Growing calls for a return to ‘business as usual’ with tighter Government spending and a return to budget surpluses are premature and risk embedding a massive Covid injustice. Those who did well out of Covid should help those who did badly before they move on. In my view, they should do that by returning the taxpayer cash and capital gains they received as Covid windfall refunds to the Government.
Asset owners did fantastically well during Covid because of Government policies, including $20 bln of cash handouts to businesses and $55 bln of money printing by the Reserve Bank that helped push up asset values of households and businesses by $824 bln.
In my view, the Prime Minister and Finance Minister should call on boards and owners of companies to return to taxpayers as much of the $20 bln in Covid cash handouts that they can and no longer need. Businesses have $96 bln in cash in their bank accounts, up $23 bln from December 2019.
It’s also worth asking whether owners of residential land that captured $378 bln in unearned (and almost totally untaxed) capital gains because of Government actions should pay a one-off Covid refund of $20 bln from a one-off land tax. They could afford it – households made an overall $621 bln in windfall gains from higher asset values during Covid, including shares and equity in businesses. They also have an extra $35 bln in cash in bank accounts, holding $227 bln as at the end of March.
The proceeds of these windfall taxes could then be applied to ‘Building Back Better’ for renters and the young who have been hit hardest during the Covid ‘Rekovery’, including by implementing the recommendations of the Welfare Experts Advisory Group to fully increase cash incomes for those on benefits, and to forgive all beneficiary and student debt incurred over the last two years. It could also be used to repay debt and/or invest in infrastructure for affordable housing and public transport.
Business as usual won't work
We're already seeing the usual suspects emerge to call for austerity. They have argued the Covid ‘cash handouts’ should stop, but they don't believe the ones they received counted or should be returned.
Another argument is that the beneficiaries of unearned Covid-era gains should hand back at least some of their windfall gains to taxpayers at large, to help those hurt most during Covid.
Here’s an example of where the debate is at.
The NZ Herald and NewstalkZB removed an article on Friday by Newstalk ZB deputy political editor Jason Walls that challenged what he described as $20,000 of NZ Film Commission funding for a short documentary made during the first Covid lockdowns about public scientist Siouxsie Wiles. The bolding is mine.
“I'm just so sick of everything getting taxpayer money for these projects. Why can't people just pay out of their own pocket? I just keep seeing these things crop up time and time again, when we have hospitals overwhelmed. Twenty thousand dollars is not tons of money in the grand scheme of things, (but) that sort of stuff keeps adding up.” Newstalk ZB deputy political editor Jason Walls on air last week, as RNZ’s Colin Peacock reported Sunday.
An article summarising Walls’ views was published online afterwards, although removed on Friday after Wiles publicised her unhappiness with it.
“Would you pay $20,000 for a documentary about ‘science superhero’ Dr. Siouxsie Wiles? Because you already did,” the Herald’s story began.
The implication was that $20,000 of taxpayers’ money was ‘wasted’ on publicity for a scientist. As it turned out, the $20,000 referred to was for another unfinished project and the project had actually cost the documentary maker $8,000, with a further $7,685 in funds raised via a kickstarter campaign from the public.
Aside from the factual issues with the piece, it struck a nerve with Wiles’ supporters. It also struck a particular nerve of mine, regarding NZME’s use of publicly provided funds during and since Covid, and the apparent hypocrisy of some of its commentators about private use of public funds.
NZME got $12.9m of public cash & will pay $15m in cash to investors
The owner of NZ Herald and NewstalkZB, NZME, received $8.6m of wage subsidies, which it has refused to repay (detail here via RNZ). That is on top of $4.3m of public funds from the Public Interest Journalism Fund and other public funds to pay for journalists working for NZME and specific projects over the last two years. The $12.9m in public funding helped stablise NZME during Covid, but the company has now returned to growing its operating profits and has reduced debt substantially.
In fact, NZME is now in the process of returning $15m in cash to shareholders through share buy-backs and special dividends. It is not the only one. Fletcher Building received $68m in wage subsidy cash during 2020 and has refused to repay it, despite an increasingly robust profit and balance sheet. It paid $140m of cash dividends to shareholders in April this year after reporting solid profit growth and a strong outlook because of a boom in house building and building materials sales. NZME and Fletcher Building are just two among many large and small New Zealand companies that have refused to repay the cash, despite reporting profit growth and higher cash reserves.
