Business confidence tanks

September 29, 2020

Business confidence has plummeted:

The New Zealand Herald’s  2020 Election Survey has been released with top business leaders saying New Zealand’s Covid-19 recovery is in peril – and they want a decisive role with Government in the country’s future.

The annual boardroom barometer of 165 CEOs and high-profile directors has business confidence at the lowest it’s ever been in the survey’s 19-year history.

When asked to rate their level of optimism in the New Zealand economy the CEOs surveyed collectively scored it a 1.36 out of 5.

These are bigger businesses and predominantly urban.

I doubt if farmers are any more confident given the fear and uncertainty around added costs and complexities that are being imposed on primary production.

Westpac CEO David McLean says the future has never been so uncertain, but that means that the need for crisp and clear policies and plans has never been greater.

“We need to see pathways mapped, not just for how to escape from the current Covid-19 crisis, but to take us toward a better future by addressing some of the big challenges we face beyond Covid-19, such as increasing our productivity and tackling climate change,” said McLean.

Many, like Mainfreight’s Don Braid, question Prime Minister Jacinda Ardern’s heavy reliance on Government bureaucrats for advice and execution and her apparent unwillingness to listen to the private sector for ideas.

“There are many willing to devote time, energy and ideas in areas that allow New Zealand to find the right environment to operate in a post-lockdown economy,” said Braid.

The New Zealand Herald’s Mood of the Boardroom 2020 Election Year survey, taken in association with BusinessNZ, provides an in-depth assessment of CEO opinion at what is the most concerning time in the survey’s long history.

“It’s heartening that a record number of CEOs took part in the 2020 survey against a background of the Covid-19 pandemic. Optimism may be at the lowest levels seen in the survey’s history, but the CEOs’ responses demonstrated their own commitment to turning the economy around,” said says Mood of the Boardroom executive editor and NZ Herald’s Head of Business Content, Fran O’Sullivan.

With the General Election just weeks away business leaders are looking for more from both Labour and National.

Deloitte CEO Thomas Pippos points to tax policy being a key issue.

“Though Labour’s proposal to increase the highest personal tax rate doesn’t impact on the majority, National has upped the ante by helicoptering in temporary tax relief across the board to stimulate economic growth. Tax therefore promises to be a very complicated and emotive topic, that will either be centre stage this election or not far from it,’’ says Pippos.

BusinessNZ CEO Kirk Hope said Labour’s economic policy response to Covid has underpinned the economy in a challenging time.

“However, the long-term plans are less well understood. They will need to do a hard sell. National’s plans are slightly more pro-business. But both parties need to talk about how quantitative easing enables them to maximise a reduction in borrowing costs to help grow the economy.” . . 

You can read more about the Mood From the Boardroom at the NZ Herald here.

Confidence isn’t helped by the fact that Labour hasn’t released its fiscal plan:

The New Zealand Taxpayers’ Union is calling on the Labour Party to immediately release their fiscal plan, so it can be subjected to the same scrutiny as the National Party’s fiscal plan.

Union spokesperson Louis Houlbrooke said: “The National plan was found to have a few holes after analysis by Labour and independent economists. The Nats admitted to one $4 billion mistake but denied another. It is healthy that major spending plans are put under intense investigation before an election.”

“That is why the Taxpayers’ Union is calling on Prime Minister Jacinda Ardern to immediately release Labour’s own fiscal plan. She has told the nation that her numbers ‘stack up’. That clearly means their plan is finished, fact checked, and ready to go. There is no need to wait for a September Treasury data release to unveil the plan – the Pre-Election Economic and Fiscal Update (PREFU) was reported a little over a week ago. All the fiscal data is there.”

“Let people like Paul Goldsmith, David Seymour, Cameron Bagrie, and your humble Taxpayers’ Union check that Labour’s numbers really do stack up. Then, taxpayers can make an informed choice about who should manage our economy in a post-COVID recession.”

It’s not just a fiscal plan that hasn’t been released, Labour keeps telling us it has a plan for recovery but has given scant details.

Uncertainty is one of the bigger drags on business confidence.

That matters because businesses that lack confidence at best don’t invest and don’t hire more staff, at worst they retrench and make staff redundant.

That so much about Covid-19 and how it will impact the country and the world is uncertain, and to a large degree uncontrollable, makes it even more important that politicians are upfront about their plans and what they can control.


Labour policies could add $2.8 billion costs to business

September 28, 2020

Labour policies will add up to $2.8 billion in costs to businesses:

“Jacinda Ardern needs to front up and explain to New Zealanders how much Labour’s policies will hurt the New Zealand, economy National’s Economic Development spokesperson,” Todd McClay says.

“Labour have not shown New Zealand any costing of the economic impact from their recent policy announcements.

“The cost of their policies might not show up in the government’s books, but they will be paid by all New Zealanders – through fewer jobs, lower wage increases and a decline in economic growth.

“So far, Labour has committed to lifting the minimum wage; increasing sick leave requirements; creating another public holiday; and less flexible working agreements.

This won’t only add costs to businesses it will reduce productivity which is already too low.

“The total cost of Labour’s policies could be as much as $2.8 billion per year for New Zealand businesses. What does Labour say the costs are?

“Business NZ said an employee’s absence is currently estimated to cost about $1000 per employee, or $1.8 billion across the economy, will Labour’s policy on sick leave double this?

“Based on previous MBIE estimates of minimum wage increases, raising the minimum wage to $20 will likely cost the economy around $280 million per year.

“An additional public holiday could cost as much as $700 million in extra costs for businesses, based on average wages and the size of the New Zealand workforce.

“The solutions businesses need to grow New Zealand out of our current recession is help with paying the bills, not even higher bills due to Labour’s costly policies.

“New Zealand needs to know what the impact of these policies will be on our weak economy. These policies have consequences.

“Time for some answers.”

These added costs imposed on businesses show Labour is building a barrier to economic recovery:

With businesses failing and unemployment rapidly increasing, Labour’s plans are like throwing petrol on a bonfire, National’s Economic Development spokesperson Todd McClay says.

“Nearly 100,000 small businesses have had to borrow $1.6 billion from the Inland Revenue Department (IRD) just to cover their cashflow under Labour.

“Grant Robertson thinks he can continue to pile costs on businesses while ignoring the real and disastrous impact. Repaying this debt will be even more difficult with Labour’s agenda to raise the cost of doing business.

“Labour’s announcements of a higher minimum wage, a new public holiday and an increased sick leave could cost the economy $2.8 billion per annum.

“These are not small costs that can be easily absorbed. They amount to over $1000 per employee.

“Despite prompting from National on Friday, Labour has been unable to make a case as to why these policies will be good for our weakened economy.

“Labour’s plans will also lead to higher power prices for businesses of over 30 per cent for industrial users.

“Labour’s idea that $5 billion to $10 billion could be spent on a pumped hydro scheme in Central Otago without raising power prices has been described by electricity company executives as ‘dreamland’.

“Labour need to front up with their assessment of the impact these policies are having on the economy.

“These higher costs will affect Kiwis through fewer jobs, lower pay rises and a smaller economy.

