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Time for Fed Farmers to be weaned

Image from Stuff.co.nzIn yesterday’s NBR it was revealed that the Federated Farmers lobby group had received $228,000 of taxpayers’ money in the past five years.

“It shows Federated Farmers received many payments via three Sustainable Farming Fund projects – a contestable fund investing up to $8 million a year in applied research and projects led by farmers, growers and foresters.

The $228,658 in payments include three separate Federated Farmers farm days from 2010-2012 that the ministry contributed almost $150,000 toward. Other payments were made for leadership programmes, training seminars for farm managers, two Federated Farmers’ AGMs, as well as attendance at an international sheep meat forum in Brussels.”

More via NBR (paywalled)

We have called for Fed Farmers to be weaned off taxpayer funding.

Government agencies should not be handing over taxpayers’ money to lobby groups and pet causes. Here a group that speaks for one of our largest industries is on the take form the Government’s ‘Sustainable Farming Fund’.

How can a lobby group such as Fed Farmers remain credible and independent, when it’s receiving taxpayer funded top ups?

Pie in the sky

This morning we released advice on the cost to taxpayers of three of Internet-Mana’s education policies. At a total cost of $17.6 billion they are higher than the entire policy package of the three main political parties combined.

Labour leader David Cunliffe is right when he reportedly said that Internet-Mana are ‘numerically challenged'.

With just three policies Internet-Mana have managed to pledge more spending than National, Labour and the Greens combined.

Even the $11 billion in spending cuts proposed by the ACT Party wouldn’t pay the tab for Internet-Mana.

According to Dr Michael Dunn of Economic and Fiscal Consulting Ltd, forgiving student loan debt would cost $14.2 billion, while ‘free’ tertiary education and full student allowances would cost $568 million and $570 million per annum respectively.

Altogether these three policies would cost a staggering $10,386.84 per household.

As most of Internet Mana's policies lack sufficient detail to enable them to be costed, the Party has not been included in the Bribe-O-Meter graphic at bribe-o-meter.co.nz.

Click here to visit the Bribe-O-Meter.

Final results of Bribe-O-Meter published

Yesterday we published the final update of our election costing 'Bribe-O-Meter' in the lead-up to Saturday’s election.

The Bribe-O-Meter now reflects the costs of all policies announced. It shows that of the main parties:

  • the Greens have promised to spend the most, $6.54 billion, or $3,857.77 per household during the next Parliamentary term;
  • the Labour Party have committed to a policy programme worth $5.81 billion, or $3,423.16 per household; while
  • National have committed to $1.4 billion, or $823.62 per household of new spending.

Throughout the election campaign our independent expert has made adjustments to the Bribe-O-Meter's numbers as parties have announced, refined and clarified their policies. Nevertheless, throughout the Greens have consistently proposed the highest amount of new spending, while ACT have been the only to propose an overall reduction.

While Labour and the Greens have outlined their plans for the next three years, National have remained more reserved, perhaps signalling debt repayment or future tax relief.

Click here to visit the Bribe-O-Meter.

Free Tertiary Education on the Taxpayer

Internet-Mana promises free tertiary study Stuff.co.nz - 12/09/2014

Free tertiary education and a universal student allowance could be delivered immediately if they were prioritised over tax cuts, the Internet-Mana Party says.

Taxpayers' Union spokesman Ben Craven said writing off student debt would benefit professionals such as lawyers and doctors who had large student loans, but were also likely to be on good incomes.

Forgiving the entire amount of student loan debt currently owed would cost an average of $8374 per household, and was likely to be more expensive than the election policies of all the mainstream political parties combined, Craven said.

"Most voters will see this promise by Internet-Mana as both fanciful and misleading."

Click here for the full story on Stuff.co.nz.

Cost of forgiving student debt

Yesterday the Internet-Mana Party announced that it wants to forgive existing student loan debt.

NBR: Internet Mana says it will forgive student debt, currently totaling $14.2b

Internet Mana has today today confirmed it would make tertiary education free — but added a new wrinkle: a pledge to "Develop a comprehensive loan forgiveness programme for those with existing debt."

The party says it will also introduce a universal student allowance.

It says total student is currently $14.2 billion.

...

The debt write-off scheme would be phased in from 2016 and be "funded from a variety of sources."

We believe the policy would result in a dramatic wealth transfer from middle class taxpayers to the lawyers, accountants, doctors and professionals who have large student loans, but are also likely to be on good incomes.

With student loan debt is currently $14.2 billion, forgiving it would cost, on average, $8,374 per household - that cost alone is more expensive that all the election policies of the mainstream political parties combined

Following our spokesman's public comments NZUSA President Daniel Haines' took exception claiming that the cost to taxpayers of forgiving student debt is only $8 billion.

“The student loan scheme is currently in the government’s books at $8 billion, not the $14.2 billion the Taxpayers’ Union cites, and reversing the tax cuts that benefited those high-earners – as Internet MANA proposes – would provide $1 billion per year, some of which could be used for debt relief for those struggling with their student debt burden on low incomes.”

