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Op-ed: KiwiBuild reset plan ominously similar to 2008 American housing chaos

JoeThe following op-ed is written by Taxpayers' Union Economist Joe Ascroft.

On Wednesday, the Government finally announced its KiwiBuild reset. The target of 100,000 homes over ten years has been scrapped and replaced in part by a $400 million “Progressive Homeownership Scheme”, which would distribute additional deposit subsidies for first-home buyers and – subject to some conditions – allow first-home buyers to access government-backed mortgages with just five percent deposits.

The scheme is essentially an expansion of the National Government’s “Welcome Home Loan” policy, which backed mortgages for low-income households albeit with higher deposits and lower subsidies.

The scheme has good intentions. The Government is rightly concerned that many families are locked out of the housing market. However, the details of the scheme are deeply worrying.

First, the plan does nothing to address housing supply. Unless the Government introduces regulatory reform to make housing construction easier and cheaper, introducing additional subsidies and government-backed credit will simply be capitalised into house prices. Unless the underlying factor driving housing unaffordability is solved (not enough houses) the real winners will be existing home owners who will receive a capital gain.

Secondly, the scheme is hugely risky for taxpayers. The policy is specifically targeted at families who are struggling to save for a deposit due to – in Green Party co-leader Marama Davidson’s words – “high rents and low wages”. In other words, these are financially precarious households, who struggle to save and invest.

Granting those families low-deposit mortgages will not increase their incomes or change their savings behaviour. With very little savings or equity, their ability to meet mortgage repayments in the event of a recession or a substantial increase in interest rates is likely to be very poor – just as we saw in the United States in the mid-to-late 2000s, when NINJA (no income, no job or assets) home-owners defaulted on their mortgages at spectacular rates when interest rates climbed.

Worryingly for taxpayers, the Government has agreed to back these mortgages. In short, in the event of defaults any difference between the outstanding value of the mortgage and any capital recovered from a mortgagee sale would be met by taxpayers. In an environment of steadily climbing house prices, any risk to the Crown balance sheet might seem remote, but that can change quickly.

When mortgage defaults climbed in the United States, house prices began to fall and banks were unable to recover their losses. Government-backed lenders Fannie Mae and Freddie Mac, which targeted low-income borrowers in an eerily similar fashion to plans announced on Wednesday, fell over leaving taxpayers to pick up the pieces. The cost of the Fannie Mae and Freddie Mac bailout was $191 billion USD.

Simply, if the answer is subsidised, low-deposit government-backed mortgages for families with low incomes and very few assets, you have asked the wrong question.

The solution to easing the burden of high rental costs on low-income families is to radically reform building regulations and make densification significantly easier. That will involve making politically difficult decisions about the Resource Management Act and other planning laws. Crucially though, it will work and it won’t impose significant financial risks on taxpayers.

Revealed: Taxpayers shell out $15,000 for left-wing lobby group

ActionStation logo

The Government has used taxpayer money to hire its left-wing mates as the Friendship Police, reveals the New Zealand Taxpayers’ Union. 

In May 2019, Netsafe granted $15,000 in taxpayer funding to left-wing campaign group ActionStation, according to information obtained under the Official Information Act.

The payment breaches Netsafe’s commitment not to fund political organisations with Ministry of Justice money.

This is the same group that helps out Labour and the Greens during election campaigns. The cushy contract makes a lie of ActionStation’s claimed independence from government funding.

Taxpayers are unknowingly supporting ActionStation to tell New Zealanders how to have “better, safer and more productive conversations online around Māori, refugees, NZ history and Tiriti”. But the Government shouldn’t be boosting the bottom line of any political lobby group.

People on the left would rightfully be outraged if a National government contracted the Maxim Institute to teach sex-ed in schools, or the New Zealand Initiative to draft the Budget. In principle, this cosy payment to ActionStation is no different.

The Taxpayers’ Union is calling on ActionStation to refund the payment, and front up about any other taxpayer funding it receives or has applied for.

Zero Carbon Bill Submission

Joe at committee

Earlier today our economist Joe Ascroft submitted in person to the Environment Select Committee on the Zero Carbon Bill. 

The Bill sets out expectations for reducing New Zealand's emissions profile as part of a global effort to limit climate change. 

