What will the emissions trading scheme cost?

As speculated some weeks ago, the government has decided to introduce a price on carbon emissions in the form of an emissions trading system (ETS), rather than via a carbon tax. Whilst involving higher transactions costs than a tax, especially with some industries receiving free allocations of emission rights (the right to emit greenhouse gases for free), the ETS does at least involve all industries in the economy – eventually.

Generous to a fault

The Labour government has been very generousto its public servants.  Since Labour’s election in 1999, average ordinary timewages in the public sector have increased by 34% compared with 25% increases inprivate sector wages.  In 1999 private sector wages were on average 79% ofthose prevailing in the public sector, today they are around 74% of publicsector wages.

The curse of commission salesmen

The spate of finance company collapses has clearly dented investors’ confidence. That’s obvious from the fact that many investors have been clamouring to get their deposits out of finance companies and into banks. Ironically, that panic has probably been the cause of several finance company closures and will most likely threaten more over the coming months.

A blessing in our low productivity past

New Zealand’s low labour productivity growth in the recent past is often identified as a problem. But if we had enjoyed stronger productivity growth our society may look quite different today, and not necessarily better. Labour productivity measures the value of final goods and services (or gross domestic product) produced in the economy for each hour worked. Low labour productivity growth means that we are producing little more for each hour’s work today than ten or fifteen years ago.

The fallacy of immigration inflation

The Reserve Bank of New Zealand wishes to reduce immigration to ease inflationary pressures. But blaming immigrants for inflation when we have a tight labour market makes as much sense as thanking the horde of New Zealanders moving to Australia for reducing inflationary pressure. Although migrants increase demand for goods, they also bring with them a number of types of capital (physical, intellectual, and financial) that can increase the economy’s capacity and thereby ease inflationary pressure.

Grasping at government

As a nation, we like to think of ourselves as honest and pretty self-sufficient, and we certainly used to believe in helping those less fortunate than ourselves. But a paternalistic government congenitally opposed to reducing taxes and awash with revenue is producing polices that persuade many to latch very firmly on to the government teat wherever it is available. For a growing proportion of people, milking the system is the only way they see of getting back the excess taxes they have been paying.

Fairness must dictate our emissions policy

Like it or not, New Zealand has ratified the Kyoto Protocol,which means that we need to either reduce our net emissions of greenhouse gases(primarily carbon dioxide, methane and nitrous oxides) back to 1990 levels, orpurchase emission permits from another country under an international emissionstrading scheme. It seems likely that the latter scenario will eventuate.

If it appears too good to be true …

The government announced in the budget anintention to investigate the feasibility of introducing a shared equity housingscheme to assist low-income individuals and families to purchase a house. Theapproach follows overseas examples where the government purchases the housewith you, ie a shared equity arrangement where the government could own say 30%of the house. The house is co-owned between you and the government, but youget to live in the house. The government shares in the capital gain, but thereis no obligation for you to repay the government until the property is sold.

A silver lining to jobs lost to Asia

The rampant Kiwi dollar is likely to encourage more manufacturers to relocate production to low cost Asian countries. In fact, several manufacturers had already announced plans to move production before the latest Kiwi dollar rally. This will mean more job losses in an industry that has been shedding jobs over the past few years. In April our iconic whiteware producer Fisher and Paykel signalled their intention to relocate 350 jobs to Thailand. Next was Sleepyhead with a possible 250 jobs, followed by Dynamic Controls with another 200 jobs, both to China.