OnPoint by Keith Ng

So, part of National's coalition agreement with ACT is to put in a "spending cap":

..core Crown operating spending, excluding finance costs, spending on the unemployment benefit, asset impairments and spending on natural disasters, will be subject to a spending limit.

Under this limit expenditure will grow no faster than the annual increase in the rate of population growth multiplied by the rate of inflation.

My friend Chye-Ching Huang points me to her thinktank's (based in the US) paper on Colorado, which between 1992 and 2005 capped revenue to inflation plus change in population. i.e. Exactly what National-ACT have agreed to do. It runs through what a complete and utter clusterfuck the programme was, but I'm especially fond of this turd:

At one point, from April 2001 to October 2002, funding got so low that the state suspended its requirement that school children be fully vaccinated against diphtheria, tetanus, and pertussis (whooping cough) because Colorado, unlike other states, could not afford to buy the vaccine.

This is a state with the same GDP per capita as Sweden, but which could not afford to vaccinate its children. That is perverted.

The formula is essentially fiscal anorexia:

"The [TABOR] formula... has an insidious effect where it shrinks government every year, year after year after year after year; it’s never small enough... That is not the best way to form public policy." - Brad Young, former Colorado state representative (R) and Chair of the Joint Budget Committee

But that's just the formula under normal circumstances. Through omission or ignorance, N-ACT's plan is much worse.

Remember the aging population? Treasury expects NZ Super costs to double in 10 years. The only way to lower this is to raise the retirement age/reduce entitlements very, very soon, or if we got rid of a lot of old people... somehow. Well, Key refuses to do the former, and we probably signed some stupid UN conventions against the latter. So, NZ Super costs are going to double. And if total government spending is capped, then where is the money going to come from?

Oh you know, education, health, stuff.

Putting this spending cap into Treasury's Fiscal Strategy Model, it shows that real per capita Core Crown expenditure (excluding NZ Super, finance costs, unemployment benefit, asset impairments and spending on natural disasters) will fall by 8.9% in 10 years.* To put that into perspective, that's roughly the Law & Order and Defence budgets combined, or a bit more than a third of the Health budget.

Check my numbers by all means, but with a budget that is explicitly fixed and exploding NZ Super costs, there's not much room for ambiguity. This is not a cap. It's not even a slow withering of the state. This is a substantive and perpetual cut.

How is it that Key can casually commit to this? Who the hell would swallow this satan-sandwich just to get John Banks in return?

This is the cynical part. He's doesn't actually have to swallow it. The law change will take place in two years, probably choosing the 2014 budget as the baseline, so there won't be any actual cuts till 2015, after the election. It probably won't be Key's problem by then, and possibly not National's. He even points out that future governments can abolish it if they want to. So, he's basically setting a completely unreasonable promise in place to force future governments to renege on it.

Also, Key is lying if he claims that Treasury supported the cap. Treasury supported *a* cap. The capping system that they recommended:

Consistent with the intent of the PFA, the level of the proposed cap would have been set by the current administration, rather than prescribed in a way that attempts to set the cap for future, yet-to-be-elected governments.

This is the very opposite of endorsing National-ACT's "one arbitrary cap, forever and ever, amen" approach. Governments do not get to dictate what future governments spend, even if it's all just a giant charade.

* Assumptions: Cap comes into force by 2014/15, population and economic growth tracks unchange, inflation at 2%. Before you say "but smaller government will macroeconomagically create growth", keep in mind that the cap is not pegged to growth, whereas NZS payments are, so higher growth will only make this cut deeper.

So, after all that distracting talk about the Tea Tapes last week, I'm glad we've finally come back to serious, substantive discussion about New Zealand's Winston Policy. National and Labour have both persuasively laid out the case for their respective Winston manifestos, and I'm sure the credit ratings agencies will be monitoring the situation closely.

I've complained in the past that it's all too easy for our politicians to *say* that Winston is our nation's most precious resource, or that Winston is Our Future, or simply WINSTON WINSTON WINSTON WINSTON. But I take comfort in the fact that in this election, Key has truly taken WINSTON WINSTON WINSTON WINSTON to heart, and WINSTON WINSTON WINSTON.

