Offsetting Behaviour

Australian defence

2026-04-24T07:00:00.000+12:00

It's weird that NATO and others benchmark defence adequacy by spending as a fraction of GDP.

Surely treating inputs as targets rather than outcomes has been known to be a mistake for at least forty years.

Lifting defence spending, as fraction of GDP, to very high levels - but spending it on kit that can be easily destroyed by low-cost drones - seems like a bad idea. "It sounds like you're feeding multimillion-dollar tanks to thousand-dollar drones" kind of bad.

Casey Handmer works through some obvious implications for Australia.

The core technical fact that Australian defence planning has not absorbed is what Packy McCormick and Sam D’Amico call the Electric Slide: the five foundational technologies of the electric stack — motors, batteries, power electronics, sensors, and edge compute — have each decosted by roughly 100× over the past 30 years. The guidance electronics that in 1990 required a government munitions program now ship as the cheapest component in a disposable toy.
The practical result, demonstrated across Ukraine, Nagorno-Karabakh, the Red Sea, the cartel conflicts in northern Mexico, and now the Persian Gulf, is a cost-exchange regime in which a $500–$5,000 drone can plausibly destroy a $1M–$100M asset. Ukraine produced more than 2 million drones in 2024, and doubled that in 2025. Russia’s Black Sea Fleet, which in 2021 was significantly larger than the Royal Australian Navy, has been reduced by approximately 45% by an adversary with no navy at all. The dominant ships were destroyed by autonomous surface vessels and anti-ship missiles at a cost-exchange ratio on the order of 1:1000. Houthi operations have forced US carrier strike groups into standoff. Cartel drones routinely contest Mexican state control in Michoacán and Sinaloa.
...
Australia’s capability posture is built around high-unit-cost, low-count, foreign-sourced exquisite platforms — a force structure appropriate to a world where precision strike was a US/USSR duopoly and tactical mass was a minor consideration. That world is gone. In the world NDS 26 claims to operate in — the post-Ukraine, post-Red Sea, post-Nagorno-Karabakh world — tactical mass is everything, and the cost-exchange regime rewards the side that can produce cheap guided munitions in volume.

I'm less convinced of some of Handmer's arguments for a fully independent stack. Some insurance is too costly to be worth it.

But the piece is interesting.

As ANZAC Day approaches, imagine Australia and NZ taking these lessons seriously and taking a joint approach. Rocket Lab can launch small satellites. New Zealand has drone manufacturing. And maintaining ability to ship across the Tasman would seem a core objective for both.

This may come as no surprise

2026-04-22T09:51:00.001+12:00

RNZ reports:

An RNZ investigation into the tobacco blackmarket found packs of cigarettes and loose tobacco being sold brazenly over the counter at heavily discounted prices.
By law, cigarettes have to include pictures and health warnings covering at least 75-percent of the front of the packs. But the cigarettes being sold on the blackmarket are a throw back to the 1990s of glossy, embossed packaging and no ugly health warnings.

They continue:

Illicit cigarettes are being sold in Auckland without the warnings, with some going for as cheap as $13 a pack, less than a third of the price of a packet that includes excise tax.
An East Auckland shop visited by RNZ is selling 15 different packs of cigarettes. Only one carried the mandated health warnings.

Great that RNZ is starting to understand what's going on.

Here's RNZ in 2024, quoting academics suggesting that claims about the illicit market were all down to industry influence.

Smokescreen: Expert rubbishes govt claim of black market over smokefree legislation
...
But University of Auckland professor Chris Bullen said since the Smokefree Aotearoa goal came in in 2011, there had been no increase in the proportion of illicit tobacco products, and the absolute size of the illicit market had declined.
"We haven't seen that in New Zealand over more than a decade of increasing the price of tobacco. In fact, all of the evidence points to a decline. That may be in part due to a reduction in demand for cigarettes, because much fewer people are smoking, and they're smoking fewer cigarettes."
Tobacco companies have to declare to the Ministry of Health what was being released into New Zealand.
"By looking at the last 10 years of those records, the volumes of tobacco, reflecting demand for it, have been dropping quite dramatically. Smokers also report smoking less. The gap between what the tobacco companies release into the market and what people say they're smoking is also declining, suggesting that while there is illegal tobacco in the country, it's not increasing," Bullen said.
Bullen said the government should implement the legislation, and support Customs to continue to keep illicit products out of the country.
The claim of a rising black market was also used by the tobacco industry.
Bullen said the argument was a "zombie argument" that refused to die, and that politicians needed to think hard about repeating arguments used by the industry.
"The tobacco industry, it's in its interests to claim that things are bad so that the government takes its foot off the tobacco control accelerator pedal.
"They want to keep selling more product, they don't want the volumes of tobacco to be going down, because that would mean losing business. It's in their interest to have political support, whether it's conscious or unconscious, intentional or unintentional, for slowing the game down."
He has urged the government to keep the smokefree legislation.
"I just think unfortunately this government has been scared off, or persuaded by voices directly or indirectly from industry, that meant we're not going to see the best outcome here. And that will play out in the ongoing misery and premature death for thousands of people who shouldn't have experienced that if the existing act was allowed to play out over the next few years."

Australia's black market problem has been obvious for years.

Australia has been deporting gang members across the Pacific. It's dispersion of the tacit knowledge of how to run an illicit cigarette industry.

Fronting the fixed cost of establishing illicit supply channels to Australia meant the only thing to sort out at the NZ end was how to get it into the country, not where to get it from.

It was always going to be a worsening problem here.

Labour's proposed policy package, endorsed by Bullen, included Very Low Nicotine Content rules.

Those rules would have made the illicit market the only place to find tobacco with any appreciable nicotine content. Recall that the allowed nicotine levels in VLNC cigs are equivalent to a 0.2% alcohol maximum for beer. It's the equivalent of prohibition, for those who remember that US prohibition allowed near-beers with very low alcohol content.

Consider how much worse the illicit market problem would have been if the current government had maintained Labour's tobacco policy package.

Medsafe Delenda Est

2026-04-21T07:00:00.009+12:00

Excellent news out of the UK. Abrysvo, a vaccine for RSV administered to pregnant women, reduces infant hospitalisation by 80%.

From the BBC:

A vaccine during pregnancy which protects newborns against nasty chest infections is cutting hospital admissions of babies by more than 80%, UK health officials say.
A virus, called RSV, affects many babies in the first few months of life and can leave them gasping for breath and struggling to feed, with more than 20,000 babies ending up seriously ill in hospital in the UK every year.
Since 2024, women have been offered a vaccine from 28 weeks of pregnancy to protect their newborns.
A new study analysing the impact of the vaccine shows it gives "excellent protection" to babies when they are most vulnerable to RSV, the UK Health Security Agency (UKHSA) says.
RSV (respiratory syncytial virus) is one of the main reasons young babies are admitted to hospital before the age of one.

The UK govt website provides a few more details (alas, the link to the paper is broken).

The vaccine here is going to have been Abrysvo; it's the one that England rolled out against RSV.

Last year, I noted Abrysvo in a Post column on the proposed Medicines Amendment Bill.

I'd written:

New medicines are slow to be authorised for the New Zealand market.
Even if it a medicine has already been approved by many other trustworthy overseas regulators like those in Canada, the UK, Australia and the EU, Medsafe can take a very long time to evaluate a medicine.
But pharmaceutical companies are not quick to get their medicines into our approval process. New Zealand is a tiny market. We are not at the top of anyone’s priority list. Medsafe will not assess a medicine without an application.
Consider RSV – the respiratory virus whose name is utterly unpronounceable when it isn’t an acronym. It is highly contagious. Pregnant women, infants, and some young children are more at risk from it – at least according to the Immunisation Advisory Centre.
Vaccination against RSV is available for New Zealand’s elderly. But while 40 other countries allow access to Abrysvo, a vaccine administered to pregnant women to protect their infants, Medsafe’s database shows no evidence that its manufacturer has applied for New Zealand approval.
New Zealand researchers helped with the clinical trials that proved its safety and effectiveness. But the vaccine is not available here. Simply being good enough for 40 other countries and tested here isn’t sufficient.

I noted that the Bill's proposed fast-track approval process for medicines wasn't what had been promised in the Coalition agreements. Those promised automatic approval if at least two trusted overseas regulators had approved a medicine - regardless of whether anyone got around to applying for Medsafe authorisation.

And I worried that the fast-track would not solve the problem if the underlying problem is pharma companies not seeing NZ approval as being worth the time. We're an afterthought.

The FDA and EMA authorised Abrysvo in pregnancy, to protect infants against RSV, in 2023.

When I made my submission on the bill last year, a search of the Medsafe database showed no evidence that application for NZ approval had been made.

As of this afternoon, the same search yields the same result.

If you're pregnant or are thinking of becoming pregnant, talk to your GP about s29 access to Abrysvo. It might be tough. There might not be anyone importing it. And a lot of doctors don't like using s29.

It is approved in Australia. I don't know whether Australian doctors are willing to dispense for Kiwis willing to pay.

This is so stupid.

Medsafe authorisation stands between pregnant women and this vaccine, approved in dozens of countries, and well-proven in the UK.

Fingers crossed that Pfizer is just holding off until the 'fast-track' verification process is live, and that it goes live fairly soon.

A closing snippet from the BBC piece. Delays can be costly.

The vaccine didn't come in time for Laine Lewis's son Malachi, now 12 years old. He developed a cold as a baby which deteriorated so much that he was taken to hospital, diagnosed with RSV and put on oxygen. Malachi later stopped breathing and a scan soon after revealed brain damage.
His mum has said it's important his story "doesn't scare people" because what happened to Malachi was very rare.
But she added: "I'd encourage people to take the vaccine for RSV because it will help their child."
Dr Watson said the vaccine could "make a big difference to keeping babies safe" through the winter.
"I would strongly encourage any pregnant woman to discuss it with their midwife, other health professionals, and be ready to have the vaccine at their week 28 appointment, or another vaccine appointment arranged soon after that."
Latest figures show around 64% of pregnant women in England are getting the RSV vaccine, but that falls to 53% in London.

