Monday, April 28, 2008

Hide answering "your questions"

ACT leader Rodney Hide has featured in the "Interview the Leaders" series on left-wing blog The Standard. It's a fairly useless interview in terms of substance and is indeed so short that I strongly suspect Hide responded via his Blackberry. However, Hide did respond with some more detail on what exactly constitutes ACT's "Smart Green" policy and we now know that it will include the end of the current Emissions Trading Scheme (i.e. the "cap and trade" model).

The price of milk (part three)

Higher priorities have prevented me from completing the mini-series I began a week or so ago until now, but perhaps that was not such a bad thing. In the interim, the rising price of food seems to have become a fixture of the daily news agenda. Saturday's Weekend Herald led with a story claiming that the "average trolley of food cost 28.5 per cent more this week than a year ago" My copy of Saturday's International Herald Tribune led with yet another food-related story, albeit this time returning to the wearisome "food miles" stable. In the past week, European media here have aired news bulletins warning of the effects of a growing rice shortage, while channels have also taken turns in showing the effects of rising prices on "an ordinary family".

As I intimated in my last post, European consumers actually have little to complain about compared with people elsewhere: in the last week milk prices in supermarkets have dropped by as much as 20%. This means you can buy two litres of milk for around $NZ2.00. Again, this has come largely due to fierce competition between the discount supermarket chains and their ability to put pressure on the large number of small dairy farms which lack the equivalent of a Fonterra looking out for their interests.

But there is another reason why a lid has been kept on food prices in Europe: a substantially lower rate of VAT/GST is levied on "basic foodstuffs". This won't come as anything new to most readers: differing rates of GST are common virtually everywhere the tax exists apart from New Zealand. Australia is a familiar example, as David Farrar sought to remind us in the last week:
First of all I think an absolute strength of GST is that is is near universal for all goods and services. The moment you start varying out a few exemptions, you then end up in an endless litany of moral judgements on what should or should not have GST on it. In Australia you have (or had) GST on your bread if it has sultanas in it, but no GST if no sultanas.
For example, German consumers pay just 7% GST on items classed as basic foodstuffs, as well as on a few other categories of goods viewed as essentials or as being "good for you", such as books and newspapers. As in Farrar's Australian example, having such distinctions does create some silly anomalies, which are easy to see from one's supermarket receipts. Most items on my dockets have the number "7" printed beside them. Ice cream, frozen convenience meals and chocolate biscuits (and no this is not all I buy) - alongside less surprising items such as bread and fresh produce - are all taxed at 7%. What is charged at the much higher rate of 19%? Well, unsurprisingly, things such as bottles of wine - but also orange and apple juice.

I'll let you ponder what makes ice cream "more essential" than fruit juice. But on the whole, the 7% rate on (most) basic food items means that a European supermarket trolley has a substantial advantage against a New Zealand one in the race to be cheaper. Put another way: most non-food items (taxed at 19%) such as electronics, are more expensive in Europe than in New Zealand despite stiff competition; most food items are cheaper. It's difficult to look past the substantial GST differential as the reason for this.

I don't disagree that drawing distinctions within a category such as food is an absurdity. But I think it would be quite feasible to draw a distinction between categories - or at least between food and non-food items. This would avoid any debates over what constitutes a "basic" food item. Yes, it would mean that caviar would be taxed at the same rate as cheese. But it could never be argued that (say) a flat screen TV is edible, or any other non-food item for that matter. This is where I think ACT has an opportunity.

[Interestingly I note that the idea of removing GST on food has been raised elsewhere today, with the New Zealand Herald reporting on Helen Clark's reaction to requests from a lobby group to do so. For the record, this post has been in the writing process for a couple of weeks and was not triggered by this article.]

ACT has always been a resolute supporter of a single, unified rate of GST, with the explanation that anything different would lead to that (cliched) "bureaucratic nightmare". Indeed, Sir Roger Douglas was the very archichtect of the single rate of GST which was introduced in New Zealand in 1986 - at first at 10%, but within a few years raised to the 12.5% level we have today. ACT can keep this position - but employ a slight election-year gimmick along the way.

