The Government hasn't asked Treasury to model tax hikes, but has asked it to consider further ways of stimulating the economy, including helicopter money

The Government hasn't asked Treasury to model tax hikes, but has asked it to consider further ways of stimulating the economy, including helicopter money
Grant Robertson. Getty Images.

Treasury says the Government hasn’t asked it to model how tax hikes could help cover the cost of the COVID-19 response.  

Treasury secretary and chief executive Caralee McLiesh on Wednesday told the Epidemic Response Committee that Treasury had been focussed on the COVID-19 response and recovery.

“We have not been modelling tax increases or any other consolidation proposals at this point,” she said.

“The Budget documents outline projections around debt. There’ll be choices ahead for governments if they require a faster reduction."

McLiesh said Treasury was however looking at additional ways the Government could stimulate the economy, including through "helicopter money" or cash payments.

While this would be a decision for the Government, she said additional support would need to be designed to help those “most affected” and to have the “biggest impact”.

Releasing the Budget last week, Finance Minister Grant Robertson said he didn’t want the country to go down a path of “austerity”. He said debt would be repaid over time as the economy grows.

Robertson wouldn’t indicate how detailed Labour's tax policy, going in to the September 19 election, would be. Both he and Prime Minister Jacinda Ardern have recommitted to not introducing a capital gains tax.

According to Treasury, the country will go from having a $7 billion surplus in 2019, to at least five years of deficits as large as $30 billion - thanks to $62 billion being allocated towards the COVID-19 response. 

While the Crown's tax revenue is forecast to fall from $87 billion in 2019 to $80 billion by 2021, it is expected to pick back up to $97 billion by 2023.

National leader Simon Bridges told McLiesh these figures seemed optimistic. She noted the uncertainty around the assumptions Treasury used, but stuck by them.

$ billions 2019
Actual
2020
Forecast
2021
Forecast
2022
Forecast
2023
Forecast
2024
Forecast
Core Crown tax revenue  87 82 80 87 97 102
Core Crown expenses 87 114 114 120 119 113
Total Crown OBEGAL 7 (28) (30) (27) (17) (5)
Total borrowings  110 165 238 280 300 317
... as a % of GDP 36% 56% 81% 85% 85% 85%
Net core Crown debt  58 89 130 164 189 201
... as a % of GDP 19% 30% 44% 50% 54% 54%

Pressed by ACT leader David Seymour on whether it’s worth taking out as much additional debt as the Crown is, McLiesh said, “Yes, the benefits of additional debt will outweigh the costs…

“It’s not just debt that doesn’t achieve anything. What our modelling shows is that the additional spending will have a measurable impact on growth and employment. That will help to benefit not just today’s generation, but also future generations.”

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54 Comments

Labour will be in the office for another 3 years.

NZ's fiscal position will be at the worst possible shape in 2023.

Bridge will quit the leadership after the failure of 2020 election. Someone will step in but Luxon.

Luxon will work toward being the leader and win the election in 2023.

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That's the CCP game plan is it? Good to know

It may be the CCP game plan, but it is also likely to be pretty close to what actually happens. I disagree about Bridges. I think he will be lucky to survive to lead the party into this election, but if he does the loss will seriously smart for the party. As for Luxon - it's pretty much the path JK followed, so no real surprise there.

Bridges will survive having shifted the spill day. Cunning. He will obviously loose the election and Luxton will take over. He has a far better profile than Muller, in fact all of the contenders as he has a successful profile and hasn't got any real negative baggage. He is also well known in the marketplace, postitively and negatively.

You are correct Labour will be in office for another three years

Labour did the best job possible supporting the economy! the main issue was to save lives, which she did!!!

They wont add a tax before the election, well apart from the 4c petrol tax increase coming in June, after all thats not really a tax according to the fan club.
We have already had the working groups that came up with 110 new tax ideas, they have plenty to work with.

Can we safely assume that all proposed changes to the tax system 2020 to 23, are going to be detailed in Labour’s pre-election manifesto? And likewise for National? It cannot be denied that CV19 has upset the apple cart and the demand for revenue has altered chronically during the last two months. Therefore given this unexpected and unprecedented urgency, the electorate must be made aware of what lies ahead and how it will affect them. No surprises then!