Unfortunately, my Winston-based data visualisation technologies are not quite ready, though I'm close to proving quantum entanglement between Winston and Banks, which would explain how a cup of tea in Epsom can travel into Winston's mouth faster than the speed of a voice recording.

However, I've been working on a new map-based tool, and here's the first result: The Brain Grain! It uses migration data from StatsNZ to track the "brain drain", and provides granular breakdowns by age (by occupation and gender in the next version).

Actually, it's not granular at all. But grain rhymes with brain, and as the saying goes: "Rhyme is a perfectly good substitute for reason; something something lightly-season."

Ahem. But it's Actually Quite Good as a generic migration analysis tool.

And in case you missed it (possibly because I never posted it..), here is the visualisation of the Consumer Price Index I made for Mix and Mash.

That won the Infographic section, but I was also quite pleased with my other entry, the Super Modern Thompsontron 1952, inspired by Alasdair Thompson (SFW, I promise).

Dear 3 News. You said:

A 3 News investigation into the student loan scheme has uncovered documents that show, if it was run as a business, it would be losing a billion dollars each year.

Critics are outraged and want it to become an election issue.

Let me ask you a question: If you ran an interest-free loan scheme as a business... what kind of business would it be? I don't claim to know more about economics than Don Brash, than Alasdair Thompson's replacement, than the head of NZIER - but seriously, if you fellas are outraged that a scheme offering free money is making a loss, then you are - as John Key might say - a monkey's uncle.

The simianly obvious point is that the student loan scheme is not run as a business because it's not a business. It has the social goal of making tertiary education more accessible. Sure, it's legitimate to ask whether it's achieving its goal, and it's legitimate to ask whether the goal is worth the cost,* but to be outraged simply because a government programme cost money, ignoring what that money buys, that's stupid.**

And let's look at this story. It's a 3 News "exclusive" "investigation", which obtained "confidential Treasury briefings" under the Official Information Act.

Though their thorough investigation, they found that the Student Loan Scheme costs money. It's hard to tell because they only mention rough numbers, but I expect that those figures came from the Budget Fiscal Strategy tables which breaks down the cost of the scheme.

That is to say, these exclusive confidential numbers are publicly accessible by anyone at anytime.

But you know what, this happens all the time and it isn't such a big deal. It's journalists thinking that they've done some badass journalisting because they used the OIA instead of Google. It's showboating, it's hyperbole, but it's not wrong.

But back to the story itself: Brook Sabin then goes on to interview Don Brash, Alisdair Thompson's replacement at the EMA, and the head of NZIER who has (in quite a reasonable fashion, BTW) been a vocal proponent of cutting the interest-free policy.

But what exactly does the EMA have to do with anything? The sum of their contribution to the story was:

The balance sheet is wonky and it needs addressing.

WHAT DOES THAT EVEN MEAN?!

So, Sabin does a story in support of a policy that only ACT supports. Then he interviews the head of a right-wing organisation, because.. what, he needed a competing right-wing view saying the exact same thing? All he got was a completely meaningless statement of support, which he included in his story anyway. And then he goes to a vocal proponent of this policy. And omits NZUSA, which would be an obvious port-of-call for this story. And Labour, whose policy this is. And the Greens, who have the student policies most diametrically opposed to ACT's.

Yes, he then gave 20 seconds to the Minister for Tertiary Ed, so it's not completely unbalanced - but that hardly makes it balanced.

This can't really be chalked up to an accident or a mistake. You can't accidentally forget NZUSA on a student loan story and - whoops, wrong office - end up talking to the EMA instead. You might be able to randomly pick a high-profile economist, and just happen to pick one that's vocally against interest-free student loans. That might happen, since we don't have that many economic consultancies. But the two together?

Maybe 3 News is partaking in crusading journalism, and they're consciously pimping this policy. But that's pretty unlikely.

The more likely scenario is that Sabin "owed" ACT for the story. For example, if Brash went and said: "Hey Brook, got a great tip. Can tell you exactly what to OIA if you promise to interview me and my pal for the story". In itself, that's not unusual. I don't think I'm out of line to say that this is common practice for political journalists. (And if I'm wrong, I'd like to know.)