What to do? Here's a 5 step plan:

1. Call a press conference led by Heather Roy (the "caring" face of ACT). Announce that as part of ACT's "Agenda 2020" plan and to relieve "ordinary Kiwis" of some of the pressure created by rising food prices, GST on food will be dropped to 7% should ACT form part of the next government.

2. Show voters the party is serious by making this the first of ACT's three "bottom lines" to be announced during the rest of the year.

3. Trump any ensuing derision from Labour or National by saying that the big parties are obviously out of touch with "ordinary Kiwis" struggling to make ends meet (similar angle to National when it countered criticism of John Key's January 2007 "Underclass" speech).

4. Deflect any criticism that ACT is going back on its principles by emphasising that the 7% rate will eventually apply to ALL goods and services, not just food - but that food is the priority right now due to the rapid rising prices.

5. Heavily promote the policy the following weekend by giving out free cartons of milk emblazoned with ACT livery - along with fridge magnets of course.

Without question, this would be a populist measure. But desperate times call for desperate measures. Despite some serious competition in recent weeks from the Labour Party and the Ruth Dyson singers, ACT probably still has the largest "image problem" of any New Zealand parliamentary party. Bringing back Douglas has only reinforced for many voters what they already thought: ACT is a hard-right party of the 1980s. This might be worth thinking about for the ACT supporters scratching their heads and wondering why despite all the publicity ACT gained in its Conference month of March, the party is still stuck below the 2% support level in the four recent opinion polls conducted by TVNZ, TV3, Roy Morgan and Fairfax.

To paraphrase Jenny Shipley, let's make it perfectly clear. The General Election of 2008 is just six months away. If ACT doesn't make a move soon, just when is it going to? It's all very well to parade "principles" to which the party is not going to trade away. But while a purist message might be popular with the likes of Alan Gibbs (who as announced by ACT today, recently donated $100,000 to the party) is not a vote-winner, as the party is currently finding.

But I don't think cutting GST just on food even would be contradicting ACT's principles. The aim of the party has always been to cut tax - and this is exactly what this policy would do. ACT could quite plausibly say that it would rather cut GST on everything now, but that to be a prudent manager of New Zealand's books, it will be possible to introduce the 7% rate on other items only as economic conditions allow.

A move to cut GST would also be a powerful antidote to use against the perception of ACT being a party of the rich. ACT is probably never going to change this widely-held perception, but it certainly wouldn't hurt to try once more. GST is a regressive tax - the poor are worse affected than the wealthy because they spend a much greater proportion of their income on comestibles. So cutting GST is immediately going to benefit the less well-off more than the rich, even though it would make a difference to every consumer's pocket. Moreover, there are more absolute votes in cutting GST than cutting the 39% rate of tax which speakers at ACT's Annual Conference in March enjoyed denouncing as an "envy tax".

Attention John Ansell:
ACT to bring the price of food down?

Friday, April 18, 2008

The price of milk (part two)

In Europe, consumers have relatively little to complain about. At one supermarket, a litre of milk costs 0.66 EUR, a price little different to early 2006, just before the rising food price phenomenon began. On a simple exchange basis, this equates to $NZD2.67 for the standard 2 litres which New Zealand consumers will usually buy at a time, meaning that if anything, milk is actually slightly cheaper here than in New Zealand supermarkets. In reality, the higher per-capita incomes enjoyed by most Europeans mean that on a purchasing-power parity (PPP) basis, the felt price is even lower.

Suppositions, assumptions and predictions are the stock and trade of Douglas to Dancing, so using a combination of all three let me examine some possible reasons for the difference. The first may be that EU subsidies are masking the actual price consumers should be paying for their dairy products. Generous subsidies traditionally paid to EU farmers have long been the bane of New Zealand farmers. I don't have the data to prove or disprove this, although I do know that subsidies have been decreasing in recent years.

Well, the second possible reason for the disparity could be the fierce competition between German discount chains. Competition between some discount operators is such that even the supposed global king of discount retailing, Wal-Mart, was forced to close down its German operations in 2006, having racked up substantial losses in its failed bid to compete with home-grown discount supermarkets. Indeed, in Germany the price paid to local farmers by the chains has actually decreased since October 2007. This has led to farmers suggesting they will "go on strike" and refuse to sell their milk to the chains unless they receive a higher price.

