Beneficiaries key beneficiaries of the Government's coronavirus economic relief package, but Brian Fallow is surprised by the restoration of the depreciation deduction on commercial and industrial properties

Beneficiaries key beneficiaries of the Government's coronavirus economic relief package, but Brian Fallow is surprised by the restoration of the depreciation deduction on commercial and industrial properties

By Brian Fallow*

It is fair enough that nearly a quarter of the Government's fiscal package is devoted to beneficiaries, given that the Welfare Expert Advisory Group made a compelling case for lifting the level of the main benefits and that their ranks are likely to swell as the severe recession ahead of us takes its toll on employment.

The increase of $25 a week to the main benefits is on top of the already scheduled increases which come into effect on April 1 and reflect the beginning of the policy, announced in last year’s Budget, of indexing benefit increases to wage inflation and not just the Consumers Price Index (CPI).

The Government estimates 350,000 low-income families will benefit.

It will cost $2.4 billion over four years. It had been under consideration for the Budget.

As a form of stimulus it has the benefit that it will pretty much all get spent and not leak into saving or debt reduction.

It is also a sign that the Treasury’s traditional mantra that fiscal responses to a downturn should satisfy the three Ts – timely, targeted and temporary – has not hardened into inviolable dogma. In this case it is timely to do something that is overdue and permanent.

And at a time when many households will be hunkering down and concentrating spending on the essentials of food, shelter and energy, the doubling of the winter energy payment for this year is defensible, especially if winter coincides with self-isolation. It is targeted to the elderly and those on low incomes.

They are also removing the hours test for eligibility for the in-work tax credit. This should reduce the risk of people losing access to the tax credit if their hours fall, as well they might. But it continues the policies of denying beneficiaries access to Working for Families tax credits.

 Altogether the cost of this income support part of the overall package is $2.8 billion, albeit only a minority of it will apply in the year ahead.

More surprising on the face of it is that the Government is prepared to allocate almost as much, $2.1 billion, to restoring the depreciation deduction, at 2% diminishing value a year, on commercial and industrial properties. It scratches a longstanding itch, which featured prominently in business submissions to the Cullen tax review.

Strangely it explains this as something that will “encourage business investment in the recovery phase and support productivity”.

Apparently what the Government has in mind is the danger that non-residential construction activity will dry up as in previous recessions. Reinstating depreciation, it is hoped, will reduce the risk of that.


*Brian Fallow is a former long serving economics editor at The NZ Herald. 

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47 Comments

“…timely, targeted and temporary…”
It’s certainly timely and temporary. Looking at the latest figures from China I have plenty of questions whether it is targeted correctly.

A good first attempt given the time available: C+. Expect the next one to take into account the shortcomings in this one and be submitted within 2-3 months.

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I'll give it a pass mark. But there will need to be more. Good thing National isn't in power they'd have CUT $12 billion in spending, closed hospitals, upped taxes and ordered beneficiaries shot on sight just for falling upon hard times. I'm calling it now, Air NZ fully nationalised by lunchtime tomorrow. Its a strategic must do.

What a bunch of rubbish.
They have already stated, They are: tax relief, regulation reduction, infrastructure, small business and families
All of which would be way better than this hack.

That would mean Air NZ slipping from worlds best airline to somewhere way down the list.

No govt has the talent or business acumen to run an airline.

You could have stopped after acumen..

Whats your point? Go check the Air NZ corporate structure...that 51% holding under 'owners' is the NZ government. Its a strategic holding that has been inplace since 1999 when the so called business leadership ran the airline broke and had to be bailed out! Full nationalisation will enable some of those 3700 jobs at risk to be retained and probably redeployed into aircargo which we will need lots of!

Ideology getting in the way of facts, your comment could apply to lots of failed business but ANZ is not one of them.

Check the facts Redcows. Besides NZ is going to need an airbridge to move urgent materials into the country once the virus takes hold and Air NZ will be that bridge. Your on farm pharmaceuticals will come in on that same airbridge...

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It's a hit, if your main concern is people who managed to be out of work during a period of record low unemployment or giving the money the elderly regardless of actual need.

If you're a dual income household about to face paying a mortgage on a single income for an asset that's probably about to drop like a stone, there's literally nothing for you.

But everyone will crow about the size of it, and therefore it must be good.

Agreed: undercooked. The size is piffling: tourism is averred to be 14% of GDP; package totals 4%. Go figure. And despite the opportunity to refine things in the Budget, that's 2 months away. Lotta time for more unravelling, methinks....

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Its an interim package mate.