Addendum: Nothing here argues a case for government funding. That would require its own more rigorous case. I do not know why anyone would read the above as arguing a case for funding. It is only arguing a case for authorisation, so those willing to pay can have that's choice, whether or not it would be sufficiently cost-effective to warrant funding. And remember that some medicines get pulled from Pharmac's evaluation queue for want of a NZ sponsor for Medsafe authorisation.

Access to Cash

2026-04-09T09:14:00.006+12:00

Andy Macdonald over at BusinessDesk asked me for comment on the ongoing RBNZ cash-access saga.

A snippet:

The New Zealand Initiative’s (NZI) chief economist, Eric Crampton, said it was “deeply concerning” that the RBNZ hadn’t sought Treasury and Crown Law advice on the consultation’s legal basis.
“The [Reserve] bank has no express statutory power to mandate where banks provide retail cash services,” Crampton, who co-authored a column about this with Roger Partridge, said.
“It [RBNZ] appears to be borrowing coercive prudential authority and deploying it where no such power exists.”

Roger Partridge and I wrote up a bit on it a couple weeks ago over at Newsroom. The short version: RBNZ is undertaking a consultation process over a proposal. Regardless of the outcome of that consultation process, RBNZ does not have the statutory authority to implement the proposal.

It isn't just that RBNZ very clearly does not have statutory authority to require commercial banks provide specified cash services in places where the banks view such services as not commercially viable.

If you want a fun illustration of that, go over to Newsroom and look at the comments section. Comments there are always Mos Eisley spaceport. But sometimes they're a useful kind of awful. There you'll find former RBNZ board member and Vic Uni academic Chris Eichbaum grasping at implausible straws trying to find a statutory authority. He chides me and Roger for failing to refer to subpart 5 of the Reserve Bank Act, perhaps hoping that nobody would ever bother reading subpart 5. Precisely nothing in subpart 5 enables the RBNZ to compel service. Read it for yourself. I go line by line through it for Eichbaum, and there's really nothing there.

And it also isn't just that the RBNZ's basic economics around the justification for the proposal is, frankly, flat-out wrong. Here's Martien Lubberink on that issue.

It's also that the Reserve Bank asked Parliament to give it that power, and Parliament declined to do so despite having had two legislative opportunities.

So. What the hell does the Reserve Bank think it's doing? Is the consultation process a lobbying effort trying to get public support for something that Parliament has not been inclined to allow RBNZ to do? Is it the RBNZ trying to strongarm the commercial banks into doing 'voluntarily' what RBNZ wants, despite the lack of statutory mandate, because of the risk that RBNZ can impose very large costs on regulated entities that displease it? Or did it simply not occur to the Bank that it does not have the statutory authority to enact its proposal - despite having asked Parliament a few years ago for that kind of authority?

I'd sent an OIA request through to RBNZ, hoping to figure out what the RBNZ thinks it's doing. That request:

Dear RBNZ,
We seek information about the future of cash workstream. RBNZ is consulting on a proposal that would require banks to provide additional cash services. We can see no authorisation in either the Reserve Bank Act or the Deposit Takers Act for this kind of regulatory imposition. So we are curious how it developed to be a proposal for external consultation.
We consequently would like to know:
Did the Reserve Bank consider whether it has the statutory authority to require banks to establish a national cash distribution network?
Without disclosing privileged legal advice, which section of the Reserve Bank Act or the Deposit Takers Act would the Bank view as providing that statutory authority?
In its 2019 consultation, the Reserve Bank suggested that new regulation-making powers be added to the Reserve Bank Act to be used if there were risk of significant reduction in access to cash. If the Bank now views itself as having statutory authority to compel businesses to establish a cash distribution network, why did it ask, in 2019, to be granted those powers? And did Parliament’s refusal to take up that opportunity in the Reserve Bank Act 2021 and the Deposit Takers Act 2023 enter into the Bank’s deliberations about the current policy proposal?
Please provide internal correspondence, memos, briefing notes, aide memoires, and any other documentation shedding light on these questions. I am particularly interested in any internal quality assurance process that this paper undertook, whether that process considered the Bank’s legal authority to undertake what was proposed, and whether the Board’s advice was sought as part of the process – particularly on the Bank’s statutory authority to impose the proposed requirements.

Request sent 4 March. On 26 March they punted it out to 2 June.

So we still don't know what the heck RBNZ thinks it was doing. Perhaps RBNZ is trying to figure out what it thought it was doing.

I expect that they will play motte-and-bailey with this, saying it's just a consultation and that they would only need statutory authority if they were going to actually implement the proposal.

But that's inadequate when they have substantial discretionary power over the banks and a proposal like this can be viewed by those regulated by RBNZ as a requirement to 'voluntarily' come to some equivalent arrangement with RBNZ lest bad things happen under different aspects of the RBNZ's authority. And it's also inadequate where the consultation process can be viewed as an attempt to lobby Cabinet for an expansion of RBNZ powers that Parliament has already twice failed to provide. Should government agencies spend time and effort on public consultation processes aimed at swaying their Ministers?

I will be interested to see the OIA materials. But it feels like substantial governance failures at the Bank.

Addendum 10 April: The RBNZ sent an advisory note this afternoon. A relevant section, emphasis added.

“As part of the consultation, we have received questions about the legal basis for the proposal we are consulting on, and we will release more information about this within two weeks. This may assist people in shaping their feedback on the consultation. We will also provide some Official Information Act responses that will be completed within that timeframe,” says Karen Silk.
RBNZ is responsible for ensuring that cash meets needs of the public.
“No decisions have been made yet on the proposals outlined in the consultation, and we want to hear a wide range of views about what the minimum services should be locally to withdraw cash, deposit cash, and swap cash free-of-charge, in every district of New Zealand. The public’s views are important and will help inform our approach,“ says Karen Silk.
“Our preferred approach is to work with banks to explore how the public’s access to cash services could be improved on a voluntary basis and we welcome responses from the cash industry,” says Karen Silk.

On a 'voluntary' basis. Kinda funny that one. The Commerce Commission set up a very large (and I think unneeded) grocery regulator because it worried that supermarkets have too much power over their suppliers and that voluntary arrangements between supermarkets and suppliers might not be all that voluntary.

Whatever you think about grocer power over suppliers, the Reserve Bank of New Zealand has far more power over the entities that it supervises. And here wants to come to a 'voluntary' arrangement with the banks, to achieve an outcome that the RBNZ cannot directly regulate to achieve, because it does not have the mandate.

Thank a migrant

2026-04-02T07:00:00.002+13:00

Combine a points-based migration system that welcomes higher-earning younger people with progressive tax systems and you get a result like this, from Tim Hughes at Treasury:

The central finding of this paper is the simplest. In aggregate, the foreign-born are becoming increasingly important for the country’s tax base. Foreign-born people made up 24% of the population in 2000, also paying 24% of individual tax on market income. Since then, the foreign-born’s share of the population has grown, and their share of tax paid has grown even faster. In the tax year ending March 2024, the foreign-born made up 32% of the population, and paid 38% of the tax.

As Lewis Holden put it on Twitter: 'Goddam immigrants coming to our country, paying all OUR taxes'.

The high cost of free parking: urban intensification edition

2026-03-31T09:56:00.003+13:00

Problem definition matters in policy.

I worry some people in Auckland are experiencing poor parking management by Auckland Council as being a problem of the removal of mandatory parking minimums.

The problem isn't removing mandatory parking minimums.

The problem is the failure to price or manage on-street parking in places subject to intensification. Expectations of being able to find free on-street parking reduces demand for on-site parking where on-site parking has high opportunity cost.

So solve the underlying problem. It isn't that hard. Set resident parking passes for the street, keep some spaces back as paid parking (easily managed through apps), and let folks decide whether they want to pay for an on-street spot or forgo some living space on-site or not have a car.

My column in yesterday's Post.

The case for considering fuel surcharges

2026-03-25T10:17:00.005+13:00

Last week over in Newsroom, I laid out the case against subsidising fuel use during a supply shortage.

That case is sufficiently obvious that you wouldn't think it would need to be made. But the New Zealand Taxpayers Union really disgraced itself by urging those kinds of subsidies via reductions in petrol excise. Petrol excise already is inadequate to cover the cost of the roading network. Taxpayers already subsidise road use. The NZTU wanted even larger subsidies from taxpayers to road users when it is manifestly unclear that we will be getting more fuel shipments.

The piece also made the case for just letting fuel prices rise rather than contemplating various kinds of rationing. Letting prices rise automatically culls the lowest-valued uses of fuel. Governments concerned about equity implications can transfer money to poorer people. This point ought to be obvious to any economist who's done intermediate micro and the welfare theorems. Always surprised to note which bank economists might have missed the lecture on the welfare theorems.

And it then made a point that I don't think I'd seen others make. I think it's also obvious. Real option value matters.

But I also worry about the Commerce Commission’s insistence that prices should only reflect current supply costs.
Consider an analogous problem faced by hydroelectric generators.
The ‘cost’ of running water through a hydroelectric dam in February is that the generator cannot run that bit of water through the dam again in July. Rain is always uncertain. Holding storage back, in case inflows are lower than expected, has value.
If fuel storage tanks might not be replenished because import routes are disrupted or exports are restricted, the ‘cost’ of fuel is not whatever notional price fuel companies contract with overseas suppliers. A litre used now might mean a litre that cannot be used in June. It is possible that everything resolves itself before then. But it is also possible that things turn considerably worse. The Strait of Hormuz is less predictable than hydro lake inflows.
The commission’s messaging risks confusing today’s sourcing cost with the value of fuel in storage. If replenishment is uncertain, the relevant cost of selling a litre today is not just what it cost to source, but the value of keeping it in reserve. That is like telling hydro generators to run the sluices in February despite the risk of a dry winter.