Overall, the Government gave $20b in cash to companies during 2020 and 2021 as wage subsidies, but less than $1b has been returned, which companies were supposed to do if they found they did not need it. Meanwhile, company profits have surged over the last two years, despite a sharp rise in costs and wages because of inflation. Those higher profits are due at least partly to the cash windfalls from Covid, and partly to profit margin expansion during the surge in inflation.
Stats NZ’s most recent annual enterprise survey for the year to June 30, 2021 found company profits rose by almost $25b to $103b from the previous (also) Covid-affected 2019/20 year, and were up from the last non-Covid year’s profit of $97b. That came after Government grants of $17.2b in 2020/21 and $9.4b in 2019/20, which followed $7.1b in 2018/19. That is also before the second round of wage subsidies in the second half of calendar 2021 in response to the delta lockdowns from August onwards.
Profits up $25b after $20b of cash payments from Government
More than 60% of the increase in profit in 2020/21 came from just three sectors: banking and insurance (up $10.6b), rental and real estate (up $3.7b), and construction (up $1.7b).
The Auditor General has criticised the Government’s failure to properly chase up those who incorrectly kept the wage subsidy money. Prime Minister Jacinda Ardern and Finance Minister Grant Robertson have repeatedly refused to call directly on companies to return the cash. MSD, the original distributor of the funds, has made a few prosecutions, but is spending more chasing and prosecuting beneficiaries to repay their $1b in debt to MSD.
Then there’s the unearned gains on assets
The other major interventions of the Government during Covid were through the Reserve Bank, which removed LVR restrictions, printed $55b to buy Government bonds to lower mortgage rates, and lent $12.7b cheaply for banks to lend on to home buyers. Those moves were all approved by Robertson. The central bank’s deliberate aim was to make asset owners feel wealthier so they would spend, lend, invest and employ to soften the economic shock of Covid.
It worked, but it also delivered asset owning households $621 bln in increases in net worth to a total of $2.4 tln between the end of December 2019 and the end of the March quarter of 2022, according to Stats NZ’s National Accounts data.
These accounts also show financial enterprises, which include banks and insurers, reported $6.6b in gross disposable income (equivalent to pre-tax profit) in the two years to the end of March 2022, up from $5.5 bln in the previous two years. Banks did not take the wage subsidies, but did benefit from cheap Reserve Bank loans and the removal of LVR restriction in 2020. This same data shows non-financial businesses made gross disposable income of $114.1 bln in that two-year period, up from $74.4 bln in the previous two years. This data also shows the equity held by non-financial businesses rose by $203 bln to $1.275 tln in the two years to the end of March.
So Covid policies helped increase the net worth and equity of households and businesses by $824 bln in 2020 and 2021 ($621b for households and $203b for businesses), including $378b from the rise in residential land and house values to $1.31t, caused largely by lower interest rates.
How to refund the Covid windfalls
There are various ways the Covid support could be refunded to taxpayers at large by business and home owners, including simply repaying the bulk of the $20 bln in cash support for businesses. It would require direct requests for repayment from the Government, which we have yet to see. CTU Economist Craig Renney has also suggested a windfall tax on bank profits, which are currently running at an annual rate of $6.8 bln per year, and reflect the big surge in mortgage lending done through the last two years of Covid and cheap funding from the taxpayer-owned Reserve Bank.
The refunds of unearned Covid gains could also be done through a one-off 0.2% tax on the value of all residential-zoned land, which would raise around $20b.
That combined $40 bln of windfall refunds to the Government could be used to both increase incomes for the lowest paid and reduce Government debt, or alternatively, to invest in infrastructure to allow much greater supply of affordable housing.
I think a debate about the wealthiest returning their near-$1 tln in windfall gains from Covid policies is more useful than debating whether $20,000 of public funding for a documentary on a public scientist can be justified, especially when the debater’s employer received $12.9 mln of taxpayer cash and is paying it all back in cash dividends to its fund-manager owners.
36 Comments
It may well send the rich elsewhere, but middle class mortgage debt that has been spiking for the last decade isn't going to be leaving us any time soon.
Whatever tax proposals people dream up need to be couched against the fact that the government has engineered a cash-poor middle class with little real disposable income to prop up the real economy long before Covid ever existed.
totally agree that businesses that made large and increased profits during covid as a result of the wage subsidy and other supports should have to return that -- these were meant to save jobs and stop businesses failing -- not to increase profits !
