Prime Minister Jacinda Ardern says giving households cash payments when in lockdown would not be “especially successful”, but hasn’t closed the door on the idea further down the track.
Kiwibank economists are calling for “helicopter money” at Alert Level 2, arguing the psychological boost generated by such payments will amplify the uptick in economic activity.
Asked to comment on this on Thursday, Ardern echoed what Finance Minister Grant Robertson has said in the past - that nothing is off the table.
Yet she indicated the Government is considering how the different phases of the COVID-19 crisis would dictate the policy response.
“We have to make sure that what we do works,” Ardern said.
She acknowledged there are “certain points” in a recovery where cash payments “aren’t necessarily successful” or don’t “create the stimulus you want”.
She singled out Level 4 as being one of these times, but didn’t say anything about the other levels.
Kiwibank economists, Jarrod Kerr, Jeremy Couchman and Mary Jo Vergara, want the Government to give everyone a cash payment, but have also come up with some ways this could be targeted.
They put forward three options and have done some rough maths around the cost to the Crown:
- Option 1: One-off payment to all taxpayers.
- Option 2: One-off payment to all taxpayers earning up to $100,000 p.a.
- Option 3: The full one-off payment for taxpayers earning up to $50,000 p.a. Thereafter, the payment is abated $50 for every $1,000 of income earned over $50,000.
At $5.8 billion (gross - excluding GST paid when money is spent), they argued even the costliest option isn’t too expensive in the bigger scheme of the recovery.
To date, the Government has allocated nearly $25 billion to various initiatives to help cushion the blow of the crisis. Meanwhile the economic modelling Treasury has published indirectly makes the argument for the need for more government support in the order of $20 billion to $40 billion.
Kiwibank economists said that being “relatively effective” and “inexpensive” cash handouts are a “sure-fire way to ignite consumption”.
“This is a silver lining, not a silver bullet. This is a fire starter, not a fuel cell. This is to kickstart momentum after purposely stalling activity. This is some relief after inflicting stress on many families,” they said.
“Cash handouts will get great press coverage and lift confidence out of lockdown…
“The timing of when to distribute the cash is straight forward. We want to support retailers and tourism operators best we can.
“Level 3 is not the time. Level 3 will allow for more economic activity to resume such as construction and manufacturing. But general activity will remain similar to Level 4 as many businesses remain boarded up.
“The grand re-opening of the economy at Level 2 is therefore the perfect time to inject the stimulus and boost spending.
“There is already pent-up demand. We’re all due for a haircut. But helicopter cash will encourage that much more spending.
“People are much more willing to spend money they deem easily obtained…
“Although we believe a very broad approach is best after lockdown, to entice all Kiwis, the Government may want to target the spending on low-income households only.
“The tourism, hospitality and retail industries are the hardest-hit by from Covid-19 border closures and lockdowns. Border restrictions will remain for some time, probably into next year. Access to the international markets will be limited. These industries will have to look internally, for domestic Kiwi travellers.
“The helicopter of cash could also be flown over domestic tourist hotspots. To do so, the handout should also be made available to higher income households. A wealthy 4 person ‘nuclear’ household could be given $4,000 ($1,500 per adult, 500 per child) to be spent with domestic tourism operators.
“Instead of cash, domestic tourism and retail coupons or vouchers could be offered to high income households. Use it or lose it…
“The use of a ‘bonus’ payment, rather than say a tax refund, seems to elicit different spending behaviour form consumers too. A study looking at the spending patterns of Australian consumers following the [2008] Global Financial Crisis bonus payment, found a much larger willingness to spend the bonus compared to tax rebates offered to US consumers over a similar period.
“The framing of the payment as a bonus is thought to have contributed to a higher share spent. There is a potential 'silver-lining effect' going on here, where a perceived small gain has an outsized positive effect on the recipient despite larger losses being experienced.”
67 Comments
i prefer rather the cash they do a voucher system, they could spread the payment over a period of time rather than one lump. myself if they gave me a cheque i would just bank and Maybe buy some shares (offshore) with it
As part of recovery plans, local city governments have been issuing citizens with digital coupons that will help them buy groceries or takeaway food, but there are two catches: some have short expiry dates, while others incentivise people to spend a certain amount (like a two-for-one deal).
Coupons have been appearing on Chinese smartphones and tablets since late March, and at the last count, more than 30 cities have created coupon schemes.