“National will create an environment where businesses can grow and prosper. We’re supporting businesses with $10,000 to hire new staff and provide modern, flexible working practices.

“We will work with businesses, not against them, to create more jobs and higher incomes for Kiwis and their families.”

Some commentators say there is little difference between National and Labour.

In some matters they are right, but not when it comes to the economy.

Labour plans to add costs and complexity which will make it more expensive and difficult to employ people and add other costs to business.

In stark contrast National plans to cut red tape and taxes. This will make it easier to employ people and for businesses to invest in themselves and grow.

National is focusing on what matters, Labour has lesser priorities:


If they couldn’t deliver BC . . .

September 22, 2020

David Farrar posts on Labour’s term of failure:

 . . . Isn’t this telling in terms of the Government’s incompetence. We are not talking about narrowly missing a few targets. On almost every major area they have either missed it by a mile, or actually gone backwards.

Auckland is still at level 2.5 and will move only to level 2 tomorrow.

The wage subsidy masked unemployment but now that’s ended unemployment and business failures will accelerate; and we’re facing decades of deficits.

If a Labour-led government  couldn’t deliver BC –  before Covid-19 – we can’t trust them to deliver now.

 


Leaving us with more

September 18, 2020

National is promising tax cuts to help us through the Covid crisis:

National’s massive tax stimulus package will put more than $3000 extra into the pockets of hard-working Kiwis on middle incomes, National Party Leader Judith Collins says.

You can read a copy of National’s Economic & Fiscal Plan here.

Ms Collins has announced the next National Government will let Kiwis keep more of what they earn by lifting the bottom tax threshold from $14,000 to $20,000, the middle threshold from $48,000 to $64,000 and the top threshold from $70,000 to $90,000.

These changes will be in place from December 1, 2020 until March 31, 2022. The total cost of this over the 16-month period is estimated to be $4.7 billion.

“Today we are facing the biggest economic downturn the world has seen since in living memory. But with the right leadership and economic plan we can grow our economy and keep Kiwis in jobs,” Ms Collins says.

“To keep our economy ticking, New Zealanders need money to spend. National will deliver temporary tax relief that puts more than $3000 – or nearly $50 a week – into the back pockets of average earners over the next 16 months.

“This will give Kiwis the confidence to go out and spend, which will be crucial for our retail, tourism and hospitality businesses to survive this economic crisis.

“New Zealand is facing a much longer and more painful economic shock than earlier forecast. We need a serious plan for economic growth to get us back on track.”

National’s Finance spokesperson Paul Goldsmith pointed to higher taxes as Labour’s only plan to get New Zealand out of this economic hole.

“No country has ever taxed its way out of a recession – and this is a big one we’re in now.”

As well as tax relief for households, National will double the depreciation rate for businesses that invest in new Plant, Equipment and Machinery over the next twelve months. This will bring forward the amount a business can claim in depreciation for new investments, which will stimulate investment by increasing the return on capital.

Doubling the depreciation rate is expected to cost $430 million a year for five years, while increasing tax revenues in out years.

“Our stimulus package has been fully-funded and costed, and is included in our independently reviewed Economic and Fiscal Plan released today,” Mr Goldsmith says.

“National’s plan carefully balances the need to drive economic stimulus, increase investment in core public services and restore government debt back to prudent levels.

“Labour, on the other hand, has announced it will increase taxes during a recession. The contrasting approaches to the economy at this election could not be clearer.

“Judith Collins and her strong National team will bring the leadership, experience and vision needed to get our country back on track.”

You can read a copy of National’s Economic & Fiscal Plan here.

You can view a copy of National’s Personal Tax Relief Policy here.

You can view a copy of National’s Double Depreciation Rate Policy here.

David Farrar has worked out what the tax cuts mean for different income levels and conclude:

This provides New Zealanders with a real choice – a Government that will help people through the tough times by temporarily reducing taxes, or a Government that will increase taxes.

If you’re not sure which would be better, ask yourself who would make better use of the money you earn – you or the government?

If you’re still not sure, think about what’s more efficient, letting us keep a bit more of what we earn and giving us the choice about how, and how much we spend, or having the government take more and absorbing some of that in the bureaucracy before the rest can be spent and only then dribble through the economy?


When they don’t learn from mistakes . . .

September 18, 2020

New Zealand is in recession for the first time in 11 years.

Gross domestic product (GDP) fell by 12.2 percent in the June 2020 quarter, the largest quarterly fall recorded since the current series began in 1987, as the COVID-19 restrictions in place through the quarter impacted economic activity, Stats NZ said today.

“The 12.2 percent fall in quarterly GDP is by far the largest on record in New Zealand,” national accounts senior manager Paul Pascoe said.

There’s no surprise about being in recession when the country was locked up  down for weeks., but how did we compare with other countries:

Measures to contain COVID-19 have led to historically large falls in GDP in many parts of the world, with countries’ results reflecting the nature and timing of their responses, and the structure of their economies. For example, New Zealand’s result compares to falls of 7.0 percent in Australia, 11.5 percent in Canada, 7.9 percent in Japan, 20.4 percent in the United Kingdom, and 9.1 percent in the United States. . . 

New Zealand did worse than all of those countries except the UK, including our nearest neighbour which had a less harsh lockdown and, the debacle in Victoria excepted,  similar health outcomes; and our performance was worse than the OECD average.

Contrary to the government’s line of going early and hard, it was lax, late and harsh.

We should have locked down sooner, been much rigorous about returnees from overseas self-isolating and introduced MIQ sooner then used safe rather than the arbitrary essential  when determining which businesses could operate during lockdown.

That could have been excused the first time had the government learned from its mistakes, but it repeated them and made more when it locked Auckland down again.

Businesses and greengrocers weren’t allowed to open and there was an omnishambles at the region’s borders with staff not able to get to work. That was compounded by animal welfare issues when farmers couldn’t get into Auckland to look after their stock and millions of bees died when beekeepers couldn’t get to their hives.

The economy isn’t just about money, it’s about businesses, jobs, livelihoods and lives and both physical and mental health.

The government admits that health and the economy are linked but, as in so many other instances in the past three years, its actions haven’t followed its words.

Worse given there is a very real risk that there will be other leaks at the border it hasn’t learned from its mistakes and, should it be re-elected, there is a very real risk it will repeat them.


Decade of deficits

September 17, 2020

Treasury is forecasting more than a decade of deficits:

With deficits projected out to 2033/34, there needs to be urgent action from all political parties on addressing the national debt, says the New Zealand Taxpayers’ Union. 

Taxpayers’ Union Campaigns Manager Louis Houlbrooke says “After many years of prudent fiscal management from National and Labour, it Treasury is now projecting 15 years of deficits in a row. As a result, net debt will be $31 billion higher – or $17,000 a household – in 2033/34 compared to the Budget 2020 projection. The Government needs to give us a credible path back to surplus rather than leaving taxpayers on the hook for a never-ending accumulation of debt.”

“The major reason for the more than a decade of deficits ahead is Treasury’s belief that our economic recovery from Covid-19 will be more anaemic than previously expected. The message is clear: our recent track-record of weak economic growth isn’t just hurting incomes and entrepreneurship; it’s going to have a serious impact on our public debt.