Joe spoke to our written submission, which is available here

Our key contentions to the Committee were that:

1. The economic effects of taxing and limiting emissions are often underplayed by climate activists. NZIER forecasts that real GDP could be between $10.2 and $49 billion smaller by 2050 if we adopt a split-gas approach compared to current emissions targets. Compared to taking no action at all, GDP could be up to 22 percent smaller by 2050.

2. The Ministry for the Environment argues that the economic modelling fails to take into account the impact of climate change on the New Zealand economy, but that critique misses that New Zealand's impact on climate change is likely to be very small. 

3. The poorest households are likely to be disproportionately hurt by any intervention. NZIER modelling indicates the poorest 40 percent are likely to experience six times the harm of the richest 20 percent. 

4. Aggressively targeting our agricultural sector could simply cause production to shift overseas - with no subsequent net impact on global emissions.

Revealed: Adverse drug reactions cost taxpayers quarter of a billion

Pill graphicBetween 2015/16 and 2017/18, DHBs spent $280 million treating patients due to adverse drug reactions, reveals the New Zealand Taxpayers’ Union in its final health productivity briefing paper.

It’s seriously concerning that taxpayers spent $280 million in three years dealing with botched prescriptions and incorrect use of medication. That’s the equivalent of 10 flag referendums, or $150 per household. DHBs need more discipline in setting and meeting targets to ensure drugs are correctly prescribed and patients understand how and when their prescriptions.

This problem needs to be addressed not just for the sake of patients, but for taxpayers who are forecast to be absolutely hammered by rising demands on healthcare services.

Some DHBs are much worse than others. Canterbury DHB alone spent $60 million treating those with adverse drug reactions across the three year period. Waikato DHB spent nearly $40 million.

There needs to be further investigation at Counties-Manakau DHB over treatment related to adverse drug reactions. Their reported rate of treatment and total spend related to adverse drug reactions is much lower than you would expect for a DHB treating such a large population. If their reported data is correct, they are performing extremely well, but they may also not be correctly recording treatment data.

The information was obtained under the Official Information Act and has been released as part of a serious of briefing papers, linked here.

Advice on clean car scheme is seriously flawed – policy must be put on hold

In a submission to the Ministry of Transport, the Taxpayers’ Union reveals that the cost-benefit analysis prepared by Ministry of Transport and used to advise Ministers on the Government’s Clean Car Standard and ‘Feebate’ policies has serious flaws which undermine justifications for the policies.

More than 90 percent of the Ministry’s estimated benefit is attributable to consumer fuel savings, but even in their most conservative assumptions they incorrectly pegged before-tax fuel prices at 40 to 50 cents per litre more expensive than in reality. This was due to their reliance on 2011/2012 price projections from MBIE which have failed to bear out. In short, they got the price of fuel totally wrong – using previous forecasts, instead of current reality. As a result, the proposed savings calculations do not reflect reality.

But that’s not the only mistake.  Even if you ignore the fuel price assumption errors, the Ministry simply assumes consumers are irrational and that the Government needs to intervene to rectify this issue – with no evidence or literature cited to reflect this position.

When preparing the Union’s submission on the clean car policies, we readily found plenty of evidence that consumers do in fact understand the benefits of fuel efficient cars – but none of this evidence is addressed by Ministry officials in their analysis. That’s potentially fatal for the Ministry’s analysis – if almost all the benefits from buying EVs flow through to consumers from fuel savings and consumers understand the value of these savings, there’s no good reason for the Government to intervene.

Finally, officials need to reconsider how they perform cost-benefit analysis. The infamous BERL alcohol paper has become a joke within economic circles in part because they counted all of the costs from alcohol, without taking into account benefits to consumers, like enjoyment. The analysis from Transport similarly counts all of the costs from driving a car which is less efficient than an EV or a Prius, but ignores the benefits to consumers which lead them to make that choice. Consider, for example, a ban on ice cream sales. It would be bizarre to count reduced consumer spending on ice cream as a ‘benefit’ without acknowledging the lost benefits to consumers from ice cream consumption.

The Government’s Clean Car Discount and Standard policies should not proceed until Ministry of Transport officials fix the analysis Ministers relied upon to set the policies.

