Helicopter money: Should New Zealand follow Britain and introduce spending incentives?

The UK Government is footing half the bill for meals at restaurants and pubs throughout the month of August to encourage people back to the high street. Photo / Getty Images

An economist says Britain's helicopter money to boost business could be introduced in New Zealand as the full impact of the economic downturn hits.

Chancellor of the Exchequer Rishi Sunak last week announced that the UK government would introduce an "eat out to help out" discount throughout August that equates to a 50 per cent reduction for sit-down meals at pubs and restaurants to help pump money back into the struggling high street.

The move would help to protect 1.8 million jobs, Sunak said, as part of a £30 billion ($57b) plan designed to rescue the UK economy from a recession.

This followed an earlier proposal in Britain dubbed the "£500 shopping initiative" which proposed to give adults a "free"£500 ($960) voucher and children a £250 ($480) voucher as a way to kickstart th economy and incentivise spending in the high street.

The government of Jersey has announced a diluted version of this - it plans to give £100 ($190) worth of vouchers to its residents to kick start the Channel Island's economy.

Retail NZ would like to see a similar initiative or some form of helicopter money pumped into the New Zealand economy to encourage spending and to help the sectors hardest hit by Covid-19.

While June proved to be a strong month for retail spending - card spending was about six per cent above where it was prior to lockdown, this is expected to be short-lived.

ASB senior economist Mike Jones said helicopter money was often an effective short term fix for struggling economies, but noted that Kiwis were not struggling to find their credit cards like those in Britain were.

"A cash splash helicopter money-type solution probably is something Government should keep up their sleeves for a rainy day - it is quite effective in terms of getting money into people's pockets and money into the economy as quickly as possible," Jones told the Herald.

An "emergency measure", Jones said it was not currently needed as New Zealand was in the midst of a "sugar rush" due to pent-up demand.

"The better and more sustainable solution is a focus on jobs. The problem with helicopter money is it is great but it is very much a one and done, the cash gets spent and it's gone. If you focus on jobs and people have an income then it is a much more sustainable way to keep the economy and retail spending going."

The timing also had to be right to successfully inject helicopter money into the economy during a downturn, he said.

Spending is expected to drop again after the bulk of the wage subsidies end in September. A second wave of mass redundancies is expected.

Jones said economists anticipated retail spending would "cool off quite rapidly" in the second part of the year.

"If we do see risks of double dipping recessions and such then it is something that could be employed for a quick boost in economic activity."

Retail NZ chief executive Greg Harford said the sector would like to see some form of free money dished out either as one-off grants, reduced GST or reduced income tax.

Mike Jones, ASB senior economist. Photo / Supplied

"I think there is real merit in the Government considering the idea, particularly if it could be applied in such a way that consumers get to spend it," Harford said.

"The risk is if you give people money they may just save it or use it to repay debt, but if it was done in a way that could only be used at retail and hospitality outlets, for example, then that would be very beneficial."

A helicopter money incentive would help "keep consumers spending when the downturn becomes worse in a few months time" and would in turn help to retain jobs, he said.

"It will help any retail or hospitality business that's feeling the squeeze. A big issue in the service sector is that consumers haven't got the money they had six months ago and aren't feeling confident, this will help give them that boost and a bit of cash."

Boost for the regions

Retail analyst Chris Wilkinson, managing director of First Retail Group, said a voucher spending scheme rolled out in New Zealand over the six to 12 months, perhaps even specifically for the regions most affected by the pandemic than others, could be highly beneficial for the wider economy.

While New Zealand's retail, arts and hospitality sectors have been nowhere near as impacted as those in Britain, such a scheme could be an option for the Government to consider as the country enters the next phase of recovery.

"It doesn't necessarily need to be a New Zealand-wide initiative, but it could be specific to regions," Wilkinson said. "As soon as the challenges of employment get within an arm's length of people that's when their perspective will start to change.

"We still remain in a bubble at the moment but I think it is universally accepted that the challenges are still ahead, and [helicopter money] needs to be part of an economic development response that can be available as we start to see situations of extreme distress."

Spending over the weekends post-lockdown were at an all time high, but this, along with general consumer optimism, would likely change over the next couple of months, he said.

"In six months' time it could be a useful reset mechanism."

The Government still has $20b earmarked for the economic recovery from Covid-19.