May recovery budget will have something else. Very difficult to see how this one plays out, as China look like to recover sooner than some. The US will be found out in a big way, due to their third world health system who only caters for the rich.

Finally a Government who understands NZ is predominantly made up of small businesses. I forgot to mention, most of the big businesses here are overseas owned and can find their own life support. Let them sink, if they cant swim. Time we took back our country, rather than being drained by overseas parasites.

I'd say it is a government who has remembered who its core constituents are had has pushed out a massive draw-down in the name of the Covid19 emergency. But sure, all large businesses are overseas owned and definitely all parasites. Not the millionaires who definitely needed a winter power grant in the first place, and to have it doubled regardless of actual need in an election year. It couldn't possibly be that because look at all the relief pushed out to salary and wage-earning New Zealanders to help them keep spending and making ends meet....oh wait.

"The impact on the tourism sector and airports alone will knock around 6.0% off GDP. There is an offset in a GDP sense as there will be no visitor outflows either. Net these off and GDP still falls at least 2.0% from this source alone." (Topliss, BNZ)

People usually forget that tourism is quoted gross - we will get a benefit from NZ citizens not taking money overseas and maybe spending it locally.

To be sure, to be sure. (It's St Patrick's Day....)

But given these stats:

  • the head of TNZ on the TV3 news this evening was quoting 400K tourism employees
  • at least 25% could be jobless by end of week
  • $585.50 payment per ex-employee week
  • that totals $585.50 X 365/52 x 400K = $1,643,903,846. $1.643 billion.
  • Only tourism, only for one year, only 25% of workforce

.

That's a lotta borrowing for a quarter of the direct workforce of an essentially discretionary-spend 'industry'.

Wage subsidy is only 12 weeks not 52.

That assumes 25% of tourism jobs lost, come back in Week 13. Bold call. I suspect any tourism that relies on long-haul air is facing a very long - 1-3 years - recovery phase. In which case the Week 13-52 period is a Benefit, not a subsidy. Same total, thereabouts.

would have been nice to get more benefit from falling oil prices. Tax a gallon is .35c in California, here it's $1.06 a litre. Also council rates are a big issue for many companies.

The govt could have shifted some spending around. I would also have liked some more depreciation on investments too.

If there is no demand then this will be but a drop in the bucket.

Petrol and diesel is down 20c here give or take at Waitomo

One US gallon is about 3.8 liters, so we would pay $NZ1.06 x 3.8 = $NZ4.03 per US gallon compared with the $US0.35 in California per US gallon of gas.
That's a lot of tax.

Yes, we too watched the 2 oçlock show on tv with Mr(?) Robertson doing a very good impression of a finance minister of a south pacific atoll. Our current political stocks are not high on either side of the house & today's live performance by both sides was both pitiful & painful to observe. If we were to dismantle central government beginning with the politicians this would probably be a larger boost to the economy than what was announced. No such luck sadly. Sad too about Air NZ. Maybe their new CE Mr Horan could run the country on his reduced salary, should the govt have to bail it out again. At least he would know what he was doing.

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People who ideologically are anti-government doing anything, taxing more or borrowing more should have a good look in mirror as they COMPLAIN abut government not giving however how much to their preferred groups of beneficiaries. Reeks of hypocrisy, just like Goldman Sachs and the rest of parasite financial sector with their hands out in 2008.

@mikekirk , I dont mind paying more tax ,its the wasteful way its used on pet projects ,election bribes and increased welfare on those avoiding work , by left-wing Governments that pisses me off

Great we will a get a baby boom in the Labour voters ranks...

The beneficiary increase is poorly targetted. Are beneficiaries really going to fill the gap of tourists and the export industry? Yeah nah. And are energy costs expected to double over winter? Double yeah nah. Time to buy shares in the liquor industry.

Well, I expect energy costs to double now.

why ?

I assumed it's about keeping houses warm enough to stop elderly virus-related fatalities.

Exactly , why have benficieries got an increase in the middle of this crisis ?

For them nothing has changed , they are still at home all day , and dont even 'work" from home .

Its utter BS .

In fact , the TAB and Pokies are all closed as are the pubs, KFC and McDonalds , and the ageing V8 Holden cannot be driven around , so they should be getting a decrease in welfare payments

Expecting a tax cut and reordering of tax thresholds in the Budget in May.

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Send a message to the big 4 Australian banks. You are going to share the pain. You are not taking a single dollar of profit out of NZ this coming year. If you do. We will put a sovereign guarantee behind Kiwi bank and allow them to borrow enough from offshore markets to refinance every mortgage in New Zealand at 2% fixed for 5 years and we will pass legislation to make mortgage break fees illegal retrospectively.

