Former Labour Finance Minister Sir Roger Douglas has described some of the Government's economic support measures as wasteful.
"Poorly targeted support in the form of helicopter payments, wage subsidies, or broad-based tax cuts (such as a moratorium on GST) is wasteful, and will only serve to entrench inequalities that existed prior to the pandemic," argues Douglas and his co-author Robert MacCulloch in a paper released this week.
He says that such measures will simply saddle younger generations with "a debt so large that it impinges upon their prosperity, and quality of life, for decades to come."
"That is why we require a clear framework for recovery, and why we must both prioritise and target spending, so that it reaches those most in need, rather than being spread more generally (à la helicopter payments), and falling into the pockets of those who are able to care for themselves," he says.
"It is also why we must look to eliminate privilege and waste, both of which have been part of New Zealand's economy for too long. In total, there are $15-16 billion dollars of savings we might make per annum, simply by removing unnecessary government spending."
Douglas served as a Labour Member of Parliament between 1969 and 1990, including a stint as Finance Minister from 1984 to 1988. Later in his career, he co-founded the Association of Consumers and Taxpayers, which would become a precursor to the Act political party.
Douglas' report reserved some of its strongest criticism for the wage subsidy scheme's distribution of funds to larger businesses.
"While the scheme, which already comes at a cost of $10 billion, has undoubtedly
provided short term support to those who needed it – workers and small businesses –
it has also been used to prop up corporate monoliths and institutions who should have
been left to fend for themselves or – at the very least – should have received
assistance in the form of a loan, instead of a handout."
Douglas points to the Warehouse Group as an example of a business that should not have had access to the wage subsidy.
He says the company, which made an after-tax profit of $74 million dollars in 2019 should have been able to "look after itself during the lockdown" or taken out a loan to endure the tough patch until stores reopened.
"Similarly, the partners in wealthy law firms like Simpson Grierson, Bell Gully and MinterEllison have enjoyed years of high six (and sometimes even seven) figure salaries," Douglas says.
"Why haven't they been required to fend for themselves and their businesses? Why, when the good times suddenly come to an end, have they gone cap in hand to the government?"
Douglas suggests an alternative strategy targeted more specifically at small businesses, families and infrastructure projects to lift up the economy as New Zealand moves into the recovery phase.
He calls for payments to tailored specifically to individual workers rather than in the form of lump sums to employers.
"By tailoring assistance to individual workers, the government can ensure that the
support it provides meets specific needs, in a way that poorly targeted helicopter
payments, subsidies provided to businesses, or even broad-based tax cuts (such as a
moratorium on GST) cannot."
He further argues that small businesses should be given access to Government-provided consultants who can help the organisations navigate through the crisis. If an exit route can be found, then these businesses should also be given access to a tailored loan to help them survive through the Covid-19 impact.
"It should be noted that the intent of this plan is not to provide loans to companies that
have access to plenty of liquidity and other sources of capital."
Douglas adds that extensive new infrastructure projects are not the panacea that some believe them to be.
He advises against splurging on big infrastructure projects that will do little to address many of the job losses across the country.
"This is not a crisis affecting unskilled workers who are often the first to be laid off
during a downturn and who can be offered jobs in new construction projects," he says.
"Rather, this is a crisis which afflicts the shopkeepers, the florists, and the chefs – skilled
workers who wish simply to be afforded the chance to return to what they once did."
These individuals, Douglas argues, will have little inclination to retool and build a highway.
If the Government is to institute a big infrastructure push, Douglas recommends housing as an area to focus on as this will help to address the affordability issues that continue to affect the housing market.
"Now is not the time for new infrastructure projects," he says.
"A new, improved highway between Christchurch and Dunedin, or a fast-train link between Hamilton and Auckland, is of no immediate benefit to the café owner in Whangarei, the florist in Kerikeri, or the pet shop owner in Blenheim, whose very livelihoods are threatened."
Read the full report here: