FRIDAY GRAPH: TAX RATES AND TAX REVENUE

In a recent article Is ‘Tax the Rich’ Good Policy? (ODT 25 April 2011), I made the point that those in the top income brackets in New Zealand are already taxed relatively heavily by international standards.

I also noted that because cuts to high tax rates encourage economic growth and reduce tax avoidance, they may actually produce more government revenue.

And I quoted President John F Kennedy who said, when cutting US tax rates in the 1960s, “It is a paradoxical truth that tax rates are too high today and tax revenues are too low, and the soundest way to raise revenues in the long run is to cut rates now.”

This chart from Mark Perry’s blog Carpe Diem illustrates these points.

 

As Perry comments:

The chart above shows the relationship over time (from 1979 to 2007) between: a) the top marginal income tax rate, and b) the share of total income taxes paid by the top 1%). In 1979 the top marginal income tax rate was 70% and 18.3% of the total taxes paid were collected from the top 1% of taxpayers. By 2007 the top tax rate was 35% (half of the 1979 rate), and the tax share of the top 1% had more than doubled to 39.5% (from 18.3% in 1979).

The historical record shows an inverse relationship between the highest marginal income tax rate and the share of taxes collected from “the wealthy.” It’s a relationship to keep in mind during the current tax policy debate, where Obama wants to increase tax revenues by raising tax rates for “the rich,” and Rep. Ryan alternatively suggests a cut in the top marginal rate to stimulate economic growth, which would likely increase tax revenues from the wealthy, and increase overall tax revenue.

Note that this is not a Laffer curve argument that tax cuts are self-funding.  Normally they aren’t.  However, the loss of revenue over time from cutting inefficient taxes is less than the initial static loss because they encourage economic growth and expand the tax base.

Note also that higher income people pay more – a lot more – even with a flat or proportional tax.  Leaving aside the likelihood in practice of more favourable treatment for those at the bottom, a person on $25,000 pays $2,500 in tax under a simple flat 10% rate whereas someone on $250,000 pays $25,000.

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COMPULSORY SUPERANNUATION: A POLICY IN SEARCH OF EVIDENCE

This is an interesting article by Brian Toohey, a respected Australian financial journalist.

A school of thought in New Zealand has favoured the adoption of Australia’s compulsory superannuation regime.  But Toohey writes:

To this day, there is still no detailed policy report showing that net economic and social gains flow from forcing employees to hand over a growing slice of their salary to the richly rewarded fund managers in the nation’s booming financial sector.

The union movement in Australia strongly backed the scheme (which has boosted union influence in Australian economic life).  But Toohey writes:

Several younger union officials now say privately that they believe the majority of their members would be better off if compulsory super contributions were paid instead as a normal part of salaries, letting all employees decide how best to allocate their income over the course of their working life …  Some older union officials like to portray money diverted compulsorily to super as a free gift from employers. It is not. It is money that could otherwise be paid as wages – a point that the superannuation minister (and former Australian Workers’ Union secretary) Bill Shorten candidly acknowledges.

This is correct.  Like other non-wage labour costs (such as ACC levies), the initial incidence is on employers but the costs are ultimately borne largely by employees.  (In competitive markets firms have no choice but to shift the burden – they have to maintain returns which cover their cost of capital.)

Toohey reports on recent APRA figures which received wide coverage in Australia:

The Australian Prudential Regulation Authority recently released figures showing that the average nominal annual super fund return over the ten years to 30 June 2011 was a pathetic 3.3 per cent. Given that the average annual increase in the CPI over that period was 3.2 per cent, returns only beat inflation by the slimmest of margins. Australians would have been better off putting their money into government bonds and term deposits, or reducing their mortgage or upgrading their educational qualifications or those of their children.

A corollary of this finding relates to the impact of the scheme on economic growth in Australia.  Some people argue that a similar scheme here would boost growth in New Zealand.  I have never seen any account of Australia’s improved economic performance over the past 25 years that attributes it to compulsory superannuation.  Rather, the main explanation is the economic reforms initiated by the Hawke and Keating governments and carried on by John Howard.  These figures suggest why compulsory savings have not been a significant factor, at least over the past 10 years: the returns to the scheme have been poor and capital has been misallocated.

The Australian Productivity Commission has amplified this point as Toohey notes, saying:

Compulsory saving imposes a deadweight loss as it distorts decisions about which savings vehicles to use, as well as between consumption and savings.  In particular, younger people may be less able to invest in their preferred mode of savings (for example, owning their own home, which is a tax effective savings vehicle and offers social benefits).

There are other drawbacks with compulsory savings.  Toohey notes that fees paid to fund managers and administrators now amount to about $18 billion a year.  Last year it was reported that around $10 billion in superannuation accounts had gone missing – the owners of the lost accounts could not be tracked down.  The legislation backing the scheme has been endlessly tinkered with – over 2000 amendments to it had been made at last count – and further amendments are currently being debated.

Perhaps considerations such as these led the recent Savings Working Group not to recommend a compulsory savings scheme for New Zealand.

The Spirit Level 2

The Sunday-Star Times and journalist Anthony Hubbard in particular appear to have embarked on a crusade against inequality in New Zealand, motivated by the 2009 book The Spirit Level by British academics Richard Wilkinson and Kate Pickett (neither of whom are statisticians or economists).

To read the Sunday Star-Times you would never know that the book has been subject to devastating criticisms.

I had a lengthy blog on the book on 22 December, citing several references.

I also wrote this article which appeared in the Sunday Star-Times of 30 January.

For a biting short summary of some of the criticisms, see this article titled ‘If you want something trashy to read on the beach, I’ve got a recommendation’ by Toby Young in The Spectator of 14 August 2010.

Young refers to a paper by Peter Saunders published by the London think tank Policy Exchange which can be found here.

Saunders writes that the message of The Spirit Level, that redistribution is the cure of most social ills:

… has received an enthusiastic reception from politicians and pundits on the left who believe The Spirit Level offers a rational, evidence-based justification for the radical egalitarianism to which they have long been emotionally committed. However, careful evaluation and analysis shows that very little of Wilkinson and Pickett’s statistical evidence actually stands up, and their causal argument is full of holes.

He goes on to say:

In this report, Wilkinson and Pickett’s empirical claims are critically re-examined using (a) their own data on 23 countries, (b) more up-to-date statistics on a larger sample of 44 countries, and (c) data on the US states. Very few of their empirical claims survive intact.

And Saunders sums up:

This report shows that The Spirit Level has little claim to validity. Its evidence is weak, the analysis is superficial and the theory is unsupported. The book’s growing influence threatens to contaminate an important area of political debate with wonky statistics and spurious correlations. The case for radical income redistribution is no more compelling now than it was before this book was published.

According to a chart in the Sunday Star-Times, Australia comes just under New Zealand on the measure of inequality used.  There seems to be little political support in that country for the kind of redistributive measures advocated by Wilkinson and Pickett: the emphasis is, correctly in my view, on economic reform to lift all incomes.

I agree with Toby Young that the book “belongs in the trash pile”. Others are free to disagree, but if they do it is dishonest not to acknowledge the criticisms and engage with them.

A Perspective on Ireland’s Economy

Philip Lane is Professor of International Macroeconomics at Trinity College Dublin.  He is also a managing editor of the journal Economic Policy, the founder of The Irish Economy blog, and a research fellow of the Centre for Economic Policy Research.  His research interests include financial globalisation, the macroeconomics of exchange rates and capital flows, macroeconomic policy design, European Monetary Union, and the Irish economy.

Last week he visited New Zealand as a guest of the Treasury, the Reserve Bank, and Victoria University.  During his visit he presented this guest lecture on the troubled Irish economy, drawing on his recent report to the Irish Parliament’s finance committee on ‘Macroeconomic Policy and Effective Fiscal and Economic Governance’.