Thats immoral and a transfer of money from the least wealthy to the most wealthy -- hard to understand that a Labour government could really be that incompetent - but then pretty much fo rhte last four years they have delivered a succession of policies that have only done this -- increased house prices, stock markets and other assets -- and as for the EV rebate -- great if you are rich enough to be able to buy a brand new Prius at $65,000 -- but not if you aere driving a 20 yr old people carrier and need Accommodation Supplement and WFF payments to eat!
great if you are rich enough to be able to buy a brand new Prius at $65,000
Would've also been great if NZ sat anywhere in the global supply chain of clean tech. We are content in paying for our Prius' with shiploads of milk powder and planeloads of international tourists.
The poor have no choices to make in this regard.
If you are interested in lowering CO2 you must pitch to those who have choices to make, so they can make those choices in line with your policy outcomes.
I agree that businesses that simply passed their wage subsidy to shareholders as dividends should be taxed those subsidies back directly. This is a no brainer which means it is on the outside of likelihood for this government.
"It’s also worth asking whether owners of residential land that captured $378 bln in unearned (and almost totally untaxed) capital gains because of Government actions should pay a one-off Covid refund of $20 bln from a one-off land tax."
Thank goodness that you're a writer, not the IRD. Don't you know that the house is the only asset/savings/retirement plan for many?
God how delusional are you mate? Better you stick with writing in your blog and thank goodness you are not at the helm of drafting tax law or policy.
The whole point of the subsidy was to ensure that business didnt panic and start firing people. You cannot give out candy with no strings attached and then start to ask for it back. If that was the case, it should have clearly been stated at the begening int he rule book.
Now lets look at capital gain on houses, how is this realised and how can this be paid? Secondly just because of Orr's loose hand on the printer....why should I be forced to pay on unrealised gain. You either have a capital gains tax or you dont. Quit coming up with all this tax by stealth policy.
The company subsidy clawback tax, it's not a fault of the companies that they haven't volunteered to return the money - they're in the business of making profits. It's the governments for giving it to them without a requirement to return it if not needed. The lack of care for taxpayer money is just astounding, decades of government belt tightening frittered away.
In terms of taxing property owners for unrealised capital gains because of money printing etc - that's just nonsensical. And ff house prices then plummet will we be getting tax refunds?
Of course, there is zero chance that the money will ever be refunded, but the effects of its distribution are clear; a massive transfer of wealth from future generations to the rich.
There needs to be a royal commission of enquiry made into our COVID response, particularly the economic aspects. Not sure how much hope to pin on Swarbrick regarding this, but she wants one, and Shaw seems to be making room for her on his way out the door.
Beelzebub will be calling for a woolly jersey before *any* government takes accountability. Remember, this was a globally synchronised response, with a high level of public support.
The only way to prevent this from occurring in the future is to enact legislation that limits the reach of government. We don't have the public will to do that, or we'd have done it already.
Lets not forget the economy did far better than expected through the Covid shutdowns and restrictions. Easy to be wise in retrospect.
Even so , the rules were quite clear, The subsidy criteria was a (30? )% drop in revenue , over a specfic time period. (prior 4 weeks from memory). The bigger firms are in a far better to position to measure this than a small business owner. If they choose to not repay whatever part of the subsidy they didnt need , is that the fault of the government. Mind you , I can't exactly see their shareholders demanding they do either.
Why Bernard did you conflate these two very separate issues - Kiwi's should be rightly furious at the use of their taxpayer money to help businesses only for that money to be funneled straight into the pockets of people that dont need it. Heck if the businesses decided to give every employee a bonus that would be a far, far better use of it than going into some rich persons bank account.
But then in the same article you have wound up people who have not actually made any extra money and that's what they will focus on as it affects them personally.
It's almost like you have written this article with an easy out for those business and owners/shareholders getting the money. Did interest.co.nz get a subsidy and you are trying to do an article on it without putting too much heat on the issue?
The government invoked emergency powers to cripple economic activity, and the subsidy was compensation for that. If you agree that the government *should* be able to exercise such powers then you can't disagree with the compensation package.
Unless you agree that the government should have the power to arbitrarily cripple your way of life with no obligation to provide compensation?
The obvious answer is to revoke that ability...but as per previous comment, we lack the political will.
"government invoked emergency powers to cripple economic activity"
What a load of bollocks, you know why they invoked emergency powers. Those powers were endorsed by National and the emergency funding also endorsed by National. It was a proud moment to be in a country where political parties were able to come together and put aside the usual criticism of each other in a national emergency to provide leadership when needed. People forget how unsettling the pandemic was in those early stages, people were genuinely scared and looking for leadership and they got it, from both major parties.