“The solution to the forecast decade of deficits is to cut wasteful spending, end regulatory taxes on business which stifle growth and employment, and deliver modest tax relief to households and employers to get the economy growing again.” 

It’s 12 years since Treasury last forecast a decade of deficits.

That was when a Labour-led government propped up by New Zealand First was on its last legs. It was also before the global financial crisis hit.

National came to power and in spite of the GFC and Canterbury earthquakes, returned to surplus in less than 10 years.

Who will you trust to turn the Treasury forecast round this time – the government that squandered the surplus and had the country back in deficit before Covid-19 hit, or a National-led government that understands that the quality of spending is far more important than the quantity?

Today’s Pre-election Economic and Fiscal Update forecasts a longer and more painful economic crisis than earlier forecast and requires a serious growth plan to get New Zealand back on track, National Party Leader Judith Collins and Finance spokesperson Paul Goldsmith say.

“Our economy is forecast to have shrunk by 16 per cent in the June quarter, and we will be taking on even more debt, an extra $200 billion. Every dollar and cent of this will have to be paid back by our children and grandchildren,” Ms Collins says.

“Unemployment will be substantially worse in 2022 and 2023. Treasury predicts 100,000 more New Zealanders will lose their jobs in the next two years.

That’s more than 10,000 more than the total population of Palmerston North.

“The Minister of Finance shouldn’t try to sugar coat these figures. He has taken a rose-tinted glasses view at a dreadful picture that cannot be described as anything other than catastrophic. Any short-term improvement on the Budget forecasts is far outweighed by the worsening picture past 2021.

“The contrast between Treasury’s estimate of more than 16 per cent contraction in our economy in the June quarter compared with 7 per cent in Australia shows he should be careful about making comparisons,” Ms Collins says.

“Grant Robertson’s only plan is higher taxes, and no country has ever taxed its way out of a recession, and this a huge one,” Mr Goldsmith says.

“Treasury is forecasting that under Labour New Zealand will be in deficit every year for at least the next 15 years. Grant Robertson and his Government have no plan to get New Zealand back into surplus. Ever.

“New Zealanders have a choice for our economic recovery: more government programmes, welfare and costs for business under Labour or lower taxes, more business investment and quality infrastructure under National.

“National has a comprehensive plan to secure our border and prevent New Zealand from yo-yoing in and out of lockdown. Effective border management, coupled with common sense and pragmatism around the rules, is an important aspect to help our economy can recover.

“We will do everything we can to make it easier for businesses to hire – 90 day trials, flexible employment laws, low taxes and innovative policies like JobStart and BusinessStart.

“Our economic plan of job friendly policies and investment in quality infrastructure will grow our economy, give businesses the confidence to grow and restore household incomes for New Zealanders,” Mr Goldsmith says.

“National will release our fiscal plan soon which will carefully balance the need to inject stimulus, increase investment in core public services and restore Government debt back to prudent levels,” Ms Collins says.

We couldn’t afford the current government before Covid-19 hit, we certainly can’t afford another three years of mismanagement.

 


Poverty of delivery BC & vision AC

August 4, 2020

Before Covid-19 (BC) the government was much better at media releases about their policies than delivering them.

Labour’s flagship policy KiwiBuild was a flop, child poverty worsened and the country was facing rising numbers on jobseeker benefits and forecast deficits even before Covid-19 struck.

While we can debate the when and how of the government’s response to the pandemic, we can be very grateful that there is no evidence of community transmission and, in spite of early mismanagement, new cases are being contained at the border.

While everything possible must be done to ensure that continues, now is the time to be formulating a plan for after Covid (AC).

The Labour leader’s warning not to expect big policies from her party this election is a mistake.

We need big policies. That doesn’t mean big-spending policies, it means big visionary ones and among them must be a strategy to repay the debt it is amassing:

With the election only weeks away, Labour needs to clearly explain to voters how it intends to repay the massive debt it is taking on to deal with Covid-19 – and whether its plan will involve higher taxes, National’s Finance spokesperson Paul Goldsmith says.

“Optimism is not a strategy for economic recovery,” Mr Goldsmith says. “So what is Labour’s target and timeframe for getting this country’s debt under control?

“Labour’s silence on the issue of a debt target is a telling sign that the only tricks up Grant Robertson sleeve is to keep spending and, eventually, reveal that he will have to hike taxes.

“Any responsible government will set a long-term target to get the huge amount of debt we are taking on under control so that the country can respond to the next crisis.

“We have said we will aim to get debt below 30 per cent of GDP in a decade or so.

“New Zealand can achieve this by striving for higher economic growth, by increasing government spending at a slightly slower rate than currently projected, and by halting contributions to the Super Fund.

“Rather than outlining any credible plan of her own this morning, Ms Ardern made false claims about the prospect of austerity under National. This is complete nonsense, and she knows it.

“National agrees with the Government that it is absolutely appropriate to spend more and borrow more during an economic crisis, such as we are seeing today.

“This is not the time for austerity, and nobody is suggesting it.”

Any government can borrow and spend. It takes a capable and disciplined one to spend the borrowed money wisely, make savings where necessary and plan to pay off debt to enable the country to cope with the next crisis.

The last National government inherited forecasts for a decade of deficits. It managed to get back into surplus while protecting the vulnerable from the worst effects of the Global Financial Crisis and dealing with the Canterbury earthquakes.

The current government inherited forecasts of surpluses, burned through them before Covid struck and is now planning to borrow big with no ideas about how to repay the debt.

This government had poverty of delivery BC and now Labour has poverty of vision AC. Parties that couldn’t deliver in relative good times can’t be trusted to deliver in bad times.


How are going to get out of this mess?

August 3, 2020

Sir Bill English is warning businesses to prepare for a W-shaped downturn:

Former prime minister Sir Bill English has issued a bleak warning to businesses to prepare for the worst case scenario as “cracks” created by the economic earthquake of Covid-19 become more apparent.

Just like the damage caused to Wellington’s buildings by the Kaikoura earthquake, the true damage to the economy might not emerge immediately, he said.

Wage subsidies had “bought time for thousands of businesses” and there was a sense just from the amount of traffic on the streets of there being a “bounce”, he said.

But the return in consumer confidence would not last and businesses are “reluctant to deal with the fact” that the economy might drop back again, he told a webinar hosted by accounting firm BDO. . . 

Businesses might find by the middle of next year that they had 20 per cent less revenue as a “W”-shaped downturn took shape, and needed to ask if they could survive on that, English said.

“This is going to be marathon not a sprint. It could be really tough.” . . 

Job losses are already piling up:

Today’s troubling revelation that another 1500 Kiwis lost their jobs this week highlights the need for a sound economic plan to get us through the current jobs crisis, National’s Finance spokesperson Paul Goldsmith says.

The number of people receiving unemployment benefits is now up to 212,000 – an increase of 67,000 since New Zealand went into lockdown.

This week alone, 1500 more people went on the dole. Another 450,000 Kiwis are also in the precarious position of relying on the wage subsidy scheme that will run out on September 1.

