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  • rmacculloch

Tax Russian imports to NZ - don't make them illegal.

Our Parliament has unanimously passed the historic “Russia Sanctions Act" which provides a broad legal framework enabling NZ to impose economic sanctions targeting specific people, as well as companies, assets & services involved with Russia’s aggression.


“The Act means we could for example, stop the purchase or sale of property, the movement of ships and planes in NZ’s waters or airspace, stop imports & exports, lending of money, or the movement of money", says the Beehive.


However, Ricardo Hausman at Harvard University makes a great argument that there's a better policy when it comes to many Russian imports: tax them. He singles out putting a punitive tax on Russian oil. Provided there are close substitutes available on offer for local consumers (and in the case of oil one can easily buy from other suppliers) then Russian producers wouldn't be able to raise prices & so would bear the full amount of the tax. It would come out of their profits. Economists refer to this situation as being one where the "elasticity of demand" for the product is high.


Let's take a local example of a Russian product that (used to be) stocked in our shops, namely vodka. Assume that punitively taxing imports of Russian vodka would not increase its price in NZ. And there's good reason to believe that it would not: if Russian producers tried to put the price up, Kiwis could just buy another brand (like 42 below) which is made locally.


In other words, the implications of punitively taxing Russian vodka (& other such imports) would be that NZ gains tax revenues, paid for by Russian businesses. We could appropriate money away from Russia's war effort & use it for our own purposes! All whilst Kiwis still enjoy drinking their vodka, should we so wish.


Better than cutting off your nose to spite your face, which sanctions often do, since they can also harm the country which is implementing them.


Sources:

https://www.beehive.govt.nz/release/new-zealand-passes-historic-russia-sanctions-act


https://www.project-syndicate.org/commentary/case-for-punitive-tax-on-russian-oil-by-ricardo-hausmann-2022-02