In Wuhan, the city where coronavirus originated, the local government has distributed $US71 million ($111.9 million) worth of 'consumption coupons', which equates to about $6 per citizen.
These are generated on popular Chinese point-of-purchase apps such as WeChat and Alipay, with the coupons only redeemable for certain purchases, such as buying groceries, or dining at restaurants.
Of course, Labour has focus-grouped this already. Hence why a government-owned bank is now flying the kite for them. Note that they are aiming to capture probably 80% of households with this. Now, all we have to do is get on board and ask for the free money. Then they have the mandate to give it to us. Just waiting for second or third week of level 2. Slightly closer to the election.
But it should be in some sort of electronic form. Not cash that people can use to retire debt. Maybe a Kiwibank debit card with a preloaded balance? So they can clip the ticket on every transaction.
Ok so you give me a coupon/voucher to spend rather than cash - stimulate the economy and all that. But that doesn't actually make sense. So I spend the voucher on things I was going to buy anyway and the cash I get from my salary I will save instead. There is no real way to control how I spend my money.
But what is spent could be in New Zealand's economy. Then it goes from public to fast food outlet to buying more NZ meat and dairy and the farmers spend it on feed for animals and new fence posts and the timber suppliers use it to buy fast food and round and round it goes - until purchase of foreign goods or foreign holidays.
A question. How many are employed in government departments, agencies and quasi organisations, and how many are employed by local government and out of all of that how many have had pay cuts? And how many of them have not been at work or working from home. Just asking because surely so called helicopter money must be awarded to those who are suffering financial hardship through loss of income.
of course then argument to that is by having all this money sloshing around at the discretion of individuals will save alot from losing their income and suffering hardship.
Its the age old difference between being proactive or an ambulance at the bottom of the cliff...
NZ stats
Total NZ Workforce = 2.6 million
applications for employee subsidy = 1.65 million (63%)
airline, travel, tourism workforce = 400,000 (15%)
public service and local body workforce = 400,000 (15%)
unemployed people = 130,000 (estimate) (5%)
NZ has
27,000 charities
13,000 police
13,000 defence force
I'm no fan of free money of any sort, but.....
If taxpayer money is to be returned to taxpayers as a $1,500 payment each etc, then framing it as a:
"A job well done, New Zealand. And here's thanks from a grateful Government, on all sides of politics, for all you have done for the country." might just be the best reason to do it?
We've all given up a lot in the name of bettering our country; some far more than others, and binding us all together in appreciation is not too bad an idea.
I don't like it but there is no other way I see to rapidly inject liquidity into the real economy and prevent a wave of defaults and bankruptcies that will likely happen if we blunder onwards into L3 or L2.
This is short term though (months not years), over a longer horizon I want to see infrastructure spending ramped up. Having nothing "shovel ready" cannot continue to be the prevailing excuse not to build the damn infrastructure we need to grow.
I think she’s right. The reason most of us aren’t spending is because we can’t because we are locked in our houses. And for the majority of us who haven’t lost their jobs or income, we are saving that money we aren’t spending. So I’m guessing once we can spend again there will be no shortage of money flying around.
Why delay? There's many businesses that are going to go to the wall with the banks mopping up any available cash, maybe with the first wave of unavoidable failures out of the way the wave of cash will be spread less thing to those remaining and may remain in circulation longer.
Answer, it's complicated.
Why not make it universal? If its purpose is to stimulate, who's to say that someone earning $100k+ wouldn't? Odds are they have mortgages that need paying and may have little discretionary spending left over after expenses. Risk of them banking it would be pretty low, especially with interest rates being so low.
Based on the panicked responses so far I would say the Govt will go ahead and do this.
If they do they should do it across the board, that way it seeps back into all levels of business.
For instance if you only gave it to low income families, it would be unlikely to find its way into hotels or boutique restaurants who will suffer a lot from no tourism.
Of course we will all pay for it later on , in one way or another so I would probably bank mine ...
Because NZ has a different strategy from OZ, and NZ is working on eliminating the virus. Australia method is about flattening the curve / herd immunity. They could be in lockdown for many months, they potentially have a lot of cases that aren't being detected based on their high hospitalization rate.