“New Zealand is facing its worst economic downturn in 160 years,” Mr Goldsmith says.

“This incompetent Government’s big idea is simply to increase government spending, which will just lump the country with more debt for future generations to repay through higher taxes. . . 

The government’s response so far is not going to help the economy:

Massive debt-fuelled spending and keeping the border tight are necessary but insufficient to restore our economy and create jobs, National’s Finance spokesperson Paul Goldsmith says.

Mr Goldsmith was reacting to Grant Robertson’s “Q & A” interview this morning, where the Minister played down projected job-losses when the wage subsidy ends and emphasised more government spending and tight border as the government’s primary economic response.

“The reality is that the spending has not always been well targeted or effective and the so-called tight border of Labour has been shown to have holes.

“The missing piece in the job creation story – the third trick – is bold moves to enable private sector investment,” Mr Goldsmith says.

“The government can buy temporary jobs, such as it is with its $1.1 billion programme to hunt possums and plant flax bushes, but it is the free enterprise economy that creates the most sustainable jobs.

“We need to be making it easier for firms to hire workers and expand their business.

“As well as its JobStart and BusinessStart programmes, which help businesses hire additional workers and redundant workers start a business, National has announced substantial tax changes to encourage businesses to invest. Firms will be able to write off $150,000 per new asset immediately.

“National would also extend 90 day trials to all firms – making it easier for companies to take a chance on new employees, and reverse recent further restrictions on inward investment.

“The government, meantime, is still in the mind-set of adding costs and regulations to business, such as last week’s higher waste levy charges,” Mr Goldsmith says.

Debt will increase whichever parties are in government after next month’s election.

A responsible one needs a plan to minimise  the borrowing and to pay it back.

Without that, Damien Grant says, the Government’s Covid-19 spending will be an economic albatross for decades:

 The true extent of the intergenerational crime that is being committed is becoming clear.

Today’s young are being robbed of opportunities and may be the first generation in our nation’s history to be significantly poorer than their parents.

Let’s start with the easy part: government debt. We spent $12 billion on the wage subsidy, the vast majority going to boomer-owned businesses to ensure they did not have to pay the full cost of their firms being shuttered.

Think about this for a moment. Almost every firm that got the money would have survived. This was a freebie to the capital-owning class; paid for with borrowed money that will not be re-paid by them, as their tax-paying days are coming to a close in the next decade. . . 

Whether or not most firms would have survived is debatable, as is the question of whether they were in trouble before the lockdown.

Wellington has decided, with overwhelming community support, to smash our economy in order to temporarily eliminate what has proved to be a virus with a far lower level of mortality than first advertised.

Fine. This isn’t something that I support, but OK. Let’s do this. However, if you are going to destroy tourism, damage hospitality and cripple construction, we need to be honest with ourselves; we are going to have to get by with less.

But we don’t want to do that. There is a collective refusal to accept that we are considerably poorer today than we were in January. There is an illusion of economic normality being created by enough ink to re-hydrate the Red Sea. . . 

National Party finance spokesman and putative post-election leader Paul Goldsmith estimates the projected $140b of future borrowings is equal to $80,000 per household.

Yet, no one seems to care. We’re in a panic over the fairness of charging people $3000 to cover the costs of an enforced stay in a quarantine hotel and the antics of school kids playing at being Nazis, but were heading off the edge of a fiscal cliff and … nothing.

The cost of borrowing will be paid for in two ways. Not only will this money need to be paid back; either through higher taxes, reduced government services or by the pernicious and economically destructive hidden tax of inflation, there is the opportunity cost of lost growth.

When you borrow to maintain consumption you are stripping resources from the economy that could have been deployed elsewhere for more productive activity; investment, primarily.

People wanting to borrow find they cannot get access to capital because the state is sucking up all available cash.

It isn’t just the cash available for lending either. It is the physical and human resources that entrepreneurs require to trade that are being diverted by the states’ uncontrolled spending. . . 

This government thinks it’s better at spending our money than we are and it’s spending is making it more difficult for private enterprise to flourish.

The lockdown produced a very good health response but the government response to the economic crisis will make it worse.

The problem isn’t just that sooner or later the debt will have to be repaid. It’s that every cent needed to repay it is a cent not available for essential services and infrastructure unless the economy starts growing, and growing well, again and there is no sign of anything from the government that will help us get out of this mess.


Don’t have to be doomed

July 28, 2020

National finance spokesman Paul Goldsmith’s speech to IFINZ includes this gem:

To me, the point of a strong economy is to enable New Zealanders to do the most basic things in life well.

A strong economy improves our chances of finding satisfying and well-paying work so that we can look after ourselves and our families – the most fundamental task each of us have.

A society based on the assumption that its average citizen can’t or shouldn’t be expected to look after themselves and their families is doomed.  

This government’s all-rights-no-responsibility attitude to benefits has sent a strong message that people aren’t expected to look after themselves.

People looking back at the supposed good old days often cite the level of government support, including universal Family Benefit.

They conveniently overlook the fact that most families had two parents, generally one of those parents was in paid work and most people expected to look after themselves and their families.

The economic impact of Covid-19 has resulted in a significant number of job losses. Few would argue that they should not have the safety net of a benefit.

The only way to ensure that net doesn’t become a trap is a strong economy that gives businesses the confidence to invest and employ people.

The government has been quite clear about its willingness to borrow and spend. It hasn’t provided a plan for economic growth.

National does have a plan:

Government spending, however, cannot provide the full plan. The money has to come from somewhere – it either comes from current taxpayers, leaving them with less to make their own investments, or from future generations – leaving them with less to make their own investments.

The primary driver for growth and jobs needs to be the private sector. 

The recipe for this hasn’t changed.

It requires disciplined Government creating an environment where businesses feel confident to invest and a mix of employment-friendly policies that make it easier to take on new people.

The core elements are:

  • Low taxes
  • Regulatory restraint
  • Consistency
  • An openness to investment
  • And in the Covid recovery context we can add, a path to make progress on the border. . . 

We don’t have to be doomed.

The recipe to save us from that is simple, as is the expectation that those of us who can look after ourselves and our families should do so.


Need to get NZ working

July 10, 2020

National has a plan to get New Zealand working:

National Party Leader Todd Muller has revealed the framework for the party’s Plan to create more jobs and a better economy.

At a speech to the Christchurch Employers’ Chamber of Commerce today, Mr Muller outlined the five elements of National’s Plan.

“All the components of the framework are designed to grow our economy and create more jobs,” Mr Muller says.

“The framework comprises five components: responsible economic management; delivering infrastructure; reskilling and retraining our workforce; a greener, smarter future; and building stronger communities.

“National will be releasing each of these components in a series of major speeches through this month and into early August to give New Zealanders time to scrutinise each element.”

The full plan will not be finalised until after the Government releases the Pre-Election Economic and Fiscal Update (PREFU) in August. It will be available by September 2 when overseas voting begins, to be followed by early voting, which starts on September 5.

It’s sensible to await the PREFU and good to know the timetable.

“National has a plan to rebuild our communities, get Kiwis back to work and deal with the economic and jobs crisis,” Mr Muller says.