It is clear, then, that economies of scale, extremely high sale volumes and margins often thinner than razor-thin are all features of the European retail landscape and are all absent in New Zealand, at least on a comparable scale. Indeed, the small population of New Zealand almost naturally lends itself to the production of very high-quality but relatively expensive food. This is accentuated by a rather cosy duopoly between Woolworths and Foodstuffs. Instead of a number of discount chains genuinely competing against one another, New Zealanders have a supermarket scene neatly segmented up into mainly "full service" (Foodtown, Fresh Choice, New World) brands with a couple of cheaper chains, namely Pak 'n' Save and Countdown. Again, with a market of just 4 million people, or 24 million people if Australia is added, this is perhaps understandable. European chains produce not only for their local markets, but for much of Eastern and southern Europe, generating incredible economies of scale.

It's clear that competition has something to do with the lower costs. But it's not the whole story. The final reason is a subject dear to ACT supporters' hearts: lower taxes, specifically value added tax or what we call GST. How this makes a difference and whtat ACT might do about it will be the subject of the third and final post in this series.

Edited October 2012

Thursday, April 17, 2008

The price of milk (part one)

Rising food prices seem to becoming for 2008 what climate change was for 2007. Last Friday saw the release of an official report from the World Bank showing that food prices had risen 83% over the past three years, with wheat prices rising 181%, while the head of the International Monetary Fund (IMF), Dominique Strauss-Kahn, warned at the weekend of mass starvation should food prices continue to rise. On Monday, the UN Secretary-General, Ban Ki-Moon, said that the world would need "to take urgent and concerted action in order to avoid the larger political and security implications of this growing crisis".

Last week, we saw food riots in Haiti, driven by the rapidly rising costs of staying alive. Going back to the climate change analogy, this might be seen as a minature version of Hurricane Katrina, which "primed" the ground for climate change to become a mainstream issue. The "trinity" of causes of the first rise in overall food prices in 25 years, which we experienced in 2007, are by now becoming familiar: the increased production of biofuels, increased demand for protein in China and elsewhere in Asia and adverse weather conditions in key food-producing areas of the world, notably the Australian drought (which once again brings to mind the effects of climate change).

Rising food prices have become the sort of issue that warrants one of those little graphics next to related stories in the newspapers; the BBC has established a special "Food Price Crisis" section on its website; while locally, David Farrar highlighted an eye-catching Dominion-Post graphic (although why chocolate is included as a "basic" item alongside items such as bread and milk remains a mystery to me). Bar a sudden and dramatic drop in food prices, there doesn't seem to be a natural end point to this story in sight.

Indeed, New Zealanders were probably some of the first to become aware of the phenomenon of rising food prices, thanks to the spotlight cast since around May 2007 on the northwards movement of the Fonterra dairy payout. Understandably, it was first presented as a good news story for New Zealand's farmers, but this began to change as prices for dairy products began to soar. The negative consequences of rising prices were, I think, encapsulated in a highly populist February 2008 report on TV3's Campbell Live programme, in which Campbell grilled the head of Fonterra Brands in a way he might normally reserve for a "Corngate" interview with Helen Clark. Campbell seemed to suspect a vast conspiracy which was making Anchor butter cheaper in London than New Zealand. Naturally, his interview had been preceded by a piece showing the effects of high butter prices on so-called "ordinary Kiwis" who mysteriously thought the solution to higher butter prices was to buy packets of biscuits instead of baking themselves (of course, Griffins must hedge its butter prices for 5 years in advance).

A topic becoming this big demands a political reaction. The backdrop of climate change concerns led ACT to unveil a "Smart Green" policy last year. What ACT's reaction to higher food prices might be is the key question of this Douglas to Dancing "mini-series" of posts.