Usually, these kinds of deals aren't as smelly as they sound because the journalist pushes back and go: "Yeah, I'll talk to the EMA, but I won't promise to run it; and at the very least, I will talk to NZUSA because otherwise I'll look like a goddamn tool." And politicians accept that, because the point of these deals is to get a story written about their policy, using a news hook that works in their favour. The point isn't to buy the whole story, because that makes everyone involved look like a tool.

And usually, a journalist can justify it because the tip they're getting is of genuine news value, and it's something they wouldn't have found otherwise.

Except in this case, the hot tip was for secret documents containing information that's been in every budget since 2005. 3 News got punk'd.

--

If anyone from 3 News would like to respond to this, I will gladly publish your response verbatim on these pages.

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* Not all of the cost of the student loan scheme comes from the interest-free policy. A lot of it is from people who just don't pay it back.

According to the Student Loan Scheme Annual Report, of the people who left study in 1992, 12% have paid back nothing by 2009. Of people who left study in 2000, 30% have paid back nothing by 2009.

These people may have skipped the country (in which case they are already being charged interest under the current policy) or they may have no taxable income. Either way, charging them interest is simply going to mean they owe more money that they're not paying back.

** Or maybe they're simply outraged at the sum? It's an interest-free loan-book worth $12b with a high rate of non-payment. Why would any economically-literate person by surprised that it cost $1b a year?

This? This is just accounting burlesque - showing you half the picture, and strategically cover the other half.

It's all very legitimate - if you care about accounting. Some bits are capital and other bits are revenue. So some bits get counted in the "surplus" and other bits don't.

In saying that they would get back to surplus faster as fast as than National, Labour takes the money from asset sales off the debt books, but counting the revenue that we would get from those assets on the operating books; they count the revenue we would get on extra contribution to the Super Fund on the operating books, but put the cost of the contribution on the debt books.

(CORRECTION/CLARIFICATION: Labour only counted the extra *tax* revenue on the additional interest from the additional Super Fund contribution, not the additional interest itself.)

Here's the simple truth about asset sales and the Super Fund: In the short-term, it's just moving money around. It doesn't spend it, it doesn't earn it. It's effect on our net position in the short-term is bugger-all. Anyone who's telling you that it'll significantly change our position in the next few years is, at best, pulling some kind of accounting trick.

The real difference is in the long-term, and it depends entirely on interest rates, SOE performance, Super Fund management, etc. Labour's making a pretty modest argument for restarting contributions to the Super Fund, saying that it'll earn 0.5% above the cost of capital. It's such a mundane claim, I don't see how it can be reasonably challenged. And on the SOE front, National's argument has always been about the wider economic impact - on the sharemarket, etc. - not that the government will see a fiscal gain.

Which is to say, Labour has a decent claim to doing better in the long-term.

But in the short-term, whether Labour will return to surplus faster than National - or not - is just spin scribbled on napkins. These are rough estimates, and "surplus" for a year is an entirely arbitrary point. So when will this made up line cross an arbitrary point? Whenever it's politically convenient.

The most important thing to come out of today's annoucement is a tally of costings for Labour's policies: Most of them are chump-change. The big ticket items are changes to KiwiSaver and "Policies yet to be announced". So it looks like the biggest spending programmes are yet to come.

There's also some strange spin going on. David Parker said that KiwiSaver changes is the biggest item of new "spending". Which is technically true, since tax cuts are cutting revenue, rather than increasing spending. But Labour's tax cuts (tax-free threshold, GST changes, R&D tax credits) are actually bigger than the KiwiSaver changes. In fact, it's bigger than all of Labour's new spending combined, including the ones which haven't been announced yet.

It's like they are petrified of talking about it because fiscally responsible is the new black. Unfortunately for them, it's also the biggest, most expensive goddamn thing in their policy.

If wishes were horses, then compulsory employers contributions would be flying monkeys.

You know what? I don't think that makes any sense.

Over on Kiwiblog, Farrar is trying to claim that "Labour are officially campaigning for lower wages", because employers will offset what they have to pay into KiwiSaver by taking it out of wages.

Sure - this is correct. Labour said so explicitly. I wrote about it in detail four years ago.

Except that this money, which is taken out of wages, is then put into an account with your name on it. It is yours. It's not called "wages", it's called "employer KiwiSaver contribution". But you know what? It can be called "Flying Monkey Deposits" and it'll still be money with your name on it.

So.. instead of wages.. people will be getting money.

Next.