Excise

Agreeing with Soper twice in a week

It is a red letter day when I agree with Barry Soper twice in a week.

Today he lambasts the government for their plain packaging nanny-statism:

There was a time that Parliament resembled an opium den, so thick was the smoke around the place. It was virtually compulsory to smoke everywhere, the debating chamber, select committee rooms and Bellamys was always acrid with smoke.

But suddenly smoking became untrendy. There were howls of derision when the final bastion of the butt, Bellamys was declared smoke free and the smoking stalwarts were forced into the Wellington wind to try and strike up. In recent weeks even that’s been banned, from the front forecourt of Parliament anyway.

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Had the government not slapped retrospective duties onto the oil companies, you and I might be enjoying cheaper petrol now

Don’t you just love politicians.

The price of oil has halved in the last year, but petrol prices are only down about 10 per cent. Why hasn’t the price of petrol fallen more?

Just because the price of oil has halved does not mean the price of refined petrol has, and the New Zealand dollar is substantially weaker now than it was a year ago, offsetting some of the cheaper product price. The operating costs of the companies do not fall in line with the oil price either. On top of that, the margins charged on petrol are climbing.

But the real reason prices cannot halve, under almost any circumstance, is tax. Based on the “national price” of regular petrol, currently $1.959 a litre, about 96 cents of what we pay is tax of one form or another. Worse still, most of it is fixed, meaning as the price of refined petrol falls, it is only the GST component of petrol which also drops. Put another way, in the event that petrol companies were effectively charging nothing for the fuel, motorists would still pay about 77c a litre, mostly in excise and GST. This includes 10c a litre of GST charged on excise tax, meaning motorists are paying a tax on a tax.

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Eric Crampton on the economics of Cannabis

Ballot Measures

Eric Crampton has written an article for NBR on the economics of cannabis.

Business Insider has a great write-up on Colorado’s legalised marijuana markets. Currently restricted to medical marijuana sold through dispensaries, recreational use without prescription will be legal and anyone will be able to purchase from the dispensaries. They’re expecting to raise $130m in taxes, although the tax mechanism is rather opaque. IRS won’t let you take business deductions on things it deems illegal, even if the State is cool with it.

I read the story through an Austrian entrepreneurial-discovery lens. We always have a path to some new equilibrium rather than simple blackboard comparative statics. Business Insider details the mistakes made along the way. Because the regulations effectively required vertical integration of dispensaries with growers, businesses needed a combination of a business-type to provide financing and run retail, and a former basement grower who knew how to grow.  Read more »