Full submission:

Email correspondence with the Ministry of Transport: 


Revealed: $20 million of redundancy payments dragging down health sector

GraphicIn a new briefing paper, the New Zealand Taxpayers’ Union can reveal that in the period 2013/14 through 2017/18, DHBs spent $20.37 million on redundancy payments.

Some redundancy payments are inevitable, but spending an average of $26,800 on 758 payments is a poor use of money. DHBs should be prioritising patient care and services, not golden handshakes to staff who are being let go.

Huge variance in the size of payments between DHBs should ring alarm bells. Waikato DHB, which has since had its board sacked, had the highest average redundancy payment of $47,800. In contrast, while South Canterbury DHB made more than 100 payments in five years, the average payment was only just over $10,000.

There’s no right way to manage redundancy payments – sometimes letting staff go is the efficient option – but DHBs should be careful to keep their average payments low so funding is going to patient care.

This information, obtained under the Official Information Act, has been released as the second of three briefing papers on healthcare productivity. The first briefing paper can be viewed here, along with the introductory report, Productivity in the Health Sector: Issues and Pressures.

The face that haunts Porirua ratepayers

FaceThe New Zealand Taxpayers’ Union is questioning the value of a $98,876 brand makeover at Porirua City Council. 

The official new avatar for the Council, which you would expect to be emblematic of the rebrand’s quality, is a limp and childlike smiley face. The design was apparently chosen because it ‘connects with the city’s youthful population’. When Porirua ratepayers gaze long enough into the face, the Council’s five percent annual rate hikes gaze back.

Councils do not need to engage in corporate branding exercises. Unlike businesses, councils are monopoly service providers and do not need to market themselves to their ratepayers, who are already a captive audience.

Porirua isn’t the only council to have indulged in an expensive rebrand, but this is no excuse. In our experience, branding exercises are driven by political egos and only serve to distract from inadequate services or rising pressure on ratepayers.

$25,000 was spent on photography alone for this rebrand, according to a response obtained under the Local Government Official Information and Meetings Act.

Revealed: Missed specialist appointments cost taxpayers $29 million

Graphic

The New Zealand Taxpayers’ Union is asking DHBs to charge patients who miss specialist appointments, in light of new figures that show missed specialist appointments cost taxpayers $29 million in FY 2016/17.

District Health Boards need to become more efficient if we expect to keep healthcare costs manageable in response to an aging population. Tackling the $29 million annual spend on missed specialist appointments would be one way to meet that goal.

Some DHBs are worse than others: Counties Manakau, Waikato, Lakes District and Auckland each have missed specialist appointment rates above 10 percent. In contrast, South Canterbury DHB has an admirable 2.5 percent missed appointment rate.

DHBs need to work harder to reduce rates of missed specialist appointments. When patients miss an appointment, they contribute to a clogged health system and impose higher costs on taxpayers – in part contributing to the accelerating health costs demonstrated in our recent report Productivity In The Health Sector: Issues And Pressures.

Figures for DHBs across the country were obtained under the Official Information Act and have been released by the Union in a new briefing paper, the first in a series of three papers on healthcare productivity. The Union can provide raw figures for interested media.

The briefing paper makes three suggestions for DHBs:

  1. DHBs should charge patients who miss their specialist appointments.
  2. Those DHBs that do not measure (or report on the cost of) missed specialist appointments should do so.
  3. DHBs should be more active in reminding people of appointments to reduce the number that are missed.

Opinion: Healthcare productivity has become an economic illness

This op-ed, written by Taxpayers' Union Economist Joe Ascroft, was originally published on Health Central.

By 2060, Treasury’s Long Term Fiscal Model forecasts that government debt will reach 205.8 percent of GDP – approximately ten times our current debt burden as a proportion of the economy. Just financing that debt will cost 11 percent of GDP – one in every nine dollars in the economy will be used to just meet the interest cost of government debt.

Clearly that is an unsustainable future. When debt gets that high simply meeting the cost of basic public services like education, law and order, transport, and defence becomes extremely difficult – let alone welfare payments and superannuation.

So what’s driving our future of debt?

The two most important factors are superannuation and healthcare spending. While superannuation (expected to increase from 4.8 to 7.9 percent of GDP) routinely receives coverage in the media, healthcare (expected to jump more aggressively from 6.2 to 9.7 percent of GDP) is actually expected to be more of a burden on taxpayers.