Screen_Shot_2014-09-13_at_11.37.18_am.png

Mr Haines' claim might hold more credibility if he wasn't contradicted by this illustration on his organisation's own homepage

Treasury's PREFU document* shows that student debt has risen from the $13.5 billion to $14.2 billion. The $13.5 billion figure is quoted on the NZUSA's homepage.

$14.2 billion is the estimated nominal value (including accrued interest) of all student loan borrowings. It is the figure that the NZUSA usually use in publicly and advocacy for 'the burden of debt'. The amount represents $8,374 per household.

It’s a nice try by the NZUSA to use a discounted value, but the fact remains that forgiving student debt would cost $8,374 per household.

Mr Haines also claimed in his media release that repaying a debt is a tax. In fact, the tax is on the middle income earners who pay the interest on his degree, while he reaps the rewards of a subsidised tertiary education.

A student loan represents a choice made by an individual to accrue debt in the short term in order to better their employment prospects in the long term and, in turn, their earning potential. As ridiculous as the suggestion that all student debt would be wiped, is NZUSA's inference that Kiwis' mortgages, hire purchase payments and monthly credit card bills are taxes too.

* Refer to note 13 on page 101 of the Pre-election Economic and Fiscal Update. More comprehensive information on Student Loans, including nominal debt and carrying value are available on the Ministry of Education's student loan annual report.

NZ First still won't front up

With just over a week to go until the general election, and with much chatter of Winston Peters riding high in the polls. New Zealand First still won't front up with details of the cost of its election policies for inclusion in the 'Bribe-O-Meter'. This morning we issued a media release giving NZ First a final chance to provide our expert the material to cost NZ First’s policy.

"The Taxpayers’ Union has made numerous formal and informal approaches to Mr Peters and his party. Despite our best efforts Mr Peters continues to fob off providing transparency to the voting public."

Our independent expert, who used to lead the team at IRD that costed social policy for numerous governments (ironically including when Mr Peters was Treasurer!) has spoken to Party officials in Winston Peters’ office but still does not have enough information to give any insight as to what NZ First’s policies will cost.

Perhaps the reason NZ First has shied away from releasing their policy costings is because Mr Peters is worried it would deter voters? In 1996, the last time National was forced to go into government with Mr Peters, it cost taxpayers $5 billion, or $2,950 per household.

Right now we’re working hard behind the scenes to complete the final update of the Bribe-O-Meter. With the exception of NZ First, we want to thank the general helpfulness and enthusiasm other parties have displayed towards the project.

The voting public and taxpayers deserve better – but it looks like Mr Peters doesn’t want you to know how much his support will cost…

Dr Michael Dunn on relationship between unemployment and minimum wage

Minimum wage policy was quite a feature on last night's TV3 leaders' debate between John Key and David Cunliffe.  Stuff reports:

The first half of the televised TV3 debate was dominated by the economy, with Key on the attack over Labour’s plan to raise the minimum wage by $2.

Key argued that small business can’t afford the hike and it will cost jobs.

Cunliffe cited US research that shows there is no relationship between a minimum wage rise and unemployment, saying this was backed by Treasury. ‘‘You can have cheap government or you can have good government,’’ he said.

Earlier in the week, we released an independent report by Dr Michael Dunn (who ran the team at IRD costing social policy for various ministers of revenue) which critiques the numbers in the Green Party's wage policy. The report is relevant to the debate:

Context

There is now a lot of debate about the minimum wage and the expected impact of an escalation of the minimum wage on employment as well as on net Government revenues (the fiscal impact). 

Our previous analysis focussed on the fiscal impact, and showed that even without limiting employment growth, the extra revenue from income tax (and for that matter, on GST on the additional wages) would be insufficient to offset the additional cost to the Crown to fund its payroll and primary service contractors.

Impact of increasing minimum wage on employment

We are now hearing claims that “numerous studies have shown that increasing minimum wages has no adverse impact on employment levels, and may in fact lead to increased employment”.

We agree that there are numerous studies from well-respected researchers that demonstrate this to be the case, particularly in the US. However, the US is a poor choice for estimating the likely impact of increasing the minimum wage in New Zealand. The minimum wage in the US is less than 40% of the median wage, whereas in New Zealand the minimum wage is above 60% of the median wage. This means that further increases here are much more likely to affect wage relativities and the employment market in general.

There are studies that demonstrate an impact of increasing minimum wages on employment in countries where the minimum wage is above 50% of the median wage. We referred to some of these in our previous paper. We repeat that section of our paper below.

 

Untitled.png 

Source: US Department of Labour, September 2014

Studies that compare the employment effects of minimum wage changes in different countries

Research into the impact of increasing minimum wages on employment has identified that the effects are negligible when the minimum wage is below 35% of the average wage (as in the US), but are more significant and negative (i.e. raising the relative minimum wage reduces future employment) when the minimum wage is above 45% of the average wage (as in France and several other European countries).

