Problems with experts, Brian Easton

The New Zealand Tax System: New Zealand Taxes in Comparative Perspective 
Rob Salmond
Institute of Policy Studies, $30.00,
ISBN 9781877347450

 

The New Zealand Economy: An Introduction 
Ralph Lattimore and Shamubeel Eaqub
Auckland University Press, $34.99,
ISBN 9781869404895

 

To begin with the final paragraph of Rob Salmond’s book:

The educational role of experts is important in a democracy because it is the public, via their elected representatives, who are charged with making the final decisions over the experts’ suggestions. The principle of informed consent requires that experts actively inform laypeople before seeking their consent. The tax system ultimately belongs to the citizens, not to the experts. And in order to make that ownership real, experts have a continuing responsibility to make balanced, high quality information about the tax system not just publicly available knowledge; but rather public knowledge.

Alas, experts play a small role in the New Zealand economic debate, which is dominated by politicians – in and out of Parliament – with agendas, and journalists willing to uncritically pass them on. The result is nicely illustrated by a couple of Salmond’s conclusions: “Some people have argued that New Zealand’s consumption tax is smaller than average … that conclusion is misleading at best”, and

Some have suggested that New Zealand’s top income tax was unusually and punishingly high under the previous government. That is incorrect … . In fact, it is the new top tax rate that is unusual for OECD countries. It is unusually low. … [T]he data also reveal New Zealand is an unusually lighter taxer of both corporate dividends and capital gains.

These conclusions are derived from a chapter-by-chapter analysis of various taxes, mainly involving a comparison with other OECD-country rates. It is a tedious exercise, but the conclusion seems to be robust: our tax system does not redistribute spending power as much as most other OECD countries. That is not a complete story, because there are redistributional effects from social security and other government spending (especially on education and health). Probably, we don’t redistribute well through them either. The implications are – I am stretching the book’s findings, but consistently with other research – that New Zealand has long abandoned any pretence of using the government to create an egalitarian society.

How did the egalitarian objective slip away? Answering this is beyond the scope of the study, but the opening chapters provide insights by tracing the workings of the 2025 Taskforce (chaired by Don Brash) and the Tax Working Group (TWG) (chaired by Professor Bob Buckle).

Salmond is dismissive of the Brash Taskforce. Aside from the few who consulted its background papers, its process “added nothing to [the public’s] understanding of how tax in New Zealand compares to tax elsewhere. Given the Taskforce’s first major recommendation was to reform the tax system in dramatic ways, this absence was unhelpful.”

He is more positive about the TWG, which “represents a big step in a good direction for policy making in New Zealand”, because, despite being expert, it had a more open consultative approach. Even so, he thinks there is room for improvement: “The TWG drew its membership from a narrow class of people (mainly academic economists, tax lawyers and accountants, all of whom were men).” Polite company omits to mention that all had incomes in excess of $100,000 a year, which may be why they paid so little attention to the impact of their recommendations on those on lower incomes. Let me instead point out that there was an absence of rural specialists too, and blow-me-down, there wasn’t much TWG sympathy for rural New Zealand’s concerns, either.

That is the problem with experts. They may be more knowledgeable, but they (especially the ones the government consults) hold privileged positions in society. Growing inequality and social heterogeneity mean they are increasingly disconnected from the general masses; the result is divisive recommendations.

Salmond interestingly investigates the reportage of both groups in the New Zealand Herald, using its website (he is a New Zealander based at the University of Michigan). He seems to have missed that most appears on the business pages, which are not well read by even the majority of Herald readers. What the opening paragraph omits is the need for mediators connecting experts and public (although Salmond rightly draws attention to the excellence of Brian Fallows, economics editor of the Herald).

The New Zealand Economy: An Introduction is probably a book more for mediators (columnists and journalists) than the general public, even though the authors say it is “aimed at those who want a pocket guide to the New Zealand economy” – at 210mm by 150mm, one needs a large pocket. (They also say it is “designed as an introductory text … for school and university students”.)

I happen to be writing this review on a day in which the economic headline is “NZ current account deficit worsens”, so let’s test how the book might be used to understand that story. The index tells me there are three pages starting at p27, and a further four pages starting at p79. The first section opens with:

The current account balance measures many of the transactions across New Zealand’s borders. It captures the value of imports and exports, and also some money flows. Conceptually, the current account measures the difference between a nation’s savings and its investments. If investment exceeds savings, then we have to borrow as a nation from overseas.

Totally meaningful to an economist (I promise not to get more complicated), but most readers of this review (only a selection of an educated elite who read NZB) will struggle with the paragraph – even had they read the book’s previous pages, for not all the concepts used here are well-defined earlier, either. This is not a book for general readers.

But suppose you are a journalist who has been asked to write the story up (perhaps just after coming off the front-page story of a “mother jailed seven years for repeatedly abusing child”). You have done a course in economics some years ago – it’s why the chief reporter gave you the story – but it was probably badly taught. Hopefully, this section would prompt some memories from the course, and alert you to snags in the notions the news item is using. A few pages on is a useful graph of the current account deficit as a proportion of GDP (ie aggregate market production) and you might observe that the level (4.3 per cent of GDP) is not too different from a typical level for the last third of a century (although it bobs around from year to year). At this point you will be prepared to go to an expert, although whether you can translate her or him right (or pick their agenda) is another matter.

Fortunately today’s news story is not about the International Investment Position (for you, dear reader, let’s call it how much we owe overseas), which has been preoccupying us in recent years (it influences our international credit rating, the ease with which we can borrow offshore, and interest rates in New Zealand). My hunt through the index proved fruitless. It turns out there is a paragraph and chart (p79) but it’s too dense for non-specialists to make sense of.

So despite its claim, we have to think of the book as having a different – and less modest – objective. It sets out an account of the course and performance of the New Zealand economy since about 1980 written around the notion of New Zealand as a small, open (ie engaged with the international economy) and relatively rich economy.

Now, economists scrap like Kilkenny cats over the narrative and analysis of an economy –  the profession is built around vigorous robust debate – and it is incumbent on me to disagree with authors Ralph Lattimore and Shamubeel Eaqub of the New Zealand Institute of Economic Research. But let’s leave that to another venue. In truth, the core of the profession agrees on about 90 per cent of all things (no one takes the slightest interest when we agree) – my guess is we would mainly disagree about omissions. The account the two authors provide is certainly within that core, so the reader who persists – they would probably have had to have done some preliminary study of economics – will find the book a useful introduction, as promised.

There are two appendices: on technology by Gary Hawke, which will disappoint general readers, and on “City and Globalisation: Is Auckland Special?” by Philip McCann. The introduction describes the latter as the “new topic of economic geography”. Oops, it is about 30 years old, so established that Paul Krugman was awarded the 2008 Nobel memorial prize in economics for his work on it. It may be new to New Zealand and to readers; McCann provides a useful non-technical introduction.

 

Brian Easton is an economic historian and New Zealand Listener columnist. 

 

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