“With Labour not having anything to offer except ‘borrow, spend and tax’, National understands that responsible government is about creating a deliberate and considered plan – and then following it.” 

Labour and its coalition partners are very good at spending but bad at good spending. In focusing on the quantity of the spend they forget the importance of the quality.

They are also very good at announcements although as Jane Clifton points out, a lot of these policies aren’t shovel-ready, many are only press release ready:

In the full speech here,  Todd outlines National’s commitment to:

  • An open and competitive economy;
  • A broad-based, low-rate tax system;
  • An independent central bank with the primary goal of price stability;
  • The Fiscal Responsibility Act, now part of the Public Finance Act; and
  • A flexible labour market, underpinned since 2000 by good faith.

Our concern is that that basic macroeconomic framework is being diluted by the current Government – mainly through incompetence than the result of any plan. . .

Jacinda Ardern has admitted her party wasn’t prepared for government and it shows in all the over-promising and under-delivering before Covid-19 hit.

That failure to deliver then was bad enough, it is even worse now with their determination to borrow so much which is likely to deliver far more debt without the financial rigour necessary to ensure the quality of the spend and determination to get back to surplus as soon as possible.

Todd says National won’t panic.

Nor will National cut family incomes. National has already announced that, whatever lies ahead of us through the crisis, we will not raise the taxes you pay or cut the benefits paid to those who need help. We would like Labour to make the same commitment to New Zealand families too.

Nevertheless, National will work to keep borrowing as low as possible. Out of the $80 billion plus they spend each year, all governments have wasteful spending that needs to be trimmed. All finance ministers review all spending each time they bring together a Budget. And we will do the same.

Since the Fiscal Responsibility Act, the economic and political debate in New Zealand has tended to be on the quantity of borrowing or debt repayment each year. These remain critically important. Getting back to fiscal surplus and then paying down debt to 20 per cent of GDP is necessary, not least because New Zealand will inevitably confront another natural, economic or health disaster in the next couple of decades or beyond. But just as important is to focus on the quality of spending.

Labour forecasts net core debt will reach 53.6 per cent of GDP in 2024 under their policies. That’s an eye-wateringly high level. We will work hard to try to keep it lower than that, which would put New Zealand in a better position to recover. But of far greater longer-term importance is that Labour projects that under its policies, but with a far stronger economic environment than we face today, net core debt will still be as high as 42 per cent by 2034. That means Labour intends a mere 11 per cent reduction in net core debt, over a decade. At that rate, we will not get back to the safe 20 per cent mark until perhaps the mid-2050s.

National does not regard Labour’s attitude as anything like prudent. It would leave an enormous debt, not so much to our children but to our grandchildren. And it would leave our children and grandchildren – and also ourselves – profoundly vulnerable were the global economic and strategic outlook anything other blissful for three successive decades. . . .

We learn two lessons from Labour’s economic and fiscal projections and their refusal to rule out higher taxes. First, they don’t have anything to offer except borrow, spend, hope and then tax. Second, and even more important, they don’t think any of their borrowing and spending will actually do anything useful to improve New Zealand’s productivity, economy or the overall wellbeing of every one of us.

I’m not hiding that my Government will borrow large amounts over the next three years, and in 2020/21 in particular. National will always be more disciplined in its spending than Labour. Yes, we will borrow what we need to, to support New Zealanders through the crisis – neither more nor less. But we will not just fling money around, the way the Labour Party is. Instead, we promise to spend it better and invest it better than Labour, in a way that does in fact improve New Zealand’s productivity, economy, the overall wellbeing of every one of us, and which, in turn, makes it easier to pay the debt off. . . .

Labour and its coalition partners have been flinging money round since they got into government.

National went out of office with the government’s books in surplus and forecasts of that to continue.

Even before Covid-19 hit, this government was taking us back to deficit.

If it couldn’t manage the economy well in reasonable times, it can’t be trusted to do it now we’re facing the worst of times.

That matters now more than ever.

It matters because we need a government that knows that taxing more in a recession is counter-productive – making it harder for people to look after themselves and making it harder for businesses to grow.

It matters because we need a government that understands that borrowing for hard times is only the start, it must also plan to pay back the debt, and have a plan that will work to do that.

It matters because we need a government that will get New Zealand working and the failures of this one to deliver on so many of its promises show we can’t trust it to do that.


Where are the savings?

July 7, 2020

When the milk payout plummeted a few years ago we did what every sensible business did – looked at every single item of expenditure in our budget, worked out what was and wasn’t necessary and adjusted it accordingly.

Anything that wasn’t absolutely necessary was removed, anything that was necessary was looked at carefully to see if we could find a way of reducing its cost.

The Key government took a similar approach with its budgeting during the GFC – requiring savings wherever possible while maintaining essential services.

Where is this government making savings?

The country is facing a far bleaker outlook than we did during the GFC but has yet to mention anything about making cutting costs to reduce the amount of borrowing it is doing.

Most councils have reduced the forecast rates rises, some impsing no increase at all but there is no sign that central government is planning to follow that good example from local government and re-examine its budget to reduce the burden of debt that will dog the country for many, many years.

Hardly a day goes by we don’t get media releases telling of government giving money to at least one project or initiative.

A responsible and caring government would put at least as much effort into saving money as it does to spending it.

There is a good case for spending during a recession, as the Key government did to take the hardest edges off the impact on the most vulnerable. But that spending was carefully targeted and the burden of debt was reduced by a concentration on making savings in other areas at the same time.

If the necessity of doing that has occured to this government it’s been very quiet about it but I doubt that it has even crossed its mind.

An administration that has failed to deliver on its big promises, threw money at ill-thought out policies as varied as fees-free tertiary education for all and good looking horses, is one that pays far more attention to the amount it spends than the value.

It has failed to differentiate between the quantity and the quality of its spend, between must-haves, to grasp the necessity of restricting itself to must-haves rather than nice-to-haves and to deliver on its promises when it was in surplus.

It doesn’t have the wit or the will to spend wisely and make savings where it can and must. We can’t afford another three years of that.


Planning to fail

July 3, 2020

Ensuring Covid-19 doesn’t get past the border has widespread support, but it’s time for a plan that keeps it there and lets more people in:

The Prime Minister needs to stop misrepresenting the border issue and tell New Zealanders what her strategy is to protect the economy long-term, Leader of the Opposition Todd Muller says.

“The Government’s clumsy and incompetent management of our quarantine procedures means it is impossible for New Zealand’s border to open tomorrow, next week or even next month.

“That simply would not be safe.

“However, New Zealanders also need to know how and when the border will progressively be reopened, because not doing that is untenable.

“New Zealanders deserve the highest standards to protect them from getting Covid-19, both at the border and when it comes to tracking and tracing in the event of cases in the community.

“We need to know when those standards will be in place so that New Zealanders have confidence to progressively and safely open the border and grow the economy.

“Locking down what’s left of the economy and waiting for a vaccine isn’t an option.”

Prime Minister Jacinda Ardern’s response ignores the issue:

 . . .”It is untenable to consider the idea of opening up New Zealand’s borders to Covid-19.