What would be the point of Kiwibank borrowing offshore when our banks create 100% of the money that they lend?
https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creatio...

Maybe we could get away with printing 260 billion into existence. These are crazy times after all.

The banks have certain capital requirements that limit their lending, apart from that all they need is a borrower with the ability to service the loan. There are no reserve requirements as they don't lend out their reserves. The Reserve Bank is cutting interest rates to try to encourage money creation by the banks through people borrowing more. Today the government has announced that it is increasing its own money creation. Banks create credit money while the Government creates currency.

Many are going to be hit hard. I would like the big banks to somehow reduce their grab on mortgages if we find people are struggling to keep their heavily mortgaged house. They have made massive profits over the last couple of decades. It is a time to fairly share the coming buden. It is about time banks do something socially meaningful.

I am deeply disappointed in this package.

I really hope the family, friends, acquaintances of some of those commenting on the $25 for beneficiaries don't lose their jobs. Many seem to have a very odd idea of the sort of person picking up the benefit and what they do with the money.
Most of what appears to be being done seems sensible enough. For the moment tourism is going to be the big lose and I can't see it coming back, or is that just wishful thinking on my part. Can't stand cruise ships, a blight on the world.

Of course tourism will come back, it'll just take time and fewer operators will survive. NZ will always appeal to tourists. I'd like to see this as an opportunity to rebrand it though so tourism draws high value, high spending tourists not freedom campers shitting in public.

A shake down of this magnitude is an ideal chance to think afterwards who and what do we actually want.

Agreed. Tourism of some stripe will come back, but my bet is that the mass, low-value, freedom-camper style will be minimal. And we could encourage such a shift with a swingeing entry fee to be directed to covid testing (needed for years), conservation, clean-ups etc.

What we're seeing is that EVERYONE has their hand out for socialism when it comes to these hard times.

Good luck on that, some friends I knew worked for the share market brokerage firm being impacted by Covid19, already mentioned rubbing hands to use it for debt/loan reductions. There's nothing any government can do to stop a direct flow of this future taxpayers burden into.. the forever silent wealth creation...RE/properties industry. Hence, not a single word from the Banking industries, the final beneficiaries.

The restoration of depreciation on commercial buildings is undoubtedly the throwing of a bone to National supporters at the behest of Winston Peters and Shane Jones who like to see themselves as belonging in the upper echelons of society despite the reality of their being in a coalition with Labour.

Keep the immigration taps open. We still need all those low paid unskilled workers. Even the high paid ones are still needed. Too much to individuals via their employer. Many people pitching up to work and picking their nose. The normal beneficiary amount should be adequate to exist. Mortgage relief need with this approach.. Work and Income should be able to handle an influx with temporary rules around targeting those who have just lost their job due to layoffs. These measures will last a lot longer money wise than high payments to businesses holding onto workers with nothing to do. No doubt the treasury number crunchers have already been overuled and had to crunch numbers using govt policy of increasing amount to beneficiaries.

The last couple of weeks we have been getting a few calls from backpackers who have had reduced hours or being laid off from their work in the tourist/hosp jobs in Queenstown.
Just how many of the tourist/hospo industry employees are kiwis?

Funny, nobody has noted that it is debt that has been sprayed around.

Ours.

Sometime in the future, it is just presumed that it will be 'paid back'.

As will all the debt accumulated thus far. Bol---ks it will.

We are about to find out how many "Bullshit Jobs" we have in New Zealand. The government ones will be safe. But in the private sector. Not so much.

@WestieAJ I would not be at all comfortable if I was a Government employee .

There is no way in hell the Government can have so many people doing so little as so many Government employees do .

Economics will dictate that surplus jobs in Government must go , we will simply have to have a leaner more efficient Government workforce ...........plain and simple

The COL should be sending thank you card to John Key and National whose previous stewardship and thriftyness enabled the reserves now being utilised for the current social spend up. I support the assistance for businesses/salary and wage earners and self employed but deplore the surreptitious expansion of the welfare system on a permanent basis but leaving pensioners to suffer with only a temporary paltry energy supplement for a few months. Those pensioners worked and paid for the society that we all enjoy today for the last 40+ years. Their pension is taxed and taxed even higher if they are fortunate to have any other income (which is essential if they are to pay their rents (or rates on an owned flat), insurance, food, car (if they have one). Pensioners didnt get the $25/week by the way.