The Taxpayers’ Union says today’s release of the COVID-19 Royal Commission report confirms that ministers made some of the most significant decisions in modern New Zealand history while ignoring official advice.

Taxpayers’ Union spokesperson Tory Relf says the report raises serious questions about accountability.

“New Zealanders were repeatedly told the Government was ‘following the science’. The Royal Commission report shows that wasn’t always the case.”

“We now know that ministers kept Auckland in lockdown longer than officials advised and maintained vaccine mandates for teenagers despite safety warning against two-dose requirements.”

“These were extraordinary decisions that cost taxpayers $66 billion and imposed some of the harshest restrictions anywhere in the developed world.”

“When politicians override the advice they’re given, they must explain why. So far, that accountability has been missing. Former COVID Response Minister Chris Hipkins declined to appear publicly before the Royal Commission. New Zealanders deserve answers about why key advice was ignored.”

“When governments exercise extraordinary powers over people’s lives and spend tens of billions of taxpayer dollars, the public has every right to demand accountability.”

A new briefing paper released by the New Zealand Taxpayers’ Union makes the case for a temporary cut in the rate of the Goods and Services Tax (GST) from 15 percent to 10 percent, mimicking what the United Kingdom Government did with VAT immediately following the Global Financial Crisis.

Policymakers are currently grappling with the question of how to spur spending in the economy as we face a recession. This question will become urgent as the wage subsidy scheme ends in September and we see the real effects of COVID-19 on our economy.

With the official cash rate already close to zero, monetary policy has become increasingly ineffective as a stimulus tool. This has seen politicians propose fiscal interventions, such as the Government’s interest-free business loan scheme, but these interventions are often poorly targeted and create perverse incentives.

Fortunately, our tax system already provides a sound, indiscriminate mechanism to encourage spending. A temporary cut to GST during the height of recession would encourage New Zealanders to bring forward consumption – similar to a cut in the official cash rate.

This spending would breathe life into revenue-starved businesses, ensuring they can continue to employ New Zealanders and keep supply chains unbroken.

We suggest a sunset clause kicking in after a year to avoid long-term deficit effects or politicians replacing the lost revenue with increases to more economically damaging taxes.

On a yearly basis, the fiscal impact of this cut would be a $7.36 billion reduction in reduction in revenue for the Government. However, this impact could be reduced implementing the policy for a shorter period of time.

Despite the national health and financial emergency, most councils are still planning to hike rates - some up to nine or ten percent. Louis interviews Hutt City Councillor Chris Milne & Christchurch City Councillor Sam MacDonald on their response to our campaign calling for a nationwide rates freeze and ways councils can save money.

You can support our campaign calling for a naitonwide rates freeze at www.ratesfreeze.nz. The dashboard referred to in the podcast is available at www.taxpayers.org.nz/rates_dashboard

You can subscribe to Taxpayer Talk via Apple Podcasts, Spotify, Google Podcasts and all good podcast apps.

In this episode, Jordan talks to Dr David Law (Research Fellow) and Dr Eric Crampton (Chief Economist) at the New Zealand Initiative thinktank. Dr Law has just published a paper, Policy Point: Short-time work to maintain employment and Dr Crampton a Research Note: Effective Treatment: Public policy prescription for a pandemic. Both join us to discuss their papers, as well as why current calls from leftwing groups for a UBI are misguided.

You can subscribe to Taxpayer Talk via Apple Podcasts, Spotify, Google Podcasts and all good podcast apps.

The team have spent yesterday afternoon working through the Government’s COVID-19 response package. A couple of the staff are in self-isolation, so we’ve well and truly rehearsed using the virtual technology in preparing this note and our media commentary.

In summary, the package is not as comprehensive as many economists were expecting. On the eight measures we have been lobbying for, the Government has picked up some of the ideas but left many out. Grant Robertson has signalled more is to come on Budget Day (14 May) or even before then.

Overall, yesterday's package is not as focused on protecting jobs as we were expecting. For example, the wage subsidies to employers are effectively limited to organisations with 20 or fewer staff.

The Government also appears to have used COVID-19 to make some permanent policy changes. For example, while temporary boosts to income for beneficiaries and those most vulnerable are justified, the Government has increased benefits by $25 per week on a permanent basis (that is in addition to the normal annual adjustment for wage inflation). 

The Winter Energy Payment (paid to all on any non-student benefit or NZ Super) is also being doubled to $40.91/week for singles and $63.64/week for couples. But in this case, just for this year.