“In some parts of the world where we have had frequent movement of people they are not estimating that they will reach a peak for at least a month,” Ardern said.

“Any suggestion of borders opening at this point, frankly, is dangerous.” . . .

No-one is asking for the borders to open at this point.

A lot of people, businesses and organisations are asking for information on the plan for when and how the borders will open at some point in the future.

Farmers and contractors need experienced workers, principals facing teacher shortages are looking for staff, secondary schools and tertiary institutions want to be able to host foreign students again . . .

None of these is asking for anything that would risk Covid-19 getting past the border, but all want to know the government’s plan for safe entry of more than returning New Zealanders and the heavily restricted number and categories of people deemed essential workers so they can plan.

Any half competent government would have had people planning ahead months ago.

The omnishambles at the border that required the military and another minister to take over running it, shows that wasn’t done.

The current situation needs a strong focus but the inability for someone in government to look further ahead while others deal with immediate priorities reinforces Todd Muller’s observation there are three or four competent ministers and a whole lot of empty chairs in Cabinet.

Had there been anyone with more ability in any of those chairs, perhaps one of the three deputy Health Ministers for example, Chris Hipkins who already had a very heavy workload wouldn’t have been the only one capable of taking over as Health Minister yesterday after David Clark resigned.

That appointment highlights the shallowness of the Cabinet pond and explains why Muller’s request for details of the strategy for opening the border is being ignored.

There doesn’t appear to be anyone in the government with the time and ability to plan that far ahead which is a very serious problem because as the adage says, if you fail to plan then you’ll plan to fail.


Reds’ policy path to poverty

June 29, 2020

The Reds have announced an $8 billion tax grab:

The Green Party have unveiled a sweeping new welfare policy that would guarantee a weekly income of at least $325, paid for by a wealth tax on millionaires and two new income tax brackets on high-earners. . . 

The $325 after-tax payment would be paid to every adult not in fulltime paid work – including students, part-time workers, and the unemployed. The student allowance and Jobseekers benefit would be replaced. . . 

It would be topped up by $110 for sole parents, and the current best start payment would be expanded from $60 per child to $100 per child, and made universal for children up to three instead of two.

This guaranteed minimum income plan would cost $7.9b a year – roughly half what is spent on NZ Super, but almost twice what is spent on current working age benefits.

Paying for all this would be a wealth tax of one per cent on net wealth of over $1 million and two per cent for assets over $2 million. The party expects this would hit only the wealthiest 6 per cent of Kiwis.

This would take the form of an annual payment and would only apply to those who owned those assets outright – not someone who still had a mortgage on their million-dollar home, for example.

That looks like everyone could avoid the tax by never paying off their mortgage, but the party wouldn’t be that stupid, would it?

Any party that thinks up this sort of economic vandalism could be.

The Taxpayers’ Union is slamming the Green Party’s proposed wealth tax as bureaucratic economic vandalism that would hammer job creators.

Taxpayers’ Union spokesperson Jordan Williams says, “The proposed wealth tax would mean the return of the dreaded compulsory asset valuations that made a capital gains tax so unpopular. A bureaucratic valuation scheme would incentivise people to hide their wealth, or shift it offshore. It would be a dream for tax accountants but hell for small business owners.”

“The policy also appears not to differentiate between asset types.  It would tax entrepreneurs creating jobs the same as someone sitting on an art collection. Ultimately it would cost jobs at the very time New Zealanders need entrepreneurs to create them.”

“Wealthy iwi groups sitting on often unproductive land would also be smashed under this scheme.  It’s bumper sticker type policy which is poorly thought through.”

“Any party that says you should raise taxes in the middle of a recession is divorced from reality. It is scary that all the work James Shaw has done to try and make the Greens more economically credible appears to be for nothing.”

Commenting specifically on the Green Party’s income support policy, Mr Williams says, “Under the Greens’ policy, a family of five with both parents on the dole would receive $1180 a week in taxpayer funds, assuming one of the kids is younger than three. That goes beyond generosity: it is using taxpayer funds to encourage long-term unemployment. Combined with the policies to tax job creators, this package would take a sledgehammer to New Zealand’s productivity.”

There’s no good time to increase taxes and a recession is an even worse time.

Recovery from the economic carnage wrought by the Covid-19 response requires investment, expansion and increased employment opportunities.

This policy will be a handbrake on all of those and an accelerator for benefit dependency which is a pathway to increased poverty.

This policy is typical of a party that’s more red than green and doesn’t understand that a greener country has to be well and truly in the black and you don’t there by taxing more.

New Zealanders gained a glimpse today of what a Labour Greens government would look like, and it involves a lot more taxes, National’s Finance spokesperson, Paul Goldsmith, said today. . . 

At a time when we need our successful small business people to invest and create more jobs, the Greens want to tax them more.

Rather than celebrating Kiwis doing well, the Greens seem to want to punish them.

The Greens never have the influence to get their way entirely, but they would push a Labour Greens coalition in the direction of higher taxes.

Labour have so far refused to rule out taxing people more if they win the election.

The very real fear many New Zealanders have is that this current government, which has $20 billion available for election spending, will spend whatever it takes to try to keep its poll numbers up until the 19 September election.

Then on the 20th, if they win, the smiles will drop and New Zealanders will be presented with the bill – higher taxes.

National has committed to no new taxes for Kiwis in our first term.

While the economy is going down, the Greens want to tax us more, and Labour haven’t ruled out doing the same.

That’s another very good reason to vote for a National/Act government that will focus on policies which foster the economic growth necessary to provide a pathway for progress.


Why are we waiting?

May 8, 2020

The Ministry of Health’s Covid-19 website gives details of case numbers as at 9am each day.

But it’s not updated until at least 1pm.

Why are we waiting until then?

Is there a good reason, or is it only so we can have what is becoming an increasingly tiresome double act for the media from the Beehive?

In the first few days it was a good idea for the Director General of Health Ashley Bloomfield and Prime Minister Jacinda Ardern to give daily briefings, to inform, reassure the public and to answer questions from journalists.

The DG fronting each day is probably still a good idea but the daily pairing with the PM is not.

Seeing only her, highlights the absence of other Ministers. It raises questions about why they aren’t fronting and none more so than Minister, Tourism Minister Kelvin Davis is nowhere to be seen when that sector has been hardest hit by the lockdown.

The tourism sector is imploding, countless jobs are being lost, and many are left with a feeling of uncertainty. . .

What tourism businesses desperately need is a leader to articulate a message of hope. It needs Davis to proactively front the media, on a regular basis, to give an idea of what the Government is doing to save the sector. Because fronting the media gets the message out to operators, who are in the middle of making big decisions about their futures. . .

Davis, like most other Ministers is kept well away from the media.  Giving us only the daily duet is in danger of politicising the Director General because as each day goes by it looks more and more like the purpose is not so much to inform the public as to promote the PM.

Take yesterday’s announcement of what the step down to Level 2 will entail.

It could have been issued as a media release followed by the opportunity for questions from media.

Instead the PM read it out in minute detail as if to a group of young children, and ones with comprehension problems at that.

