Friday, 17 April 2015

GST at the border

Bronwyn Howell kindly walked me through what seems the least hassle-ridden way of collecting GST at the border (other than Seamus's proposal): offload it onto the domestic end of the good's shipment. The mechanism, if I understand it properly, would work as follows, with all confusions being mine.

When you order something online from a foreign shipper, they have to get it to you. Whoever they're using for the international leg has arrangements with a domestic shipper to get it to your door. And there aren't that many courier companies running the domestic side of things here, plus NZ Post.

On the local delivery agent getting a heads-up that a package is on its way, it would also have to get a heads-up on the goods' stated value. The delivery agent would then be liable for GST on the shipped item.

That agent would then contact the recipient of the good seeking payment - when you order something online, you're giving them an email address anyway. When you get the email, you'd go to another website to pay the tax so that the shipment could get to you immediately on landing in NZ. If you don't get around to doing it before the product gets here, or if it gets lost in your spam filter, you'd have to pay the courier when the item gets to you or pick it up from the courier office and pay there. In a competitive shipping market, we'd expect the shippers to figure out easy ways to facilitate payment, like keeping your credit card details on file (if you agree) so that you can be automatically billed for any future GST charges without having to get an email.

So, in a best-case world, if you'd already paid GST once through that shipper and hadn't changed credit cards since, you'd just get an email noting that the shipping company was going to charge your card GST on a shipment that's coming through, with opportunity for you to object if something didn't make sense.

That would be pretty hassle-free, after the initial hassle of having to set up accounts with the different shippers.

I note, though, that UPS in Canada always managed to charge us about $40 for the service of paying the duties and tax on our behalf at the border. Note that these fees are over and above any actual taxes collected. One hopes that New Zealand's domestic shipping industry is sufficiently competitive that that wouldn't happen here, but I doubt that the shippers would agree to become tax collectors for free either.

I also wonder whether the process might provide a mechanism for griefing shippers and others, if anyone were so inclined: ship a thousand envelopes each with a very high customs valuation for a photocopied picture inside to a bunch of unwitting recipients. The automated systems would either charge them automatically for the GST on something they'd never ordered, or would trigger collection and confusions, or would require the shipper to send back the envelopes while explaining to Customs that no GST was collected on the items. Maybe there are no griefers out there who'd try it though.

We're then weighing up the transaction-deterring hassle costs (albeit perhaps smallish in this case), combined with the extra cost imposed on consumers by turning the shipping companies into tax agents, against the allocative efficiency gains from removing a tax distortion and the prevention of the erosion of a part of the tax base. And, at the same time floating around in the background, the expectation that if the system does wind up doing too much to deter consumer-led parallel importation, domestic retail prices would likely go up proportionately.

The system seems worth IRD's investigation. But assessing the benefits of it really shouldn't begin with the numbers in the ISCR report commissioned by BooksellersNZ. The report has a lot of good stuff in it - it's where I saw the scheme noted above, and why I got in touch with Bronwyn.

But the report does have a few ...issues.
  1. The report gives, as one option, requiring foreign sellers to register with IRD. While I can buy that a lot of large online retailers would find it worthwhile to sign up to the kind of multilateral system they describe, I doubt that that is also true for lots of the smaller online US retailers. For many of them, any international shipping already seems a hassle: that’s one reason YouShop was set up, right? To forward on packages from US retailers who don’t want the hassle of international shipment?

  2. The report suggests that, under the system where foreign firms would register with IRD, local firms would have to pay taxes to the US on shipment there through some OECD coordinating mechanism. But wouldn’t that kind of system, for shipping to the US, be next to impossible absent the US sorting out its mess of local sales taxes? I mean, they’ve not yet been able to sort things out for internet sales taxes within the US; there was some talk a couple years ago about having a set of states that agree to a reasonably common base also agree to collect sales taxes for each other, but I don’t think it’s gone anywhere, has it? There are thousands of local taxing jurisdictions in the US with really divergent rules over, for example, what precisely counts as an ice-cream sandwich (and what doesn’t) for sales tax purposes.

