TVNZ asked academics to "fact check" the leaders debate & the academics got it wrong

TVNZ asked academics at the Public Policy Institute at the University of Auckland to "fact check" statements made by the Leaders of Labour and National during the debates. The article does not say who are these academics. They found that Hipkins was right to say inflation is coming down. That's news to me - I thought the Governor of the Reserve Bank and Finance Minister had repeatedly blamed Putin and the weather for our high inflation - do the academics know both will be behaving themselves the next year?

The academics labelled 6 statements by Luxon as either "mostly untrue" or "false" compared to 0 by Hipkins. The "mostly untrue" statement they refer to is as follows:

• Foreign home buyers tax would bring in $750 million (Luxon) - in reality, it is estimated to be about $210 million.

I disagree with the academics understanding of "reality" - the reality they refer to is a non peer-reviewed, non published opinion by a bunch of three folks who asserted the number was more like $210 million - one of authors doesn't have an economics degree and another has been retired for seven years. How on earth can one label National's figures as "mostly untrue" when none of us has much idea where the truth lies on this matter, since it is very difficult to estimate and there is huge margin of error in any measurement?

Of the 5 "false" statements they list, one is about economics, my subject:

• No fruit and veg GST savings will be passed on to customers (Luxon) - Grocery Commissioner will monitor pricing to prevent this.

However the academics are themselves wrong - since the Grocery Commissioner's legal powers to enforce passing on the GST cut only apply when anti-competitive behavior is being practiced. If the elasticity of demand of fruit & veges is very high (that is, even a tiny drop in prices would lead to a large increase in demand) then barely any of the GST cut would be passed on to customers. Hence it is legitimate for Luxon to hold that view, unless the academics can produce evidence of their own elasticity-of-demand estimates across a range of such products that support their view (which they haven't done).

I suggest TVNZ be more careful when it "fact checks" our party Leaders and labels things as "mostly untrue" or "false". The only patently false statement I have heard these past days was the PM stating that the whole 100% tax cut on fruit and veges would be passed onto consumers, because he had appointed a "grocery commissioner". What a porker.

Sources:

https://www.1news.co.nz/2023/09/20/fact-check-leaders-claims-in-the-first-debate-put-to-the-test/

The PM falsely told the AM Show the new Grocery Commissioner can ensure GST cuts are 100% passed on

When questioned by Ryan Bridge about how much of the GST cuts on fruit and vegetables supermarkets would pass on to consumers, Hipkins said he expects it to be 100 percent of the 15 percent coming off fruit and vegetables - despite research from 17 Eurozone countries from 1999 to 2013 showing the pass-through rate on average was 30 percent. Bridge asked if Labour's policy is based on "Chippy trusting the supermarkets", which Hipkins denied. "No... We have a Grocery Commission there to make sure they do. So, a supermarket watchdog who will be able to make sure they do pass through the discounts," the PM said.

The Prime Minister's statement is incorrect. The new Grocery Commissioner, nor Commerce Commission, do not have any powers to force the supermarkets to pass on 100% of the GST cut. Their powers to control supermarkets can only be enacted when they are embarking on anti-competitive behavior - using market power and monopoly pricing. The Beehive stated "Pierre van Heerden has been appointed as the first Grocery Commissioner, in the latest move to improve competition in the sector".

However, even in perfectly competitive markets, if GST is taken off the price of goods and services, then the price will nearly always never fall by anything like the full cut in GST.

If you want the details about this topic, which is called "tax incidence", here is the Khan Academy summary that school children use for their economics classes:

Tax incidence is the manner in which the tax burden is divided between buyers and sellers. The tax incidence depends on the relative price elasticity of supply and demand. When supply is more elastic than demand, buyers bear most of the tax burden. When demand is more elastic than supply, producers bear most of the cost of the tax.

Maybe the PM should be brought back to the AM show to explain how even in highly competitive industries, a GST cut will not be fully passed on. It's not often you can catch out a PM for being factually incorrect, but on this one it would seem we can do so - he has incorrectly linked monopoly power to whether tax cuts are passed on.

Sources:

https://www.newshub.co.nz/home/politics/2023/09/election-2023-labour-leader-chris-hipkins-concerned-supermarkets-not-treating-consumers-well.html

https://www.khanacademy.org/economics-finance-domain/microeconomics/elasticity-tutorial/price-elasticity-tutorial/a/elasticity-and-tax-incidence

https://www.beehive.govt.nz/release/first-grocery-commissioner-appointed-hold-sector-account