So in short, Mr Cunliffe is right to say that in countries such as the United States, Japan and Korea, where the minimum wage is a small fraction of the median lifting the wage has little impact. The key question though is whether that holds true in New Zealand, France and Turkey - where minimum wages are already a much higher percentage of the median.

Dr Dunn's full paper can be downloaded here. His abridged version (just covering above) is available here.

 

 

 

Are the Greens still an environmental party?

Analysis of the spending promises by the Green Party shows that only 9% of the Party’s committed spending so far this election relates to environmental priorities. According to the ‘Bribe-O-Meter' of the $4.9 billion in new spending the party is promising, only $443 million relates to the environment.

Unlike the Green Party I joined in 2004, the existing policy platform appears to be more about transferring wealth than protecting the environment. In comparison to the $443 million pledged for environmental causes, the Green’s welfare policies have been assessed by our independent expert to cost $1.82 billion. $1.82 billion is equivalent to $1,073.24 per New Zealand household.

Based on these numbers, the current Green Party is arguably only 9% ‘green’.

How green are the Greens?

Expert costing of Green Party wage policy

The Taxpayers’ Union is today releasing independent research from former NZIER Principal Economist, Dr Michael Dunn, which raises significant questions about the Green Party’s election costings.

Dr Dunn’s analysis of the Green Party’s “Fairer Reward for Fair Effort” policy document shows that the Party’s taxation forecasts are incorrect and instead of generating tax revenue, will actually result in a net loss in revenue.

The Greens say that their policy will mean increased revenue to the Government of $800 million per year, our independent expert says the actual cost to the Government is at least $110 million. That is a massive difference of more than $900 million in the one policy and suggests the Greens' costings are fundamentally flawed.

On top of the drop in tax revenue, Dr Dunn estimates that the policy would increase government expenditure on employee wages and contracts for services by around $1.1 billion over 3 years.

The Taxpayers’ Union repeats our offer to allow our independent expert to confidentially cost any political parties' policy before they are released so that the public can have confidence in how much a policy will cost or benefit taxpayers.

The report's author, Dr Michael Dunn, has told media:

The Greens' costing completely ignores the reduced taxes from companies due to the higher wages. They appear to assume that businesses can magically generate more money to fund higher wage bills. It doesn’t happen like this in the real world.

Expected slower employment growth will also adversely affect tax revenue.

Under this policy the Governments' primary fiscal balance would be reduced, by at least the direct costs already acknowledged by the Green Party, as the incremental tax revenue yield would be minimal, if any. In addition social transfer payments linked to wage rates would be increased.

This isn’t some Taxpayers’ Union hack calling into question the Greens' costings. Dr Dunn led the team at IRD that costed revenue policy and produced budget revenue forecasts for 12 years. He has advised both National and Labour led administrations. We've engaged him to review numerous party costings and provide the information for our Bribe-O-Meter.

UPDATE: Our expert, Dr.Dunn, wishes to thank a reader who pointed out that the proposed October 2014 increase in the minimum wage would be only 75 cents per hour, and that would have a reduced cost and impact. He has recalculated his figures accordingly, but the conclusions are unchanged. The updated report is available for download here.

Dr Michael Gousmett on shifting the burden

According to an article in The Press, the Christchurch City Council is to approach the government regarding the ownership costs of the city’s proposed major facilities. That then shifts the burden from the city’s ratepayers to the country’s taxpayers.

Council trying to lighten load for city ratepayers

“The city council does not want ratepayers bearing the ownership costs of all the central city’s major new facilities and is talking to the Government about alternative options.

Mayor Lianne Dalziel told The Press the council was talking to the Government about ownership arrangements and the timing of some of the projects.”

Dr Michael Gousmett has written to us suggesting a different solution:

Shifting the burden from ratepayers to the country’s taxpayers might be fair and reasonable given the underlying reason for having to do so, that is, a natural disaster. 

Has the council considered approaching the ratepayers instead, not to ask for increased revenue from rates which according to the council’s 2013 financial report generated $277 million, or 30 percent of the council’s income of $938 million, in revenue?

The mayor said the council was “agnostic” over whether the Crown or a private sector partner ended up owning and operating the new facilities, but it did not want to carry all the costs.

I am suggesting something else – asking the ratepayers if they would invest in these assets through a share or bond issue by the council to contribute towards the cost of their construction. 

As well as having a sense of ownership, ratepayers could be given preferential treatment by way of a dividend paid at a higher rate, with the council also offering shares to non-ratepayers as well. 

The dividend could then be applied against the rates by way of a non-taxable rebate, or alternatively treated as income in the hands of the ratepayer, whichever they choose to suit their personal tax position. 

We think it's an idea worthy of discussion. What do you think? Drop us a line, or pop a message on our Facebook page.


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