I doubt it. Any tax shifts to improve the progressivity of our economy will be done after the election. National's GST increase showed the only viable way to get a tax change across the line. They lied about the change they were going to make before the election, then just made it after the election, and it was a REGRESSIVE tax shift. Labours attempt at a progressive tax shift showed that you can't be transparent about tax changes in NZ because even though they were proposing a revenue neutral PROGRESSIVE tax shift, they were lambasted for even thinking about repairing our tax system and it nearly cost them the election. NZers and our media have proven we can't discuss tax rationally.

So Core Crown Tax Revenue is going to increase by 9% in 2022 and 11% in 2023, without any tax hikes. If the tax base stays the same, that would imply these are also the economic growth rates, right? Seems optimistic.

Actually, using the debt as a % of GDP numbers gives the GDP growth estimates. -4% fall in GDP, followed by 0%, followed by 12% growth in 2022, then 7% in 2023, then 6% in 2024. Even more optimistic. Doesn't align with the tax revenue growth numbers but assume there's more to that than I understand.

So we ship in another 500,000 taxpayers then?
Just what's needed to give our lazy unemployed a bit of competition to get them motivated....(sarc/off)
There's a disaster in the making whichever way we turn now.....
In whatever is left of a globalised world; where competition to sell goods and services is going to mean a race to the bottom for cost inputs, wages here are going to have to fall, and with them the tax-take.

And ability to service private debt... (and public).

Election economics are always different from normal economics.

Tax revenue rises faster than GDP, in large part due to fiscal drag where people move into higher tax brackets due to inflation.

Core crown tax revenue increased by nearly 8% between 2018/2019, well above GDP growth: https://figure.nz/chart/wNbfI969FfWMnExp

Tax revenue as a % of GDP increased from 25% in 2011 to 28.8% in 2019, but I can't think of any other significant tax increases in that time besides fuel taxes and tobacco excise which I don't think would move the bar that much: https://figure.nz/chart/15N03XZscaS9xQk6

Cheers, that makes sense.

If you understand how government finances work, which is that spending comes first and taxation happens afterwards. The currency must first be created before taxes can be paid, therefore more spending equates to more tax collected. An article here which explains this fact quite well. http://www.matchesinthedark.uk/spending-chains-sankey-diagrams/

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Helicopter money would be a total waste of money. It would pass through the pockets of the retailers, straight into the pockets of China by way of colour TV's or whatever baubles are flavour of the month. Far better to use our taxes to create useful assets that will meaningfully add to our country and provide much need work for the unemployed.

I think you are right. Helicopter money in NZ would do little for the economy.
1. Some will pay off the mortgage or save it (Cash effectively goes to Australia)
2. The well intentioned will buy locally (well at least they buy foreign products from a local shop) so cash heads overseas with a few tickets clipped along the way.
3. Some will invest it (most likely overseas)
4. Some will convert it to cash and buy tax free local services, so probably provide the most benefit.
5. The rest just buy whatever they want from whoever is cheapest, so most likely offshore ecommerce.

However the mental feelgood factor could be worth it. Let's face it a lot of the country right now are very short on cash.

An eftpos card that is only enabled for card present purchases, and doesn't work at supermarkets, insurance, utilities, council offices or petrol stations would be my suggestion if you're trying to force the money to be spent in the local economy for maximum effect. Maybe exclude hardware stores too.

How many tens of thousands of people in NZ should supermarkets employ before they're considered part of the 'local economy'?

When bank loans are repaid the money ceases to exist, the money was first created by the bank when it issued the loan and then destroyed again when the loan is repaid, as explained in this Bank of England bulletin. https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creatio...
Our savings do not go to Australia either, they are held in the RBNZ either in bank reserve accounts or as government bonds.

This comment from TSY;

While this would be a decision for the Government, she said additional support would need to be designed to help those “most affected” and to have the “biggest impact”.

That suggests it would be some kind of targeted 'drop'. Lots of talk about travel/hospitality credit/vouchers. Not quite sure how they would deliver it in a secure way, but timing prior to the next school holidays would be good.

Disagree about helicopter money. The stimulus to the economy should come from people spending money, not the Government spending it (although that is required too). Helicopter money given to everyone will see the lower socio-economic group spend it on necessities, and the upper groups the niceties, so it will be well spread across the economy. However a fair portion of it will return to the government through the tax structures in place.