And that gets us to the case for fuel surcharges.

I do not think it's any kind of knock-down case. I certainly don't have the background figures to be able to tell. And if the government is confident that its agreement with Singapore and alternative sources of supply are secure enough, then none of it's needed. But it can be worth thinking through in advance, just in case.

Suppose the storage tanks are at their normal levels. Prices have increased, mainly reflecting increased price of fuel being loaded onto transport ships. But each ship now carries some risk of being diverted before it reaches New Zealand. That risk means each litre in storage carries some real option value: there is some chance that using a litre from storage today means that there will not be a litre to use in May or June.

All going well, fuel companies price this in. If the transports stop arriving, fuel in storage is far more valuable than the current price. Every fuel company ought to be weighing the price it can get for a litre of fuel today against the potential price that litre could get in future if kept in storage, weighted by the likelihood that future prices are higher.

It'll be complicated, and there aren't great numbers to throw in as probabilities. But it's in-principle doable. Fuel companies should have strong incentive to get that right. If a litre of diesel is worth $20+ in June if transports stop arriving, then selling today for $3 would be a mistake if the risk of the bad scenario is high enough.

And in the first best, government is in constant communication with the fuel companies about the negotiations it's having with foreign suppliers, and fuel companies are always weighing that up alongside their own market intelligence (and odds at Polymarket etc).

There is no case for surcharges in that first-best world. Everyone's already weighing up real option values and they're priced in.

Here are a few ways that can go wrong.

Suppose companies think that they will be punished by the government for increasing prices today to reflect real option value, ahead of the risk materialising. They are not crazy to think that, given the kind of messaging that our populist Commerce Commission provided. In that case, they will choose some price lower than would otherwise be optimal. Their optimisation would be 'what is the highest price we can charge, below the actual optimal price, without drawing ire from the government?'
Suppose companies think that they will be punished by the government for increasing prices to very high levels in future if transport stops. In that case, a company holding fuel back against that future risk (and potential future returns) isn't able to realise those future returns. The social value of holding fuel back for future use would be high, but the private return would be expropriated through government seizure of stored supplies or other forms of de facto expropriation.
Even if the government were sensible, consumers may not be. Suppose one fuel company runs real-option-value pricing and another does not. The one charging higher prices today will be damned today for charging higher prices. The one that does not, will not. The one that charges higher prices today will be further damned if the bad state of the world obtains and they charge very high prices in June. The one that runs out will not be blamed for running out. How could they be blamed for running out? The Straits are closed. It isn't their fault. The one that really deserves blame is the one that 'profiteers' in June. Running real option pricing when others aren't means taking a hit to revenues today in expectation of higher returns in future if the bad outcome obtains. But the brand damage could be far higher than can be recouped, because approximately nobody is willing to think in real option value terms. This underlying mechanism is what drives populist government responses too.

I do not know what fuel prices reflecting real option value should be. But $3/litre diesel feels low when thinking about those risks.

And that gets to the case for surcharges. If companies fear backlash for using real option pricing, government could set a surcharge reflecting the difference between actual prices and prices that incorporate that real option value.

I'm not convinced by that case. And I have little confidence that government could get to the right number on it, even with smart people making their best efforts. But it seems worth thinking about.

At a minimum, the government really shouldn't be saying anything that could be read as discouraging fuel companies from increasing prices.

And the Commerce Commission's public messaging ought to be more around real option pricing. Saying the words 'real option pricing' would be a mistake. But I think enough people understand the hydro lakes to get the point? The generators hold water back when the lakes are high, resulting in higher electricity prices at that time of year, if they worry that the lakes will otherwise be too low mid-winter. If they didn't do that, we'd risk winter blackouts. And that's worse than higher prices when the lakes are high.

Addendum/Postscript 31 March: Storage is a constraint. Real option value of fuel held back now is consequently lower, unless it were cost-effective to pay an arriving tanker to just stay here. And I doubt that currently stacks up.

I am very glad that the government here has not discounted petrol excise or jumped to other populist stupidities that tempt the Australians.

Recursive technology, non-recursive adoption, and Schumpeterian displacement

2026-02-27T15:52:00.000+13:00

Tyler pointed to this piece, from Citadel Securities, making the point Tyler's made before: AI is growing more powerful by leaps and bounds, but people and institutions are slow to adopt new things.

Diffusion and bottlenecks within institutions will prevent an AI-powered growth explosion and rapid displacement.

Recursive Technology ≠ Recursive Adoption
The current debate around artificial intelligence conflates the recursive potential of the technology with expectations of recursive economic deployment. In other words, because AI systems can improve themselves or accelerate their own capabilities, commentators are extrapolating a future in which automation and productivity compound indefinitely at exponential rates. Technological diffusion has historically followed an S-curve. Early adoption is slow and expensive. Growth accelerates as costs fall, and complementary infrastructure develops. Eventually, saturation sets in, and the marginal adopter is less productive or less profitable which causes growth to decelerate.
Despite this – markets often extrapolate the acceleration phase linearly but history implies pace of adoption plateaus as organizational integration is costly, regulation emerges and diminishing marginal returns exist in economic deployment. The risk of displacement declines with a slower pace of adoption.

I'm happy to agree with all that.

And I think it was Josh Gans who, a few months ago, pointed to very wide within-industry dispersion of firm-level productivity as suggestive. Highly productive and far-less-productive firms coexist in single industries.

But if the productivity gap is large enough between firms that really get AI and those that don't, wouldn't we expect the laggards to be winnowed out? If old institutions are slow to move, but new upstarts can leapfrog them, you could have stats showing relatively small proportions of workers relying heavily on AI, as Citadel currently shows. But weighting that by market share could be different.

I dunno. When Aella can quickly roll-out dataviz with Claude that beats anything Stats NZ has ever put up, it feels like there's potential for tiny firms to quickly eat large lunches.

I find it difficult to ignore the role of stupidity in human affairs

2026-02-19T11:20:00.002+13:00

Adam Thierer points to his favourite Ronald Coase quote:

my favorite Ronald Coase quote: "I find it difficult to ignore the role of stupidity in human affairs."https://t.co/VkrTfmmppu pic.twitter.com/UjHgK2Eu75
— Adam Thierer (@AdamThierer) February 18, 2026

With that in mind, a couple of things have been bugging me.

Item the first.

The government of New Zealand is exercised about supermarkets and supermarket competition. It simultaneously wants supermarkets to pay higher prices to their suppliers while reducing costs to consumers. It has established an entire regulatory agency whose job is to force supermarkets to pay more for inputs while reducing prices on outputs. At the same time another part of the Commerce Commission is trying to prevent Foodstuffs North Island from merging with Foodstuffs South Island on a very dubious theory of harm: the back-end efficiency benefits of merging two supermarket cooperatives that operate on different islands would be less than the harm to competition in the supplier market, which ComCom claims would wind up having longer term harm to consumers.

It is not coherent.

But it gets worse.

One coherent part of the government's approach is a desire to make it easier to import food products. It would help reduce costs to consumers directly, and indirectly by easing a barrier to entry. I support that initiative.

New Zealand has signed onto FSANZ, a joint approach to food product regulation with Australia.

FSANZ has proposed making bespoke Australia-NZ 'food-star' healthy food ratings compulsory. They are currently voluntary.

Let's think this through.

A store wanting to sell grocery products from outside of Australia-NZ would have two options for each product.

It could put the product up for FSANZ assessment and put a sticker on each and every packet before putting it on the shelf.

Or it could ask suppliers to provide production runs specific to the requirements of the New Zealand market.

The former would have fairly high per-unit cost: a sticker has to get added to every product.

The latter would also be expensive. It would mean limited production runs at higher cost that also limit flexibility to shift product across different markets in response to changing circumstances.

It would disproportionately burden stores that stock foreign-sourced products - like the Asian grocers that provide fringe competition to the main supermarket chains.

And it would increase the cost of entry for any overseas supermarket that wanted to bring its supply chain with it.

One part of government wants to improve competition in supermarkets and bring costs down; another part of government wants to push up the cost of groceries while impeding competition.

Item the Second

Earlier this week, I received an email.

I'd put $200 in there mainly to test their trading interface. I love prediction markets. I missed them. New Zealand had been truly world-leading in this area, then FMA/DIA/Justice/Simon Bridges killed the sector here.

My submission to the CFTC on Kalshi from 2022 is here. I'd there concluded:

What experience we had with iPredict suggests CFTC really doesn't have anything substantial to worry about in allowing contracts on political events. If anything, they heightened voter engagement. The CE of iPredict even featured on the nightly news during the election, giving the latest on election market prices. And for that brief period, whenever blowhard partisans insisted that some outcome was going to happen, people could just point to the iPredict price on the event and ask them why they thought that price was wrong, and whether they'd actually put their money where their mouth was. It was a remarkable era. iPredict inflation forecasts (they also had markets on inflation going out several years - it was so very good) wound up being noted in our Reserve Bank's Monetary Policy Statements. I desperately miss it. I envy the opportunities Americans could have if CFTC takes a sensible approach to regulation.

And now they've taken Kalshi from me too.

Newsroom has the detail on what happened, along with some pretty misleading nonsense from the Department of Internal Affairs.

Before we hit the Newsroom / DIA stuff, here's the defensible case. Or, well, defensible given the constraints.

The government auctioned off a monopoly to run sports betting in New Zealand. It is consequently obliged to protect that monopoly on behalf of the licensee. Remember that cartels and monopolies are only bad if they aren't government-authorised. In that case they are wonderful things.

Kalshi is a CFTC-regulated exchange. It trades event contracts in the same way that iPredict did. It runs AML/KYC; I had to go through it to trade there. It's safe. It's fine. But some of its contracts are on sporting events, which in the US are treated as futures derivatives rather than sports betting. That provides Kalshi with a few advantages that Matt Levine has had an awful lot of fun discussing.

