Does the NZ Superannuation Fund recover the deadweight cost of the taxes that funded it?

The $30 billion New Zealand Superannuation Fund is the best performing sovereign wealth fund over the past five years, generating returns of more than 17 per cent a year.

Those returns easily beat all other sovereign wealth funds that publish their figures, according to a global study by JP Morgan. In the last three years alone, the fund returned an average of 21 per cent a year.

Good thing to do considering that the default deadweight cost of taxation is put by that Treasury to be 20%:

As a general rule, deadweight losses should be included if they are of sufficient size relative to the overall costs and benefits of the proposal that they are capable of altering the decision as to whether or not to proceed with the proposal.

Having said this, deadweight losses are notoriously difficult to quantify. Estimates vary from 14% up to 50% of the revenue collected.

Treasury suggests a rate of 20% as a default deadweight loss value in the absence of an alternative evidence based value. Thus public expenditures should be multiplied by a factor of 1.2 prior to discounting to incorporate the effects of deadweight loss.

This deadweight cost of taxation includes funds contributed to New Zealand government owned investment funds. In a speech last week, the Super Fund chairman Gavin Walker warned that the recent high returns were unlikely to continue in the long-term:

The last few years are likely to have been among the best years the fund will experience for some time,” he said. “On average and over the long-term we expect to earn the rather less exciting figure of 8 per cent [per annum] – but which will still provide a handsome return to New Zealander stakeholders.

The New Zealand Superannuation Fund must beat the market every single year to make up for the deadweight cost of its funding, the usual interest rate on borrowed funds, a premium for the investment risk added to the Crown’s portfolio and the cost to New Zealand’s growth rate of higher than otherwise taxes on income, entrepreneurship and investment.

Is investor state dispute settlement a form of overseas development assistance?

Would objections to the Investor State Dispute Settlement provisions in the proposed Trans-Pacific Partnership wilt away if the adjudicating body was the International Court of Justice? The left-wing opponents of investor state dispute settlement genuflect at the very mention of the International Court of Justice and international law generally (unless it is international economic law).

Disputes over the provisions of European union treaties are adjudicated by the European Court of Justice. The judgements of that court brought by individuals against member states so annoy the British that it is a leading reason for many British wanting to leave the European Union and replace the Human Rights Act 1998 with a British Bill Of Rights policed by British courts rather than by the European Court of Justice and European human rights law.

It is routine for any treaty to have some provision for arbitration of disputes. This includes trade and investment treaties.

The World Trade Organisation treaty includes a dispute settlement provision with arbitrators based in Geneva. Some of the more than 400 cases heard have been motivated by discrimination against imports on the basis of a breached environmental protection policies of the importing country.

A number of countries want to ban imports that are produced in ways that upset them. Others want to include labour and environmental standards in trade agreements to impose developed country standards on developing countries in what is a new form of colonialism.

I have previously said that investor State Dispute Settlement provisions have no place in trade and investment treaties between democracies. I must now admit there are good reasons to have arbitration clauses in treaties between democracies.

The puzzle is why refer these trade and investment disputes to a little-known arbitration body adjunct to the World Bank rather than the far more prestigious International Court of Justice.

Perhaps the reason is both sides want an arbitrator who is not too strong and not too credible. It would look very bad if the International Court of Justice was to rule against you.

William Landes and Richard Posner contended that judicial independence maximises the value of legislative deals with interest groups by enhancing the durability of those deals.

Why no International Court of Commercial Law? When deciding what type in judiciary to enforce international trade bargains, the signatories may prefer a less credible adjudication and enforcement mechanism in case they want to opt out of it or chip around the decision.

The jurisdiction of the International Court of Justice is to settle, in accordance with international law, legal disputes submitted to it by special agreement and matters specifically provided for in treaties and conventions in force.

UN member states are the parties to any litigation but that doesn’t stop them raising cases on behalf of individuals. That said, organizations, private enterprises, and individuals cannot have their cases taken to the International Court, such as to appeal a national supreme court’s ruling. Only the states can bring the cases and become the defendants of the cases.