Some highlights from his talk (also reported here by Brian Fallow in the New Zealand Herald) were:

  • Ireland’s is a real depression: 15% fall in GDP 2007-2010
  • The Celtic Tiger 1994-2001 was no mirage
  • The domestic bubble (2003-2007) was partly the result of Ireland’s membership of the Eurozone, which produced interest rates that were too low for a booming economy.  When it burst, the problems were compounded by the global crisis
  • The banking crisis followed.  The excessive government guarantees to subordinated and senior bondholders were a major mistake (although bank shareholders were punished)
  • This precipitated the fiscal crisis, with successive austerity budgets and ultimately the EU/IMF bailout
  • Ireland has ‘bitten the bullet’ with cuts to public spending, wages, the minimum wage and welfare (although the cuts return most payments to around 2006 levels).  This amounts to an ‘internal devaluation’ given the fixed currency, and has boosted prospects for the real economy
  • The consensus in Ireland is to return to the core principles of the ‘Celtic Tiger’ era.

Asked whether Ireland would raise the 12.5% tax rate on inward investment, Professor Lane’s answer was, “never, ever”.

His account of Ireland’s rise and fall contrasts starkly with those of critics who saw Ireland’s predicament as a failure of ‘the neoliberal model’.

An example is this article by New Zealand journalist Alison McCulloch (‘Folly of Tiger is a warning for New Zealand’, New Zealand Herald, 24 April 2010).

I wrote this article in reply but the Herald declined to publish it.

Friday graph: why Ireland is broke

This is a graph courtesy of the Institute of Public Affairs in Melbourne, an impressive Australian thinktank.

It comes from the Irish government’s own 140 page ‘National Recovery Plan‘ published last week.

It is amazing reading.

  • From 2000 to 2009 average public sector salaries increased 59%
  • In 2004, 34% of income earners were exempt from tax. In 2010, 45% were exempt
  • In 2007 property taxes generated 6.7 billion euros.  In 2010 that figure will be 1.6 billion
  • In 2009 interest on government debt was 8% of tax revenues.  In 2014 it will be 20%.

Naysayers try to tell you that the Celtic Tiger was a myth and that free-market policies brought the Irish economy down.

The truth is exactly the opposite.  Liberalisation caused the Irish economy to surge until a return to big government crushed it.  Membership of the eurozone, poor banking regulation and the government guarantee of bank depositors and creditors were also major factors.

I wrote this article on Ireland recently (Otago Daily Times, 5 November 2010).

Watch British MEP Dan Hannan talking about it in the European Parliament below:

Going beyond national standards

Last year I wrote this article, ‘Two Cheers for National Standards’ (Otago Daily Times, 17 July 2009).

I supported the government’s move to introduce standards for literacy and numeracy at primary and intermediate schools, saying:

Such a move is long overdue.  In 1998, the Education Forum, comprising educationists and business sector representatives, published a report Policy Directions for Assessment at the Primary School Level, authored by Professor Alan Smithers, a distinguished British education adviser.

The Forum stated that “it is strongly in favour of national assessment in primary schools.  It fully recognises that accurate information and feedback have a major part to play in improving education performance.”

In effect, the state school system is an enormous government monopoly (which would benefit from competition).   We can’t expect it to perform well without objective performance data.

The article went on to talk about ‘league tables’, judging schools as opposed to students, the flawed outcomes-based curriculum, and the problem of consistent assessment of standards.

I concluded by saying:

Finally, standards are no silver bullet for upgrading education.

Perhaps the most important reform would be moves towards greater parental choice and competition in the system, and greater school autonomy.

Teacher quality (including teacher training, professional development and certification) is also vital, as is how better teachers are rewarded and under-performing teachers dealt with.

But the government’s national standards initiative deserves two cheers.

A recent video from the Cato Institute in Washington helped extend my thinking (the section I’m referring to starts from 5 minutes 30 seconds into the clip).

It was a talk on national education standards by former high school teacher Rep. Rob Bishop (the section I’m referring to starts from about 5 minutes 30 seconds into the clip).

He began by talking about the endless series of education initiatives aimed at dealing with America’s under-performing public schools – the War on Poverty, A Nation at Risk, No Child Left Behind, and now the Obama administration’s Race to the Top.