And, at the same time, New Zealand Members of Parliament have become very exercised about online gambling full-stop. Their proposed solution is not very good. They want to license online gambling operators, which can be okay, but they also want to set tight limits on the number of operators. That's neither here nor there in this context, but it's part of the moral panic in the general area.

Now. If you were the regulator charged with defending the monopoly provided to the sports betting licensee and if you viewed Kalshi's sports contracts as sports betting, the obvious thing to do would be to ask them to segment their markets such that NZ-based traders could not trade on the sports contracts but could trade on other contracts.

It is entirely possible that Kalshi would prefer to close off access than so-segment its markets. But that would be a defensible position for DIA given its role as monopoly-enforcer for the company to which the New Zealand government auctioned the right to run sports betting.

Instead we get this:

Polymarket, Kalshi and similar prediction markets are illegal under New Zealand’s gambling laws, the nation’s gambling regulator has decided.

Polymarket and Kalshi are online markets where users can place bets on future outcomes, ranging from New Zealand provincial cricket results to what phrases Donald Trump will use next month.

Whether the Reserve Bank of New Zealand will increase, decrease or hold the official cash rate when it meets on Wednesday has had over $127,000 placed on it.

...

Department of Internal Affairs gambling director Vicki Scott tells Newsroom it believes they are illegal gambling platforms.

“We consider platforms such as Kalshi and Polymarket to be gambling under New Zealand law,” Scott says.

“Since they aren’t authorised operators, they are prohibited from offering their gambling products to people in this country.”

“To the extent these platforms are taking bets from New Zealand customers, they are breaching the law here and can expect to hear from us.”

The event contracts on things like the OCR are very obviously financial derivatives. iPredict offered them as an exempt futures exchange in NZ a decade ago. DIA always hated iPredict and viewed it as treading on their turf - maybe they want the whole stock exchange to come under their authority as a gambling operation.

This is not the 'online casino gambling' that is subject to the NZ gambling licensing regime. It's a CFTC-regulated futures exchange.

And this part seems particularly off:

While these websites are still technically accessible, Scott says using unlicensed sites is risky because there are no guarantees to ensure they pay out as promised or take action to minimise gambling harm.

Does DIA have any credible reason to believe that Kalshi and Polymarket welch on bets?

In a better world, DIA would have asked Kalshi to exclude Kiwis from its sports contracts (which I think is stupid, but that stupidity is imposed by Parliament) and if Kalshi either could not or would not, they would have put out a statement blocking Kalshi on that basis without insinuating that they're dodgy online casinos.

Item the Third

Sam Bowman writes in the Washington Post:

By some measures, teenagers’ mental health does seem to have gotten worse over the past 10 years, and this does coincide with widespread adoption of smartphones. But that is where any clear correlation between the two ends. Multiple studies have either shown that smartphone and social media use among teens has minimal effects on their mental health or none at all. As a 2024 review published by an American Psychological Association journal put it: “There is no evidence that time spent on social media is correlated with adolescent mental health problems.”

You can also catch The Studies Show on the topic. If there are effects, they are very small.

Overseas jurisdictions implementing social media age limits are, predictably, now looking to regulate access to VPNs as complement.

And so the government of New Zealand is rushing to have legislation on it through before the election. As it is going through as a member's bill rather than a government bill, there won't be much accompanying assessment. The Prime Minister is 'deeply supportive'.

Sigh.

There was another good line in that old Coase piece, quoting Axel Oxentierna, a 17th Century Swedish Chancellor. "You do not know, my son, with how little wisdom the world is governed."

Surely a case for outcome-based contracting

2025-12-15T10:41:00.002+13:00

Outcome-based contracting would have solved this:

A stop smoking provider says the decision to cut its contract on the basis it has refused to hand out vaping kits as part of its cessation programme was not a part of the contract when it was signed.
Takiri Mai te Ata Trust regional manager Catherine Manning said the Wellington-based trust received an email this week stating it had to either start supplying the vape kits or have its contract terminated, despite signing a new contract earlier that year.

Vape kits are effective in stopping smoking - and more effective than patches.

If a stop-smoking provider didn't want to distribute vape kits, flipping that provider to outcome-based payments could make sense. If whatever they've come up with is as effective as vaping, then they'd be paid for that outcome. And if they were just handing out ineffective patches to no reduction in smoking rates, they'd wind up having to close down the service.

Outcome monitoring's a good idea regardless. But outcome-based payments can help the state be agnostic across methods.

The state of the books

2025-12-01T07:00:00.000+13:00

StatsNZ has put up its year-end accounts for the government, split out across functional areas.

Their data goes back to 2009 in the main table; I'm sure earlier data's available somewhere in Infoshare.

But sticking with the Excel sheet they've provided, we can lob in June-year population statistics and June quarter consumer price index values to get per capita real measures on operating expenditures net of finance cost and on spend in different functional areas.

Here's per capita real central government operating expenditure net of interest expenses. Netting out interest expenditures is helpful if you want a handle on core government operating expenditure. Government can decide to take on less debt; it cannot decide to stop making its interest payments.

You may have heard a lot of stories about austerity. Consider that both the government and the opposition may want to convey the impression that it has happened, despite it very much not having happened.

Throughout the 2010s (barring #eqnz), per capita real operating expenditure net of interest expenses ranged from $17,143 to $18,653 - with 2019's jump to $18,653 being well out of line with the prior track. Labour substantially increased spending under its wellbeing focus - as was its prerogative.

Per capita real operating expenditure net of finance cost has been above $21,000 since then; the provisional figure for 2025 is $21,648.

Here's the breakdown by functional categories. Let's start with the bigger-ticket items.

The largest-spend category here by far is social protection: benefits and superannuation.

Spending on those has risen over the period and is now close to the peak that they hit during the GFC and Christchurch Earthquake. There was always going to be a slow rise in these with an aging population in the absence of reform to NZ Superannuation.

Health is next. It peaked during Covid. Vaccines cost money. Again, an aging population will get you an increasing track on this one - but we were averaging about $3700 per capita before Covid and we're now around $4600.

Education had a large Covid spike, then retrenchment to a new level a bit above the old per capita level.

But remember that this is per capita, not per capita under the age of 25. And the proportion of under-25s has been dropping at the same time as the proportion of over-65s has been increasing.

Any giant shedding of government staff will show up in General Public Services.

The austerity really stands out in this picture. Can't you see it too?

'Economic affairs' spiked with the wage subsidy scheme but has maintained a substantial ratchet.

The category's spend, pre-Covid, peaked in 2019 at just over $1,200 per capita. Now it's just over $1,700 per capita.

Public order and safety has plateaued just over $1,200 per capita. The increase began under the Ardern government. National has maintained their increase in resourcing to police.

Housing and Community Amenities jumped from close to nil to just over $400 per capita under the prior Labour government, and has stayed there under National.

Defence has been more frugal - but remember that this is just operating expenditures, not capital expenditures. That's around $400 per capita throughout. Minor decline in real per capita operational expenditures since 2009.

Recreation, culture, and religion rose and has retrenched somewhat. I wonder what the heck is in the 'religion' category. But the apparently arts and culture hating National-led coalition is spending more in this category, in per capita real dollars, than Ardern ever did pre-Covid.

Environmental protection has been maintained at a slightly higher level than pre-Covid. Under the Key government environmental protection was around $160 per capita; pre-Covid Ardern had it around $175. Just look at that slash and burn from the environment-haters. It's right there. Can't you see it? That little downward tick in 2025?

We continue to be in substantial structural deficit.

Increasing revenue to match spending is always an option, but one that would entrench the increased spending in just about every category since Covid - and still leave a demographic problem to be dealt with as superannuation entitlements keep rising along with health spending.

And I've not included the costs of financing an increasing government debt.

Alas, it was not to be

2025-11-26T07:00:00.000+13:00

It would have been just one bad part of an overarching very silly policy. Exempting it from the policy regime I suppose makes the policy a bit more tractable. But it also makes it a lot less potentially funny.

New Zealand's government supports the creation of cultural content by paying for it through various grants. TV stations and streaming services can then run it, or not, as they want.

Canada does things the dumber way. I'm sure they also have direct subsidies. But they also have Canadian Content regulations that prescribe the proportion of each day's broadcasting that must be Canadian content.

It was bad enough in the linear TV era. The ridiculousness of it all had the excellent SCTV pad out the extra couple of minutes of the Canadian version of the show (fewer ads than on the US side) with a very explicitly Canadian segment: the most over-the-top CanCon possible. Bob and Dough MacKenzie - the hosers.

The first segment including them had a lengthy scroll after the segment explaining how the segment meets official Canadian guidelines for what counts as Canadian content and was almost as funny as the MacKenzie brothers.

That was fifty years ago now - or thereabouts.

Times change.

A decade ago, Canada decided that its regulatory reach extended to the entire internet if the internet could be viewed from Canada. If you wanted to stream to Canada, you'd have to meet CanCon rules. Quite how to make that work when people choose what they want to watch and plenty of potential platforms might not really care what Canada things about anything - well, they've been taking a while figuring out how to apply the principles.

And they've finally decided that, despite or perhaps because of the uniquely Canadian content that might be created, to great hilarity, to meet the rules, the CanCon rules will not apply to pornography streamed in Canada.

This has long been one of the more onerous demands of the CRTC, given the relative dearth of erotic media that would meet their terms as “Canadian content.”

Under the CRTC’s definition of the term, it’s not enough to have a Canadian performer or a Canadian setting.

Rather, it’s determined via an elaborate “points” system that, among other things, requires the producer and at least one of the lead performers to be able to prove Canadian citizenship.

At least three quarters of the financing must also come from “Canadians or Canadian companies.”

