Thursday, July 22, 2010

Post 555

From the euroblog circuit: EU arbiter upholds the decision of a Dutch court to prevent coffee shops from selling to foreigners. (I'd like to see them try to enforce it, by the way, and then see what happens to tourist revenue.) My response: I understand why, to overturn the decision would effectively open up the Common Market for free trade in cannabis, but in a general legislative sense it's still Wrong(tm). In fact, it's legally tantamount to Denmark preventing its newspapers from publishing Muhammed cartoons drawn by exiled Iranians.

Because in both cases, it's being done to prevent visitors to your country from being stoned to death.

(Badum-tscht. Look, it was either this, or put that joke in my standup routine, and those people are actually paying for a ticket.)

Disclaimer: My personal position on weed is that as long as alcohol and tobacco are legal, banning soft drugs is just disingenuous; and empirically, people get into far less trouble on weed than they do on Jägermeister.

Monday, July 19, 2010

Fractions and domains

One and a half big story in Estonia these days, of some interest, at least in a "what are these people thinking?" sense.

First, we finally got the final word on Euro accession, and the tinfoil hat brigade which refused to believe that the exchange rate will stick (it did, 15.6466 - no change since 1992) are now screaming about the inevitable price increase due to everyone rounding the prices up to the nearest full Euro amount.

The first relevant point is one that I've actually made in my standup comedy routine (to very few laughs): this may be true, but it's a stupid argument. Over the last, what, five years, Estonia's been through a boom, a bust, tax hikes, oil at $150 a barrel, and twenty-percent unemployment. Worrying to this degree about the rounding is about as useful as worrying about cancer when you live in Haiti. You're not wrong, but you've got far more immediate problems to worry about.

The second point is that this is as good an example of a self-fulfilling prophecy as you can have. Shops and restaurants are not stupid, at least not the successful ones. Prices will rise to the level that people are willing to pay for them. (I've talked about this as far back as 2007; probably earlier still, just can't find it right now.) Competition between big supermarkets may keep margins on food low (but won't, necessarily, see this Ekspress article for insight). Even then, any opportunity to raise prices will be seized upon. The only barrier to this is the consumer's inability or unwillingness to pay the asking price. Enough downward pressure can result in prices being lowered - that's how we ended up with actual deflation in 2009 - but if the consumer is expecting the shops to raise prices, and is prepared for this mentally, then naturally the shops will do just that. They'd be fools not to. Especially in a case like this, when the blame and the bad will is not actually directed at the shops, but at the government.

Don't like that Vapiano raised prices from 60 to 62 kroons? Don't eat there. Don't like that the loaf of Rimi bread which cost 15 kroons yesterday is 15.65 now? I'm quite sure Säästumarket would greatly appreciate your patronage. (Wait, Säästumarket is owned by the same company as Rimi. Try Konsum or Prisma, they're at least roughly based on Estonian capital.)

Now, the reason why so many Estonians are so convinced of the inevitable rounding-up is because they are entirely unused to the value of currency fractions. The smallest Estonian bill is 2 EEK, and that one actually sees a lot of use. Fractal prices exist, but you either pay by card and don't notice, or you get a small number of sent coins. Which you either recycle quickly without ending up with a big pile of metal, or you just dump into a jar at home. (For an interesting analogy look at Sweden, which has a small-value currency and prices roughly numerically the same as ours, but the smallest coin they have is half a kronor. Even that one you'll almost never see if you're a tourist.)

Estonians don't expect europennies to be worthwhile, but they are, and the Eurozone gets away with fractal prices quite nicely. Just today I paid 5.90 EUR to get from downtown Helsinki to the airport. Hell, look at Latvians: their currency is denominated at about a Euro and a half (originally priced at parity to GBP, but pegged to the Euro), and the smallest paper bill they have is 5 Ls - about 130 EEK. You talk to Latvians about rounding all the prices up to the nearest Lat and see how fast you can run.

OK, second story: Estonia has recently liberated what is known as a ccTLD - Country Code Top Level Domain. The right to have your website named, essentially. Previously only legal entities, companies, could get a .ee address, for free, and only one. Individuals could get a address, which was supposed to be the equivalent of, but never caught on. Now .ee domains are available to anyone (I just registered and, so don't even think about it, you bastards), but at a price. 20 Euro or so per year. This has gotten a lot of people so riled up that they actually started a petition.

Now, to be fair, a lot of their gripes are with the way the domain reform was conducted. Apparently there was a lot of incompetence and impropriety involved, and I have no cause to doubt them on this part. What does surprise me is the amount of piss and vinegar being spewed about, on the count of the domain's price.

Yes, 20 Euro per year is higher than any other ccTLD in Europe, and the price has not been meaningfully justified. But this is still a trivial sum for any project being pursued by anyone, even an individual, with any vigor. I suspect has gotten me more free pints than 20 Euros' worth per year, and I don't even own!
Now excuse me while I go drink red wine and stare at the Bosphorus.

Sunday, July 11, 2010

Courtesy Louis Zezeran. Downtown Helsinki.

Thursday, July 01, 2010

Ligi on Taxes, Benefits, and the Exchange Rate

Via Urmas Aunin, a link to an excellent interview with finance minister Jürgen Ligi at the Eesti Päevaleht newspaper.

Extracts translated by yours truly.


Q: What will be the ultimate exchange rate between the kroon and the Euro?

A: [...]Do you think I would dare return to Estonia if I announced on July 13th that the exchange rate will not be 15,6466? That we decided to make it cheaper... Do I look suicidal?

