Offsetting Behaviour

Conference roundup

2026-07-14T08:52:38.552+12:00

My column at Newsroom last week gave a roundup of the sessions I attended at the NZAE meetings where the results might be of interest to a broader audience.

It's ungated now, so folks can catch it there. Along with the usual band of sad old grouchy leftists in the comments section who hate economics and economists.

I think this was my favourite of all the sessions - but that'll largely be because of my own particular interests. I didn't name the presenter or the shop that did the work as they seemed to want to hold that back until the work is finally ready for public release. But credit really is due.

There was a superb presentation on problems in cost-benefit assessment, or rather in not using it, when deciding on major projects. Here we can consider ourselves lucky not at the outcome, but that someone is checking.
Economists prefer to rely on cost-benefit analysis when assessing projects – CBA. Some others like to use what’s called Multi-Criteria Analysis – MCA. On that latter kind of assessments, projects get scored across a variety of categories.
Cost-benefit assessment tries to put a monetary value on all kinds of different costs and benefits – some of which are harder than others to turn into dollars and cents. But Treasury maintains a comprehensive spreadsheet (called CBAx) listing the costs and benefits of many things, all of which then provide a standardised basis for assessment.
Multi-Criteria Analysis does not try to do that at all. Instead, a project gets a score within each category, the categories are weighted by their perceived importance, and the project gets an overall grade.
Suppose that you wanted the government to adopt your project proposal, and you knew it didn’t do well on a value-for-money basis. It would have a tough time under CBA. But under MCA, there’s a neat trick. If you add more categories for assessment, the weighting on cost declines automatically. If cost is one of two categories, each category gets 50 percent weighting. If cost is one of 10 categories, then the project’s poor ranking on cost can be outweighed by whatever other categories are added in.
Of course it is possible to require cost to have a high weighting. But it’s rarely done. And then we wind up being surprised by all of the expensive projects that get approved. Cost-benefit assessment is underrated – or, at least, MCA should require that rankings on cost carry a lot of weight. In the assessment exercise described, fewer than 5 percent of evaluated project proposals had a robust cost-benefit assessment.
I am very glad this work is being done, and I expect to provide a more detailed column when the authors are ready to release it into the wild.

In questions after the session, I noted that I've seen a few cases where boosters have tried to claim that their clearly-infrastructure proposal is really a social-type investment warranting Treasury's preferential 2% discount rate. I was annoyed that Treasury seemed utterly indifferent to that risk when they put up their proposal, and hoped that it didn't turn out as badly as I feared.

The presenter noted that there'd been a full slide on that issue that had been pulled so they wouldn't blow out the time constraint for the session. It is a real and bad issue. As expected. And something that prior better versions of Treasury would have been alert to.

Pronatal policies

2026-07-14T08:43:02.536+12:00

The Institute for Family Studies puts up a pro-natal proposal that I'd not seen before.

Most of the literature I've seen on baby bonuses suggests that the amount on offer would have to be hefty to have substantive effects. This version could harness a bit of loss aversion:

President Trump launched a small savings account seeded with $1,000 to give emerging adults a leg up in his “Trump Accounts,” passed in the One Big Beautiful Bill. The Heritage Foundation has proposed a larger investment intended to mature upon marriage. These ideas are good starts. But the most complete proposal in this regard is a recent proposal in Finland called Vauvasampo. Adapted for the American case, this proposal is simple: every child born as a U.S. citizen in 2026 or any future year would have some amount of money, perhaps $15,000, invested in their name, which we call “American Birthday Accounts,” in honor of our 250th year of independence.
Beneficiaries could not touch these accounts until they have a child; that is, until they are the legal and custodial parent of a related child born in the United States or under U.S. jurisdiction abroad, and coresiding with that child or else deployed on U.S. government business. At the first birth (or, if preferable to avoid risks of early child abandonment, at the child’s 1st birthday, if still coresident and full custodial), they would gain access to, say, 50% of their account’s value, and the residual 50% would continue growing. At the second birth, 75% of the fund’s remaining value at that time could be claimed. At a third birth, all remaining funds can be claimed. Assuming funds are invested in something like a mutual fund, a $15,000 investment could easily lead to a married couple receiving a baby bonus worth $100,000 for a first birth, with smaller additional payments for subsequent births. Recipients could be permitted to cash out their benefit over multiple years if they preferred, and any new funds gained through subsequent births would be added to this continuing fund.
This baby bonus money could be counted as income, which means that part of its cost would be directly recouped through interactions with means tested programs and income taxes: beneficiary families at both very low and very high incomes would receive smaller after-tax-and-benefit returns. All families of any income would be eligible, but in practice the real benefits would be most generous for middle-income married families, subsidizing fertility the most for working- and middle-class families. Because only children born in the U.S. would be eligible for the investment, concerns about subsidies for children of immigrants would also be alleviated: it would be essentially a subsidy only for U.S.-born individuals to have their own children. Because married couples would be eligible for each parent’s baby bonus, the benefit would effectively double for married couples. To avoid creating subsidies for teen pregnancy, fund accessibility could be set aside until parents reach an appropriate age (perhaps 21 for a first birth, and a slightly higher age for subsequent births).
Bang-for-buck, American Birthday Accounts are the single best way to get more babies born in stable families than almost any other policy imaginable. In the long run, since many individuals will have fewer than 3 children (and many will be childless, thus leaving many funds unclaimed), those unused funds can be reinvested in the program to create a rolling national family trust fund, which would render the program zero-cost to taxpayers after the first eligible generation had completed their childbearing. Even without that reinvestment, the budgetary cost for an investment of $15,000 to $20,000 per child would be between $45 and $80 billion per year. For comparison, U.S. public schools spent just under $19,000 per year per student in 2021, so this program amounts to the public investing just one year of schooling worth of public resources into children’s future family life.

Lyman Stone describes the work at the NYT, ungated here.

