Free Thoughts - Revealing moments: Labour

'Free Thoughts' is a new blog series from ACT Leader David Seymour. Unlike 'Free Press', this series will focus on one issue at a time and will be sent out as events occur throughout the year, rather than on a specific day every week. You can unsubscribe from this newsletter using the link at the bottom of the email.

Revealing moments: Labour

When a politician reaches for some information to score a point against political opponents, it pays to check for consistency with other policy positions.

A recent example from the Labour Party was revealing.

Labour members have been busy attempting to look furious that the government has not reduced ACC levy rates as much as possible. They think the government is playing politics on this issue.

Well what do they expect?

ACC is a government agency – of course it’s a political football. That’s what happens with government agencies.

Labour have treated ACC that way for years.

You shouldn’t be surprised when politicians set ACC levies for political reasons. If you don’t like that – and the ACT Party certainly does not - you shouldn’t have these organisations as government agencies.

Monetary policy was a political football until we took it away from politicians and gave the Reserve Bank independent powers.

The solution is for ACC to be forced to compete with other insurers. And then the smart thing to do would be to sell it.

Then prices will adjust according to market conditions, rather than according to the whims of the government of the day.

So, this is all politics as usual.

But the really interesting thing about the focus on ACC, is that the Labour Leader has been making ACT-style arguments about the costs of not reducing what is, in effect, a tax.

Might the Labour Party be getting rational at last about economics and about incentives?

Labour members have been arguing that the ACC levies are set too high, by up to $350 million a year.

Labour commissioned economic analysis from Infometrics. This analysis used Treasury’s Cost-Benefit Analysis Primer assessment of a deadweight cost of taxation of 20%. Using that estimate, and running the foregone income through input-output tables, produces an estimate of almost 700 jobs lost as a result of not cutting this levy/tax more than planned.

So Labour have now signed up to standard economic analysis acknowledging the substantial cost of taxation. When you raise $100 additional revenue through taxation you better spend it wisely, because it has cost the economy (all of us) an extra $20 to raise it. If you only get $100 in value from the spending, you have wasted $20.

Remember this every time politicians advocate high taxes.

In fact, remember this when Labour advocate spending more – the tax burden is ultimately what government spends.

We all know how to multiply spending proposals by 0.2 to get an estimate of the deadweight costs of the policy.

Will Labour members continue with this commendable effort to apply economic analysis to their tax and spending proposals?

I suspect not. As Winston Churchill once remarked, men occasionally stumble over the truth, but most of them pick themselves up and hurry off as if nothing had happened.

David Seymour
ACT Party Leader

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