Summary of Government's response package:

• $500 million boost for health (the cost is equal to $278/household)

• $5.1 billion in wage subsidies for affected businesses in all sectors and regions, available from today ($2,833/household)

• $126 million in COVID-19 leave and self-isolation support ($70/household)

• $2.8 billion income support package for our most vulnerable, including a permanent $25 per week benefit increase and a doubling of the Winter Energy Payment for 2020 ($1,556/household in the first year)

• $100 million redeployment package ($56/household)

• $2.8 billion in business tax changes to free up cashflow including a provisional tax threshold lift, the reinstatement of building depreciation, and writing off interest on the late payment of tax ($1,556/household)

• $600 million initial aviation support package ($333/household).

Our take:

The New Zealand Taxpayers' Union is welcoming the temporary measures to ease pressure on employers contained in yesterday's economic relief package.

Yesterday's relief package is a vindication of the long-term fiscal prudence by a generation of finance ministers. Measures like temporary wage subsidies are extremely costly, but can be afforded thanks to successive governments' commitment to low public debt.

We're pleased to see the waiving of interest for late tax payments, and the increase to Winter Energy Payments which will help keep vulnerable older New Zealanders at home. We recommended these changes in our briefing paper released Monday. The lift in the threshold for provisional tax will also be a welcome relief to small businesses.

We’re open to increasing benefits for the duration of the pandemic, but COVID-19 is not an excuse for locking it in. For context, the cost of the benefit hike is around $2.3 billion — almost five times as much as the boost to the health system. Every extra dollar spent here means one fewer for the productive sector and frontline health services.

There are also policy measures such as the changes to depreciation treatments which, although we support them, seem totally unrelated to the immediate threats to business cashflow and New Zealand jobs. It suggests this was very much policy designed to be seen to be doing something, rather than policy targeted at the specific challenges we face now.

Elephant in the room: 1 April minimum wage hike

The big hole in this package is supporting businesses faced with higher costs due to the minimum wage going up on 1 April. The people who get slammed most will be the working poor, earning the minimum wage or close to it, who work for a large employer that doesn't qualify for the wage subsidy package or will only receive limited assistance. 

The obvious measure is to pause the minimum wage hike until economic conditions allow.

More information:

For convenience, we have copied links to the Government’s announcements and factsheets below.

Government's media releases:

• • Economic package to fight COVID-19

  • Hon Dr David Clark: Backing our Health systems to battle COVID-19

  • Hon Grant Robertson: $12.1 billion support for New Zealanders and business

Minister's speech to Parliament

• Hon Grant Robertson: Statement to Parliament on the Economic Response to COVID-19

Policy factsheets:

• • Health Package Factsheet

  • Business Cash Flow and Tax Measures Factsheet

  • COVID Leave Support Factsheet

  • Income Support Factsheet

  • Wage Subsidy Scheme Factsheet

Responding to the developing threat of COVID-19 to the New Zealand economy, the New Zealand Taxpayers’ Union has released a paper outlining its recommendations in advance of the Government’s package being announced tomorrow.
 
As fiscal conservatives, it does not come naturally to call for a dramatic expansion of the size of state spending. However, a core role of government, and why we pay taxes, is to protect the citizenry at times of national systematic shock such as war and pandemic.

COVID-19 is the biggest economic event of my lifetime. It is essential that the Government takes all steps to protect lives and livelihoods now, but also our ability to recover quickly once the health crisis is over. It is with that in mind that our economic team has drafted these recommendations for emergency measures.
 
We accordingly urge the Government to adopt the measures outlined below, which are explained in our paper:

• Provide all New Zealand employees with one month of sick leave in addition to existing rights for the rest of 2020, paid for by the taxpayer;
• Use buyouts rather than bailouts. Taxpayer funds paid must be in return for the Crown taking a significant/majority or total shareholding;
• Scrap the 2020 increase to the minimum wage — but if the Government insists on going ahead, have it meet the costs to employers for the next 18 months;
• Fund unlimited childcare for health workers, aged care workers, and Police staff for the next 18 months;
• Partner with Progressives, Foodstuffs and Uber to make grocery delivery free;
• Give lump-sum payments to taxpayers by retrospectively cutting the bottom tax rate from 10.5% to 5% for the 2019/2020 tax year;
• Expand 'Winter Energy Payments' to begin immediately and continue through winter 2020; and
• Suspend interest and penalties for late tax payments from employers.