Monday, April 7, 2008

Not my typical post

I was alerted by one of my parliamentary sources to a minor controversy about an ACT leaflet, specifically, whether it was in breach of the Electoral Finance Act (EFA) 2007. According to a report by Audrey Young in the New Zealand Herald last week:
The commission agreed that the Act booklet Not Your Typical Party was an election advertisement but is not sure it was "published" when it was distributed to journalists at the Act Party conference.
It is seeking legal advice. If it decides that distribution to journalists is publication, then it should have had proper authorisation from the party's secretary. But if so, it would almost certainly attract only a warning.
It seems Young herself was the catalyst for the Electoral Commission's ruling, as she had submitted a complaint to the Commission about the booklet, which ACT distributed at its March 2008 conference. The response she received from Helena Catt of the Electoral Commission was posted on Young's blog on the New Zealand Herald website last week.

The only other coverage I'm aware of the story is a post on Kiwiblog:
ACT’s “Not your typical party” booklet is an election advertisement, but the lack of authorisation may not have broken the law as it is unsure whether distributing to journalists at a party conference counts as publishing it. Again, this suggests the cost of it should be included in their expense return (less of an issue for ACT as unlikely to reach the $2.4 m limit) unless it qualifies for the parliamentary purposes exemption.
On this blog I've hitherto stayed away from any EFA-related commentary, not because I don't think it's important but because I feel inadequate to comment on it, being a relatively technical piece of legislation. There are others far better to comment on the use and application of the EFA - two names that spring to mind are Bryce Edwards, lecturer at the Department of Politics at the University of Otago and better known in the blogosphere as the author of the "Liberation" blog, and David Farrar, of course of Kiwiblog fame. I'm happy to leave commentary on the details of the EFA to these people and others who are better informed on its many ins and outs. Therefore the aim of this post is to try and shed light on the leaflet controversy, rather than make a final judgment on its legality.

The "Not your typical party" leaftlet is about the size of a standard business envelope, used for sending A4 pages folded in three. To my knowledge it was first put out by ACT in about June 2007, when I was in the midst of writing my dissertation. I've since acquired about four copies of the leaflet, either at various ACT-related events or through the post. I've also acquired a PDF version of the leaflet which I am making available for download here. I don't have the printed leaflets with me to compare but I think they are identical - however the devil is very much in the detail as I will mention below.

For a leaflet for which the aim is surely to draw new supporters to the party's cause, the fact that ACT has been keen to distribute them to members (in effect, preaching to the converted) seems a little out of place. There was one at each attendee's seat at the Annual Conference in March, despite the fact that members had already been posted one in their conference registration packs. This would seem to me to be a waste of resources - surely doing anything else with them, such as a mail drop, would be more productive than throwing copies to members who are already guaranteed ACT voters.

The only rational reason for giving them to members would be as a recruitment aid for them (i.e. something to show friends and family) but giving out more sizeable quantities on request might be a better way to fulfil this sort of purpose. I suspect most conference delegates took the brochure away with their Waipuna Lodge pad and pen and did nothing further with it. Of course, this may well be because as an unauthorised pamphlet under the EFA, ACT had to get rid of its supplies, but I just am not up with the legislation to give a firm opinion on this - please let me know if you know any better.

But back to the EFA-related issue: I do not believe that the "Not your typical party" booklet features the parliamentary crest. Again, I don't have the booklets on hand to check, so it could be the case that later printings carried the crest while the earlier editions (including the PDF version) which I studied more closely did have the parliamentary seal. A publication featuring the crest indicates that a document is for pure parliamentary purposes (i.e. informing constituents on policy), rather than for electioneering (i.e. vote getting). As you will see by looking through the PDF, the booklet is about getting new members and votes, so is almost certainly about the latter and not the former. ACT would appear to have realised this and thus paid for the booklet out of party funds.

Interestingly ACT also produced a more reserved looking, A5-size booklet (without the "Not your typical party" label) featuring some fairly in-depth explanation of policies including the Taxpayer Rights Bill and the Regulatory Responsibility Bill. This did feature the parliamentary crest - which tells me that ACT knew what it was doing. The attractive, electioneering pamphlet was paid for out of party funds, while the legitimate policy-explanation booklet (which while tidy enough, would in all honesty would send the average voter to sleep) was paid for by Parliamentary Services. Unfortunately I don't have a PDF version of the bigger booklet but if you compare them side-by-side, it's clear they serve different purposes and are intended to come under different sets of rules.