Refugee sponsorship

2026-07-01T07:00:00.000+12:00

About a decade ago, Canada's Counsellor for Immigration at the High Commission in Canberra came to Wellington to explain how Canada's refugee sponsorship programme works.

His discussion of it at The Initiative's event is here.

The basic deal: whenever communities can get together to raise the funds necessary to support a refugee's start, Canada will open the door to another refugee. Outcomes have been very good - or, at least, sponsored refugees have better outcomes than those arriving through the government's quota.

The previous Labour government here set up a trial programme. And it's now being made permanent.

The Government has announced the Community Organisation Refugee Sponsorship (CORS) programme will become a permanent part of New Zealand’s refugee resettlement system.
Associate Minister of Immigration, Casey Costello said the trial of the CORS programme shows it can deliver strong outcomes for refugees in employment, housing, education, and community connection.
“Making it permanent means we can build on the skills, partnerships and knowledge developed through the pilot. This is a positive step and provides a programme that we know works,” Ms Costello says.
The permanent CORS programme will begin 1 July, with organisations able to apply to become approved community sponsors from that date. The introduction of the programme will be scaled, with 50 places available in the first year.

But there are a couple of substantial differences as compared to Canada's regime. Hopefully New Zealand's can evolve towards Canada's in time.

Canada has a high nominal cap on the number of allowed sponsored refugees.

New Zealand will cap the number at 200.

Canada's sponsored route sits on top of the government's route. However many refugees the Canadian government is prepared to support, communities can fundraise to support more. Those sponsored refugees are additional.

New Zealand's will be subtractive. The total number is capped, so whenever a community gets together to sponsor a refugee, one will come through that channel - with no effect on the numbers allowed to come here.

CORS will be delivered alongside New Zealand’s Refugee Quota Programme, maintaining an overall number of refugee resettlement places available at 1,500. Places will be progressively allocated to the community sponsorship pathway as it scales up, with the Quota Programme adjusting accordingly. This allows CORS to be funded from within existing baselines.
The Refugee Quota Programme will remain New Zealand’s primary humanitarian pathway, and any allocated CORS places that are not taken will return to the Quota Programme.
“In the current environment, this is the best way to ensure a programme that we know works well can continue into the future,” Ms Costello says.
“The Government remains firmly committed to an overall resettlement intake of 1,500 people per year. New Zealand currently takes the third largest number of UNHCR mandated refugees internationally, behind Canada and Australia.”

If the concern is resourcing, because the government covers some of the cost in a refugee's travel here, it could make more sense to increase the amount of funding that a community group must raise so it covers the total cost, and then allow it to be additional to the government's quota.

During the Syrian refugee crisis, Canadian communities could work together to help support more arrivals while Kiwis instead had to lobby the government to increase the quota. I'd hoped that the sponsorship regime could provide flexibility that the government's quota can't. It will not do that job under this setup.

Biosecurity as religion

2026-06-30T07:00:00.000+12:00

During the Commerce Commission's market study into groceries, Coriolis Consulting put up a chart with some thumb-suck order-of-magnitude estimates on costs here.

I was reminded of that reading this BusinessDesk piece on on biosecurity rules around blueberry imports.

Annual revenue for the sector is about $150m.

Peru exports a lot of blueberries to the US. Wholesale prices there are around $6.60 USD/kg, so about $13 NZD per kilo if you include GST.

Here the things run about $10-$12 per punnet, or maybe $80-$96/kg.

Air freight and logistics for getting blueberries from Peru to here would add a lot of cost.

Imagine a bad-case outcome where a biosecurity failure means the complete end of NZ blueberry production and we had to rely on imports from Peru and Chile (which somehow manage to have production despite being subject to whatever NZ is worried about).

How high does the probability of that outcome have to be for our current biosecurity rules to make cost-benefit sense? Is it really just religion?

Kalshi, and the case for bigger sandboxes

2026-06-29T17:48:30.319+12:00

I've been following Kalshi for a while.

I remember back in the iPredict days, Matt Burgess figured prediction markets were a billion-dollar idea.

Kalshi's now attempting a capital-raise at a $40 billion USD valuation.

Incredible.

But it never could have happened here. Not at the sandbox-level scale authorised by the Securities Commission.

I had a piece in the Herald on it a couple of weeks back. I'd there cited Kalshi's Series F that had a $22 billion valuation - and they're now pitching for $40b. Amazing.

Ungated version of the piece is here. Our country's regulators need to allow a bit more ambition.