The flow to Chinese manufacturers and banks - that a structural issue that is a problem with our economy and will not change in a hurry. COVID19 put our lack of resilience on the front page because we import most of the things that are considered necessities and don't really export that much. This is because of the economic model that has been adopted sine the early 80's, what we call Rogernomics, but essentially Friedman's 'free market' model.

So here lies the opportunity - the Government could create a structure that supports and encourages manufacturing industries to be created and grow. A few years ago I recall a news article about a young lass who came up with an idea for a wood splitter to cut kindling, but couldn't get it manufactured in NZ because of the greed of the manufacturers, or compliance costs or both. If I remember correctly it is being made in the US -for the US market. this is a clear example of the problem with NZ manufacturing that needs to change.

It’s not about the economy, it’s about votes.

Why can't the government use "smart" helicopter money in the form of a voucher that can only be spent on tourism and that expires if not used by end of the year ? It could only be used for flight and accommodation or similar things. Or how about temporarily remove GST from such services/activities ? Or make expenses for tourism tax deductible up to a certain amount, for as long as the expense occurred by a specific date ? Or how about declaring a supplementary holiday in order to have a new long weekend, and then partially compensate businesses for this lost working day ? I have no personal interest whatsoever in this industry, but I think that we really need to help the most efficient and sustainable part of it survive this crisis.

Good ideas.

The helicopter money was originally mentioned for all business's and to shop local, thus supporting your local economy!! not solely tourism as suggested now. It is all business's struggling not just the tourism industry. Therefore helicopter money being distributed to individuals to spend at their will would stimulate the entire economy not just one sector.

it has been mentioned on several occasions our Prime Minister is looking too hand out helicopter funds close to the election implying she is buying votes this is far from the truth she did not create the pandemic but sadly she has had to deal with it. it is very bad timing and a easy dig from the opposition. not forgetting other countries have given helicopter funds.

I completely agree that people should be able to spend the helicopter funds however they need to so many more people are struggling than just the tourism industry I'm sure plenty of people would still use it for accommodation travel flights etc but it also gives other businesses help to recover from there losses and people who are genuinely struggling after losing jobs or whatever a chance to pay bills. Whatever people spend there money on it works it way back into the economy absolutely ridiculous to say to people that are struggling to buy food and pay Bill's that heres $ you can only use to travel with.

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I think there's a grammatical mistake in GR's sentence "He said debt would be repaid over time as the economy grows".

Shurely it should read thusly: "He said debt might be repaid over time if the economy grows".....

The debt will never be repaid, inflation will nibble away at it for a few decades, and future austerity measures will swap some of our financial deficit for a social deficit, which doesn't appear on a balance sheet.

The huge amounts of QE the world over will result in massive asset value inflation and likely some inflation in goods and services once the deflationary period is over.

That sums it up perfectly well. I agree, this is exactly what is going to happen.

"Treasury says the Government hasn’t asked"

Cousin too, 'if I didn't hear you it didn't happen'.

"What our modelling shows is that the additional spending will have a measurable impact on growth and employment. That will help to benefit not just today’s generation, but also future generations.”"

The logic of spending your way to prosperity must have come from the same people who gave us, 'the more you spend the more you save'.

Yeah, a salesman’s pitch of the seventies. You cannot afford not to buy it.

Exactly, "trickle down economy" springs to mind as well.

Well if you understood economics, trickle up economy would have sprung to mind.

Hey Ralph, if you can't spend your way to prosperity how do start-ups work?

Economies are not businesses or households. Spending is the ONLY way for an economy to prosper.

https://hbr.org/1996/01/a-country-is-not-a-company

To the untrained eye it is possible that spending and investment look identical.

That's why politicians call spending investment. They see no difference.

It's also why 80% of said startups go bankrupt within 2 years of starting.

You have no f-king idea how business works

"... didn’t want the country to go down a path of “austerity”. He said debt would be repaid over time as the economy grows."

Welcome to the Modern Monetary Theory and the surge in zombie economy. Japan 3.0.

zombie economy only works when there are more than 100 million people living in a country.

It's called the multiplier effect. As money circulates around and around, a big chunk of government spending returns to the government as tax, depending on the marginal propensity to consume (spend). The rest is saved in people's bank accounts. The government debt provides us with income and savings. As long as inflation and exchange rate risks are managed, public spending "debt" pays for itself.