The issue then is whether t should have featured an authorisation as an election advertisement because it was distributed to journalists at the conference. I would share the Electoral Commission's view that this is a grey area, but what I would say is the following. Audrey Young has technically every right to complain about the booklet. But: as far as I am aware she could not be bothered going to ACT's conference, even for a short period. Neither, to the best of my knowledge, did the Herald's "political editor" John Armstrong (which did not stop him from pontificating on ACT in two successive Saturday columns). The absence of Young and Armstrong was in spite of the fact that with the attendance and speech by Roger Douglas already announced, the conference was set to be one of the more significant events of the election year calendar.

Edited October 2012

Thursday, April 3, 2008

Smart thinking

In Europe, petrol prices currently run to around 1.40 EUR per litre - and only marginally lower for diesel. So if you think fuel prices are high in New Zealand, imagine paying $2.80 a litre. Much of the high price is made of additional taxes with the aim of discouraging consumption of fossil fuels. Ironically, the price is set to rise in the next year because of a government directive to boost the proportion of costly bio-fuels blended into petrol sold at the pump.

While Europeans pay more for their fuel than New Zealanders, I suspect on a purchasing-power parity (PPP) conversion basis the costs would work out pretty much the same. But drivers' reactions to the rising costs in the two countries are quite different. countries. In Europe, it's still the exception to see SUVs on city streets, and when you do see one, more often than not it's a trade vehicle, such as a courier. By comparison, on New Zealand roads, sales of four wheel drive vehicles have mushroomed in recent years. I recall looking around a carpark in central Christchurch a few months ago and finding that about half of the vehicles parked there were SUVs.

I can also report that there were an awful lot of hulking SUVs parked in the carpark at the Waipuna Lodge on the day of ACT's Annual Conference there on March 15. This mirrored results of a focus group projective exercise I conducted for my dissertation. Shown photos of various makes of vehicles and asked which one most closely corresponded with their view of ACT, participants overwhelmingly favoured the SUV and sports car, ignoring more ordinary sedan and people-mover models. One participant felt that the SUV was suitable because it “could run anyone over...sort of a bully's car”, while the sports car represented “arrogance” and “aiming for the highlife”. Wealth was clearly a trigger for these perceptions: one participant said that ACT was not interested in “the social side of politics, whereas Labour is about helping people, the lower people, they're [ACT] more about the rich people at the top and aiming for that sort of lifestyle, which is what you associate those cars with, money”.*

The exception to all of this is ACT leader Rodney Hide, who for several years has been driving a "Smart" car, seen above, emblazoned with a caricatured, pre-weight loss image of himself. I'm sure there are a few more Smart cars around on New Zealand streets, but the only one I remember seeing was Hide's vehicle. In Europe, I've seen dozens of Smart cars weaving in and out of city traffic - and every time I see one I think of ACT!

I don't know whether Hide acquired his Smart car to try and combat the party's fabled "image problem" and tackle perceptions that the party was the domain of "Remuera tractor" drivers. But perhaps encouraging New Zealanders to cut down on fossil fuel use and save themselves money at the same time could become the basis of a new environmental policy for the party this election year. Encouraging voters to drive smaller cars - and, heaven forbid, use public transport - might not be one of the "bottom-line" policies ACT is planning, but at the very least it would turn heads and be in line with the trimmed-down image that Rodney Hide has presented of himself since the 2005 election. By bringing back Sir Roger Douglas to the party, ACT may have already dashed its chances of turning around its negative image in the eyes of voters. But it still may be possible to win over some more moderate voters by putting forward some "un-ACT-like" ideas.

Perhaps the environment policy could be launched by equipping other candidates (think: Heather Roy, Sir Roger Douglas et al.) with Smart cars to drive around the campaign trail. Smart cars could form the signature and perhaps even endearing image for ACT's election campaign, just as John Ansell's billboards became National's in 2005 and "Bob the Builder" turned into New Zealand First's mascot in 2002.

ACT already has just the right name for such a policy. It's called Smart Green.

*For more on this exercise, see pages 26 and 97 of the dissertation.

Edited October 2012