Spray now, pay later warning worth heeding
Sir Roger right to query wage cash for ‘wealthy firms’
Sir Roger Douglas has cut to the chase saying the amount of government cash pouring out the door to large companies with no obligation to pay it back is not only wasteful but beggars younger generations.
The former Labour finance minister name checks The Warehouse Group and partners in “wealthy law firms” like Simpson Grierson, Bell Gully and MinterEllisonRuddWatts asking why they have not been required to fend for themselves and their businesses.
Douglas is a first-rate economic diagnostician. But this is not the salvo that Labour’s current Finance Minister Grant Robertson wants to hear just one week out from his May 14 Budget.
After six weeks of daily 1pm press conferences with Jacinda Ardern repeating her mantra — “stay home, save lives” — the focus has primarily been on the Covid-19 health emergency.
Business and economic journalists (unless they are accredited to Parliament’s press gallery) are not allowed into the Beehive theatrette. The upshot is there has been infrequent questioning over the trade-off between the health and economic imperatives.
For Cabinet ministers this will be the singular most important work that they do in their political careers. Simon Bridges — who is developing a contrasting economic agenda — has been savaged by the press gallery. But among the business community the National leader has earned respect for posing questions that need to be answered and ensuring that influential players like Sir David Skegg appeared in front of Parliament’s epidemic response committee.
Douglas’ fundamental point is that the Covid-19 outbreak has not only precipitated a health emergency, but also an economic crisis, unparalleled in modern history. “For New Zealand to emerge from that crisis in a relatively healthy state, the Labour Government will need to provide a clear framework for recovery, implementing policies which clearly prioritise those most affected by the societal and economic lockdown necessitated by the outbreak,” Douglas says.
He maintains prioritisation has been lacking, with the Wage Subsidy Scheme unfairly advantaging big business and the professional elite, at the cost of money and resources which could have been better directed towards assisting the newly unemployed — namely workers, their families, and small business owners.
“Ultimately, poorly targeted support in the form of helicopter payments, wage subsidies, or broadbased tax cuts (such as a moratorium on GST) is wasteful, and will only serve to entrench inequalities that existed prior to the pandemic. Equally, the time and costs inherent in planning large-scale new infrastructure projects — and the fact that they offer little practical help to the majority of workers who require help now — means that they should not be regarded as a panacea, aiding economic recovery.”
Douglas also takes issue with relying on “shovel ready” infrastructure projects, maintaining they won’t necessarily create jobs for those losing theirs.
New Zealand’s biggest “shovel ready” project is in fact the multibillion-dollar cash stimulus Robertson shovelled out the door through wage subsidies to keep Kiwis attached to their work.
It’s been a godsend to businesses and their employees. But it is open to abuse as any “free money” is.
When Robertson announced the scheme on March 9, it was estimated to cost $5.1 billion for affected businesses in all sectors and regions. That threshold was passed within a month. It has since ballooned to more than twice that figure ($12b plus) after the Government relaxed rules removing a $150,000 cap per firm and big business quickly piled in.
The Finance Minister said the scheme was “high trust”.
But it is now subject to audit after some questionable awards to companies and partnerships that ought to have been able to absorb the impact of the Covid-19 lockdowns from within their own financial resources such as retained earnings and credit facilities.
An April 30-dated briefing paper — “In a new world, new thinking is required. Why the prioritisation of resources is crucial to New Zealand’s economic recovery in the wake of Covid-19” — takes issue with what the former finance minister sees as wasteful spending.
Douglas co-authored the report with Professor Robert MacCulloch who holds the Abel Chair of Macroeconomics at the University of Auckland.
They reckon the Government could make $15-16b in savings by:
● Ending Waste: Through removing KiwiSaver tax breaks and subsidies, ending future government contributions to the New Zealand Super Fund, and reducing the excessive Votes available to government departments to quickly access around $9b per annum.
● Eliminating Privilege: By ending corporate grants and tax breaks, stopping the Provincial Fund, removing highincome families (around 15 per cent of the population) from access to Working for Families and winter energy subsidies, and by ending tertiary education grants for students other than those from low capital and low-income families to make further savings of around $7b per annum.
Margaret Thatcher used to say socialist governments traditionally do make a financial mess. “They always run out of other people’s money.” Robertson is not cut from that cloth but in election year he has to ensure that tendency does not become uppermost. He vowed never to follow in Douglas’ footsteps. But he should at least be open to the message.