Terrorist attacks and tourism

Who pays income tax in New Zealand, and how much?

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Where does the New Zealand government spend its money?

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The different types of authoritarian personalities

All in less cash transfers average income tax rates at average wage, USA, UK, Australia and New Zealand

Figure 1: All in less cash transfers average income tax rates at average wage, 2014

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Source: OECD tax database

HL Mencken on the Harmful Digital Communication Bill

Greenpeace protesters no longer have fire in their bellies

More heat than light in the recent inequality debate

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What Percentage of Your Country Smokes Marijuana?

"You didn’t build that" – which of sport superstars, celebrities and top CEOs earn their pay more?

Defenders have also pointed to the pay of pro ballplayers or Hollywood stars, but they do not determine their own pay (as CEOs do) and are paid based on performance. Once they begin to fail, they are dumped. By contrast, CEO pay isn’t tied to performance in any meaningful way.

Bruce Murphy – The Incredible Rise of CEO Pay

It’s a big concession to say that athletes and celebrities earn their pay but top CEOs don’t. Most of all, that concession changes the case against the top 1% from inequality to just desert – a big shift in theories of distributive justice. It’s also a big risk to base the argument for greater equality and a 80% top tax rate not only on the excesses of CEOs but on the very specific and testable hypothesis that these CEOs determine their own pay.

if we are to look at CEOs, top athletes and Hollywood celebrities, it is the athletes and celebrities who benefited the most from the windfall of been able to service huge markets through the global media market.

Figure 1: CEO pay and share market performance

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Source:  Economic Policy Institute.

CEOs actually have to run large complex companies to earn their pay, which is why their compensation tracks the share market relatively closely. Athletes and celebrities don’t do that what they do any better than in the past. They simply do it in front of a global media market. Since the late 1970s, the ratio of average pay of CEOs of large public companies to the average market value of those companies has stayed relatively constant: CEO pay grew hand in hand with corporations.

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Steven Kaplan and Joshua Rauh make a number of basic points backed up by detailed evidence about CEO pay:

  • While top CEO pay has increased, so has the pay of private company executives and hedge fund and private equity investors;
  • ICT advances increase the pay of many – of professional athletes (technology increases their marginal product by allowing them to reach more consumers), Wall Street investors (technology allows them to acquire information and trade large amounts more easily), CEOs and technology entrepreneurs in the Forbes 400; and
  • Technology allows top executives and financiers to manage larger organizations and asset pools  – a loosening of social norms and a lack of independent control of CEO pacesetting does not explain similar increases in pay for private companies–  technology explains it;

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To put it simply:

If the reason for growth of incomes at the very top is, say, managerial power in publicly owned companies, then one would expect the increases in income at the top levels to be much larger for that group.

But the breadth of the occupations that have seen a rise in top income levels is much more consistent with the argument that the increase in “superstar” pay (or pay at the top) has been driven by the growth of information and communications technology, and the ways this technology allows individuals with particular skills that are in high demand to expand the scale of their performance.

As for the turnover argument, that underperforming athletes and celebrities are dropped, prior to the GFC, CEO turnover was already on the rise:

Turnover is 14.9% from 1992 to 2005, implying an average tenure as CEO of less than seven years. In the more recent period since 1998, total CEO turnover increases to 16.5%, implying an average tenure of just over six years.

Internal turnover is significantly related to three components of firm performance – performance relative to industry, industry performance relative to the overall market, and the performance of the overall stock market.

Only 21.3% of CEOs in 1992 remained in that role in 1999; only 16.35% of CEOS on the job in 2000 were there in 2007. In any given year, one out of six Fortune 500 CEOs loses their jobs, compared to one out of 10 in the 1970s.

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Dirk Jenter and Fadi Kanaan in a study of of 3,365 CEO turnovers from 1993 to 2009 found that:

CEOs are significantly more likely to be dismissed from their jobs after bad industry and, to a lesser extent, after bad market performance. A decline in industry performance from the 90th to the 10thpercentile doubles the probability of a forced CEO turnover.

In another study, Kaplan found that average CEO pay increased substantially during the 1990s, but declined by more than 30% from peak levels reached around 2000.

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In addition, private company executives have seen their pay increase by at least as much as public companies. Private company executives with fewer agency problems have increased by more than public company executives. To close with another quote from Kaplan:

The point of these comparisons is to confirm that while public company CEOs earn a great deal, they are not unique. Other groups with similar backgrounds–private company executives, corporate lawyers, hedge fund investors, private equity investors and others—have seen significant pay increases where there is a competitive market for talent and managerial power problems are absent.

Again, if one uses evidence of higher CEO pay as evidence of managerial power or capture, one must also explain why these professional groups have had a similar or even higher growth in pay. It seems more likely that a meaningful portion of the increase in CEO pay has been driven by market forces as well.

The Green vote drops 30% after going into government

The Australian Greens suffered dramatic drops in their vote when they got anywhere near the reins of power.

First consider the Tasmanian Greens. They were in a confidence and supply agreement in 1989 in the Tasmanian House of Assembly and then Cabinet ministers from 2010.

As Figure 1 shows, the Green primary vote dropped dramatically after each spell near power – from 21.6% to 13.8%.

Figure 1: Tasmanian Greens primary vote, House of Assembly

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The Australian Greens suffered the same fate when they entered into a confidence and supply agreement after the 2011 Australian Federal Election. Figure 2 shows that their vote dropped by 1/3rd.

Figure 2: Australian Greens Senate primary vote

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What lessons does this have for the New Zealand Greens and their ambitions for Cabinet portfolios after the 2017 election? Figure 3 shows of their part vote only got a comfortable distance from the 5% minimum threshold for list MPs after Labour lost power and popularity after the 2008 election.

Figure 3: New Zealand Greens party vote

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In the 2005 election, the Green party vote was below 5% at the end of election night after rose above that after early and postal votes were count P.

Part of the boost in the vote of the Greens in the 2008 and 2011 New Zealand general elections can be explained by grumpy Labour voters going elsewhere while waiting the call home to a credible Labour government in waiting.

The Greens need to buy an insurance policy and win an electorate seat such as Wellington Central where their new leader James Shaw stood at the last election. The Labour Party came third in the party vote last time but won the seat comfortably because the Greens chose not to seek the electoral vote.

Tertiary education attainment of young adults in Australia, New Zealand, USA, UK and Canada, 2000 and 2011

Figure 1: tertiary educational attainment of adults aged 25 to 34 in Australia, New Zealand, USA, UK and Canada, 2000 and 2011

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Source: OECD Factbook.

How fainting couch feminism threatens freedom

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.

% of children living with 2 parents

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