The International Court of Justice is different from the European Court of Justice because individuals cannot easily bring complaints before it. One of the causes of action before  the European Court of Adjusters is under European competition law over member states providing financial aid to industries.

Democratic countries with high levels of economic and  social integration, such as the  European union, do find it in advantage to set up a European wide Court to adjudicate disputes over rights under European law.

Why then would a democracy sign up to an investment protection treaty with a developing country? One reason is overseas development assistance.

Developing countries with corrupt and incompetent courts, politicians and bureaucracies sign international treaties as a way of assuring foreign investors and trading partners of some degree of security of their property rights and their ability to enforce contracts with suppliers and buyers.

By folding these assurances into trade treaties, the developing country has a stronger incentive to honour its promises. There will be domestic constituencies wanting to retain reciprocal export market access who will lobby for the honouring of the promises of legal protection to investors and businesses in their home country.

New Zealand signing up to the Trans-Pacific Partnership is an example of this form of overseas development assistance. Exporters and investors from the developing country who export and invest in New Zealand have another reason to support more secure property rights and better enforcement of contracts in their home country as a way of securing their treaty rights to export and invest in New Zealand.

The Left of the political spectrum should be keen on this form of overseas development considering their general belief in greatly increasing the amount spent on overseas development assistance. Rather than pay cash to the development country, the payment is in kind as reciprocal legal promises.

Trade treaties that include investor state dispute settlement are forms of governance assistance to developing countries. The reciprocal exchange of promises about investor protection and the enforcement of contracts and property rights improves the quality of governance in the developing country.

The countries most likely to be subject to investor state dispute settlement are those with weaker governance. Even in the European Union, the member states most likely to be sued are former communist countries. The most common course of action was the cancellation of a licence or permit.

Investor state dispute settlement clauses are no different from any other international treaty include environmental and human rights treaties. All these treaties require countries to give up part of their sovereignty.

Democracies give up their sovereignty in investor state dispute settlement in the hope that developing country partners to the treaty will improve the development potential of their country through better governance and more secure property rights.

That is an overseas development aid objective the Left of the political spectrum should support, but it does not. The Left of the political spectrum is happy to use trade agreements to impose developed country labour and environmental standards on poor countries desperate for access to rich country markets, but is not willing to give up anything in return.

The opportunity cost of renewable energy subsidies

Millennials’ Political Views Don’t Make Any Sense

Millennial politics is simple, really. Young people support big government, unless it costs any more money. They’re for smaller government, unless budget cuts scratch a program they’ve heard of. They’d like Washington to fix everything, just so long as it doesn’t run anything.

Young people lean way left on issues like gay marriage, pot, and immigration. On abortion and gun control, they swim closer to the rest of the electorate.

But on economics, they’re all over the map. You get the sense, reading the Reason Foundation and Pew studies, that a savvy pollster could trick a young person into supporting basically any economic policy in the world with the right combination of triggers. Conservative and liberal partisans can cherry-pick this survey to paint Millennials as whatever ideology they want.

On spending:
Conservatives can say: 65 percent of Millennials would like to cut spending.
Liberals can say: 62 percent would like to spend more on infrastructure and jobs.

On taxes:
Conservatives can say: 58 percent of Millennials want to cut taxes overall.
Liberals can say: 66 percent want to raise taxes on the wealthy.

On government’s role in our lives:
Conservatives can say: 66 percent of Millennials say that “when something is funded by the government, it is usually inefficient and wasteful.”
Liberals can say: More than two-thirds think the government should guarantee food, shelter, and a living wage.

On government size:
Conservatives can say: 57 percent want smaller government with fewer services (if you mention the magic word “taxes”).
Liberals can say: 54 percent want larger government with more services (if you don’t mention “taxes”).

via Millennials’ Political Views Don’t Make Any Sense – The Atlantic and This poll proves that millennials have totally incoherent political views – Vox.

How Al Gore spins global warming

The ancient Greek origins of ostracism

Hypothetical election results if Garth McVicar were leader of the Conservative Party

Colin Craig has resigned as leader of the Conservative Party. If the head of the Sensible Sentencing Trust Garth McVicar succeeded him and he was to win an electorate seat, the table below shows how the NZ Parliament would have changed at the last general election in 2014.

