Jack M.

A: Hi Jack,

I’ve also just returned from Australia (I wrote about it here) and I noticed the same thing.

There’s one interesting possible reason for the cheaper pub prices, which becomes more obvious if you go to an Aussie bottleshop to buy beer to drink at the hotel.

In New Zealand, alcohol excise tax is uniform – ie the same regardless of where you buy the booze.

But in Australia, the tax is weighted in favour of drinking in pubs.

In Australia, draught beer – from a keg – is taxed at A$43.49 per litre of pure alcohol but with the first 1.15% (ABV) tax-free.

In comparison, beer from a licensed premise is taxed at A$63.75 (also with the first 1.15% ABV tax-free).

In New Zealand, beer, in the 2.5–6% range, regardless of where you buy it, is taxed at $38.999 per litre of pure alcohol as of July 1, 2026 (up from $37.836).

In maths we can actually relate to, that’s not as big a difference as you might think.

It equates to about 98c tax on a 500ml glass of 5% beer in New Zealand and A84c for the same glass in Australia.

When we currency-adjust, it drops to just 4c cheaper on tax in New Zealand, which is negligible.

But I reckon (might as well have a reckon as we’re at the pub) the different tax treatment still makes a material difference.

That’s where behavioural economics comes in.

Price drives behaviour and price relativity often has an outsized effect on that behaviour.

Australia has a stronger pub culture than New Zealand that is aided and abetted by tax treatment that favours drinking out over drinking at home.

That means fuller pubs. More competition and higher turnover, respectively, force and enable pubs to keep their margins lower.

It might seem like a marginal tax difference on every pint, but at a macro level over time, it makes a material difference.

That’s why good tax settings matter in an economy.

We should encourage behaviour we want to see with lower tax and discourage with higher tax.

Hospitality lobby groups in New Zealand would like to see something similar to the Australian system.

Get the punters in

There is an argument that we should encourage social drinking in public bars where consumption is monitored by professionals and where the police can keep an eye on things.

It’s also good for the hospitality sector financially and helps maintain the vitality of our cities.

You only have to glance at the headlines over the past year to see the sorry procession of hospitality sector liquidations in New Zealand.

Local bars are caught in a bind between the prices they need to charge to cover costs and high prices deterring punters – who are presumably opting to drink more at home.

It’s not a unique story. The same issue has plagued the pub scene in the UK.

New Prime Minister Andy Burnham – a self-proclaimed champion of live music – has responded by announcing that pubs, social clubs and live music venues in England will get a 20% cut to their business rates from April.

He’s paying for it by hitting vape shops harder.

With much discussion about the sorry state of the Auckland and Wellington city centres in recent weeks, I think it is worth noting just how much a thriving hospitality sector can underpin and drive wider confidence and good feeling about an economy.

As the downturn drags on, I think local political parties should be looking at policy options to help save our hospitality sector.

We’ll miss it if we lose it.

Could GST replace the OCR?

Q: Hello Liam,

Could you explore why the Reserve Bank increases interest rates for mortgage holders to try to decrease inflation?

This seems a silly way to go, because it will take up to one year to affect some people and could take up to five years to affect everyone.

Would it not be far better for a Government to give control of GST to the Reserve Bank?

First, any change would be effective immediately. Second, any change would affect everyone.

Third, the Government would get the benefit of the tax rather than the Banks’ increased interest.

Fourth, it would probably need only a small shift to be effective, ie a point something, 0.01.

And maybe last, the Government could claim to be at arm’s length from any tax increase. Perhaps you could comment in a column.

Regards,

Selwyn Old.

A: Hi Selwyn, this idea comes up from time to time largely because monetary policy can seem so blunt and (as you point out) slow to work.

There are a few reasons why it wouldn’t be a simple fix.

The first is that outsourcing the ability to set tax rates to a non-democratically elected entity would be politically controversial.

Many people see fiscal policy as the preserve of government as it is potentially a bigger lever to pull than the Official Cash Rate (OCR) settings.

But if we got over that, there are still some hurdles.

One is the complexity of administration.

The OCR sets the whole lending rate in an arcane way with overnight settlement rates that banks rely on to balance their accounts each day.

It has a very real impact on borrowing costs but doesn’t trouble people with constant change at a retail level.

It would be a lot to ask all retailers to adjust their pricing every time the Reserve Bank made a new call – and a lot for consumers to process.

Another issue is that while raising and lowering retail prices might control money supply, it would miss two important channels that also drive price-setting behaviour.