As with so many fads and fashions in education, none has worked, or worked well.  As Bishop says, the most common reaction of any public school teacher is to think, “This too shall pass”.

He goes on to emphasise the limitations of standards and testing: “education is a subjective area, it is not an objective area.”  Moreover:

You cannot define a good school, you cannot define a good teacher, you cannot define a good education, but you know when you see it.  And as long as parents are satisfied, that ought to be the concept.

Bishop comes down on the side of parental choice – giving parents the freedom to decide where they want to send their children and rewarding schools and teachers accordingly.

He recounts a familiar objection to school choice raised by a state legislator in Georgia:

He said this idea of empowering parents may work but it won’t work in my district because the parents are too dumb.  I thought, but I did not have the guts to say, ‘they elected you didn’t they?’  I am totally opposed to that premise.  Parents are not too dumb.  Parents do care about their kids.  And even if you accepted the premise that parents are too dumb to make these decisions, the state is a poor replacement for the parent.

As far as I’m concerned those are killer arguments.

Going beyond national standards and introducing school choice – funding schools at the different levels (primary, intermediate, secondary) on the same basis according to enrolments – is the next logical education reform.  Two reports by an Inter-Party Working Group released early this year advocated such a move.

It’s not much use parents learning that their children are not achieving national standards if all they can do about it is complain to the school or stand for the board of trustees.

The real way to empower them is to provide them with the option of ‘exit’ as well as ‘voice’: to send their child to another school.  Isn’t that the option people as consumers have in practically every other area of their life?

The ‘Climategate’ Scandal Should Not Be A Surprise

An article I wrote for the Otago Daily Times published today:

Terence Kealey, Vice-Chancellor of the University of Buckingham in Britain, is an interesting and iconoclastic scholar.

A scientist (biochemist) himself, his book The Economic Laws of Scientific Research challenges the idea that science is a public good requiring government subsidies.

Last month I heard Professor Kealey speak at an academic conference in Australia.  His topic was the ‘Climategate’ scandal at the Climatic Research Unit of the University of East Anglia.  Subsequently, other global warming claims have been shown to be flawed, such as the disappearance of glaciers in the Himalayas predicted in the last IPCC report.

Kealey’s basic point was: Why should we be surprised about all this?  The assumption that scientists are always dispassionate seekers after truth is naïve, he argued.

Kealey reminded those who claim a scientific consensus about human-induced global warming of a similar consensus about eugenics – the science of controlled breeding – in the first half of the twentieth century.

We think of eugenics today as one of modern science’s most horrible perversions and associate it with Hitler and Nazism.  But eugenics ideas were once persuasive, as Kealey showed with quotes from well-known authors:

H G Wells (1901): “The swarms of black and brown and dirty-white and yellow people have to go.  It is their portion to die out and disappear.”
D H Lawrence (1921): “Three cheers for the inventors of poison gas.”

And the appalling George Bernard Shaw (1933): “Extermination must be put on a scientific basis if it is ever to be carried out humanely and thoroughly … if we desire a certain type of civilization and culture, we must exterminate the sort of people who do not fit into it.”

Such ‘scientific’ beliefs are dead today, but as Max Planck put it, “A new scientific truth does not triumph by convincing its opponents and making them see the light but rather because its opponents eventually die and a new generation grows up that is familiar with it.”

Kealey illustrated the lengths to which some scientists will go in order to silence ‘sceptics’ by a historical event involving Pythagoras (of the Theorem).
Pythagoras was a good scientist and he revered ‘rational’ numbers (whole numbers or whole fractions).  He believed that whole numbers underpinned the universe, from music to the movement of the planets.

But Pythagoras had a student called Hippasus who discovered that the square root of 2 is not a ‘rational’ number.  It is in fact an ‘irrational’ number and Hippasus showed that irrational numbers can never be definitively calculated.  This proof upset Pythagoras and he asked Hippasus to retract it.  But Hippasus refused, so Pythagoras had him drowned.