Party name

Party Votes won

Party seat entitlement

No. of electorate seats won

No. of list MPs

Total MPs

  

% of MPs

ACT New Zealand

0.69%

1

1

0

1

 

0.83%

Conservative

3.97%

5

1

4

5

 

4.13%

Green Party

10.70%

13

0

13

13

 

10.74%

Labour Party

25.13%

31

26

5

31

 

25.62%

Māori Party

1.42%

2

1

1

2

 

1.65%

National Party

47.07%

57

41

16

57

 

47.11%

New Zealand First Party

8.66%

11

0

11

11

 

9.09%

United Future

0.22%

0

1

0

1

*

0.83%

Totals

97.86%

120

71

50

121

  

100.00%

If Garth McVicar was to win an electorate seat, and with no other changes in the party vote in the 2014 election, the National Party would have lost three list MPs, the Labour Party one list MP, which was the list seat of its current leader, and the Greens would lose one list MP – that MP supports homoeopathic medicine as a cure for Ebola.

Little wonder that the National Party doesn’t seem to want the Conservative Party in Parliament as the majority of its seats come off their total and every bill in Parliament will depend upon the Conservative Party support unless they can get the Maori party on board. The Maori party votes against the National Party the majority of time in Parliament.

The U.S. bailout barometer.

via The Grumpy Economist: Bailout barometer.

Fidel Castro developed a taste for luxury early

Longest-serving (non-hereditary) world leaders

The MMP what-ifs if Colin Craig been deposed as Conservative Party leader

If Colin Craig is deposed tomorrow as the leader of the Conservative Party of New Zealand, his party will fall apart and run as a rump at the next election. The tables below discuss what might happen to the party vote that drifts back to the major parties with the collapse of the Conservative Party.

Table 1: 2014 general election status quo

Party name Party Votes won Party seat entitlement No. of electorate seats won No. of list MPs Total MPs   % of MPs
ACT New Zealand 0.69% 1 1 0 1   0.83%
Green Party 10.70% 14 0 14 14   11.57%
Labour Party 25.13% 32 27 5 32   26.45%
Māori Party 1.32% 2 1 1 2   1.65%
National Party 47.04% 60 41 19 60   49.59%
New Zealand First Party 8.66% 11 0 11 11   9.09%
United Future 0.22% 0 1 0 1 * 0.83%
Totals 93.76% 120 71 50 121   100.00%

As the table 2 below shows, if about 2% of the party vote of the Conservative party drifts back to National, and 2/10th of a percentage point of that party vote of the Conservative Party going to United Future, the National Party not only wins a majority in Parliament, the overhang in Parliament disappears as well. The United Future Party seat comes off the representation of the Labour Party if its party vote exceeds 0.4%. There are no other changes of note.

Table 2: 2014 general election with Conservative party rump

Party name Party Votes won Party seat entitlement No. of electorate seats won No. of list MPs Total MPs   % of MPs
ACT New Zealand 0.89% 1 1 0 1 0.83%
Green Party 10.70% 13 0 13 13 10.83%
Labour Party 25.43% 31 27 4 31 25.83%
Māori Party 1.32% 2 1 1 2 1.67%
National Party 49.07% 61 41 20 61 50.83%
New Zealand First Party 9.16% 11 0 11 11 9.17%
United Future 0.42% 1 1 0 1 0.83%
Totals 96.99% 120 71 49 120   100.00%

The National Party almost won a majority in the last election so only a small amount of the Conservative Party’s party vote drifting back to it more so than the other parties can boost it to 61 votes and an absolute majority in its own right. Tomorrow is a big day for the future of New Zealand politics and the chances of the Left winning government any time soon.

The costs of teacher tenure in the USA

The opportunity cost of expressive politics: fossil fuels disinvestment versus actually doing something that might help

image

via Divestment and Symbolic Action on Fossil Fuels | The Energy Collective.

Every 20 years we worry about losing jobs to technology

The conservative case against capital punishment – George Will

image

via Capital punishment’s slow death – The Washington Post.

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