In extreme cases, this means that a video of a Canadian couple having sex in Canada and directed by another Canadian would not qualify as Canadian content if only 74 per cent of the financing was provably Canadian.

Whenever one despairs about policy in New Zealand, Canada and the UK provide superb reminders that the rest of the world generally remains even worse.

Meanwhile, Australia's looking to impose Australian-content mandates on streaming services.

The federal government has put laws requiring streaming services to produce Australian content back on the table after postponing them due to concerns about how they would interact with Australia's trade agreement with the United States.
The government has confirmed it will introduce legislation this week to mandate that any streaming services with more than 1 million Australian subscribers must produce Australian drama, children's, documentary, arts or educational programs.

I wonder whether there are enough subscribers to any single platform for Australia to run into Canada's difficulties here. It would be very funny if there were.

Seamus and I were wrong

2025-11-20T18:16:00.002+13:00

Back in 2012, Seamus Hogan and I were ...mildly sceptical... of proposals to build a giant convention centre in Christchurch.

Seamus wrote:

The convention centre: Eric has written on this, but I can't resist adding my voice. This is why the stadium doesn't upset me so much. The stupidity pales into insignificance compared to the silliness of building a purpose built facility from scratch that is able to host up to three conferences simultaneously. (Aside: from my limited experience with organising conferences, if you have choice over location and date, you choose somewhere where you will be the only conference operating at the time.) The conference centre should be small close to hotels and the performing arts centre so that larger affairs could spill out to those areas.

The bit I'd written on it, in a post titled "What am I missing?", was after one of our regular lunchtime chats in the econ department lunch room. So it owes a fair bit to that discussion with Seamus:

The Press reports that the Christchurch Convention Centre was insured for $30m but that like-for-like replacement would cost $60m. Whatever external benefits come from holding conferences in town are mostly internalised by the local hotel and restaurant industry; solutions letting the convention centre build internalize those external benefits helps ensure an efficiently sized convention centre. Here's one way of doing it, conditional on Council wanting a convention centre.
Council buys options on a few appropriate sites around town.
Council gets in touch with the big hotels to tell them that Council's going to build a much smaller convention centre for $30 million, but that they want to site it so it can be linked by skywalks* to adjacent blocks if the hotels want to be linked to it. If the hospitality industry really wants a bigger convention centre, they can come back with a proposal where the hotels fund an expanded facility. But even with a smaller convention centre, they can still host big conventions by holding plenary sessions in the big convention centre facilities and having breakout sessions in the different connected hotels' conference rooms.
Figure out the set of sites on which you have options that best suits the set of hotel partners. The hotels buy the options off Council for their parts of the build.
Exercise the options and get on with it. Make sure there's room on the site to put a few restaurants; put restaurant provision up to competitive bidding so that any rents from conventioneers get capitalized into the purchase price and help fund the place, internalizing the external benefit.

Now I know what I was missing: the true chutzpah of Christchurch.

Christchurch, I am in awe.

We were totally right that the thing would be a white elephant that couldn't cover its costs. We were worried about them spending $60m on a new one; the one they got cost $475 million and lost $3.4 million last year. Its visitor numbers hare dropping too.

But just look at this.

The ownership question is more tangled than it first appears.
An early, “in principle” version of the 2019 Global Settlement between Christchurch City Council and the Crown talked about the council being best placed to own Te Pae and provide strategic direction for the city’s venues.
But that language did not survive into the final agreement signed later that year.

So the city was cagey about being willing to take ownership while making sure that it didn't sign anything saying that it would.

Good move that. Then:

The Te Pae clause now simply records that the convention centre would be delivered, and that “the parties may continue to engage on future ownership of Te Pae as appropriate”.
The Christchurch City Council said it had already looked hard at taking the asset on, and decided against it.
“After due diligence the council decided not to pursue ownership,” head of facilities and property Bruce Rendall said.
Infrastructure Minister Chris Bishop, one of the shareholding ministers in CID, said the Government was “open to proposals for Christchurch City Council ownership of Te Pae in the future”.

Emphasis added. I'm reminded of Bart Simpson announcing that he would resign, undefeated, from the world of video boxing.

So. Option for the Crown at this point would be to threaten to mothball the thing rather than continue to subsidise it. I don't think they can force Council to own it.

And Christchurch always has the option to offer to agree to take on ownership in exchange for concessions on other margins where central and local government negotiate about things.

Even evil genius needs recognition.

As a bit of fun, I asked my advisor to imagine it were a consultancy like Cameron Partners asked to prepare a report on the likely sale value of the thing if it were offered to market.

As a going concern without ongoing subsidy, the Crown could expect to have to pay someone about $90 million to take it, assuming that the venue could be scrapped in 30 years for its land value.

If instead the owner could demolish and put up something else instead (while paying break fees with the operator), the site might be worth $55 million.

Both $-90 million and $55 million are considerably less than the $352m asserted book value of the building, which is considerably less than the $475m build cost.

A huge up-front and ongoing waste of course. But consider the evil genius here too. That's worth something.

The conversation with my advisor is here, for those keen on that sort of thing. The opening snippet:

In straight commercial terms, Te Pae as a convention centre is not worth anything like its $360m book value to a private buyer. On realistic assumptions:

Highest bid is likely to come from a “scrap + redevelopment” buyer, not a buyer keeping it as a convention centre.

A plausible order‑of‑magnitude sale price for the site in that scenario is around NZ$50–70m net of demolition and contract break‑costs.

As a going concern with no ongoing subsidy, the facility’s value to a private buyer is zero or negative (you’d effectively need to pay someone to take it).

To get a positive price for Te Pae as a going concern, you’re looking at an ongoing subsidy of roughly NZ$8–10m per year over decades, assuming current trading patterns.

Speech-gating and privacy tradeoffs

2025-10-23T12:19:00.001+13:00

A friend asked about my zealotry on age-gating social media and why internet anonymity/pseudonymity should be protected.

I sent this through by email, figured I'd share it here too, very lightly edited.

I agree that people are more likely to be jerks when anonymous.
Potential for anonymity is simultaneously important protection when society or governments are too censorious, or could become so, or when someone in one country worries about consequences for family who live in a censorious country.
If Twitter had a magic tech that could undo VPNs and put a note under each tweet specifying the real country of origin of any tweet, that wouldn’t bother me any. Or if another social network decided to only allow real name accounts, and people wanted to chat there, that’s perfectly fine with me too.
Government requirements on these platforms seem like a different matter entirely.
The UK’s rules require that every site whose content could possibly be viewed as harmful to children now require adults to prove that they are not children. One very predictable consequence: Discord was hacked, and 70,000 had their government-issued IDs stolen.
But even without hacks, requirements to provide your ID if you want to look at sensitive content can chill speech and access to information. “Oh, you want to read that article about the STD you think you might have? Just show us your ID. And trust that we won’t tell anybody what you were looking at.” Or, “Oh, I see you’re interested in a very niche form of pornography. Please give me your ID.” “Oh, I see you’re interested in academic journal articles about the heritability of different traits. Papers please.”
Freedom of speech includes the freedom to read. I would consider it a violation of freedom of speech if a librarian came up and demanded to take a record of my ID if I were minding my own business and peacefully reading subversive books.
Did any of the proponents of the UK legislation think that ‘just protecting children’ would mean adults would have to give Wikipedia their ID to read some of their articles, or to every dodgy porn site? Probably not. They’re not good at thinking about tech or consequences or how companies protect themselves against substantial potential liability.
But that’s where the UK now is. As consequence, VPN downloads have massively increased in the UK so people can pretend they’re not in the UK. And the UK government is investigating whether it’s possible to ban VPNs.
And as consequence, I’ve gotten a multi-year subscription to a good VPN, because the obvious way for governments to ban VPNs is to ban domestically issued credit cards from processing payments to them. And New Zealand seems determined to be every bit as stupid as the UK. I understand that Select Committee has asked for advice about the feasibility of banning VPNs as part of their inquiry into ‘just protecting the children’. Great stuff.
Australia’s version will require social media platforms to keep under-16s from having accounts. There are triaging efforts they can take, but a pile of users who are over the age limit will wind up having to prove that they are over the age limit.
The system can then either err on the side of letting youths on accidentally (and suffer penalties for doing so), impose substantial burdens on adult users to avoid letting youths on accidentally (frequent age re-verification to make sure that a youth hasn’t faked being over the age limit with the help of a confederate), or end the potential for anonymous/pseudonymous accounts by requiring real ID.
If I were a Chinese student studying in Australia and had set up a pseudonymous Twitter account for fear that my family in China would be punished for what I might say in Australia – and to maintain the option to go back to China if I wanted to – I would end my account rather than provide ID. Because IDs can be hacked, and the Chinese government is good at that. Sure, they could probably figure out who owned an account if they tried really hard absent that. But having a giant database that just hands over all the IDs you need to check? Risky.
There are ways of doing it that are privacy preserving. But it would be very easy for a fifteen year old, with the cooperation of a seventeen year old friend, to get an account under those methods. And when that becomes obvious, those for whom potential harms to children trump everything else in the world will call it a ‘loophole’, demand the loophole be closed, and the potential for pseudonymity disappears.
The same problem applies to what I’d put up as potential least-bad solution in my submission on this stuff. Government could require that platforms age-restrict at the app-store level such that parental authorisation is required through Family Link or the Apple equivalent.
It would be far from foolproof: not everyone has an age in their phone account (Google or Apple); people could buy cheap phones and not disclose true age. And it would have some harms too: the State would be enforcing the right of a Gloriavale mum to block her son from important aspects of contact with the outside world. Which is a bit odd when a 15 year old can get an abortion without parental notification or consent; doctors are forbidden from telling the parents if the child so-requests. We have very odd and inconsistent rules about what things kids can and cannot do without parental consent.
My solution would also have obvious holes. So I urged that, if parliament picked up that option, it do so very deliberately with recognition of that lots of kids would work around the rule and that that was the least bad alternative – that nobody frame it as being other than very second-best, and that nobody pretend afterwards that kids getting around it was a reason to revise the rules.
It still sucks though and is far more risky than I’m comfortable with.