When Victoria University of Wellington’s great little prediction market, iPredict, announced that it would be shutting down back in 2015, it had a couple hundred thousand dollars of traders’ deposited funds in the bank. It was a very small, very limited, academic enterprise.
Kalshi is a US-based prediction market. It is regulated by America’s Commodity Futures Trading Commission, the CFTC, which fully authorised it in 2023.
It is identical in principle to what iPredict was. But Kalshi’s Series F funding round raised a billion dollars at a $22 billion dollar valuation earlier this year. Their annualised trading volume recently hit $178 billion, generating annualised revenue of around $1.5 billion.
The difference between iPredict and Kalshi does not come down to the difference in scale between the US and New Zealand – though that certainly matters. The scale, the ambition, and the permissions differ considerably.
iPredict ran as a futures exchange authorised by the Securities Commission, able to quickly define contracts and let traders figure out what they were worth. Contracts like, “Pays $1 if National forms government after the next election, pays $0 otherwise.” Prices on those contracts tell you traders’ expectations about probabilities – and they were highly accurate.
Anyone could sign up to trade, and many people did – at very low stakes. Accounts with five or ten dollars in them were common.
It was small because New Zealand’s regulators wanted it that way. They were happy to let iPredict play in a small regulatory sandbox with laudably liberal rules on how it operated because nobody was allowed to put very much money into it.
And because nobody expected anyone to authorise anything more ambitious, there was no point in even asking.
At first, traders were allowed to deposit only up to $2000. That limit later increased to $10,000. If traders had larger accounts with more money on the line, regulators would not have felt safe letting iPredict run as it did. Regulation around how it defined contracts would have hardened. It may have had to start issuing a full prospectus on each one.
Issuing a full prospectus for a prediction market contract would destroy the real value that a prediction market can bring: quickly establishing new markets when they are needed. Jeremy Maletz is head of Prediction Markets at Susquehanna International Group – a substantial American market-maker in equity options. Maletz argues that where it can take a year to create a new hedging contract on traditional markets, prediction markets can do it in a day.
Suppose that your business depends on trade with Taiwan. If China blockaded Taiwan, you’d be in trouble. It’s always possible to diversify your business. But it should also be possible to hedge against that risk more directly. A prediction market could quickly list a contract that pays out if that event happens before a set date, and doesn’t otherwise. Traders on the contract set the price; organisations like Susquehanna prepared to take on some risk provide liquidity.
Being able to set contracts quickly, when they are needed for hedging, is valuable. But that value is small if deposit limits are tight.
iPredict consequently ran on the smell of an oily rag, barely able to wash its own face, and certainly unable to cover the cost of meeting anti-money-laundering regulations imposed by the Key-led National Government. Somewhat ironically, the constraints under which it operated meant it was nigh-impossible for anyone to ever really try laundering money through it. It simply did not have the trading volume to bring that risk.
The deposit limits didn’t just mean that iPredict could not afford those kinds of costs. They also meant that the thing was hamstrung from the outset. It could never take up the kind of role that Kalshi is quickly moving into in making financial markets simply work better.
Kalshi is innovative. Last month, they were authorised to launch America’s first perpetual futures contract. Normal futures contracts come with expiration dates. A perpetual futures contract simply tracks the value of a defined indicator.
Perpetual futures contracts on house prices would be immensely valuable. Contracts could track the value of the median home in our major cities. People could save for their first home by buying the relevant house price index. No matter what happened to house prices, your progress toward a deposit would be locked in.
New Zealand’s Department of Internal Affairs decided that, because Kalshi had not been authorised by the Financial Markets Authority, it must be gambling. So they sent a letter to Kalshi demanding that it not let Kiwis trade there. And Kiwis can no longer set accounts.
It does not just stop Kiwis from trading on the outcome of the next American election. It also will substantially hinder financial market innovation and hedging options. Our regulators ensured that no Kiwi Kalshi could ever emerge and now ensure that foreign innovation cannot reach our shores.
The regulatory attitude is hardly limited to prediction markets. And it is stifling.
It is very small thinking from a country that can ill-afford it.

Levies as end-runs around the Generic Tax Policy Process

2026-06-12T07:00:00.000+12:00

A few years ago, Willie Jackson proposed levying tech platforms to fund news outlets.

I'd warned that this kind of thing amounts to a dangerous end-run around IRD's generic tax policy process.

Levies can make sense in some contexts. If a producer group agrees to be levied to fund research or marketing that has industry-wide benefits, that's fine. Agreement tests whether those benefitted actually benefit.

Or if it amounts to a user-charge that can't easily be collected in other ways. It requires a tight link between what's being funded and who's being levied to pay for it.

But Jackson's proposal was nothing like that. There's no link between tech platforms and news outlets that would warrant a levy.

The levy instead tried to use force to recreate a relationship that had been superseded by technological change. In olden-times, newspapers were the best place for advertisers to reach customers. Google and Facebook became better ways of linking advertisers with eyeballs. Since platforms 'stole' that link, it must be reforged through levies. It's a terrible approach to tax and tech policy.

Paul Goldsmith was initially enthusiastic about continuing with that approach when he was made Minister, but it's since been shelved.

Now Goldsmith's back with a new levy proposal. This time, Disney and Netflix will be levied to fund NZ content creation.

Same problem as last time. There is no link that justifies a levy here.

NZ taxpayers subsidise local content creation; it gets broadcast on by anyone willing to pay for the rights to distribute it. It's a generally decent approach because what gets created still faces a market test. NZ content creators are perfectly free to license to Netflix or Disney or anyone else who's willing to pay, and those outlets will be willing to pay if they expect the additional offerings to get or keep subscribers they otherwise would have missed. It's fine.

Irene Gardiner, president of NZ Screen Producer's Guild Spada, has views:

“The big international streaming companies operate here without any regulation. They don’t pay company tax here, they use our broadband infrastructure that the taxpayers paid for, and they have no requirement to commission any local content or contribute to the New Zealand screen sector in any way.
“We’ve been lobbying the Government for some form of legislation in this area for over two years.”
Gardiner worries that after legislation was introduced in Australia last year, New Zealand is getting “left behind” – particularly amid the “devastating” impact of streaming services and Big Tech on local media.
“If any of the big streaming companies, Netflix or Apple or Amazon, had taken a genuine interest in commissioning in New Zealand and done some significant commissions in the long time that they’ve been operating, I think we’d feel differently.
“But the reality is that they haven’t, and so if they’re not going to do it voluntarily then here we are.”

Households pay for broadband. Their broadband subscriptions help cover the cost of the broadband network. They can choose to stream whatever over that fibre, including Netflix or Disney or Amazon or whatever else.

If Kiwi subscribers put value on seeing NZ content on any of those platforms, those platforms would have incentive to offer it. As it stands a lot of NZ content is only available on really crappy NZ services where you can't pay to avoid ads. If Kiwi viewers hate ads more than they like seeing NZ content, then they won't watch there. You could maybe make a case that international streaming platforms, by offering a far better product, wind up meaning declining viewship for stuff only available on TVNZ+ - but that would be a case for TVNZ+ to start offering a no-ads subscription version.

And presumably any platform seeing potential gain in it could outbid TVNZ+ or whoever else for the streaming rights. If they aren't, then the benefits they see in increased global subscriptions aren't worth the cost - even though the product's creation and consequent cost was likely heavily subsidised through existing content subsidy schemes.

If there were a principled tax-policy basis for taxing international digital platforms, that case should be evaluated through IRD's generic tax policy process.