Kealey wryly commented, “I think Pythagoras went too far; I think that scientists should desist from killing each other or even from telling outright falsehoods.  But, like advocates in court, scientists can nonetheless be counted on to put forward only one very partial case … and no one should expect a scientist to be anything other than a biased advocate.”

Such partiality has long been a feature of the global warming debate.  One early proponent, the late Stephen Schneider, is notorious for saying, “To capture the public imagination, we have to offer up some scary scenarios, make simplified dramatic statements and little mention of any doubts one might have.  Each of us has to decide the right balance between being effective and being honest.”

Former US Vice-President Al Gore made that approach into an art form.  His film An Inconvenient Truth was found by a British court to contain nine significant errors in a context of “alarmism and exaggeration”.

In a leaked email, Climate Research Unit director Professor Phil Jones, referring to two papers that apparently falsified his work, wrote:  “I can’t see either of these papers being in the next IPCC report.  [New Zealand-born scientist] Kevin Trenberth and I will keep them out somehow – even if we have to redefine what the peer-group literature is!”

Here at home serious questions have been raised about the reliability of NIWA’s posted domestic temperature record – leading NIWA’s board to acknowledge the need to clarify the matter and publish the results.    

The integrity of climate science has taken a hit with Climategate and its sequels.  Scientific academies have been insisting on greater honesty and transparency.

Of course many reputable scientists continue to see a material risk of dangerous manmade warming.  I believe their case needs to be taken seriously – most scientists are honest.  But those in that camp should be the first to denounce exaggerated and erroneous claims by scientists that undermine confidence in their concerns.

On global warming it is nonsense to claim that “the science is settled”.  Scepticism about science is always in order – indeed it is the essence of scientific inquiry.

Will Brian Gaynor See the Light?

Every few weeks, for over a decade, Brian Gaynor writes the same article in Saturday’s New Zealand Herald.

He was at it again last week in this article.

The storyline goes like this: New Zealanders are poor savers, our capital markets are stunted, there should be more NZX listings, and we need more capital market regulation.

Evidence and experience never change this litany.

As I pointed out in this 2007 article, “the McLeod Tax Review of 2001 found that there was no evidence that New Zealanders are poor savers”, and subsequent research by the New Zealand Institute of Economic Research and others has confirmed that finding.

In its 2009 report the Capital Market Development Taskforce gave no credence to the “New Zealanders are poor savers” mantra.

To my knowledge, Brian Gaynor has shown no awareness of these contrary findings, still less attempted to refute them.

On the other hand, as I noted in this 2009 article, the Taskforce found that “factors that better explain the size of our listed markets include the extent of central and local government ownership, of cooperative structures (such as Fonterra), and of investment in branches and subsidiaries by foreign companies.”

The last one at least is not a negative for New Zealand.

Time and again Brian Gaynor has criticised the Business Roundtable for its insistence on proper justification for regulation.  Yet the last government moved to the heavier-handed regulation he favoured in areas such as takeovers, insider trading and disclosure.

But hello!  None of this has arrested the trends in our capital markets which he laments again in his latest article.  Has it occurred to him that he may have been barking up the wrong tree?  Why has he never engaged with opposing views?

Maybe a glimmer of light is shining through.  The article says, “Our political leaders must also stop treating Telecom and other large companies as if they are agents of evil.”

As a friend pointed out to me, “Ten years too late, Brian Gaynor.”

He was nowhere to be seen when the last government’s unbundling decision, which the Business Roundtable and the Shareholders Association publicly criticised, wiped perhaps $3 billion off Telecom’s market capitalisation.

The latest article was motivated by the news of the possible merger between the Singaporean and Australian stock exchanges.

My 2009 article noted that in its Progress Report the Capital Market Development Taskforce said that it “would examine performance indicators of the NZX such as capital raisings, total capitalisation, liquidity and transactions costs.  It is a pity that this work was not taken further: as recently as October the major multinational Rio Tinto delisted, citing ‘increasing listing costs and reporting obligations.’ “

I also said “The report does not discuss the possible case for the NZX merging with another exchange, as some have advocated, and related public policy issues such as shareholding restrictions.”