  3. They suggest a few methods for evaluating whether shifting the regime would be a good idea and argue that a social welfare maximisation approach is strongly preferable to a government-centric approach in calculating the appropriate de minimus value or in setting other parts of the collection regime. I agree, but have a couple of worries on this front.

    1. Absent a system that is able to collect these fees pretty seamlessly, from the consumer’s perspective, we need to watch for spots where we might impose fixed costs on purchases from abroad that do not obtain for shopping domestically. For example, it seems likely to be pretty distortionary and welfare-reducing if customers are deterred from buying from abroad because of a few days’ processing lag at the border, or because of a requirement to go pick up the item at a NZ Post Office across town and there pay the duties, or an additional step when shopping requiring you to go buy a customs stamp from a Customs website.

    2. There's no note of that easy ability to parallel import from abroad can serve as substantial constraint on price-setting in domestic retail markets. That magnifies that harm that could be done if we unduly deter customers from using foreign shopping options due to expected hassle-costs. Sure, it's a second-best-worlds consideration, but we'd need some accounting for it in a social-welfare-maximisation setup.
  4. I’m really not sure that the elasticities they're using from Einav et al, for example, would really apply here - they're there used to estimate how much change there would be to shopping patters with the 15% GST being applied on international low-value purchases based on tax elasticities across US states. Shipment from different US states, from the point of view of the consumer – there’s really not much difference other than price. Whether you buy in-state or from out-of-state, you’ll have whatever you ordered in 2-5 days. Here, that’s not quite so: domestic shopping is far more immediate than shipping in from abroad. Since they’re not nearly as close of substitutes for one another, the price elasticity of demand between foreign and domestic should be lower, right? Further, because the NZ market is much thinner, there are plenty of products you just can’t get here: again, this lowers the expected price elasticity and means that you might be overestimating the effects of the de minimus thresholds.

    1.  On this one, I’m really willing to put money on it with any of the authors. If a seamless collection of 15% GST at the border is implemented, I am willing to bet that the decline in demand for Book Depository in New Zealand is less than 20% (they predict 45-60%). It’s range of products and ease of getting the books that’s driving demand for Book Depository, as well as price differences well in excess of 15%; an extra 15% charge is trivial – or at least that’s my bet. But only conditional on shipment’s being seamless. I’m more than happy to bet that you could kill demand for Book Depository by making it a hassle to receive shipment.

  5. I am curious that they're counting as benefit the jobs that would be created in New Zealand subsequent to deterring imports by imposing substantial delays on importation. Mightn’t we need some modelling of whether those workers would be drawn from other actually productive sectors? It looks to me like we’d be imposing large and real costs here to effect a transfer from domestic consumers and foreign retailers to domestic retailers. Some accounting for the elasticity of domestic prices with respect to degree of foreign competition also seems likely to be relevant.

  6. I was interested in their choice of counterfactual at the end where they invite the reader to imagine the benefits of a $5k tax-free threshold if only we could lower the de minimus threshold. Do they believe that this is the relevant counterfactual? Really?
In particular, I was very surprised to see this line in a report that had either Bronwyn's or Norm Gemmell's name on it:
“This enhanced demand at domestic retailers not only results in increased producer surpluses, but firm growth leading to increased employment. Jobs created by a reduction in the de minimis threshold increase the economy’s productive capacity, clearly benefiting the rest of the country. Enhanced domestic employment results in increased consumer spending, and through the multiplier effect, enhanced growth throughout the economy.”
Emphasis added. Jeez.

Thursday, 16 April 2015

Deadweight costs and ACC

This week's Initiative column at Interest.co.nz takes on deadweight costs and ACC. A snippet:
Andrew Little is right to be worried about the deadweight costs of this tax. The extra 0.33 percent that workers and firms pay in ACC levies would be better left in employer and employee pockets.



The Infometrics analysis uses standard Treasury methods where raising a dollar in tax is assumed to cost the country $0.20 over and above the value of the raised dollar: $0.20 in ‘deadweight’ costs, as economists put it. These are not primarily the administrative costs of collecting taxes but rather the costs the economy faces when a payroll tax makes employees more expensive for employers and makes employment less rewarding for employees.