Exactly. Why both the National and ACT parties keep pushing this myth that our government debt levels are too high is an insidious aspect of New Zealand politics to my mind. All they really are doing is pushing more of that debt onto the private sector. Take the Irrigation Fund under National for example, they throw a bit of government money into a pot and say, if you (the private sector) can raise the rest you can have your irrigation scheme. So what happens, Local Government adds more debt on behalf of ratepayers (private citizens) and farmers add more debt on behalf of themselves - and bingo irrigation happens - the lions share of which is new debt in the private sector. Rinse and repeat for convention centres, stadiums etc. etc.

I note that ACT in their recently released alternative budget (which aims to reduce government debt back to pre-COVID levels in four years), they want to start charging interest on student loan balances again. They want to toll every government owned highway (and I assume 'sell' them off in future, as they intend to transfer all those 'assets' to a newly formed Corporation). That's just plain and simple growing private sector debt to lower government sector debt.

We've been under funding our health sector for years - why? So that more people are forced to take out private health insurance? We've been under funding horizontal infrastructure replacement for years - again putting it all on ratepayers (the private sector) such that many councils are in a precarious debt situation themselves, and rates are unaffordable for a wide section of the population. Rates liabilities are just a debt on privately owned property. Now they are proposing to get infrastructure to the door of greenfield subdivisions by lumbering those costs as future liabilities for new homeowners. More private sector debt.

New Zealand needs to wake up to this notion that New Zealand's government debt is bad. It's an insidious position for them to take because their real expectation is that the debt needed to get things done will be taken on by the private sector - the you and me households. I don't know why these political parties do this.

Really appreciate posts like this on interest.co. Learning!

Yep, probably the single most irritating thing about the right wing is their smug self-assessment as economically competent when you know they have zero understanding of sectoral balances.

Helicopter money is it because to boost economy or election/votes.

Money should be used to help people/sector most needed and not by throwing to many who may not have been affected is no good. Instead that money could be used to support people losing jobs or business.

I think the govt has gone bananas with the amount of debt they are throwing around.

To blow the debt out so far within this last couple of months shows that they are a bit clueless.

They think we can avoid austerity, and that we will grow ourselves back into a good position but no-one knows what the world will be like over the next 5 years so my pick is that if austerity is not implemented at some point it will be forced upon us anyway

I'm happy for them blow debt out if it's going to result in meaningful improvements in the lives of the taxpayers paying it back. We already know:

1) It won't be used to bolster housing supply in a meaningful way
2) It wont be used to roll out new transport networks in parts of Auckland that are already suffering extreme congestion.
3) It won't be used to fund consolidation in the healthcare sector and improve things like access to cancer treatment and screening programmes.

Or will it? Who knows, because the government has earmarked $20b of spending for a 'later date' which sounds a lot like 'election year war chest' if you're a cynic.

Frankly, there's a lot of stuff that we could do in this country to improve the lives of ordinary New Zealanders - cheaper housing, better schools, shorter commutes, etc - but is that going to be the outcome? Or are we going to pump more and more money from you and me into a system that seems to have infinite capacity to digest money, but relatively little control over what (if anything) comes out the other end?

Seconded in spades. Debt is Useful if applied to Useful stuff. But piped into boondoggles, asset inflation, Swiss Bank Accounts etc, it's just wasted.....Now, how to define 'Useful Stuff'.......

The helicopter money is needed. It needs to be virtual. Created out of thin air. On an app, Card, web-based account. Whatever works for the spender. Needs to be time-limited to spend. Cant be converted to cash. Businesses need to apply and be approved to receive payments in the virtual currency. Only they can convert to NZ$ via settlement from their bank via the crown bank. The tricky part is to work out criteria for who gets the money and how much and criteria for which businesses will be allowed to take payments and exchange for cash. A few billion injected over a short time will have a multiplying effect in the real economy. Just might really save a few jobs.

Another great idea.

Our Prime Minister has done an amazing job getting us to where we are, it was never going to be an easy decision and the economy was always going to suffer, however she has saved lives, just compare the death toll with other countries more interested in business, I strongly believe it is in the best interest of the country to issue helicopter funds as all money spent re enters the economy.

Winston Peters reminded our Prime Minister how she became Prime Minister was because of him! rather unprofessional!! but true LAST ELECTION, This time will be different, will Winston Peters even get in. He criticized the helicopter money for individuals but we can not forget he claimed the individual pension. He must have been struggling.