Q: When will the pensions start growing? When will the teachers' salaries go up? When will the doctors' salaries go up?

A: When we start earning more.

Q: [...]So teachers and doctors shouldn't hope for raises in 2011.

A: No, they shouldn't. We're actually quite happy that the decline is over, and we'll be licking our wounds for a while.

Q: But are there any cuts coming in these areas?

A: No, there really aren't. I can't see any sensitive cuts coming, those have already been made. Of course, a lot depends on how quickly employment recovers. Too fast a recovery is not good, that would mean that structural improvements have not been thorough.

Q: For ten years, there's been talk of necessity-based social benefits. Any progress there?

A: That's the political process for you, common sense does not prevail. When you talk about [free school lunches], some people will think that it's a fundamental question in education. I say, my child doesn't need it. It's embarassing for me to use it. I didn't get this freebie in my time, we didn't get the freebie during socialism.

Now, some people will cry that saving money on children is unthinkable. Let's just admit that a child is primarily the responsibility of the parent, and the areas where we really do pay out massively are specific services: education, healthcare, after-school activities. But food and clothes... Most parents, taxpayers, should be making that choice for themselves.

That's just one example. Look at the 300-kroon child benefit, that's not very necessary. When we start looking at how much good it's actually doing, the real value is quite modest.

Q: When you talk about unnecessary [tax] exceptions, do you mean VAT discounts as well?

A: Yes. Tax discounts create a potential for corruption. It is an extremely expensive way for politicians to gather popularity. At the same time, they have no social justification, as they benefit those who consume more, and buy more expensive goods. There is no economic justification either.

Tax exceptions are justifiable in the case of medical drugs. These are goods with a controlled usage, and largely paid for by the state anyway. Tourism too, to some degree, since there you are talking about exports, and by definition exports have a zero tax rate, so the discounted rate there is understandable.

[...]This is a Pandora's box, and there are attempts to close it at the European level as well. VAT should be a neutral tax, applied irrespectively of the type of goods, and without scheming for preferences. That's how it was intended, it's just that different countries have historical privileges that are very hard to get rid of.

At the same time, I want to say that in the short term you will not be hearing any news on this issue. Don't misunderstand. To repeat one more time - there are no tax increases planned. I would love to get rid of the exceptions, but I don't have the power to do that. The finance minister does not have the political support.

Q: Are there any realistic opportunities for taxes to go down any time soon? Even people who otherwise have no love for Reform Party policies admit that labour taxes in Estonia are too high.

A: On the one hand I agree that the labour tax burden is too high, but usually the people who speak out about it leave out the hidden tax burden of other states - things such as contributions to various funds.

In terms of competitiveness, we need to reduce labour taxes, and in social terms, the tax-free wage minimum is understandable, but in economic terms what actually matters is the upper limit. Very good specialists cannot be paying the full measure of social tax, as they will never use even a fraction of what they pay in. The social tax ceiling is one issue on which we have to decide.

Q: Understanding is one thing, but I asked about political opportunities: are tax cuts coming?

A: Doesn't look that way. The budget's main priority is cutting costs. We want to lower the labour tax burden and that's one area of discussion, but this will not be resolved before the elections.

These are painful issues. The land of unbridled demagoguery. I think we need the tax changes to settle down on the European level, so we too start to understand that taxing consumption makes more sense than taxing labour. But usually this is where the hysteria begins, that the poor are paying more.

Taxing consumption is a trend. It's a trend that does not damage the economy. What is good for the economy is usually a far more important question for the poor than for the rich, who can get by anyway. In this sense, social democrats are quite one-sided. They look at things in a static way, who to take from and who to give to. If you take from the wrong place, then those who don't have a lot to give, they'll end up giving away the last thing they have - their jobs. [...] For the poor person, what is very important is what makes for a lesser burden on the economy. He doesn't see that the social and income tax is a tax on himself, and if you increase that burden, you increase the likelyhood of him losing his job. But consumption is something that people can control, to some extent. Income and social tax is paid by the company accountant, and the employee doesn't understand that this is part of the cost of a job.

Q: State contributions to the pension pillars - are they coming back?

A: They are absolutely coming back.

Q: Was [pausing the tax for such a short time] a right decision, or a silly one?

A: It was not silly. I was not the one who came up with the idea, but I applaud my predecessor for having the guts to put forward this proposal (to pause the contributions). Bringing that back will have some problems, the 6 and 3, some complicated schematics. I'd have left out the compensation. We'll live to regret it.

Stopping the contributions at the same time as losing the mandatory savings was reasonable. But you can't start compensating for the crisis later. It's a poor compromise, but it's been decided, and the state has made a promise.

Q: What did you think of the slogan "Making Estonia one of Europe's five richest states in 15 years"?

A: I didn't think anything of it.

Q: When this slogan came out, I did a little research online, whether this goal was even statistically possible, and it seemed to me that it wasn't.

A: Theoretically it was actually possible. Yes, there was some fudging involved. For example, when we discussed it, there was the question of whether we should include Norway and Switzerland - they're part of Europe, but not the European Union. But I did not support it, as it depends on quite a lot of external factors that we cannot influence.

Also, politics and campaigning is often quite removed from actual people and reality. I remember walking in the city and seeing Hanno Pevkur on a poster, promising "A better salary for everyone!". I thought to myself, look at that, a young politician and such a populist statement! Then I got to the defense ministry building, and saw the same poster with my face on it.

Because people who bought BMWs in 2008 can't possibly afford insurance these days.

(Photo courtesy Henexis.)


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