I guess one bottom line: shouldn't we let the rest of the world have a few attempts at this before jumping into anything we might regret?

Other bits of context:

Justice Harvey on continued government efforts to exert control over internet content
My submission on this stuff
Eric Goldman's piece on the "Segregate-and-Suppress" approach to regulating child safety online. He puts up a very good argument against legislating parental signoff for kids installing the apps. He's right. I just think it sucks less than anything else Parliament might do.
The Harmful Digital Communications Act has itself been used to abusive purpose.

The Ring: discount rates edition

2025-10-23T09:36:00.003+13:00

Locked at the bottom of a dark well is a beautiful-looking idea.

"Set discount rates to very low levels when thinking about intergenerational issues."

It is a beautiful looking idea. We don't discount utilities. Future people matter. Conventional discount rates mean that far-off benefits or costs count for next to nil. Don't we care about future people?

Let the beautiful idea out of the well.

Surely it will be used only for very long-term lovely environmental projects with century-long returns.

Who locked it in the well anyway? It had to have been bad people for bad reasons.

Let the beautiful idea out of the well. Free it!

A couple of decades ago, Treasury was the place that warned about public choice considerations. About how this sort of thing might be a bad idea, and the reasons it would be a bad idea, and the safeguards that might be needed if you wanted to let the thing out of the well.

Lately, Treasury's been drinking from the well instead.

I was pretty sceptical of the initiative, figuring that the proposed dual discount regime would lead to shenanigans.

An earlier version of this stuff had a 5% discount rate for social investment projects. Tauranga's business case for the Te Manawataki o Te Papa civic redevelopment consequently claimed that the thing was a social investment project that could get the 5% discount rate. Of course this stuff was going to encourage shenanigans.

The final version sets a standard discount rate for 'commercial' projects at 8%, and that only 'non-commercial' projects would get the much lower discount rate: 2% in years 1-30, 1.5% in years 31-100, and 1% in years 101+. Along with a 'mandatory' sensitivity test at 8%.

And again without and decent definitions or guardrails - just hopeful suggestions about considerations that might affect whether something is commercial or non-commercial. Or any explanation of what enforces mandatory sensitivity tests in a world where zero other Ministries or Agencies respect Treasury as enforcer on anything any longer.

But boy this sure sounds hopeful and full of rainbows and unicorns.

Updating the discounting regime to use SRTP as the default for proposals with mainly non-commercial costs and benefits makes the CBA settings more technically robust, especially in a policy environment where there is increasing focus on long-term impacts of policy.

They let it out of the well.

And it's going about as well as expected.

NZTA in January decided that "most transport activities undertaken by the public sector" are non-commercial. And, in fairness, there's no commercial case for most stuff NZTA now does. So it's 'non-commercial' in that sense.

And so earlier this week a pile of new Roads of National Significance got announced, many with very low benefit-cost ratios, with the things assessed at a 2% discount rate. And no sensitivity testing at 8% that I can find.

It's terrible of course.

But there's a poetry to it.

Folks wanted to let her out of the well to justify environmental projects.

And instead we get more motorways.

Dieter warned you about some of this. And you didn't listen.

Treasury is a fallen place that has forgotten the faces of its fathers.

Gating speech

2025-10-02T11:37:00.003+13:00

Being able to speak online freely, under a pseudonym, is an important backstop for freedom of speech.

If government turns repressive, or bans some kinds of speech, or locks you out of some kinds of employment for having used the wrong words, at least you can online under a pseudonym.

Well, unless you're only allowed online after logging into a government app. Then it's game over.

Nevertheless, some in Wellington are itching to follow Australia’s lead.
While legislation is in its early stages in Parliament with Catherine Wedd’s Member’s Bill, Education Minister Erica Stanford is leading cross-agency work to explore viable legislative options and practical implementation.
The Prime Minister has publicly supported moving ahead.
Paul James, the Government chief digital officer, told me on The Business of Tech podcast last week that the digital identity verification system underpinning the upcoming all-of-government app and digital wallet could offer the age verification needed to support a ban – if the Government seeks to enforce one.

I've suggested before that a trilemma applies here, or something like one. Online age gating requires adults to prove that they're not kids.

And that means at least one of three problems.

A system could be easily worked around by kids.

It could be very cumbersome for those over the age limit.

Or it could be the end of online pseudonymity and privacy.

Suppose that the government-app runs a zero knowledge proof solution. You log into the app. It generates a key verifying that the person logged into the app is over some age. You use that key with your favourite social media app. It verifies the key's authenticity anonymously, so the app doesn't know which platform is checking. And you're set - privacy maintained.

But that's easily worked around if a sixteen year old logs into the government app on his fifteen-year-old friend's phone.

And enough kids doing that means the Before 16 lobby group will characterise it as a loophole that must be closed. And then the verification is no longer done through a ZKP, ending online privacy, or we have to do daily re-verification to impose a differential cost on under-16s, making things cumbersome for other users.

I do not like where this is heading.

Failure can be overdetermined

2025-09-27T09:36:00.082+12:00

Last week, on The Platform, Auckland Uni's Prof of Macroeconomics blamed my shop for the government's not adopting his proposal to completely overhaul the health, welfare, and retirement system.

Robert MacCulloch debates Oliver Hartwich from the New Zealand Initiative following the Nicola Willis interview.

Watch the full video at https://t.co/cXDdwFy9gF pic.twitter.com/HjFK0G77W1
— The Platform NZ (@theplatform_nz) September 22, 2025

About a decade ago, Prof MacCulloch and Sir Roger pitched their proposal.

It looked like it would take considerable effort to see whether the numbers added up.

It also seemed like something that would be difficult to convince anyone to implement.

We declined to weigh in. We've neither endorsed the policy nor recommended against it.

No conspiracy is needed to explain successive governments' failure to pick up the Douglas-MacCulloch proposal. Just the usual inertia.

The default path for a good policy proposal isn't implementation. The default path is failure.

Most proposals fail.

And especially for large changes that are complicated to work out and that the civil service isn't likely to support and that politicians are likely to see as risky.

I don't think that proposal could have succeeded without enormous amounts of work being put into demonstrably ensuring the numbers stacked up, public comms on explaining it to voters, work with officials so that they'd understand what the thing involved and in hope that they wouldn't wreck it, and work with MPs so they'd see the merits.

It probably would have required hiring an actual lobbying shop to help.

Anyway. Bottom line here: we didn't do anything to help or hinder Robert's proposal.

And it is weird to think that the thing could only have failed due to nefarious influence.

That isn't how anything works.

In the video, Robert notes having had a meeting in Bill English's office in which Matt Burgess argued against Robert's compulsory savings scheme - and suggests it's part of the Initiative's push to kill his policy.

Matt didn't work with us until after his time working in Minister English's office. I was sad when Luxon's office later stole him from us.

Success happens through weird mixtures of luck and timing and work and skill. Failure is the norm, and is generally overdetermined.

We've been successful with a couple of our policy ideas. But we work on and pitch lots of policy ideas, and have for a long time. Failure is the norm, particularly in the short term.

Think about the number of papers that turn up in NZ Economic Papers that have a policy recommendation and that aren't obviously crazy. What fraction of those turn into actual policy change? Half a percent? Less?

And who knows. Maybe MacCulloch and Douglas's proposal will get a re-airing with long-term superannuation costs again being salient.

But failure is the norm, even for meritorious proposals. No conspiracy is needed to explain failure. It's just what happens.

The case for optimism

2025-09-26T10:20:00.000+12:00

Kerry Howley has a superb piece in New York Magazine on the kids in San Francisco building the future.

Houses and motels turned into dorms for kids in their late teens through mid-20s, building everything from brain scanners through to an AI VC that evaluates funding pitches - with the AI having hired a person to be its real-world presence.

We head downstairs to a dark basement attached to a garage. A slight, long-haired man, a paid test subject solicited through Craigslist, sits before a computer screen, wearing a white cap that looks like a medieval linen coif threaded with wires. The screen flashes images — basil, a blazer, Parmesan cheese. With unsettling clarity, the computer will be able to resurrect the image from electrical signals in the subject’s brain. A subject considers a picture of jelly beans. AI offers a picture of similarly colored beads. A subject looks at a red station wagon; AI presents a red sedan. Until very recently, most people thought the data produced by EEGs, an 80-year-old technology, was noisy garbage. “They just didn’t understand the power of large language models,” Jonathan says. He is 24 years old.

Reading minds is what AI engineers mean when they talk about hard problems. Eventually, the tech will advance to interpret “evoked states.” “So we start with, you know, discrete smaller tasks like emotion, like positive, negative, maybe now ten, 20 emotions. And then we add more dimensionality so that eventually we can go into full sort of inner monologue,” a world of superior self-knowledge wherein we sift through our own memory banks rather than selectively recall events through a haze of misperception. “And,” he says, “we do it all in-house.”

Doing it all in-house looks like this: a server rack with LED-lit fans in the garage next to some exercise equipment and some bicycle helmets. Jonathan and his housemates built the rig themselves. “Just asking ChatGPT basically. You know, you can just ask and then order the parts you need and you learn and you debug.”

Kids partnering with AI to build things, no need to ask anyone's permission.

Howley's kicker here... so very good.

How do you make contact with the intelligence rising up from the machines around you? Do you build it a body? Do you offer it yours? It is perhaps tedious to point out that we are always operating under the shadow of destruction, deploying tools that might end us, convincing ourselves, not without reason, that if we don’t build the bomb, someone with worse intentions will. Not a single one of the AI kids had attempted to lecture me about a theory or suggested I read a paper; it was not me they were trying to program. Somewhere along the way, drawn into their swell, I had begun to think of large questions about the nature of AI as New York questions, millennial questions, distant from the center of things. Where it mattered, humans were not debating AI; they were merging with it. You order the parts you need, you learn, you debug. The kids carry on with the crisp clarity of engineers, integrating what is immediately useful, discarding or rewriting what is not. No one will ask your permission to build a world you do not understand.