One will look in vain for discussion of such issues in Brian Gaynor’s columns.  Unless he is finally seeing the light, the New Zealand Herald should hire a market commentator with more informed perspectives.

Black or White: Good Cat is Mouse-Catching

This is an article I wrote for the ODT last week:

Black or White: Good Cat is Mouse-Catching

Some months ago the Sunday Star-Times organised a series of questions to put to the prime minister, John Key, and printed them along with his replies.

This was a worthwhile exercise in open democracy.

My question was along the following lines: “Your predecessor Helen Clark famously declared that the role of government is whatever the government defined it to be.  What is your idea of the proper role of government?”

Mr Key replied that his view was a pragmatic one: the government should do whatever works.

This was a good answer.  It reminded me of the Sichuan proverb: “black or white – good cat is mouse-catching”.  Deng Xiaoping, the Chinese leader who initiated China‘s moves away from a socialist system in the 1970s, adapted it to say that it didn’t matter whether the cat was black or white “as long as it can catch mice”.

Deng’s reforms certainly worked: in a generation they lifted more people out of poverty than ever before in human history.

I agree that public policy should be based on what works for prosperity, liberty and equity.  No one would argue that governments should adopt what doesn’t work.  Hence the need for evidence and analysis to inform policy: for so-called “evidence-based policy making”.

Economics is a discipline that can help inform policy choices.  It is fundamentally an empirical science.  There is no sense in which a policy can be correct in theory but wrong in practice: if the practice goes wrong, the theory is defective (as socialism demonstrated).

Free trade is an example of a policy that is ultimately justified more on practical than theoretical grounds.  To be sure, it rests on the fundamental economic principle of comparative advantage, but there are a number of theoretical arguments for departing from that principle: optimum tariff notions, strategic trade theory, infant industry arguments and the like.

As a matter of policy, however, the vast majority of professional economists put aside these theories as unworkable in practice and come down on the side of free trade.

A similar comment applies to business ownership.  The evidence is now compelling that – not always, but on average and over time – privately owned enterprises out-perform state-owned enterprises (and it is the general outcome that should inform sound public policy).  The reasons for better private sector performance have become well understood but the fundamental argument for privatisation is pragmatic: it generally works.

Likewise, there is a high level of agreement among economists about the potentially harmful effects of minimum wages.  In a paper last year on evidence-based policy-making, the chairman of the Australian Productivity Commission, Gary Banks, cited indigenous leader Noel Pearson (who is giving the Business Roundtable’s annual Sir Ronald Trotter Lecture in Auckland next month).

“[As Pearson affirmed], perhaps the most calamitous and tragic example of all was the extension of ‘equal wages’ to Aboriginal stockmen in the late 1960s.  Despite warnings by some at the time, this apparently well-motivated action led to the majority losing their jobs, driving them and their extended families into townships – ultimately subjecting them to the ravages of passive welfare.”

Of course, facts seldom speak for themselves – they have to be interpreted.  Everyone involved in the debate about public policy argues on the basis of some set of principles or ideas, whether or not they are conscious of them or make them explicit.

This is obviously true of the current government.  For example, the Confidence and Supply Agreement between the National and ACT parties recognises that a commitment “to limited government – government limited to its proper role” will need to be consistently adhered to if the 2025 goal of bridging the income gap with Australia is to be achieved.

‘Limited’ does not mean minimalist – or even necessarily small – government.  It means government focused on roles that economics teaches us governments need to undertake, such as the provision of genuine public goods and a social safety net.

Thus in some circumstances, high levels of spending on, say, national security (a public good) may well be justified.  But if governments go beyond such roles, economic growth and the well-being of the community is jeopardised.

A study for the Treasury suggested that a limited government criterion for public expenditure would normally point to a spending ratio of around 15% of GDP.  Even John Maynard Keynes thought government spending should be no more than 25% of a country’s GDP.  By comparison, government spending at all levels is currently running at around 45% of GDP in New Zealand.