Or at least that’s what the first bit sounded like. I gave up listening after a very few minutes because I had better things to do with my time and a PM overseeing what could well turn into the worst economic depression in our history  ought to have too.

Ardern is Labour’s, and the government’s, most popular figure but these daily deliveries are in danger of turning into far too much of a good thing.

Much more of this and she’ll find more and more of her audience will be following Pooh’s example of getting into a comfortable position for not listening.


Straining social licence

May 5, 2020

Yesterday we got the welcome news that no new cases of Covid-19 had been detected.

That follows several days of new cases in single digits.

To most of us that looks like it would be safe to drop to Level 2 or may even Level 1:

At Level 2:

The disease is contained, but the risk of community transmission remains.

Risk assessment

    • Household transmission could be occurring.
    • Single or isolated cluster outbreaks. . . 

At Level 1:

The disease is contained in New Zealand.

Risk assessment

    • COVID-19 is uncontrolled overseas.
    • Isolated household transmission could be occurring in New Zealand. . .

So why aren’t we moving down at least one level, or at least knowing when we will?

The government has explained that elimination doesn’t mean no cases. That means that at whatever level we’re at there will almost certainly be some new ones.

But the health risk now appears to be less serious than the risk to the economy:

National Party leader Simon Bridges admits moving to pandemic alert level 2 could result in more COVID-19 cases, but says this could happen under any level and the lockdown has to end for the sake of the economy. . .

While the unprecedented restrictions have been successful in dramatically reducing the number of new infections of the virus – which has killed hundreds of thousands of people overseas – they’ve also taken a toll on the economy.

Bridges says there are 1000 jobs being lost every day under level 3, based on new applications for the Jobseeker benefit. This is similar to the rate of new applications under level 4, when far fewer businesses were able to operate – there were 30,000 applications in the month to April 17, despite the Government’s wage subsidy being paid out to organisations employing 1.6 million people.

“This has gone on too long,” he told Newshub. “We need to get New Zealand working again. Quite simply we’ve got to end lockdown because it’s so much easier to keep someone in a job.”

He said officials “from Ashley Bloomfield down” have said COVID-19 is “eliminated”.

“Having flattened the curve, let’s not flatten the economy as well. We have to come out at some point. We can’t just wait until there’s a vaccine.”   . . 

A thousand jobs lost a day is 1,000 people a day at risk financially and at risk of poorer physical and mental health as a consequence of that.

It’s not just jobs but whole businesses that have been lost and the longer we’re stuck at Level 3 the greater the risk and the greater the economic and social costs which also have health costs.

Compounding the frustration is the continuing dearth of information on what will happen and when it will happen.

We were initially told we’d be at Level 4 for four weeks. That turned into nearly five.

We were then told we’d be at Level 3 for at least two weeks. Given we’re not going to know until next Monday if there’s going to be a drop in levels, it’s likely that we’ll be stuck at Level 3 for at least a few more days longer.

Uncertainty about the legality of police action isn’t helping:

New Zealand Police’s decision to arrest Kiwis during alert level 4 despite being advised they had little legal basis to do so “undermines the rule of law” in New Zealand, the former Attorney-General believes.

The comment from Chris Finlayson comes just hours after leaked emails to NZ Herald revealed that police were told by Crown Law that they had little to no power to enforce lockdown rules.

Finlayson, a former National MP who served as Attorney-General for nine years between 2008 and 2017, says it’s clear the police have acted beyond their powers during the coronavirus crisis.  . . 

The refusal to release Crown Law advice makes it even worse.

Incumbent Attorney-General David Parker has thus far refused to make public the advice, despite mounting pressure from the Epidemic Response Committee and MPs to do so.

Finlayson believes Parker’s refusal means there are parts of the advice “he may not like” – but says that shouldn’t change whether it’s released or not.

“There’s an overwhelming public interest, for people whose freedoms have been curtailed over the last few months, to know exactly the legal basis upon which certain decisions were made,” he said. . . 

Last week the government accidently passed legislation that differed from the Bill MPs had seen. That undermines confidence, but Jenée Tibshraeny writes:

. . .The public is putting an immense amount of trust in the Government as it circumvents the usual checks and balances to get us through this crisis. But trust is earned. It’s also key to maintaining social cohesion.

Oddly, I can dismiss Thursday’s passing of the wrong legislation as an extraordinary genuine mistake.

But the lack of transparency around decision-making and incoherent way of announcing a billion-dollar policy change, are inexcusable.

The government has imposed unprecedented restrictions on us at an enormous economic and social cost.

The willingness of most of us to abide by the lockdown requires a social licence which must be based on trust.

The government’s refusal to give us all the information we need, and to which we are entitled, is undermining trust and straining that social licence, and that is putting strict compliance at risk.


Social Market Economy explained

May 2, 2020

The New Zealand Initiative’s Executive Director Oliver Hartwich presented to the Epidemic Response Committee on 23 April 2020, where he outlined his vision for New Zealand’s social, political and economic future.

Oliver recommended economist Ludwig Erhard’s principles-based approach to New Zealand, which Erhard called the “Social Market Economy.”

But what is a Social Market Economy? Our Research Intern Luke Redward explains all the details in this video.

Oliver Hartwich’s full speech to the Epidemic Response Committee is available here:


What else will go?

April 23, 2020

Covid-19 has claimed another victim:

Pharmac has frozen plans to fund a lung cancer drug that would have helped at least 1400 patients a year, saying it can no longer afford to make the investment.

The move has dashed hopes that Keytruda would soon be publicly funded for lung cancer – New Zealand’s biggest cancer killer. . .

What will follow?

Other drugs, other treatments, more research.

Health received $19.871 billion in the 2019/20 Budget. More than $9 billion has already been spent on wage subsidies as part of the response to the Covid-19 lockdown.

That’s a big hole to fill and it won’t just be health that gets less.

What was expected to be a vote-buying spend-up Budget next month will be much, much more restrained.

We’re told that most people support the lockdown, but how many understand the full costs, and not just in money but in businesses, livelihoods and lives?

How many would have been at least as supportive of a response that safe-guarded people from the rampant spread of Covid-19 while letting more businesses operate?

The insistence on using the arbitrary view of what’s essential rather than what’s safe has increased the economic and social costs of the lockdown while doing nothing at all to make it more effective.

I got an email last week telling me I could buy text books and any children’s reading material from Dunedin’s University Book Shop but I couldn’t get adult novels until after the lockdown was eased.

How could delivering an adult novel be any more risky than the other books deemed essential?

A friend needed a merino t-shirt as the one she uses for her daily walks is falling to bits. She went on line and found she could buy long-sleeved merino garments but not t-shirts.

Why is a t-shirt not essential when something with longer sleeves is, and how much more risk is there in packing, dispatching and delivering a t-shirt than in doing it for something with long sleeves?

Another friend’s elderly mother has her lawns mown by a man who brings his own mower.

Providing he stayed outside and kept at least two metres from her, how is that any more risky than her grandson coming with his mower, and keeping a safe distance, to cut her lawn?

There are very small examples, there are plenty more much bigger ones of constraints on commerce that should not have been imposed.