An extra 0.33% in payroll tax will not be a make-or-break issue for most employees or employers, but would be enough to kill just under 600 jobs in a country with just under 2.4 million employed persons. As Little warns, excess taxation by ACC “costs jobs and growth and holds New Zealand back.”

...
But while we are considering changes to ACC to avoid the 0.33 percent excess tax, we could perhaps consider more ambitious changes. In particular, does New Zealand really need strongly prescriptive workplace safety rules if ACC premiums are set correctly? ACC offers reasonable discounts and penalty rates based on firms’ claims histories, with additional discounts for complying with best practice standards in safety.

The New Zealand Initiative’s Dr Bryce Wilkinson provided back-of-the-envelope indicative calculations thatthe additional costs of more stringent scaffolding regulations alone could be of the order of $180 million. If ACC has its levies set correctly, construction companies (and others) would already have strong incentive to provide a safe work environment, and could tailor their safety practices to reduce accidents by whatever method is most cost-effective in their particular situations rather than having to comply with standards that might not always be fit for purpose.

If Little could ensure that ACC gets its pricing right, and uses that mechanism to help ensure worker safety rather than prescriptive standards, the benefits to the economy could be much greater than the savings from reducing the average ACC levy from 2.16 percent to 1.83 percent.

Wednesday, 15 April 2015

RBNZ on Housing

I knew that Mike Reddell's now being free to blog on monetary policy and the RBNZ was going to be good.

Here's Reddell's take on the Deputy Governor's statements on housing.
We should expect the Reserve Bank to provide in-depth analysis to back its claims around the housing market.  But in a 19 page speech, only five paragraphs are devoted to the “housing pressures are a threat to stability” section.  And if not everything can elaborated in a speech, we might expect to see links to recent Reserve Bank research in the area – but there are no such links, and not even references to the issue of the Bulletin published only a few weeks ago which cited international research suggesting that housing mortgage loans have rarely played a major role in systemic banking crises. Issues of the Bulletin are generally regarded as speaking for the Bank, so it might be useful for the Bank to clarify just where it stands, and why.  New Zealand might be different, but if so why does the Bank think this is likely?   Perhaps the Bank can point us to countries in which private sector credit growth of around 5 per cent per annum, from starting levels of PSC/GDP that are still materially below the peaks reached 7-8 years ago, have led to serious threats to financial system soundness, or even to wider economic stability.
The Deputy Governor has been consistently reluctant to engage with the proposition that any financial stability risks must have been much greater in 2007 than they are now.  In the years leading up to 2007 we had seen:
  • Very rapid nationwide growth in real house prices, on a scale not seen previously in modern New Zealand history
  • Very rapid growth in credit and credit-to-GDP, on scales consistent with some of the international indicators that have been taken as suggesting heightened risk of crisis.
  • Much lower overall bank capital ratios (actual and required)
  • A move (in the adoption of Basle II) towards lower risk weights on housing.
  • A long-running period of economic expansion and consistently high levels of optimism
  • High levels of real investment in housing
  • Rapid growth in commercial property and farm prices, and in the associated stocks of credit.
All of which was followed by one of the nastier recessions New Zealand has seen in the post-war period, and a double-dip recession in 2010.  GDP per capita (real and nominal) settled onto a much lower track than had previously been expected – so that many borrowers’ income expectations proved to be quite severely disappointed.   
Nominal house prices did fall during the recession, and by more than the Reserve Bank projected at the time.  And yet with all these factors, the soundness of our systemic institutions was never questioned (even in the midst of a global panic centred on concerns around housing) and the level of impaired housing loans rose only modestly to extremely low levels.
The current climate just does not bear comparison.  If the Reserve Bank disagrees, it would be helpful for them to lay out their arguments and evidence. 
Go read the whole thing. He also hits on whether any tax advantage lies with unleveraged owner-occupiers or those nasty investors.

The relevant RBNZ paper is here.