Just as fat and lazy cats are not good mouse-catchers, over-extended and bloated governments are not good for economic growth and prosperity.

The 2025 Taskforce, which derives from the Confidence and Supply Agreement – with its emphasis on the importance of limited government – will no doubt be making that point when it reports later this month.

 

Obsessive Compulsive Disorder

Yesterday I read a commentary in the NZ Herald loaded with erroneous claims about the Education (Freedom of Association) Amendment Bill. It was signed by a group of student association leaders (with a strong vested interest in retention of the status quo) arguing that student association membership should be compulsory.

In fact the case for voluntary student membership (VSM) is overwhelming. The New Zealand Business Roundtable made a submission on the Bill strongly in favour of it. Without delving too deep into the issue here I thought I’d comment on a few of the glaring misconceptions in the piece (placed prominently opposite the editorial page in the Herald).  

The subheading:

Student leaders outline what is wrong with Act’s bid to make association membership voluntary

The signatories are not student leaders, they are students’ association leaders elected by a tiny minority of students (typically 5-10%). The vast majority of students would not be able to name their association leader. A 5-10% voter turn-out does not give anyone a mandate as a leader.

The decision of National members of a parliamentary select committee to ignore tertiary institutions, students and the public by supporting an Act bill to impose voluntary student membership on students’ associations is disgraceful.

‘Impose voluntary’ is an oxymoron. Impose means being forced to do something. Voluntary is the ability to choose. This Bill would give students the opportunity to choose whether or not they want to belong to an association.

Students don’t want this. Tertiary institutions don’t want this. The committee received 4837 submissions on the bill, with an overwhelming 98 per cent opposed.

The number of submissions, for or against, is not an accurate representation of how students think. If only 5-10% of students bother to vote in the students’ association elections, you would hardly expect a tidal wave of written submissions (which aren’t compulsory like essays or association membership). You would, however, expect organised association representatives and employees with a vested interest to submit en masse.  The idea that trade union membership should be made compulsory if most submissions to a select committee favoured it doesn’t pass the laugh test.

If it is a decision made on the principle of freedom of association, it is flawed. Students have less choice; they will no longer be able to come together as a universal collective.

How absurd. Under VSM, students can still join an association to come together as a collective if they choose. And when have students ever come together universally? On any issue there will be differences of opinion among students. Accordingly, under freedom of association, students can form groups, unions and associations on issues of concern of their choice.

Students’ associations nationwide work hard for students. They provide vital services such as welfare, representation and advocacy for students who cannot make ends meet, have problems with a landlord or need help resolving a grievance.

If that is the case then there is no reason why students presented with the information would not choose to join an association. Unfortunately though, student unions are often notoriously badly run – see Victoria University law student Jenna Raeburn’s excellent submission for examples.

As a direct result of the passage of this legislation, students will see an increase in costs as tertiary institutions scramble to introduce services that all stakeholders consider essential.

All stakeholders? Union leaders do not represent the views of all students who are the most important stakeholders. New Zealand taxpayers are also stakeholders because they subsidise tertiary education, and it is likely that taxpayers, and students, would consider many of the ‘services’ provided by associations as non-essential if not wasteful. For example, I understand that 70% of the 2009 VUWSA budget comprised administration costs. Furthermore, some services could be sold or contracted out and it is likely that in general costs would go down.

The current law is flexible and inclusive. It does not breach freedom of association, as students have a choice whether to join their associations, both on a collective level through a referendum and an individual level through opt-out provisions.

A collective referendum does not provide freedom of association. That would be akin to forcing all New Zealanders to join the National Party – if a majority of people voted to in a nationwide referendum. The ‘opt-out provisions’ consist of exemptions on religious or ethical grounds, but the membership fee must still be paid and goes to a charity of the students’ association’s choice – so the association still controls the membership fee.  Hardly freedom of association. 

All workers in New Zealand (except under exceptional circumstances eg consumer protection in the case of professions such as medicine) are rightly entitled to freedom of association, yet currently students are subjected to compulsory union membership. VSM is a no-brainer.

David Farrar blogs on this here