Our aging population is one explanation for both factors. As the population distribution skews older, it’s natural that a greater share of resources will be used to fund superannuation and healthcare.

But population aging is not the only factor driving the accelerating cost of healthcare. When the Office of the Auditor General examined Treasury’s Long Term Fiscal Statement they noted that “non-demographic factors raise healthcare costs 35% faster than normal real output growth and 25% faster than normal consumer price growth. These two factors are behind most of the increase in healthcare costs during the 40-year projection period.”

In short, the OAG claims that a majority of the expected increase healthcare costs is attributable to healthcare cost pressures and higher demand for healthcare coverage associated with income growth, rather than an aging population.

So how can we mitigate those cost pressures if they are not related to demography?

Improving healthcare productivity would be a good start.

Productivity is a measure of how much output we get for the inputs we invest. Typically, we expect productivity to grow in response to new technology and capital investment. Productivity growth is the driving factor behind wage growth and prosperity.

Unfortunately, productivity growth in the health sector has been woeful for the last ten to fifteen years. In the period 2004 to 2015, cumulative health productivity growth was close to zero. In the period 1996 to 2017, labour productivity growth in the healthcare sector was half of the rest of the economy.

Put simply, any increase in output in the healthcare sector in the last two decades is largely attributable to more inputs, rather than any improvement in efficiency. It is wholly unsurprising that Treasury expects debt to climb to impoverishing levels, if one of the largest areas of public expenditure is failing to become more efficient in line with the rest of the economy.

Beating the debt apocalypse by taking on healthcare productivity is possible but might require the Government and DHBs to make difficult choices. Abandoning our public-focused healthcare model in favour of American privatisation would be a big mistake – instead we should focus on implementing a series of small reforms to cut costs while improving output.

The Taxpayers’ Union proposes some of these reforms in a series of papers released in the coming weeks: attempting to limit hospitalisations associated with adverse drug reactions (i.e. becoming ill because you have incorrectly taken prescription medicines), cutting down on missed specialist appointments, and minimising large redundancy payments.

DHBs might also want to consider tying remuneration of board members and executives to the financial health of the organisation, in light of the Government having to call in commissioners to Southern and Waikato DHBs. The Government could also consider increasing the proportion of each board appointed by the Minister, rather than elected by the public in notoriously misunderstood, low-turnout elections. Finally, amalgamating some DHBs might help to cut down on administration costs.

Each of these policies will need to be considered on their merits and none of them are a silver bullet, but if the Government implements no reform, taxpayers will be on the line for eye-watering levels of debt. 

The report can be found by linking directly to the PDF here.

Revealed: The mystery of Invercargill City Council's missing Chinese yuan

Mystery graphic

The New Zealand Taxpayers’ Union is calling on the CEO of Invercargill City Council to take responsibility for untraceable cash spending that occurred on a trip to China.

In late 2017, four Invercargill City Councillors visited the sister city of Suqan, China. The CEO withdrew $3,000NZD worth of Chinese yuan for expenses. At the end of the trip, $1,780.45 was returned.

This is not surprising. What is surprising is that when the Taxpayers’ Union asked for receipts, the Council said that none were collected. It is a core responsibility for any CEO to ensure that expenses are recorded. The fact the CEO was ready to untraceably spend up to $3000 is alarming.

When asked for further details about the trip, Invercargill City Council stated that “Chinese currency was purchased for incidentals” and that “no receipts were received.” When asked further, the Council stated the currency went towards taxis and trains.

Quite frankly, the Council’s explanations can never be satisfactory because ratepayers are forced to take them on their word. It’s standard for ratepayer money to be used on incidentals, including booze and entertainment, but without any receipts it’s left to our imagination just how much fun Councillors had on the ratepayer dime.

Most concerningly, the Council says this is standard practice for its sister city visits. Other Councils collect receipts for all travel expenses. We’re calling on the CEO to take responsibility for this basic failure of accountability, and to introduce better practices. In the meantime, ratepayers are left wondering whether this behaviour reflects a deeper culture of arrogance within the Council.

Attendees of the trip included Crs G Lewis, R Amundsen, L Soper and A Crackett. With them was CEO Richard King and a staff member. Venture Southland and Chamber of Commerce officials also attended but paid their own way.


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