It's like they're living in an 80s William Gibson novel. Working in spaces where policy and regulators can't really stop them. They don't care about policy papers. They're just building.

Those spaces matter. Policy is so impossibly stupid.

Here, Parliament's trying to figure out the best way of breaking the internet, with National wanting to copy Australia's insane social media age-gating bill, and Labour wanting to copy the UK's even worse version. News outlets cheer them on, having always figured that social media platforms are the enemy anyway. Both parties see it as crack cocaine for attracting pivotal female votes in the 35-55 age bracket.

And I understand that Parliament's select committee looking into this is wondering whether it's possible to regulate VPNs. Because that's been the obvious workaround in the UK for adults who don't want to have to show ID to visit every darned website. So long as at least one country remains free, VPN to it and pretend to be from there.

I'm cheering for the cyberpunks. They may be our best hope.

Infrastructure roulette

2025-09-05T11:41:00.000+12:00

In some respects it's reasonable to think about city council as being a kind of club.

Everyone who owns property in Wellington is a member of the Wellington Council club. The club levies itself to provide things that the club members want, and to cover off the cost of stuff that central government wants the club to provide that club members may or may not want. For some reason, renters were added as voting members of the club. But the debt that the club issues is ultimately backed by each of the club properties. We'll leave that messiness to one side for now.

The club finds that part of its infrastructure is in terrible shape - partially because of decisions of past club executives; partially because of a recent earthquake.

The club can choose to rapidly replace all of that infrastructure. That would be very expensive. But it would sharply reduce the chances of very bad outcomes where infrastructure blows out.

Or it could choose to pace itself in that infrastructure replacement. That will be much less costly. So much less costly that you could, at least in principle, compensate anyone who suffers from those infrastructure blowouts if it's really the infrastructure that's to blame.

The latter could be a very reasonable deal. Behind the veil, none of us know which of our properties is sitting on top of a water network pipe that will collapse catastrophically and destroy our home. But we'd all be bankrupted if we tried replacing all the pipes in a giant hurry - it's just impossible. So we're each better off if we all agree to take a more cost-effective path on the infrastructure refresh while compensating any club member who draws the short straw.

The alternative, with no compensation, is more like the club members agreeing to play a giant game of Russian Roulette. We don't know which of us will draw the short straw, but we hope to heck it won't be us because whoever it is will be ruined.

It could be that the numbers don't actually work out this way. But it seems a reasonable stylised example.

And in any particular case of blowout, you'd want to be sure that the club member hadn't contributed to the failure through their own negligence.

But if it were clear-cut, it shouldn't be a legal battle. It should just be compensation.

I mean, if a private company accidentally drove a bulldozer through your house and wrecked it, nobody would think it reasonable to force you to go to court to get them to compensate you. Everyone would pillory the company. There would be boycotts. Some Vic Uni quasi-academic might call for the company's chief executive to be hanged.

Here's The Post.

Wellington City Council is refusing to pay for repairs after one of its own burst water pipes triggered two landslides that has left two families facing bills of up to $600,000.
A council-commissioned geotechnical report found the Wadestown slips were “most probably” destabilised by a failed drinking water main, owned by the Wellington City Council and maintained by council-controlled organisation Wellington Water.
The 50mm pipe ruptured on August 4, saturating the embankment, and the slips forced both households to evacuate. Residents are still living in temporary accommodation.

I Am Not A Lawyer.

But it seems likely that the homeowners could sue council for nuisance, and win, and have costs awarded against council, but the costs won't likely be anything like what would be needed to make them whole as compared to council just providing compensation.

Council is not a good club.

Cementing allocations

2025-08-29T09:58:00.000+12:00

Recall that New Zealand issues industrial allocations under the ETS to avoid inefficient carbon leakage.

Basically, if emissions are charged here but aren't charged abroad, and production shifts from here to there because of our charges, net emissions can increase rather than decrease.

That is obviously counterproductive. So industrial emitters facing competition from places with unpriced carbon get allocations of NZU. Done right, it maintains the incentive to reduce your emissions because you can sell off your surplus NZU. But it has to be done right.

The obvious way of doing it right would be to scale industrial allocations not by the NZ plant's emissions but by emission intensity overseas. If a tonne of cement abroad has x tonnes of associated CO2 emissions, then allocate x NZU per tonne produced here. Basically. Then, if emissions intensity abroad reduces, the plant here gets fewer NZU for its own production. It maintains an incentive to reduce your own emissions intensity, and avoids getting into spots where it would actually be carbon-efficient for production to shift to plants abroad that have lower emissions than plants here.

It gets messier if the import mix has stuff from places that are cleaner than here and stuff from places that are dirtier from here. If you scale to the average emissions intensity of the import mix (weighted by proportion of imports), there's still a potential problem. Suppose average intensity overseas drops and so allocations here drop. The NZ producer reduces production. But if that hole is filled by product from the dirtier plants overseas rather than the cleaner ones, you've wound up having inefficient leakage again.

Carbon border adjustments are an alternative. But it gets messy with trade agreements. And you have to find a way of scaling the adjustment to the emissions intensity of the product.

New Zealand's industrial allocations seem to have a bit of a problem in cement.

Here's Energy News:

In a presentation to investors in June, Fletcher Building said a carbon border adjustment mechanism would level the playing field.

Currently, only goods produced in New Zealand face liability under the emissions trading scheme.

As an energy-intensive, trade-exposed emitter, Golden Bay Cement is eligible for an annual allocation of free carbon credits.

Data released last week shows that for last year's production, the company received 488,575 New Zealand Units, worth almost $27 million at the current spot price of about $55.

But the company says that a 2023 law change means that as the country's only cement manufacturer, it is now effectively being "rebaselined" every five years against its own emissions - which means that every time it cuts emissions it reduces the rate at which its free allocation is calculated.

"Significant investment in decarbonising local manufacturing is not viable without certainty a carbon border adjustment mechanism will be in place in the medium-term," it said in the presentation.

"Given regulatory settings, we have reviewed our capital plans for Golden Bay.

"The current investment plan retains flexibility to remain a domestic manufacturer or transition to an import model."

That just doesn't make sense.

The government is reviewing the settings. Scaling to international emissions intensity would seem obvious. A carbon border-adjustment could also work but I have no clue whether it can be squared with trade agreements.

The annual allocation of free carbon credits to trade-exposed, energy-intensive emitters like Golden Bay Cement was last adjusted in 2023.
The company says that, in the absence of a CBAM or an equivalent mechanism, it would likely need to consider transitioning to an import model by the early 2030s.
That could result in a non-cash impairment and write-down of assets of up to about $165 million, as well as potential make-good and cash redundancy costs of up to $180 million.
For last year's production, Fletcher received 488,575 New Zealand Units, worth almost $27 million at the current spot price of about $55.
The company says it is engaging "productively" with the Government on the issue.

If cement produced abroad is more carbon intensive than cement produced here, then shifting to imports is the kind of carbon leakage that we ought to be avoiding.

A faster track to supermarkets

2025-08-29T09:36:00.005+12:00

Minister Willis announced measures opening retail grocery to greater competition.

She announced a fast-track process in which retail grocery that would pass a 'does this improve competition' test could get consents that override existing district plans, access to a single building approvals authority for sites across the country, easy ability to replicate builds in multiple places, and an easier path through the overseas investment office.

Back in May, Benno at our shop put up our proposal for achieving the same outcome. Ours differed a bit. It tweaked existing fast-track processes so that a plan change would be effected that could override parts of plans with which it were otherwise inconsistent. The path would only be open to new entrants or to minor current players looking to substantial expansion. And sites would be mixed-use by default so entrants could stick apartment towers above their stores. After 5 years, the pathway would open to current incumbents. The intention here was to give new entrants a head start and a good reason to move early. And, if no entry happened, to let the incumbents go more strongly head-to-head in spots where they previously haven't.

I think the Minister's proposed process is decent. It seems obvious that Costco will use it for speeding up its own expansion. Whether anyone else will use it is anyone's guess. The point of lowering barriers isn't to guarantee some number of entrants. It's to discover whether new entry is warranted. Maybe there just aren't super-profits here worth chasing. It's hard to tell when entry is de facto illegal. Removing the barriers lets you find out.

There's always ways this could still go wrong. But I'm optimistic.

A few previous bits.

Banning racing

2025-08-22T14:45:00.002+12:00

New Zealand will be banning greyhound racing.

The Bill to formally end greyhound racing will be introduced to Parliament later this year. The public will be able to make submissions to the select committee as part of the process.
“It is important people get the opportunity to have their say. The decision to end greyhound racing was not one Cabinet took lightly. I acknowledge the impact that closing the industry will have on those involved.
“But globally the industry is winding down, with Tasmania recently announcing an end to greyhound racing. The bottom line is too many dogs continue to die and be seriously injured, and it is time to do the right thing,” says Mr Peters.

Ok. So the reason for banning greyhound racing is that too many dogs die and are seriously injured.

That is the basis for the ban, according to Minister Peters.

Let's go with that.

I've asked my advisor about the rates of accident and death per racing start for greyhounds and horses.

Because we haven't banned horseracing. Indeed, we subsidise it.

My advisor's answer, which presumably could be checked by someone with industry-knowledge:

Bottom line
Per start, a horse is more likely to die than a greyhound in racing, with the gap ranging from ~1.5× (NZ flat) to ~5× (Britain, all racing), and ~12× or more in jump racing.
Greyhounds sustain more recorded race‑day “serious” injuries per 1,000 starts than Thoroughbreds in the datasets that exist, but those counts include categories (e.g., ≥22‑ or 43–90‑day stand‑downs) that don’t map cleanly onto how horse‑racing reports non‑fatal injuries.