OCR moves work partly through household debt-servicing costs, but a big part of the transmission mechanism in a small, open economy like New Zealand is the exchange rate. Higher rates attract capital, lift the New Zealand dollar and make imports cheaper.

They also affect asset prices and have wealth effects with regard to housing in particular. GST touches none of that.

Finally, there’s an equity issue with GST too.

It is a regressive tax. While it affects everyone, it is much tougher on low-income earners, who have to spend all their wages to survive.

They are effectively being taxed more on 100% of their disposable income.

For the record, I’ve seen a similar idea pitched around adjusting KiwiSaver rates (presumably if it was compulsory).

In that case, you’d also be lifting or lowering the amount of money people had available for spending, but they’d save more when the rate rose, so wouldn’t lose in the long run.

But I think it runs into similar issues.

As flawed as monetary policy can seem, it works because it is very simple and deals with money supply at its source.

Managed fund fees

Q: Hi Liam, I have a query around the validity of the returns claimed by the managed fund industry.

I will begin with a confession; for decades I have been a dedicated DIYer and I accept the frailties and failures that ensue.

I do it because I love it and because I keep the dividends.

But so do the managed fund managers; therefore, whatever sum you invest with them each year, you are also giving them anything from, say, 3% to 7%, depending on where they invest. More if they are clever enough to dividend-strip.

When they claim to have increased your pile by, say, 9%, perhaps less than half is due to their efforts.

Sometimes they lose money. That is all of your dividends and some of your capital.

I think they should be more honest, and the law should require them to be so.

Best wishes,

Clive W.

Hi Clive,

The dividends earned in managed funds do tend to be reinvested into the fund – boosting overall growth.

I suppose you could argue that it inflates the returns relative to how much capital gain the fund has delivered via stock picking.

But I don’t think it invalidates the fund’s performance.

Many funds – especially more balanced ones – make a point of choosing stocks with good, stable dividends to provide security and stability as opposed to growth.

What’s important is that the fund managers clearly disclose the risk profile, ie whether it is a growth fund or a balanced or conservative fund.

They also need to look at the weighting of equities versus bonds etc.

Generally speaking, the more conservative and less active a fund is, the lower the fees should be.

Anyway, I’m all for good disclosure and for people doing their research before they invest.

While there may have been issues in the past, I actually think the industry is pretty good these days.

The latest Financial Markets Authority (FMA) KiwiSaver Annual Report concludes that fees have broadly been tracking down since about 2013.

It notes that fees as a proportion of funds under management declined from approximately 1.10% in 2012 to around 0.71% by 2023, where they have since stabilised.

The FMA makes the point that the law requires fees to be “reasonable”.

“The FMA considers that what is reasonable will depend on what value a KiwiSaver member receives in return for the fees they pay.”

You’re paying for a service. That service might be stock picking and market-beating returns or might just be the administrative chore of getting someone else to handle the investment.

The key really is transparency.

Beyond that, sometimes the actively managed growth funds outperform the market and justify their higher fees.

Sometimes it seems like passive funds – that just track the wider market – do the job just as well for lower fees.

That debate has raged for years.

If you want to compare the performance of managed funds, I recommend Sorted.org – which has a great online tool for looking at both KiwiSaver and other managed funds: https://www.smartinvestor.sorted.org.nz/kiwisaver-and-managed-funds/

ASB chief economist takes up Government role

ASB chief economist Nick Tuffley has stepped away from the bank for six months to take up a short-term secondment to the Department of the Prime Minister and Cabinet.

In a note to his contacts, Tuffley described the move as “part of private and public sector talent mobility, giving me an opportunity to share economic expertise and contribute to the work of the public service while gaining insight into the public sector and machinery of government”.

It follows a similar move by Westpac chief economist Dominick Stevens, who took a secondment to Treasury in 2021. Stevens ended up staying and is still with Treasury as its chief economic advisor.

Meanwhile, Kim Mundy will act as ASB chief economist until January 2027.

Don’t forget to check out the Herald’s new podcast, The Economy of Everything, with Liam Dann and Tamsyn Parker – thanks to CMC Markets.

Liam Dann is business editor-at-large for the New Zealand Herald**. He is a senior writer and columnist, and also presents and produces videos and podcasts. **

For a step-by-step guide, click here. If you have a burning question about the quirks or intricacies of economics send it to liam.dann@nzherald.co.nz or leave a message in the comments section.