For the last few years, the government has put off cutting taxes because of their inflationary impact. Now, with the government willing to cut taxes, the Reserve Bank is unhappy because of their inflationary impact. This begs the question, how inflationary are tax cuts?
Our work in the news
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Here is list of Infometrics’ latest mentions in the media.
If you haven’t seen the new poster for the "Buy New Zealand made" campaign, it features an attractively attired woman, asking the question, "Does my economy look good in this?" The implication, of course, is that we should think carefully about the damage wrought when we purchase foreign-made goods.
I haven’t felt particularly enthusiasticabout work this week – like much of the rest of the country, I suspect. Itmight be the fact that I’m running out of patience with the pitiful weatherthat spring has thrust upon us, with endless gales, overcast skies, and regulardumpings of rain. Or is it the thought of having to wait until 2011 before theAll Blacks have another chance to get their hands on the Rugby World Cup?
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.
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.
There are many things you should be worried about when choosing your KiwiSaver scheme. But whether that scheme is investing ethically – commonly understood to mean shunning tobacco, alcohol, gambling and armament stocks – is not one of those things. Although greed may not be good, in this case it is very sensible.
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.
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 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.
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.