The visible hand in economics

The Greens on economics

Posted on: October 19, 2008

There has been a lot of chatter about the Green’s understanding of economics lately, so I thought it might be apropos to have a look at their economic policy, just released. The key points appear to be:

  • Income taxes cut;
  • Taxes on waste, pollution, speculation and scarce resources;
  • Commitment to buying NZ made and Kiwisaver investment in NZ;
  • Only citizens and residents allowed to purchase land.

Let’s start with the good bits. Income tax cuts are great because they reduce the distortion in peoples’ labour market decisions.

We’ve blogged so many times about our support for taxation of externalities that I’m not even going to bother linking it. That applies to the taxes on waste and pollution.

A tax on scarce resources just confuses me. Surely the cost of using scarce resources, absent of externalities, is the price. Unless we think that people are using the ‘wrong’ discount rate and over utilising them, I’m not sure of the point of a tax.

The effort to buy NZ made and invest more in NZ are unlikely to be beneficial to NZ as we have discussed previously on this blog.

Finally, I find the restriction on overseas purchases of land very odd. At first glance it seems out of step with the Greens’ very open immigration policy: why allow immigration but not land purchases? Why not allow those who value the land the most to buy it regardless of their country of residence? What about citizens living overseas? It smacks a little of the government’s blockade of the sale of Auckland airport, only without the ‘strategic importance’ to support it. I’ll wait until I’ve seen the final policy statement before passing judgement, but I really don’t see how this policy could be beneficial.

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19 Responses to "The Greens on economics"

“A tax on scarce resources just confuses me. Surely the cost of using scarce resources, absent of externalities, is the price. Unless we think that people are using the ‘wrong’ discount rate and over utilising them, I’m not sure of the point of a tax.”

I suspect that’s exactly what some Greens are thinking. But they’d probably arrived there by an alternative logic and use different language to make the point.

Okay, so they will create a tax free threshold (which doesn’t actually target those who most need it as those earning below $10,000 pay zero tax anyway) but what will they do to the upper tax brackets? I too will wait to see the full policy detail, but I don’t think we should give them too much credit unless they are planning to significantly flatten the entire tax structure.

If you take Queenstown there are an awful lot of foriegn owners and while it may be good for GNP it would seem bad from a community perspective. Some call it “over developed”

I think the goal is to keep property afforable and accessible and protect community.

The way things stand there isn’t any where that doesn’t get colonised by developers , (not withstanding energy shortages and/or the financial crisis).

The Ontario Greens have a land tax policy. Which aims to see rising property values go into the community. I like that idea but I’m not sure how it would work in practise.

I note developers off to Vanuatu. The locals get jobs but I can see unseen costs as they live in the shadow of business+goverment and the population increases around them until they are just a nuisance… unless they have a stake in land ownership.

[…] Visible Hand in Economics also has questions about restricting land ownership to New […]

Personally I think they are rather confused all round, but that is the Greens for you

“I too will wait to see the full policy detail, but I don’t think we should give them too much credit unless they are planning to significantly flatten the entire tax structure.”

As it will not reduce effective marginal tax rates, but will increase incomes – thereby leading to a strict decline in labour supply incentive.

“I think the goal is to keep property afforable and accessible and protect community.”

So the presumption is that there is a social benefit from “community ownership”. I would like to see more evidence of such a benefit before taking it as a good justification of policy methinks.

“Personally I think they are rather confused all round, but that is the Greens for you”

What political party isn’t confused all around – there incentive is to get elected, not to figure out what is actually best for society 😛

“As it will not reduce effective marginal tax rates, but will increase incomes – thereby leading to a strict decline in labour supply incentive.”

Is that necessarily a bad thing? Surely labour supply is a means to an end, which is increased utility from consumption. If the trade-off means less labour is supplied then that’s only bad if it’s more distortionary, isn’t it?

I also don’t see how a cut in income tax rates doesn’t result in a decrease in marginal tax rates. Could you explain that to me, please?

“Is that necessarily a bad thing? Surely labour supply is a means to an end, which is increased utility from consumption. If the trade-off means less labour is supplied then that’s only bad if it’s more distortionary, isn’t it?”