This levy-based approach will prove increasingly tempting to a government that does not want to reduce spending to meet its tax revenue, doesn't want to increase taxes transparently, and wants to provide services through other funding mechanisms.

Coming up with new tied levies is a way of short-circuiting all of that. "It's not a tax, it's a levy" to keep the Taxpayers Union from yelling at them (probably won't work) but also to keep it away from IRD analysis on whether the proposed tax is coherent with the rest of tax policy.

Appropriation first, policy afterwards

2026-06-11T10:18:16.445+12:00

The government has not yet announced what it wants to do in the online child-protection space. There's a member's bill endorsed by Luxon that tries to follow Australia's social media age limits. But the education select committee wound up with much broader recommendations and Stanford's tasked with responding to them.

What that'll all turn into is anybody's guess. Australian age-gating for social media? Ofcom-style 'let's make everyone do an ID check to look at darn near anything on the internet while sending angry demand letters to American platforms that don't want to comply with UK regs'? Something else?

Whatever it is, the government seems to figure the regulatory regime will cost $8.5 million per year when it's up and running.

The budget includes this new initiative, which gets $6m in the first year rising to $8.5m in each of the last two forecast years: "This initiative provides funding to develop policy and possible regulatory options to improve children’s online safety, subject to future policy and funding decisions."

None of that makes sense if it's an appropriation for developing policy and possible regulation. It's too much money, and it rises over time rather than declining in the out-years when the policy development work is largely done.

And if you look into the Vote Internal Affairs categorisation, well, the thing's classed as regulatory services - not as policy and related services.

It's far more plausibly an operational allocation for running a new regulatory regime.

One that, as yet, not only has no supporting legislation, but also no hint of what it's meant to be doing.

My column in Newsroom this week, now ungated, goes through it.

All of this is pretty dumb.

Nobody has yet figured out a way of age-gating social media or potentially sensitive stuff online that doesn't suck.

New Zealand is unlikely to be the first place to find a way of doing this that doesn't suck.

The potential harms are real, but often overstated and highly heterogenous.

There are existing controls that parents can use to gate access for their kids. Some of those controls are undermined by school accounts that parents cannot control.

The government could be very helpful in providing resource to schools to help parents understand the tools that are available to them, and in helping schools to not undermine their families' choices by setting school accounts whose controls don't mirror those set by parents (or otherwise provide circumvention options on time limits or app limits by logging into the school account on their device or on a school-provided device).

Anything beyond that, and just enforcing existing law on other bits around grooming etc, should be a watching brief. If somewhere else *does* find a way of my trilemma, great! We could piggyback on their version if voters wanted to do that. We wouldn't have bespoke compliance costs that platforms would be quick to ignore - or to use as basis for just blocking countries that are too small to be this stupid.

And I just despair when I hear people from industries that have suffered enormous costs from legislation set to 'send a message' regardless of any cost-benefit assessment claiming to support social media bans because they 'send a message'. Crooked timber...

A weird way of slicing the stats

2026-06-09T12:45:18.277+12:00

Ages ago I supervised a superb Honours thesis, which turned into a Masters, looking at the lesbian wage premium. It showed up regularly in the US data: homosexual women earned more than heterosexual women - the opposite of the pattern that obtains for men.

I was curious whether the difference could in part be due to employers' expectations about the costs of accommodating maternity leave. And it looked like that mattered. Hayden Skilling did superb work on it, helped in part by Ron Oaxaca's visit to Canterbury while Hayden was writing.

I'd wanted to use New Zealand data but that seemed to be impossible. We could, with a few clicks, get US data from the ACS without any bother. If we wanted to use NZ data, it would have been impossible. Stats New Zealand just makes it too hard to access NZ microdata. So we wind up with NZ researchers using American data and helping advance global understanding of what's going on in the US.

Hayden's thesis was out in 2014.

It's 2026. Stats NZ just put out a couple of releases looking at earnings among LGBT+ populations.

I wanted to check whether the lesbian wage premium held up in NZ data.

So I went to have a look.

And it's just a big mess.

First, we get a press release highlighting substantial differences in age-adjusted average annual personal disposable income between the (lumped together) LGBT+ population and the non-LGBT+ population, with the transgender and non-binary population having the lowest age-adjusted annual disposable income.

That sounds like discrimination right?

But then you check the second page. The one listed as a "related page" that folks might not click on. That one notes that the LGBT+ population reports disability rates of 25.6%, compared to 15.8% for others. 37.9% of the transgender and non-binary population were identified as disabled.

Disability will mean lower earnings. Stats NZ's big headline press release figures adjusted for age but didn't adjust for disability. That seems like an important omission. People might chalk differences up to identity that are at least partially differences by ability. A cross-tab so you could compare earnings by disability status across the categories could help, but this is one of those 'if we didn't pre-supply the cross-tab, it is unknowable' things.

I downloaded the excel sheet, hoping that I might be able to check for differences in earnings between heterosexual and homosexual men and between heterosexual and homosexual women.

But that appears to be impossible.

In their gender splits by row in the cross-tabs, male and female include the transgendered identifying with each category. Heterosexual males (including the cisgendered and transgendered) earn more than males (including the cisgendered and transgendered) who identify with a sexual minority. That latter category lumps together people identifying as gay, those identifying as asexual, and many others. There could be substantial differences within that bundling.

So I can't have a clean read on earnings differences between non-trans straight men and non-trans homosexual men.

And among females (including cisgendered and transgendered), mean personal disposable income for heterosexuals is suppressed. Stats NZ does this when reported numbers are too low. But they do report earnings among females reporting as sexual minorities. Which is difficult to understand. The sample size tends to be smaller for minority groups. But even if it were not suppressed, it wouldn't be helpful. Because I wouldn't be able to get difference between cisgendered heterosexual women and cisgendered homosexual women.

I don't know if US data has gotten any worse over the period, but NZ data sure hasn't gotten any better.