I wonder whether any old Lyndon Johnson quotes are being circulated over at #2 The Terrace.

More things that aren't ironic: pub discounts

Somebody's not been listening to Weird Al's grammar advice: irony is not coincidence.

Alcohol Healthwatch's Christine Rogan's mad about a loyalty card scheme that would rebate 5% of members' purchases as student loan repayments. Why? Some of the retailers involved are pubs.
Alcohol Healthwatch health promotions adviser Christine Rogan said it exploited the vulnerable.

"[It's] increasing the risk that alcohol consumption is going to be encouraged through this marketing promotion.

"How ironic that the first [merchants involved] are the ones that encourage students to drink," Rogan said.

Massey University professor Sally Cresswell, who specialises in alcohol policy, said there was a "feelgood" factor to the card but the initial focus on businesses selling alcohol was a sign society still saw alcohol as an ordinary commodity, rather than a drug that should be treated with caution.

"You could just imagine situations where people are saying, 'Oh, well, let's get another round, it's all paying off so-and-so's loan', and I think that's really not appropriate."

But the card's founders say it is aimed at everyone with student loans, which included ex-students.
For a better alcohol-themed use of the word, watch the Canadian classic Strange Brew. Bob & Doug McKenzie go to Elsinore Brewery with a mouse in an empty bottle, trying to wheedle their way into getting a free case. After inadvertently stumbling on Brewmaster Smith's plans on using a special addictive drug in the beer as part of his plans for world domination, Doug McKenzie finds himself with Pam Elsinore, trapped in one of the beer vats, about to be drowned. Brewmaster Smith opens the vat, saying
How ironic. You came here with a mouse in a bottle. Now you are the mouse. ... It's really too bad you won't be around to see the whole world become addicted to Elsinore beer. In a few hours I will introduce my special formula to the public at Oktoberfest. When they drink enough, they will do whatever I tell them.
 See? It's not just coincidence. It's coincidence with that special kinda twist.

Tuesday, 14 April 2015

Gender-blind economists

In a new audit study, male economists are the only ones who came out as gender-blind in hiring preferences.
The underrepresentation of women in academic science is typically attributed, both in scientific literature and in the media, to sexist hiring. Here we report five hiring experiments in which faculty evaluated hypothetical female and male applicants, using systematically varied profiles disguising identical scholarship, for assistant professorships in biology, engineering, economics, and psychology. Contrary to prevailing assumptions, men and women faculty members from all four fields preferred female applicants 2:1 over identically qualified males with matching lifestyles (single, married, divorced), with the exception of male economists, who showed no gender preference.Comparing different lifestyles revealed that women preferred divorced mothers to married fathers and that men preferred mothers who took parental leaves to mothers who did not. Our findings, supported by real-world academic hiring data, suggest advantages for women launching academic science careers.
Via @clairlemon

GST confusion

In last week's NZ Initiative "Insights" newsletter, I'd hit on public misunderstandings around GST. People think taking GST off food would be strongly progressive, because poor people spend a greater fraction of their income on food, but richer cohorts get a much larger fraction of the total benefit because they spend more in total on food. If you want to help poorer people, run the redistribution directly rather than taking GST off food.
I have never been a fan of the old prayer wishing confusion upon one’s opponents. In a real war, your enemy’s confusion helps. But in policy battles, it rather seems to me that that confusion hurts everybody.

Take GST. New Zealand is blessed with what is about the world’s cleanest value-added tax. Australia’s GST is in dire need of modernisation – their tax exemption regime around food, for one, makes ridiculous and arcane distinctions between bread and crackers and around just what gets to count as a pizza, as noted by the Australian Broadcasting Corporation this week.

Nevertheless, it is not hard to find local advocates of exempting ‘healthy’ food from GST to change peoples’ diets, or for exempting food entirely to help poorer people. Both proposals are hopelessly confused: they are very costly ways to fail to achieve the desired objectives.

