中国的发展大计划推回去旧地。失去西藏是重新分裂及削弱中国，并推而广之，是拒绝中国在过去一个世纪所取得的非凡但昂贵的进展。这正正就是他们这么不高兴的原因。

所以，结论是丑陋和务实的：推动西藏独立是要激起中国的民族主义，这将只会导致任何在西藏实行文化自治的希望被扼杀了。

但同时间，中国-尤其是海外中国留学生-需要深思熟虑，到底他们想如何与西方从事。在一些像上周的集会中唯一发放了的讯息是：「我们很不高兴」。这某程度上可以改变一些行动，但并不能改变人们的意见。可能抒发了他们的不满使这些学生的感觉好一点，但作为中国对外的桥梁，华侨学生应该向往更好的。

(This is a Chinese version of the original post below.)

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Relationship Status: It's complicated | May 02, 2008 01:53

The Chinese students' rally last Saturday was a deeply unsettling experience. There was a lot more to it than meets the eye.

For starters, the students were putting on a public face that was less than genuine. They shouted the slogan (in English) "we love China, we love New Zealand", but the flyers promoting the rally read "維護祖國統一", which translates into "Defend the Unity of the Mother-country". While some had signs and t-shirts which said politics should be kept out of the Olympics, others held signs for "One Country, One Family", with the very clear – and very political – message that Tibet should remain a part of China. Not that it really made much difference. The students might have tried to tone down the bright-red nationalism of their message with New Zealand flags and so forth, but when hundreds of Chinese waving giant Chinese flags start singing the Chinese national anthem, the message is anything but ambigious.

It's understandable that the students want to ramp up the message to mobilise a crowd, but their efforts to tone it down also showed some awareness of the problems that their message posed.

The demonstration of nationalism showed that they prioritised their national identity as Chinese first – not just above any kind of attachment to New Zealand, but above the broader concerns that the West was expressing. There is no stronger way to say "I'm not one of you". More importantly, though, the kind of nationalism they are promoting also renders the rally pointless. Their message was that: "We don't care about what you care about (Tibet, human rights), but we want you to care about what we care about (China's prestige and territorial integrity)." How can they expect the rest of the world to care about China when they don't care about the rest of the world?

It's a fact that they lacked self-awareness about: Chinese nationalism is exclusively about the wellbeing of China.

Say what you will about the hypocrisy of USA and France in modern times, but their ideas of nationhood – the way they express nationalism – are tied to concepts of freedom and democracy; New Zealand and Australian identity is infused with egalitarianism. Chinese nationalism, on the other hand, is entirely concerned with China. Of course this makes the West concerned and suspicious about Chinese nationalism, and rallying around Chinese nationalism when confronted with human rights challenges just serves to confirm those suspicions.

But it's time for the West to look at Chinese nationalism anew, too. To state the really bloody obvious, it's real. Coverage of the protests gave much credibility to claims that they were backed or organised by the Chinese government, implying that a) the Chinese government had enough control over the students here in New Zealand that they could mobilise 600 students in Wellington and 3000 in Auckland in the space of a week, and b) that Chinese nationalism is somehow artificial, something that only exists by mandate of the government.

Yes, Chinese nationalism is actively promoted through the schools, but every conception of nationalism depends on a selective and conscious retelling of history, and China's no different. It's taught as a historical narrative of China being once a great power, weakened by corruption and in-fighting, humiliated and subjudicated by a series of colonial powers; this narrative frames modern China from Sun Yat Sen onwards as a project to strengthen and protect China – from internal corruption and fracture, as well as from foreign interference.

These are not imagined historical greviences – part of it is still living memory, and its effects have been passed on through generations. More importantly, it matters to individuals now. It's a source of empowerment in a world that's still culturally dominated by the West, and it's a way for Chinese to understand their place in the world, as part of a powerful, rising China. It's all the more important as Chinese move out into the world – as these international students have. They might be young, but they are also educated and cosmopolitan. They are also a group that's not usually involved in public demonstrations – so the fact that so many turned out showed just how much this matters to them.

Calls for Tibetan independence need to be seen in this historical context. Apart from the very tangible prospect that it would inflame ethnic separatism across China, the symbolic significance is that it would be a roll-back of the China project. To lose Tibet is to refragment and weaken China, and by extension, it's a rejection of the extraordinary but costly gains that China has made over the last century. That's why they're so upset.

So the conclusion is ugly and pragmatic: To push for Tibetan independence is to inflame Chinese nationalism, which will only result in smothering any hopes for cultural autonomy in Tibet.

But at the same time, China – and oversea Chinese students in particular – need to think long and hard about how they want to engage with the West. The only message that rallies like last week's send is: "We are upset." It can change actions, up to a point, but it does nothing to change people's opinions. It might have made those students feel better to voice their sense of grievance, but as China's bridge to the world, the international students should aspire towards better.

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