I've emailed SNZ asking whether any of this is knowable.

There could be good reasons for lumping groups together as they have; they have a lot of potential categories, and splitting out each one would just mean everything would wind up being suppressed. But splitting out the main obvious categories would seem pretty possible.

Superannuation affordability options

2026-06-09T11:48:14.379+12:00

Lyric Waiwiri-Smith at The Spinoff asked me what I thought the options might be for dealing with rising superannuation costs.

Her story's here, along with comment from Max Rashbrooke and Shamubeel Eaqub.

My most-preferred option is ongoing increases in immigration rates, coupled with shifting to CPI-indexation of super benefits and indexing the age of eligibility to healthy life expectancy.

I did some rough ballparking. If net migration were around 1.8 people per person turning 65, we could maintain current-ish ratios of 'working age' people relative to 65+. That would have to increase over time as life expectancy increases.

But there is a real and obvious play here. NZ is aging; Europe as aged. Immigration New Zealand could explicitly advertise for young productive migrants in places where those young workers are being predated upon by their country's elderly voters even more heavily that they are here. Getting a small proportion of young and productive workers from large countries could postpone the inevitable here almost indefinitely. Remember that one big reason that NZ Super costs haven't already blown out is higher net migration than Treasury had expected in the 2000s.

Consider the number of people aged 65+ per population aged 20-64. On that basis, NZ is around 29.5 and Germany is already at 39.8, France at 40.2, Italy at around 42.

This kind of play is self-sustaining, on the receiving side. The more young Germans who leave for younger shores, the more who'll want to leave. And there'd be advantages to being in the first wave of leavers, because if the flow gets too large their government might start setting exit taxes.

I asked GPT to come up with some sample Immigration NZ campaigns targeted on this basis: places where the demographics make NZ attractive by comparison. It did a reasonable job!

The top five, if this were a real campaign
I’d put serious money into:
1. Germany. The cleanest combination of size, ageing pressure, worker burden, education, and plausible NZ fit.

2. UK. Not the purest demographic case, but probably the best cost-per-success market. The sales pitch is less “escape pension collapse” and more “same language, better lifestyle, credible residency pathway, and fewer inherited fiscal messes.”

3. France. Strong burden story and strong human capital, especially if targeted at engineering, health, tech, science, agriculture, and public-sector professionals tired of state sclerosis.

4. South Korea. This is the big non-European play. The message writes itself: “Your country is about to experience the steepest demographic cliff in the OECD. Move before your peak earning years become the funding mechanism.”

5. Poland/Czechia/Slovakia. A regional Central European campaign could be very productive: educated, mobile, demographically pressured, and plausibly attracted by an English-speaking high-income destination outside the EU rat race.

Another non-tariff barrier

2026-06-02T13:42:29.440+12:00

I do not see the problem here. I do see a lot of ways of creating a problem though.

Andrew Bevin writes for Newsroom:

Ministers were warned of trade implications relating to mandatory Health Star Ratings before choosing to vote against the development of the scheme.
If Health Star Ratings are made compulsory by Australasian food ministers, and New Zealand manages to opt out, Australia would likely block imports of non-compliant food.
That’s according to advice given to the Cabinet Economic Policy Committee ahead of New Zealand’s vote against developing a mandated Health Star Rating system earlier this year.

If NZ made the FSANZ health-star ratings compulsory, Kiwi firms would have to comply. So would anyone else wanting to sell food in NZ. International outfits would then either eschew our market as not being worth the hassle, run limited production runs meeting the FSANZ standard (at higher cost both because of the smaller run and because they'd lose flexibility to shift products across markets as market conditions change), or make Kiwi retailers put stupid little stickers onto everything manually.

All of those would limit competition here and push up costs.

If NZ did not make the health-star ratings compulsory, Kiwi firms wanting to export to Australia would have to comply. And that's fine. They can do that. They could even sell the same version of the pack in NZ. And product from other countries could come in too - if they met our biosecurity standards.

Why create another non-tariff barrier?

Assorted budget bits

2026-05-28T17:56:24.880+12:00

A few minor bits I noted in looking through the budget - won't bother going through the headline stuff that will have been well covered elsewhere.

They expect to save $1.97 billion by 2029/2030 through the public sector transformation project reducing staffing numbers. There will be pressure on that figure despite the substantial increase in public sector staffing, both in absolute numbers and as fraction of population, over the past six years.
Statistics New Zealand gets a large budget increase, both opex and capex, to modernise the IDI. At the same time, it will be held to baseline savings like the rest of the public sector. The Minister for Statistics might want to watch that SNZ doesn't siphon IDI money out for other activities.
They're fixing part of the FIF regime as it faces domestic investors, to match the fixes made for those moving to NZ. Taxing unrealised gains was always dumb; good that they're fixing this.
The Proposal for Reducing the Risk of Online Harm to Children puts $30.75m over four years "to develop policy and possible regulatory options to improve children's online safety, subject to future policy and funding decisions". This is just for the policy development work. It seems like far more money than necessary for a project that shouldn't be being undertaken in the first place.
They've set a Defence Technology Accelerator as part of the Defence Capability Plan. Sounds neat; only gets $16.1m over 4 years. Maybe if its first year looks promising, funds from the online harm thing could be shunted over here.
Customs is getting $15.3m opex and $19.5m capex to respond to "increased smuggling", text says it's aimed at illicit drugs. And $35.9m in third-party levy revenue. Could affect tobacco excise too.
A whole page of the BEFU Supplementary Materials goes through the weaker outlook for tobacco excise. They've sharply reduced forecast tobacco excise revenue as compared to the HYEFU forecast: $1.58 billion over the forecast period. They note a weakened demand profile - but they don't get into whether it's a drop in smoking or a shift to illicit markets. It's a drop in demand for excised tobacco in either case. But they do note an offsetting minor increase in forecast tobacco revenue over the same period. And this is kinda funny.
"The excise rates for heated tobacco products (HTPs) were reduced by 50% on 1 July 2024. Recent data show that the decline in duty from the lower HTP duty rates has not been as large as was expected. Furthermore, subsequent research suggests that future HTP take-up will not be as large as was previously assumed."
Remember the giant beat-up on Casey Costello in 2024 for the "Tax break for big tobacco"? It was all based on that very stupid estimate that Treasury stuck in the forecasts. Nobody should have believed the figure at the time - it was ludicrous. I don't know whether Hon Verrell actually believed it, or whether it just gave her a convenient line to beat up on the government for its changes to tobacco policy. Neither's great. My column on the stupidity of that figure is here.
I think Treasury is likely overestimating alcohol excise returns. Recall that SNZ reports very sharp reductions in per capita alcohol available for consumption - those figures are based on excise returns. Treasury has applied a one-off drop to current levels, but then a reversion to prior pre-Covid trend growth in excise. I think Covid and GLP-1 inhibitors and general trends in youth risk-aversion have caused a structural break. Total alcohol available for consumption, on the SNZ figures, peaked in 2021 at 36.3 million litres and have declined since despite population growth - 2025 was only 31.3 million litres.
Overall, it'll take a heroic effort to stick to the plan they have, and that'll only get us to structural surplus by 2029.

