Guest Post: Douglas and MacCulloch on Economic Recovery in the Wake of Covid-19

Sir Roger Douglas and Professor Robert MacCulloch have published a paper on Why the Prioritization of Resources is Crucial to New Zealand’s Economic Recovery in the Wake of Covid-19.

The paper is here.

The summary is:

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 prioritize those most affected by the societal and economic lockdown necessitated by the outbreak. To date, such prioritization 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 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.  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. 

Instead, clear, innovative policies, which not only prioritize those most in need, but which also lay the groundwork for further social and economic reform in the medium to long term, are required.  For workers and their families, support can be offered via the mechanism of special risk accounts, tailored to meet their individual needs.  For small business, help can be provided by facilitating conversations between businesses, landlords, and banks, as well as providing – upon the provision of an approved business plan – forgivable government loans.

Finally, to help manage the recovery, and ensure our younger generations are not saddled with debt, the government must also identify, and eliminate, unnecessary spending, privilege, and waste.  It can find an extra $15 billion per annum by doing so, contributing to the recovery in the short term, and – more generally – to implementing wider scale reform once the immediate crisis has been put behind it.

The authors point out:

In 2019, the Warehouse Group made an after-tax profit of $74 million dollars.  Even allowing for some inevitable pain, good corporate management suggests that it should have been able to look after itself during the lockdown, or, failing that, should have been capable of paying back a loan once its 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.  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?  And why has the government responded by treating them the same as workers and small businesses who have never enjoyed an equivalent level of wealth and who do not enjoy access to the resources they do?

You could argue the listed companies have a duty to their shareholders to take the subsidy if they are eligible.

Overall a excellent paper that emphasizes the importance of spending being of high quality, not scattergun.

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