Health and safety in employment law is rigorous at the best of times, its requirements should be fit for the purpose of safeguarding employees and customers in these worst of times.

Had businesses which could have operated safely been able to do so the government would be spending less on welfare, staff subsidies and business support.

These businesses, and their employees, would be then be contributing to public coffers through tax, rather than taking from them.

That would have gone someway to reducing the cost of the lockdown and contributing to a swifter recovery.

It might not have been enough to save Pharmac from reversing its decision to fund Keytruda for lung cancer, but it would have made the difference between life and death for some businesses and the livelihoods of their staff.


Stopping the spread vs economic meltdown

April 18, 2020

Trend is down

April 9, 2020

It is too early to relax, but the trend of newly identified cases of Covid-19 is down.

Recoveries outnumbering new cases is grounds for cautious optimism.

Other trends are beginning to show the economic cost of the battle against the disease:

Spending on eating out and accommodation plunged more than $300 million or almost one-third in March in the wake of measures to slow the spread of COVID-19, Stats NZ said today.

Groceries had record-high sales in March, but retail card spending fell across the board during the month from clothes to fuel.

Total retail sales fell $231 million (3.9 percent) in March 2020, after adjusting for seasonal effects, the biggest fall on record in both percentage and dollar terms. . .

While these trends are down, business failures and job losses are trending up.

All of these will be leading to a decrease in the  (a survey shows 1/3 don’t expect to survive) tax take just when the demands for public spending are increasing.


The other curve

April 6, 2020

In ordering a lockdown and putting New Zealand into a state of emergency, the government is firmly fixed on reducing the spread of Covid-19 to save lives and, ultimately, eliminate the disease.

That’s the health side of the equation. Roger Partridge argues a coherent Covid-19 strategy would also taken into account the economic one:

Professor Sir David Skegg raised the 64-thousand-dollar (or perhaps 64 billion-dollar) question in his testimony before Parliament’s Epidemic Response Committee this week. He asked whether the government had a clear the strategic objective for its unprecedented level-four lockdown.

Since the subtitle of Alert Level 4 is “Eliminate”, Sir David’s question might seem unfair. And Director General of Health, Dr Ashly Bloomfield, quickly clarified to media that elimination is indeed the goal.

But if elimination is the objective, it is troubling that Minister of Health David Clark referred to a goal of reducing the epidemic’s effect to successive “waves” of infection in his testimony before the Committee. There will be no waves of infection if elimination is successful.

Lack of consistency in messaging about the Government’s strategic objective is worrying. But there is a more fundamental concern with the elimination objective: the absence of a clear timeframe. Of course, we can eliminate the disease. If the four-week lockdown does not work, the government simply forces us into lockdown for longer. But at what cost?

A cost-benefit assessment sounds heartless when the goal of the lockdown policy is to save lives. But the country-wide pause has already triggered a domino-effect of business failures and job losses. Just as the coronavirus spreads exponentially, so does harm from the lockdown. For firms and workers, each day of lockdown causes more business failures and job losses.

It is easy to count the deaths of, or at least with, Covid-19. It will be harder to count the social costs, including lives lost, from both later treatment of other health conditions and the economic devastation, but they will be real.

These economic effects have health and wellbeing implications too. And at some point, the harm to the wellbeing of Kiwis from the lockdown may become greater than the benefit to the wellbeing of New Zealanders from continuing with it.

This will include more suicides, more domestic violence, more alcohol and drug abuse and delayed treatment for health conditions including cancer which could make a life or death difference.

Most estimates show unemployment soon running into double figures. Overseas estimates suggest if Governments are not careful unemployment could exceed 20% or even 30% – levels not seen since the Great Depression.

The hardship caused to hundreds of thousands of Kiwi families from widespread unemployment, the evaporation of job opportunities for the new generation of school leavers and the losses to the productive side of the economy which funds our social services and most of the population’s livelihoods, must all be factored into the Government’s strategic choices.

The business failures and job losses have both and economic and social cost that will feed off each other.

They will also result in less tax paid while demands on the public purse will increase.

Until it addresses this complicated equation, the Government’s Covid-19 strategy is at best only half complete. A well-informed strategy must consider both curves – the epidemiological curve and the economic curve.

In the meantime, Professor Skegg had some clear advice for the Government on the areas it must lift its game to give us the best chance of achieving the goal of elimination. The Government must fix the shortcomings with Covid-19 testing. It must enforce strict quarantining at the border. And it must improve contact tracing.

If the Government gets these tactics right, perhaps it can sidestep the bigger strategic decision. But it is fast bearing down on us.

In the meantime, the Government must be more transparent with New Zealanders on the difficult strategic choices the country is facing. If it isn’t, we risk drifting in a direction that may do more harm than good.

This response form the Prime Minister suggests she doesn’t understand that:

“A strategy that sacrifices people in favour of, supposedly, a better economic outcome is a false dichotomy and has been shown to produce the worst of both worlds: loss of life and prolonged economic pain,” Ardern said. . .

She is saying there would be fewer lives lost and less economic pain if the lockdown continues as it is which is not necessarily so. A better economic one would be a better social and health one too with fewer deaths from other causes.

The economic and social costs wouldn’t be so high if the government was to opt for safety rather than essential as the guide for which businesses can operate.

National on Sunday called for more businesses to be allowed to open up if they could prove they could operate safely.

“Our economy has already faced unprecedented devastation since the Government closed it down, we should be doing all we can help revive it and protect businesses and jobs,” economic development spokesman Todd McClay said.

“To date the decision making has been too arbitrary and there are too many inconsistencies. For instance, allowing dairies to open but not local butchers or greengrocers, agriculture to continue but not forestry, cigarettes to be manufactured but community newspapers cannot be printed.”

“If a business proves it can operate safely, provide contactless selling and ensure physical distancing then they should be able to operate.”

What’s the difference between butcheries, greengrocers and fishmongers following practices that keep their staff and customers safe, and supermarkets operating as they are now?

What’s the risk in greens keepers working by themselves on a golf course?

Why can’t  more businesses that sell online be able to do so? If it’s safe to sell a heater or a winter jumper why not a scanner or a shirt?

Why couldn’t some road works be done safely while there’s so little traffic? Why can’t some building continue as long as the tradies work alone or at safe distances from each other and without sharing tools? If an urgent repair to a vehicle can be done safely, why not a warrant of fitness?

All the arbitrary emphasis on essential rather than safe is doing is allow overseas online businesses to compete with domestic ones which might not survive the shutdown.

While Baur might have pulled out of New Zealand anyway, the government’s declaration that only daily media was essential has killed some of our best magazines.

The latest update on Covid-19 cases does show that the lockdown appears to have stopped the steep spike in cases seen elsewhere.

That doesn’t mean we can relax, but it ought to allow the government to take a broader look at its strategy and its social and economic costs.

The lockdown does appear to be achieving its aim of flattening the epidemiological curve, but the government is not doing nearly enough to consider the economic curve and the social costs that will result from that.

Flattening the Covid-19 curve is good but not at the cost of flattening the economy more than is necessary.


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