SEZs as policy trial areas

2026-05-25T16:37:46.160+12:00

A decade ago, I coauthored a report looking at how greater localism and subsidiarity could be achieved in a very centralised country where local councils have variable capabilities.

We settled on policy trial areas.

The basic gist was as follows.

First, a community would pitch a policy trial area - a special economic zone - with different policy or regulatory settings more suitable for local conditions. The idea would come from the local community. Some national-level policies are really unsuitable to some local conditions.

That community would work with Treasury to come up with indicators ahead of time. How could we tell if the trial were working? What side-effects might we need to watch as well?

Successful trials would often mean higher tax revenue for central government, lower dependence, or both. share the gains with the originating community as a 'policy discovery' payment. Then let it extend to other communities asking to take it up. Failed trials would fail at small-scale.

Central government would rule out any proposals that could not, in principle, be extended to other similar communities if the trial were successful. So tax concession areas would be right out. Different consenting processes could be fine; a successful trial could extend to similar consents in other places.

I have not read the proposal for Marsden Point.

But I do not recognise our proposal in Bryce Edwards' critique of what's been proposed at Marden Point.

Edwards writes:

A lobbyist’s paradise
The economist Michael Reddell saw the obvious problem the moment Jones first floated the idea. If there were any substance to the SEZ concept, Reddell wrote, the policy seemed “likely to be a lobbyist’s paradise, and perhaps that of political party donors & recipients”. He recalled that the New Zealand Initiative had pitched something very similar a decade ago.
Reddell’s lobbyist point is the one that NZ First does not want to engage with. The moment you start designating discretionary zones with bespoke tax treatment and accelerated consenting, you create exactly the kind of high-value, low-transparency politics in which the lines between commercial interest and political access become blurred.
Who decides which company qualifies as being inside the zone? Who decides what activities “achieve the aims of the zone”? Who appoints the panel? On what criteria? Under what review process? These are not pedantic questions. They are the central governance questions, and they are conspicuously absent from anything Peters or Jones have said in public. NZ First, of all parties, used to have something to say about that sort of arrangement.

To answer Edwards' questions within the framework that my shop proposed:

1. Nobody decides which companies qualify as being inside the zone. The zone applies to activities within the zone's boundaries. If the company's activities are inside the zone, then those activities would qualify.

2. Nobody would be deciding on activities, except when the zone is struck. A proposal to, for example, trial a different version of the minimum wage for piece-rate employers in the zone would apply to all piece-rate employers in the zone. There'd be no assessment of aims.

3. We didn't have panels, so appointments and criteria weren't questions.

4. We did have review - against the indicators that the community had set with Treasury. Central govt doing the assessment.

Maybe Edwards' column is better in the half that's on the other side of the paywall.

Supermarkets and the price of beef

2026-05-25T11:02:44.825+12:00

Danyl McLaughlan's piece in The Listener ($) on NZ grocery retail is fun.

There's a fair bit potentially packed into 'non-monopolistic prices' here.

Northelia was Edwards’ proposal to the Commerce Commission during its 2020-21 market study. It represented an unnamed group of investors with capital in excess of $1 billion who would establish a third entrant into the New Zealand grocery market on condition the commission break up the existing chains, making up to 175 supermarkets available for purchase at non-monopolistic prices. Crucially, it would also compel access to an existing chain’s distribution system.

There's a different bit I wanted to pick up on though.

Here's Danyl:

Instead, Willis strengthened the grocery supply code and the wholesale access regime. None of the major international chains engaged with the government’s request for a proposal. Consumer price index data for 2025 showed fruit increasing in price by 10%, vegetables by 4.9% and meat by 8.6%.

Remember that meat trades internationally. We export a fair bit to the US. NZ producers will sell to the highest bidder - the ship ready to go to the US, the local butcher, or the supermarket.

Here's what's happened to the price of ground beef in the US over the past year.

US ground beef prices are up by more than 20% for 2025. It'd be surprising if NZ prices didn't go up as well. It's been part of a longer-term increase in US beef prices.

The graph below sets 1 Jan 2020 at 100 for both CPI and ground beef prices. They're up about 76% over that period; CPI's up about 24%.

I suppose folks could blame Woolworths and Foodstuffs for the run-up in US ground beef prices, and the National-led coalition too, but it seems more likely that high export prices pull up NZ domestic prices across the board.

Or maybe Trump will order a break up of NZ supermarkets to help US grocery prices. Who knows.

Afternoon roundup

2026-05-22T14:10:26.083+12:00

Closing the tabs so I can find the ones I really do need...