I agree about looking at labour supply as a means to an end. However, I was just stating that the composition of taxes will influence peoples incentive to work – I don’t see how that is contentious. In the current case there is no factor increasing labour supply, but there is a straight income effect – as leisure is a normal good this will lead to less work.

I was describing the process (to check to see if thats what the author of the previous comment intended), I wasn’t passing a normative judgment on whether it is right or not.

“I also don’t see how a cut in income tax rates doesn’t result in a decrease in marginal tax rates. Could you explain that to me, please?”

If we cut the first $1000 worth of income taxes, and no-one receives less than $1000 in income a year – then the marginal tax rate will be no different, as you are still charging 33 or 39 cents on each additional labour unit that is provided.

Effectively, the Greens want to make some income tax free, but it sounds like they are going to leave the rest of the tax system unchanged – if this is the case, the marginal tax rate that most people face will not change.

“I was describing the process (to check to see if thats what the author of the previous comment intended), I wasn’t passing a normative judgment on whether it is right or not.”

Ah, sorry, I thought there was an implied normative judgement there.

“Effectively, the Greens want to make some income tax free, but it sounds like they are going to leave the rest of the tax system unchanged”

Oh, so the zero tax on the first $10,000 is the only tax cut they’re making? Weird.

“Ah, sorry, I thought there was an implied normative judgement there.”

I thought my tone was pretty neutral – I’ll try to be more careful in the future 🙂

My focus is definitely on the “description” – after all I’m only a hack-economist, not a policy analyst 😉

“Oh, so the zero tax on the first $10,000 is the only tax cut they’re making? Weird.”

Not officially, but that was definitely what was being implied – and what I though the authors assumption was when discussing the “flatness” of the tax system.

“Oh, so the zero tax on the first $10,000 is the only tax cut they’re making? Weird.”

They put out a proposal on water (one of the scarce resources mentioned, I guess) use a few months ago that entailed reductions in rates or income tax (can’t remember) with increased (market?) rates for commercial water users.

There was also the proposal to cut income tax while introducing a carbon tax, but that’s off the table now. The ‘first 10,000’ seems to be more of a social policy, while the two examples i’ve given seem to be the direction they’d like to head in.

“They put out a proposal on water (one of the scarce resources mentioned, I guess) use a few months ago that entailed reductions in rates or income tax (can’t remember) with increased (market?) rates for commercial water users.”

Why not just help set up a real market for water – then the price will pick up the inherent scarcity. We definitely need a market for water – but I don’t think there is such a thing as a “scarcity externality” (unless of course they think that societies discount factor is different from the socially optimal one – a view that was popular among turn of the century economists, even the marginalists).

“There was also the proposal to cut income tax while introducing a carbon tax, but that’s off the table now”

I actually agree with them on this – externality taxes, insofar as the cost of implementation is included, are the taxes you definitely want in your tax system. Income taxes should just be there to “make up the difference” in my opinion.

Perhaps a water market would’ve made them even more unpopular with farmers – who knows? As this post implies, they’re not that into economics (as Key and ‘40%’ have proven, a lot of politicians aren’t). I think they’re into base allocations + market rates with residential water, but that’s just an idea thats floating around more than anything concrete. Would certainly be interested in any more proposals like the carbon tax idea though!

“Perhaps a water market would’ve made them even more unpopular with farmers – who knows?”

Would that matter, farmers all vote for National 🙂

“Would certainly be interested in any more proposals like the carbon tax idea though!”

Indeed. Effectively the ETS is supposed to act like a carbon tax – as a result we don’t need both an ETS and a carbon tax, as we would be taxing carbon twice 😛

Indeed.

And now they’re discussing the Tobin Tax again…to discourage currency speculation and kinda-sorta as a means of increasing aid budgets.

“And now they’re discussing the Tobin Tax again”

Hmmm. The Greens love international issues. I actually like the idea of a focus on international issues, but I don’t think it is at all in our countries best interest to look a things that way 😛

[…] 21 10 2008 So the Green’s want a Tobin tax do they (ht Frog Blog and Stephen). Ok, so I’m hoping they aren’t justifying it on externality grounds – this leaves us […]

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