Yes, I know it was bilateral, and justified with support from a population that was scared sh*tless. But that wasn't leadership - it was a kneejerk reaction, and modelled on the autocratic response of a communist dictatorship. True leadership is measured and analytical, taking into account the *overall* outcome - the economy being a large part of that. And before you trot out the trite line of caring about money not people, the "economy" is literally the way we live, not just money.
Clearly you fall into the "If you agree that the government *should* be able to exercise such powers then you can't disagree with the compensation package" group. I don't think that the government should have that power.
Bernard's focusing on quantity at the moment. He needs to pay the bills as his mortgage is going up.
The original sin was the first lockdown. Apart from the borders everyone should have been allowed to carry on. Once you've f........d up the first one, then the rest of the sins just keep mounting up. I watched this unfold in absolute bemusement bordering on disbelief. I'm not the only one. The msm media had their mouths full of it & we bought the lot. More fool us.
Apart from the borders everyone should have been allowed to carry on.
Shutting the borders to citizens was one of the worst measures. The way that expats were treated - effectively barred from entering their own country - was unprecedented and cruel. And also lauded in the corporate press.
Shutting the borders was the only reason we weren't overrun, given how long it took the government to actually do something. If they'd gone as hard and as early as they want you to think they did, then they could have gotten away with far less.
As for expats: so? They live overseas, they don't live in NZ anymore. NZ can't operate with enough headroom to serve the population we have, let alone have enough infrastructure on standby in case 20% of our population wants to just show up at the drop of a hat. You can make a strong case that border rules should have been relaxed quicker, but the attitude of some expats was that Kiwis who live and pay taxes in NZ are just there to maintain the state in their absence for their benefit, and some were appallingly arrogant about it.
Yep, Govt has spent $50 billion more than it has taxed back since March 2020, so the private sector (or 'taxpayers') now have $50 billion more in their bank accounts. Sadly, our economic system means that this surplus has been swiftly routed into the bank accounts of people that were already wealthy. A windfall tax to get some of this money back seems pretty sensible to me.
Taxing people for a notional windfall in real terms to make up for crappy institutional governance is a poor idea, and will further depress governmental accountability and open up a can of worms in terms of opening up unrealised gains for taxation.
Ask anyone who has worked in the FIF space about how that tends to work out.
Our business only survived because of the wage subsidy and later the Govt loan without which we would have failed due to insufficient cash flow to pay essential bills. The longer term damage to our customers being unable to return their turnover and profitability to pre covid levels means our business has lost 60%+ of it trade and is only surviving because we no longer earn even a minimum wage and should Covid or a recession further damage us the business will fail and the Govt will lose their loan to us. Should we give in, join the unemployed and draw benefits or do the right thing and fight on - we chose the latter so Bernard target the immoral not tar all with the same brush.
This is beyond silly. My wife and I, now retired, own our own home. According to the author, we have gained wealth because our home has increased in value. If so, how are we expected to realise these gains? By selling our house, is the only way. Bit of a problem, in that where do we then live?
The easy one would be a tax on the super profits of banks. Insurers have the increased costs of construction to contend with now, and the increased risks around climate change. Real estate profits may not be readily identifiable.
I would guess the Aussie banks are used to stricter supervision in their own country and although they will complain they could easily bear it.
Critical comment...suggesting the Govt throw another 20-40 billion into the economy...as a 'covid windfall' spend ignores the elephant in the room. There is a perception among some that you can print yourself out of debt... recycled debt is still debt...
Pumping up asset values to justify borrowing more is how we got to where we are today...More of the same will just lead to more pain...albeit deferred while everyone goes on a spending spree with money they dont have..... Covid era capital gains...thats funny.... lol
And if the ultimate result is not large "windfall gains" but instead large losses in shares and property due to the crazy RBNZ/Govt Covid policies that drove inflation and is sending us into a recession and an asset price meltdown, then presumably the Govt will compensate us for those losses as well? If you want to tax us on the good times, then we should get tax deductions during the bad. Right?
We nearly went under during the first lockdown so yes we increased our cash reserves got through the 2nd lockdown still increasing our cash reserves because who knows what other nonsense these political clowns will impose on us next.
Yes we locked down for one case, let me say that again one case. How many a day now.
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