Using hoards of ancient coins to trace out historic trade networks
Left-wing populism is also risky
ACT won't be supporting National's proposed social media age limits
Meanwhile, Meta and Google battle over who's going to be stuck trying to verify user ages. I really don't like options that require OS-level ID verification.
NZ needs more investable propositions
"It will come back to bite you", but if partisans have very high discount rates....
BBC's More or Less on the relative risks of vaping and smoking
Happy 50th Birthday to the Layfield Report. I'm still unconvinced of the merits relative to a combination of user/beneficiary charges, uniform general rates, and land-value apportionment of council rates. I'll have to properly go through the thing though.
I'll be helping out on the Advisory Group for Te Kura Taka Pini.

A bit less shit

2026-05-15T13:00:40.002+12:00

Hayden over at The Spinoff asked me what the government can do to make the economy 'a bit less shit'.

I sent an overlong reply; he excerpted some choice bits along with contributions from others.

But this is what I'd sent through.

I don’t think there are any quick fixes from where we are.
Imagine you’re 50. You haven’t been taking care of yourself properly for a while now. You’re recovering from a hangover from a ridiculous bender that you should not have gone on. Yes, you had to have a couple of drinks given the event, but nobody forced you to finish the bottle. And you’re starting to realise that the burrito you had last night was probably very dodgy.
How can you feel a bit less shit? In the short-term, you can take some Gaviscon and hope for the best. But it’s still not looking good. A lot of the pain is locked-in. The bits that have largely just passed were definitely your own fault. The bit that’s about to come isn’t your fault but would have been easier to weather if you’d taken better care of yourself. And the long-term stuff still needs to be dealt to.
We have been in the hangover brought on by the fiscal and monetary binge we had in 2021-2023. And that was starting to come right - though the fiscal binge is still ongoing.
There were good signs. Despite the downturn, Auckland building consenting was still higher than pre-AUP. Unemployment still is far below GFC-peaks. There’s reasonable, but not solid, cross-party consensus on reforms to how housing is regulated so that a lot more building can happen and so housing costs can come down.
But we're now in an ongoing severe energy shock where high prices are combined with supply risk. On the plus side, economies overall aren't as tightly tied to oil prices as they were in the 1970s. But it's still not good.
At the same time, the government's accounts are in poor shape - and the real fiscal consequences of population aging haven't hit yet. The rating outlook downgrades mean that goodwill and reputation from NZ’s prior commitments to fiscal responsibility (balanced budgets on average) are eroding. Debt servicing costs will go up with credit downgrades unless it's sorted. Folks on the right would prefer it be sorted by getting core government spending down to pre-Covid levels. Those on the left would prefer tax increases. Either one will be painful. A Parliamentary Budget Office running routine value-for-money scrutiny of spending would make it less painful.
Unfortunately, it's hard to point to shorter-term options that would provide substantial improvement - and really easy to point to options that would make things a whole lot worse.
We still have fuel *because* prices are high. Otherwise, tankers would go elsewhere. High fuel costs worsen all kinds of things for everyone. People have less money to spend; business costs are higher. And there’s still risk it could get worse.
Policy cannot do much to help, beyond what it already has done with targeted household support and attempts to bolster international supply arrangements.
Making it easier and faster to put up new power generation would help bring down electricity costs and provide more alternatives. But that's not really a short-term fix.
I do not believe that there are any policy moves that can provide substantial benefits in a hurry. There are lots of small, incremental things that could be addressed in the short-term, but they wouldn’t have large effects quickly.
It would be better to stop looking for short-term fixes, and to start addressing the more foundational problems.
Longer-term stuff requires finally updating NZ Super, getting a workable version of resource management through that can maintain cross-party consensus and make it easier to build houses and businesses, local government reform to make it easier for them to accommodate and even welcome growth, and civil service reform to help central government work better regardless of whether Labour or National is calling the shots. If proper competitive urban land markets form the cross-party core of resource management reform, that will be highly beneficial over the longer term.
It would also help if NZ started being more realistic about what is possible on small scale. We too often try to replicate regulatory functions of larger countries when we could instead lean more heavily on determinations from overseas. If you would have no qualms about taking the medicine a British doctor would prescribe, and a French doctor would prescribe the same thing, why require Medsafe to duplicate those regulators’ work? And why wait for foreign pharmaceutical companies to get around to applying here, when our small market isn’t a priority? It only creates delay.
Shifting toward unilateral recognition of overseas standards would make it faster and easier for households and businesses to access products and services from overseas. It’s worth considering beyond medicines. Not as important as RM reform, but lots of small bits could add up.

Legalise energy

2026-05-14T08:04:57.101+12:00

If someone owns some land with minor brush on it and wants to clear that brush, and clearing isn't going to create erosion into streams that bother neighbours or anything like that, they should be able to do it. It's their land. If someone else wants them to preserve the brush, the someone else should purchase an easement.

If someone owns some land and wants to put solar panels on it, they should be able to do it. It's their land. If someone else wants them to not put in solar panels, that someone else should purchase an easement.

Read this, and remember the Golgafrinchans.

The potential size of a proposed solar farm in North Canterbury has been reduced due to compliance issues on the land.
Far North Solar Farm Ltd has confirmed it has removed a section of land from its resource consent application to build a 181ha solar farm near Waipara, north of Amberley, after the landowner removed native vegetation from the site.
The large solar farm project has drawn criticism from some locals who say it would have adverse impacts on the environment and to property values, pose risk to passing motorists from glare from the panels and question how the solar panels would stand up to strong winds.

FWIW, the group trying to stop the solar farm puts the start-date on the project as April 2023.

More than three years ago.

Good doormen and good bouncers

2026-05-13T08:55:00.003+12:00

I'm not convinced that there's a real problem to be addressed by ACT's immigration policy.

I also don't see it doing much real harm. And I can see how it could do a lot of good for public perceptions around immigration. And those perceptions, held only by a very small minority as of the 2023 survey data (2025's will be released later this year) could turn into a real problem.

ACT wants to make it easier to deport residents. The government is already shifting policy so that someone who has been resident here could be deported for crimes committed within 20 years of being granted residence. I miss that window by a couple years. ACT suggests removing the time limit entirely.