Taking into account the commentary, i think of all the helicopter money suggestions this is the best. It is money directly to the people at the bottom, and will allow some to address debt and others to just spend. This is much better than giving it to banks to loan out (so the banks can profit from it) or business's (small I don't mind, big should have had some level of cushion). Looking at the table and options, Option 2 is preferred, and yes a small number of well off people would not really need it, but with a criteria or request that they spend it locally I suggest it would be effective. Note that i think the well off would spend it in different places to the lower income groups so the spread would be better.
Depends on what a taxpayer is. Is it anyone with an IRD number, or do I need to set up my kids' IR online and declare some interest income for them so they're taxpayers? Then the cash could go into their Kiwisaver accounts (which is totally not the point I know, but makes more sense). OR is it age? Which would be discriminatory for those entrepreneurial kids under a certain age who have jobs.
Well that raises more interesting questions than the discussion so far. How exactly could they go about distributing that money in practice. The IRD probably has the largest database of known bank accounts but this would not be 100% by a long shot. Kiwibank no longer accepts cheques. If every person was to receive something they they would somehow have to identify children and then target the correct adult to receive the money. Some children will have shared custody when families are split. Some people will not have bank accounts at all and some of the neediest people will have had no dealings with the IRD. etc etc.
I'd rather the money went to people whose incomes have been slashed and who have actually made sacrifices as opposed to helicoptering it over public service wonks who haven't actually taken a pay cut, some of whom are just on a paid four week holiday.
Obvious exceptions to this would be Nurses, Drs, Police, Fire and other first responders, as well as other essential workers. And that means actually essential workers like supermarket staff and DC workers, not Grey Lynn cake shops taking the piss.
What happens when people are scared unfortunately, is that they save whatever is given, as I will.
That is what occurred in 2008-09.
Lacalle article on Mises.com is instructive on what is coming: stagflation.
Also, government spend is only half the equation here, and not the biggest half.
other half is inevitable collapse in government revenue, as in 2008 in UK most especially.
That collapse is what balloons the deficit.
Then, when crisis is over, the clarion voices of neo-lib Right start blaming the gov for the deficit.
And then the demand for retraction and austerity start, which is what screwed last effort to reflate in 2009-12
I think that the money would be better invested in building houses. It would provide much needed jobs for a more prolonged period and provide much needed houses. Helicopter money would just get frittered away on less important things and a lot of it would go overseas by way of purchasing piles of Chinese rubbish that we don't really need. Helicopter money would quickly pass out of the economy to overseas countries, whereas money spent on housing would round and round in our economy and flow all the way back to our raw material producers.
There is no debt to repay, study MMT. read this article by Dr Steven Hail.https://independentaustralia.net/politics/politics-display/modern-monet…
Just reading about the wage subsidy shambles. Just one month between Jan to June has to be down by 30% (even anticipated)! Why not have made it an interest free loan over 5, 10, 20, even 50 years? At least the taxpayer would have got something back. Has common sense flown out of the window?
what site did you read that on please because I read same some where early on, and now I see on the covid-19.govt site they reworded it to say the corresponding month from last year has to be 30%. I was discussing the same with my financial controller on it yesterday.
From the Covid site:
the business must have experienced a minimum 30% decline in actual or predicted revenue over the period of a month when compared with the same month last year, and that decline is related to COVID-19
Just watching GR on TV, and he mentioned the Jan to June period again. So, one month, cherry picked, has to show a decline of 30%. Seems a low threshold to get a three month wage subsidy. The part time one is especially silly, as you might well be working for less than the subsidy.
It does make you wonder about fitness to govern. They’ve paid nearly $11 billion on this scheme in not much more than month.
“The tourism, hospitality and retail industries are the hardest-hit by from Covid-19 border closures and lockdowns."
“Although we believe a very broad approach is best after lockdown, to entice all Kiwis, the Government may want to target the spending on low-income households only.
Sorry but low income households are unlikely spend their money on tourism and hospitality, so not helping the businesses most in need
Sorry haven't had a chance to go through all of the comments but have appreciated others thoughts - so apologies if this has been mentioned.