To start with, so long as richer people spend more money on food than do poorer people, exempting food from GST does more to help richer people than it does to help poorer people. If your goal is to help poorer families be able to afford more food, policies that reduce the cost of housing leave more space in the budget – but we will come to that later. Food exemptions from GST are a very expensive way of helping poorer people as compared to just using our existing income transfer programmes – or making jobs easier to get.

Further, exemption regimes make a mess of GST accounting. If you think that we should tax people until they eat the way you want them to eat, it is better done with an excise regime than by wrecking GST. We will be taking on the case for and against food taxes later in the year.
I hadn't known it at the time, but John Creedy and co-authors have run the numbers on this one. Their abstract, in a forthcoming NZEP piece:
This paper investigates the welfare effects on New Zealand households of zero-rating food in a goods and services tax (GST). The detailed effects, for a range of household types, are investigated using Household Economic Survey data. Demand responses to consumer price changes are estimated and welfare changes, in terms of equivalent variations, are obtained. Comparisons are also made across clusters, consisting of groups of households with similar characteristics. A tax change is found to produce a very small amount of progressivity in the GST. Redistribution is from households without children and with high total expenditure to households with children and low total expenditure, and towards older households.
You get far more progressivity, if that's what you want, by transferring more money to poor people. Their bottom line?
The analysis supports earlier studies suggesting that the use of zero-rating in an indirect tax structure provides a poor redistributive instrument compared with direct taxes and transfers

Monday, 13 April 2015

Preventive detention or proactive monitoring?

Some folks, you just can't reach. David Farrar's pessimistic in this case:
Stuff reports:
A man believed to be New Zealand’s worst recidivist drink-driver will be released from prison next month, despite describing himself as a “danger to the community”.

Raymond Charles Laing was jailed for three years in 2012 after notching up his 26th conviction for driving under the influence of alcohol. He was also convicted for the 31st time for driving while disqualified.
This would suggest he has driven drunk on several thousand occasions.
Drink Driving Interventions Trust co-director Roger Brooking said punishment for the offence in New Zealand was lenient compared to many other countries, and perhaps there was a need to keep certain people behind bars.

“In terms of dealing with the problem on a larger scale, I think there needs to be a law change so judges can impose preventive detention on them, so they can lock them up in prison for the rest of their lives.

“We do this to people who sexually offend, why can’t we do this to drunk drivers?”
That’s not a bad suggestion. Only use it for the worst of the worst, but if they fail to respond to anything else, that may be the only way to stop them killing someone while driving drunk.
Wouldn't it make more sense to have a prisoner reintegration regime, for those with very clear histories of offending while intoxicated, barring their consumption of alcohol or other drugs?

There are monitoring solutions that are seem much cheaper than keeping somebody in jail.

Turning the Tide of Drunk Driving Through 24/7 Accountability

In 2005, then-South Dakota Attorney General Larry Long launched a statewide program aimed at tackling the state’s epidemic DUI issue. At the time, South Dakota had one of the highest DUI rates in the nation, with 21.6% of adults admitting to having driven drunk. In addition, 75% of individual involved in fatal crashes had a BAC of 0.15 or higher.
In the 24/7 Program model, every single DUI offender is either tested twice daily (seven days a week) at a breath-testing center, or they wear SCRAM Continuous Alcohol Monitoring technology. The majority of the testing is offender funded, and a state indigent fund subsidizes costs for participants who qualify. The most important element of the program is simple, yet effective: If you fail or miss a test, or you have a confirmed drinking event on SCRAM CAM, you are swiftly, immediately escorted to the local jail.
Today, state level 24/7 Sobriety Programs are proliferating. North Dakota and Montana are already online, and a half-dozen programs are in the research and planning phases.
The device looks like one of the GPS-tracker ones worn by those on home detention: it can detect alcohol consumption transdermally.

It seems the kind of solution that addresses the problem while not imposing undue costs on others. Those who've demonstrated an inability to handle their alcohol get it taken away for a while; the rest of us get left alone.

Here's a PBS write-up of a similar program in Hawaii: HOPE.

Why does there seem little constituency here for this kind of solution?

Update: Here's RAND's page on 24/7 research.