So if I don't bother going for citizenship in the interim, and I get convicted (innocent people do get convicted from time to time) when I'm 70 years old, and have basically no remaining connection to Canada, and wouldn't be eligible for pension there either for lack of residence over the prior half-century, I could be sent off to the arctic. Very nice.

They've also proposed a stand-down period for access to benefits - fair enough. Even Clinton had that in his 1996 welfare reforms. ACT ought to consider other parts of that policy, including the term limit on lifetime access to the equivalent of Job-Seeker Work-Ready benefits.

And they've suggested greater enforcement against overstayers. People who overstay their visas but don't cause any other trouble aren't a priority for Immigration New Zealand - for pretty obvious reasons. Increasing enforcement would mean diverting resource from other activities, or staffing up. They're going to require platforms like Uber to do more checking that driver-partners have valid visas; hopefully the regulatory burden won't be substantial. I don't think there's any real problem here - overstayers will have particular incentive to not do crimes because drawing attention would mean quick deportation. But also fair enough where perceptions of system integrity matter.

I worry more about what ACT's policy is responding to. A pile of people on the right have been encouraged to believe that the immigration problems evident in Europe and the UK will soon manifest in NZ - or that they already have. ACT hasn't encouraged this false belief. Some others have.

Viewed as a suite of measures designed to help everyone have confidence that bad people would be kicked out quickly, so that NZ can maintain the kinds of high levels of support for migration seen in MBIE's surveys over the past decade, it's good.

But a bit depressing that it may be necessary.

My column in Monday's post (ungated here) covered it. The online version of the article has links to the surveys etc that I used as source.

I used a bar analogy. A bar ought to have at least one of a good doorman or a good bouncer. Unwillingness to have either could be risky. NZ has a decent doorman and a pretty good bouncer. Strengthening both won't do much harm, and could let the bar accommodate more patrons.

Judicial discretion under MMP: Smith v Fonterra

2026-05-12T12:15:00.001+12:00

Robert Cooter's The Strategic Constitution is excellent. I used to teach from it in public choice.

He provides a game-theoretic description of judicial discretion.

Imagine a unicameral Parliamentary system with no particular transaction costs in producing legislation. The executive and the Parliamentary majority have a unified ideal point.

If the composition of Parliament and the Executive have changed since legislation was passed, and a case comes up revealing potential ambiguity in interpretation, the Judiciary can choose to interpret consistently with the bargain that was struck when the legislation was passed, the outcome that might obtain if the legislature and executive were to reconsider it, or the Judiciary's own view of what the public interest requires.

The judiciary has zero discretion in that case. If it returns a decision inconsistent with Parliament's intention or views, Parliament immediately legislates to correct.

In a bicameral system, legislating to correct a judicial decision requires agreement between the two houses. The executive will sit in the House; it needs the agreement of the Senate. If views between the two houses differ, the judiciary has discretion within the Pareto set: the set of all points between the ideal point of the House and the ideal point of the Senate. If the judiciary sets a decision outside of that Pareto set, the legislature reverts to some point within the Pareto set.

He illustrates as follows.

In a unicameral Parliamentary system in a zero transaction-cost world, there is no opportunity to diverge.

In a unicameral Parliamentary system that has a coalition, there is opportunity to diverge if the governing coalition does not understand the game or refuses to play consistently with it.

If the bargain within the coalition is weak, the judiciary's discretion is constrained to the Pareto set of the members of the coalition. If it produces a decision outside of that range, the coalition can negotiate to overturn, returning legislation to the Pareto set. But it will not be able to find agreement to legislate to overturn a decision within the Pareto set: by definition, at least one member will prefer the Judiciary's stated position to the status quo.

A more clever coalition will realise that this game gives the judiciary room to unwind the bargain struck during coalition negotiations, and will pre-commit to overturn any decision that starts down that path - even if one party prefers the judiciary's decision in that particular case.

That's the zero transaction cost world. A not-stupid coalition precommits to not letting the judiciary play shenanigans. And so the judiciary does not engage in adventures.

Now let's move to the more realistic positive transactions cost world.

Parliaments have a habit of producing bad legislation whether through haste, incompetence, or unwillingness to resolve political conflicts within a governing coalition. In that latter case, explicitly political decisions may have been avoided through use of ambiguous language that will require the judiciary to take interpretive decisions of political consequence. You could imagine the legislation as not providing a point on the line, but rather a fuzzy shaded area spanning potential interpretations. And you'd hope that the legislature at least would have set legislation ruling out interpretations outside of the Pareto set.

Legislating around a decision is not costless. A governing coalition has its own legislative priorities. Time, effort, and drafting resource spent bringing an errant decision back in line means time, effort, and drafting resource not spent on other pieces of legislation. And some MPs' understandings of comity give the judiciary much room for shenanigans before the legislature would be allowed to act.

These transactions costs widen the range of judicial discretion. Even a governing coalition with tight agreement will not act unless the judiciary strays beyond a tolerable range. Beyond that range, the legislature will correct aberrant decisions. Within the range, the judiciary has discretion.

And that turns things into an expectations game. If the judiciary expects that Parliament faces high transactions costs for reversion, then it will play as though it has a very wide range for discretion. Repeated refusals by the legislature to correct aberrant decisions affect those expectations. They reinforce the judiciary's view of its own discretion, and solidify legal academics' views that the court actually has that discretion.

Smith v Fonterra looked like judicial shenanigans. Emissions have cumulative effects on global warming. No individual emission is the problem. It's their cumulative effect. Regulation makes far more sense than approaching it as tort. And we have a regulatory system around emissions. In the case of energy sector defendants, their emissions are fully covered by the ETS.

It took far too long to do it, but Parliament has finally moved to correct.

I doubt it will be enough to convince the Supreme Court that the legislature is generally willing to incur costs to correct adventures by the judiciary. But it is a very good start.

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.