Is there another option of reinvesting the money to kick-start / revitalise some of the industry that has been sent off shore in the past - therein insulating our borders further from not being reliant on certain overseas manufacturing, providing more jobs. Looking at investing in some of the industries, one example - masks / medical equipment that will continue to be at a premium in the post lockdown world. Eliminate faulty equipment being imported and provide a tested and reliable export while servicing our front line and residents first. Simply focus on the needs and do it better than everyone else. I'm certainly not saying the money might not be helpful as I'm tossing up whether or not my small business will survive another 2 weeks but I'm more for the long term. We have by comparison an adequate social system when compared to the rest of the world. If we stay the course and have product we can market as CoVID19 free our exports stand a good chance of being needed more than wanted by the rest of the world, more need external of NZ - more demand, more jobs, more overall local spending. Send more out than we buy in but not too the detriment of local business. Obviously it's not feasible in all aspects of industry but work too our strengths with what we have and not what we don't have. Support local before the export so our local business don't need to go off shore for what we already have home grown. The problem was bigger firms buying out our best local business and sending production overseas to better their margins but the goal posts have shifted and a rethink must be made to insulate from the next big thing whether it be a reoccurrence of something biological or natural disaster this is a wake up call. Not just in business focus but in the way education works to help bolster the economy instead of the fickle mind set that leads to everyone focusing on just the function of money and being richer than the neighbor which results in the wrong type of personal improvement and the glut we see with this trend of either having to many tradies in the work force then a huge swing to too many in the IT industry resulting in unemployment. Rather we need to focus on what skills / jobs are required to meet the needs across industry and working to the strengths and identifying those strengths early in our education system and projecting 5 - 10 years ahead so we don't end up with a shortfall or excess of skills in any one area across the board. Our current education system hinders this process, I'm not saying turf it out as there needs to be guidelines and standards I personally think they have been overcooked a little like our OSH rules in some areas. A small example is I've helped my brother since he learnt to plaster 20 years ago. There's still no formal ticket or qualification for plastering, but if I wanted to I could go the NZQA route where I would have to complete 13 odd modules of gib fixing before I was introduced to gib stopping at which point I can then specialise in 1 of 4 branches of specialised plastering. Or for example I could go to Winstones do a 2-3 day course and get sign off from the supplier that what I'm doing is correct and can be endorsed under the GIB system. Both price and time wise I know which I prefer to do but there needs to be a balance somewhere in between. Ones far too involved in the wrong environment and the other doesn't cater for the beginner. As much of this type of industry comes down to 15-20% theoretical and the rest of ones learning would be time on tools under adequate supervision. That's all before being unindated with how to run a business, learning an overly complex tax system and learning that for every hour your on the tools you can have up to 3 hours of paperwork to fill out from work safe / council / contracts / tax considerations / timesheets / sub contracting and now contact tracing and CoVID19 PPE to boot. Its more than spending that needs to be kicked in the guts. Apologies for the apparent rant maybe I've had to much time to think about it in lockdown.
Workers affected by job losses should not be the first in line to recieve these payments as they recieved subsidized weekly payments which if they were not essential workers gave them more money than the beneficiaries just with a different title.
Businesses that went under should be first unless they received those 100k plus grants to float them.
High earners/high rollers don't need it fullstop but it would be classed as descrimination if they weren't allowed it.
But ok after all is said n done EVERYONE would recieve it if the payment did become a reality.
Which in my view is fair.
As for vouchers piss right off with that idea.
I'm sure people have already developed some idea in Thier head as to what they will but if the time arises.
As for kiwibank visa debit card that makes no sense either as ppl could still transfer it to Thier normal bank accounts.
If the government does this it should surely increase Thier popularity and rightfully so because even John key made a broad statement from behalf of national party looking at an increase of the steps to freedom for prisoners from 350-1000 for newly released inmates which never happened.
Now I know your thinking who cares about the inmates but let me tell you from experience that getting out of there with no where to go with very little money is stressful asf and where could that lead if you are unfortunate to be in those circumstances. You can probably guess back to the slammer .
The place that is 120k plus a year of tax payers money as opposed to qk upfront, enough to get shelter until you can find a place, plus clothing etc.
I think the helicopter payment is a great idea, shows our government truly cares.
I've never heard of this concept until recently.
And I'm sure the no earning income households will thoroughly appreciate it
And will be sure to spend it within a few hours/days etc.
This will boost businesses back up promptly to enable them to rehire the employees they require, which will give them more income and tax from that will return to the government to assist with paying the billions it borrowed to do it in the first place.
And most of all many newzealanders might actually remember a government that helped everyone, not just the wealthy or unemployed, but EVRYONE!!
Many people commenting about who what where instead of looking at the overall picture here.
From me though. Big ups to you jacinda and labour.
It's just great to see people helping people regardless of the short term risk.
Love it! 100%
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.