So on a first cut horses have a substantially higher risk of death per racing start than greyhounds have.

So if the government wanted to ban racing on basis of deaths, it should have started with horses.

Maybe there could be some CBA claiming a lot more benefits from horse racing per race as offset, or maybe people care more about dogs dying than about horses dying.

But the simplest explanation here is probably the correct one.

For a de minimus threshold for mergers

2025-08-15T17:17:00.002+12:00

I've spent the last couple of days at the Competition Law and Policy Institute's annual workshop.

Webb-Henderson's Lucy Wright made a good case for a de minimus threshold for merger controls. Small mergers could have a safe harbour, or mergers in markets of insufficient NZ importance.

If we need to set a monetary threshold for a market of insufficient NZ importance, there's an obvious benchmark.

Same day as that session at the CLPINZ workshop, Terry Allen, former Chair of Serrato, had a piece in the Post. You'll remember Serrato. I've sometimes pointed to it as example of how the NZ Commerce Commission destroys value by chasing nth order issues when first-order issues are left by the wayside.

Allen writes of their NZ startup:

In fact, Pioneer liked Serato software so much that when the company ran a sales process, it was the preferred bidder. Its offer not only valued the company at around $175 million, it also promised to establish a global music laboratory in Aotearoa and to grow the headcount of the chirpy little music company.
It was all going swimmingly until the Commerce Commission pulled the plug mid-2024.
The commission’s concern was that Pioneer’s parent company, AlphaTheta Corporation, already held a significant share of the global DJ hardware market.
Serato was a major player in the DJ software market. In the commission’s view, combining the two could “substantially lessen competition” in the DJ software and related hardware market — even though the New Zealand market for such products is tiny, accounting for well under 1% of Serato’s sales.
The merger review took a year and cost the commission more than $500,000 to investigate, according to the National Business Review. Legal and advisory bills for both Serato and Pioneer were well north of $1m.
The decision meant the reported $175m-plus deal was dead in the water, Serato remained independent, and the promised music lab never left the drawing board.
The Commerce Commission decision did four things. First, it cost the commission over half a million dollars and both Pioneer and Serato over a million in professional fees.
Second, it took the commission a full 12 months to make a call — effectively hitting the pause button mid-track for a year. Tacked onto pre-marketing and then running the process a second time the all-up time was more like three years. An eternity in a fast-moving tech environment.
Third, it made it jolly challenging to run the company on a daily basis while its future ownership was debated and delayed. We were lucky to have a top-flight management team keeping the home fires (and DJ decks) burning.
And fourth, it forced the company to run a whole new sales process but limit the participants to financial buyers rather than trade buyers — effectively narrowing the field to private equity.

I've heard reasonable-sounding arguments that NZ ComCom stuffed this one up in part by defining the market improperly. While Serrato's software is great for hip-hop artists, it's not as popular for artists that don't use scratch. Define a market narrowly enough and weird things happen.

Allen points to the more fundamental issue:

In today’s world, an increasing number of Kiwi companies build and sell digital services, and are global from day one.
While the commission understood that Serato’s New Zealand revenue was a wafer-thin slice of the whole, the mere existence of any local sales meant it had to run the merger through its standard domestic-competition lens.
The second is that under-resourcing of the commission means even straightforward matters can take a year to determine. In the world of global M&A, that’s an eternity — enough time for opportunities, buyers and market conditions to change completely.
Both of these things need to change if we want New Zealand to continue to grow globally significant tech companies and realise top-dollar sales when their founders exit.
Otherwise, we risk sending an unhelpful message to the world: if you want to buy a Kiwi tech success story, prepare for a year in regulatory limbo, big legal bills, and the real chance the deal won’t happen at all.
Meanwhile, a message to local founders is base your company overseas and only sell your services to foreigners.
That’s not the kind of remix New Zealand should be famous for.

Set a de minimus standard such that if the NZ market is trivially small, it isn't worth the Commission's time.

So that venture capital won't be scared of backing NZ startups for fear that NZ ComCom will block their reasonable exit if the play pans out and a large international company wants to buy their startup.

How to define the threshold for the de minimus standard for a market of insufficient NZ importance? A number bigger than the market for hip-hop DJ software in NZ seems like a reasonable starter.

To what policy problem is this the solution?

2025-08-12T11:22:00.000+12:00

On my drive in to work yesterday, RNZ's Corin Dann challenged the Prime Minister about one part of his meeting with Australian PM Albanese. They had apparently promised to work toward some kind of joint ID and driver license system.

I have rented a car in Australia using a NZ driver's licence. That was ages ago now. But has that gotten harder somehow?

I understand that passports are required for proof of age if you want to buy alcohol, with licensees not recognising trans-Tasman driver licences. But is that a problem to which a joint driver licensing system is a solution? Or is it simpler to tell licensees that they can rely on trans-Tasman driver licenses as proof of age, while supplying sample copies of the various Oz state driver licenses (and the one NZ one) so folks are familiar with both and better able to recognise fakes.

If a bar in one Australian state can rely on driver licenses from other Australian states and the world doesn't end, it doesn't seem that much harder to teach the guy at the door how to also recognise a NZ driver licence.

What is going on here?

The joint statement by the two PMs gives a couple of hints.

10. Prime Ministers also launched a new phase of work to deliver mutual recognition of accredited digital identity services, and commended the cooperation between New Zealand and Australian States and Territories to facilitate the verification of digital drivers licences across borders.
24. Prime Ministers reaffirmed their commitment to ensuring all Pacific countries have access to safe, secure and stable banking. They welcomed ANZ’s announcement of its long‑term commitment to the region, secured by an Australian Government guarantee, and the Commonwealth Bank of Australia stepping in to provide banking services in Nauru. They also welcomed Australia’s announcement at the 2025 PIF Economic Ministers’ Meeting of further support for secure and inclusive digital identity systems across the Pacific. Prime Ministers noted Australia’s and New Zealand’s contributions to the Pacific Strengthening Correspondent Banking Relationships Project and recognised the importance of regional action to address the decline of correspondent banking relationships.

On a bit of checking:

NZ and Oz agreed to develop a Digital Identity Mutual Recognition Roadmap back in 2019/20, or at least it was noted in the Australian Digital Transformation Agency Annual Report for 2019/20.
NZ has a Digital Identity Services Trust Framework Register, but nobody has yet registered as an accredited services provider. So the mutual recognition roadmap would presumably be for trans-Tasman recognition of these things as they develop.
NZ has NZ Verify for verifying mobile driver licences. So far, NZ doesn't have a mobile driver's licence. But the Verify app can check the authenticity of mobile licenses from some US states and Queensland. ISO 18013-5 is currently supported, others may be in future.
The digital identity work for the Pacific is most likely related to everyone having figured out that KYC requirements just kill international remittances. Rather than ditch KYC, they're going to eKYC.
ACCC is regulator for Australia's digital ID; OAIC is privacy regulator there. The Digital ID Act 2024 came into effect 1 Dec 2024. It's a voluntary accreditation scheme for providers of digital ID services.

There has been Twitter speculation that all of this is about age-gating social media. It looks like this push started well before anyone was talking about that.

But Australia is running trials on ID/age verification setups for social media age gating; it looks like a report is soon due.

There are defensible use-cases for privacy-preserving verification. Having a system where I can request that the authenticator provide confirmation of specific details about me to a third party, and that third-party being able to confirm those details with or without needing to know anything else about me, has value.

When the government set the Covid check-in app, it baked privacy in right from the outset. Scanning in at a place would let you get a notification that someone else who had scanned in at that place around the time you were there wound up testing positive for Covid. Done poorly, it would be a privacy nightmare. But they had folks like Andrew Chen working on it. It was fine. And there was lots of open discussion about it when it was being developed, so everyone knew that people who cared about privacy were in on the ground floor in building the thing.

When the first a lot of us would have heard about a government digital ID is in context of a trans-Tasman agreement for mutual recognition, in context of Australia wanting to age-gate social media, and nobody particularly trusting that the age-gate system isn't intended to result in the kind of censorship being seen in Australia - not so hot.

Just a bizarre thing for the government to highlight without having put up explanations ahead of time.

The PM's talk had this as all being about mutual recognition of driver licences. Which is obviously a weird justification. We already recognise each other's licences. And if Oz and NZ makes it tough for bars to recognise each other's licenses as ID, that's far more easily solved by just letting bars use the other country's driver's licence. The rest of it isn't needed for that problem.

Instead - both countries are working toward digital IDs, both countries five years ago agreed that they'd recognise each other's digital IDs, and this seems just to be reaffirming that prior agreement. I'd love there to be more assurance around privacy being important in the design of any of these in NZ. Because there are very bad versions that should not be supported.

Breaking the internet

2025-08-11T11:50:00.004+12:00

There are a lot of metrics folks can use when evaluating policy.

"Will this policy break the internet" is an important one. At least for me and the handful of folks who were online in the 90s.

Age-gating social media, or otherwise making platforms/sites liable if kids see sensitive content there, is one way of breaking the internet.

It has not been going well in the UK, where making sites liable if kids see 'sensitive' content has meant geoblocks on content that could be considered sensitive, pending Know Your Customer verification that the person on the other end of the web browser is an adult.

My column in today's Post went through some of those issues. New Zealand Prime Minister Chris Luxon seems very keen on setting age gates on social media. Any policy putting liability on platforms if kids access the platform will require others to prove that they're adults - the same kind of KYC mess that the UK is getting itself into.

Depressingly, a proposed bill in the biscuit tin, from Labour, suggests fully following the UK in penalising sites that don't do enough to keep kids from viewing sensitive content.

Breaking the internet should not be a vote-winner. C'mon.