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PwC's David Bridgman argues the old adage ‘never waste a good crisis’ has never been more relevant when it comes to the future of our economy

PwC's David Bridgman argues the old adage ‘never waste a good crisis’ has never been more relevant when it comes to the future of our economy

By David Bridgman*
(This article is part of Interest.co.nz's Election Series).

With a sense of relief, daily life resumed for most New Zealanders in June, when our collective effort to beat the COVID-19 global pandemic came good. We won that battle, but we haven’t yet won the war. The longer we wait to take decisive action about the future of our economy, the greater the risk of losing our many advantages.

Over the 2020 calendar year, real GDP is forecast to contract by around 10% relative to 2019, with the annual average growth rate predicted to decline by nearly 12% in the year to March 2021.

A robust economic strategy is needed as both the direct and indirect effect of not having a credible plan to improve business confidence, retain jobs, generate income, and repay debt could do untold damage to the livelihoods and future of our nation.

The necessary lockdown that combated the health crisis must now be complemented by equally bold measures to tackle the pervasive economic uncertainty we are experiencing and address the fragilities already present in our economy and society, which were exacerbated by COVID-19.

Recognising opportunities to build back better

With smart and timely solutions, the outlook is positive, especially when we consider New Zealand’s unique opportunities. We can rebuild better and stronger by seizing some immediate wins, while also locking in longer term gains through initiatives such as resetting our tourism industry on a more sustainable footing, embedding digital technology widely for businesses and households, and allowing sectors such as international education and sport to take advantage of our COVID-free domestic environment. At the same time, we must tackle the systemic issues around education, health, housing and social and intergenerational inequity.

We have a paradox at our border. We don’t want to risk people’s health by re-opening borders or relaxing precautions, but neither can we continue living in a cocoon indefinitely. We are reaching a crunch point: as at 31 July, over 1.8 million jobs have been supported by the wage subsidy scheme at a cost of approximately $13.1 billion. Around 450,000 people comprising approximately 17% of the workforce are still being supported by the scheme, which runs out in September.

We want to do everything possible to minimise the number of employees who are laid off. Practical options are needed to increase trade so that, at the very least, businesses can keep people employed.

Navigating an uncertain economic environment

The Government’s role is to provide the framework and set the rules of engagement so that businesses can participate in our new context. Until businesses understand the state of play they cannot plan.

Border closures have hit the tourism sector the hardest. Given that international tourism comprised around 40% of the total industry and the sector directly accounts for approximately 6% of GDP, a significant portion of GDP has been lost. This also impacts related sectors such as retail and hospitality, increasing the overall impact on GDP.

Meeting the needs of a new market

A unique opportunity exists to offer international travellers who are not time constrained, such as retirees, the opportunity to holiday in New Zealand without the risk of COVID-19. New Zealand will be an attractive option for this demographic who could travel safely around our regions bringing much needed revenue. This cohort might well be willing to accept a quarantine period, providing they could choose a facility that matches their preferences and budget.  This would have the added benefit of enabling the reopening of accommodation that is currently closed and generally boosting business across the entire tourism sector.

Ideas like this could be extended to the tertiary education sector, which generated around $5 billion in annual revenue before COVID-19. Time is rapidly running out for international students to return for the beginning of the 2021 academic year.  While the Government has released a long-term strategic recovery plan and provided $51.6 million of funding to support the sector, it seems there could be more immediate gains.

Capitalising on the experience

The old adage ‘never waste a good crisis’ has never been more relevant. We have an opportunity to reflect on what we have learnt from the last few months and use this to develop new economic and social strategies.

The education sector adapted to online learning faster in the last six months than in the last decade. Although online delivery of education to primary and secondary students was far from perfect, a new standard has been set. Online delivery does not serve as a complete substitute  for the classroom experience. However, we should be drawing on the lessons learned from the operating model employed during the lockdown to build robust and flexible ways of learning that meet the various demands and expectations for teaching students at all levels as well as upskilling our workforce.

New Zealand’s ability to successfully adapt to remote and online working during lockdown was enabled by the widespread deployment of ultra-fast broadband by the Government. This serves as an excellent example of where public money has been wisely invested in infrastructure.

As the Government begins prioritising its infrastructure projects, the question of ‘what investment can achieve the greatest returns?’ should be a key determining factor. Supporting projects that achieve high levels of employment during the build is also important but we should be mindful that some skills may need to come from overseas. Our borders should not be so inflexible that we cannot bring in qualified people from other countries when they are sorely needed. Strict quarantine measures to ensure the ongoing safety of New Zealand’s general population will continue to be ‘non-negotiable’ for the foreseeable future.

Rebuilding for a fairer more sustainable future

A fair and sensible approach is needed to assist New Zealand’s rebuild and each decision should be viewed through both a climate change and an equity lens.

Climate change was identified as the number one issue at the start of the year and despite COVID-19 the issue has certainly not disappeared. A greater sense of urgency needs to be apparent as regards tackling this massive global crisis, and New Zealand has to play its part.

The issue of growing intergenerational inequity, exacerbated by the massive COVID-19 debt-funded Government expenditure programme means we need to confront thorny issues such as housing affordability, the age of eligibility for universal superannuation, and tertiary education funding. We must also address pressing social issues like homelessness. Homeless people were housed during lockdown, and it is interesting to see how a crisis can resolve some deep-seated problems, albeit temporarily.

We must strive to find the answers and rise to the challenge of rebuilding our economy, leveraging our COVID-free status, even though the full extent of the global impact from this pandemic remains unknown. All of us, be that Government, business, or households need to maintain the same spirit of national unity, the so-called “team of five million,” and act boldly together. There is much that we can do to enable New Zealand to recover quickly and more strongly than most other nations.

PwC identified the following seven planks as being fundamental to rebuilding New Zealand’s economy:

1) Maintaining employment may require further direct and indirect Government support;

2) Stimulating real growth requires an honest conversation about what growth means and identification of the critical enablers such as good infrastructure;

3) Increasing productivity may include leveraging global investment or people and capital alongside significant structural changes in our economy;

4) Addressing intergenerational inequity may involve some tough decisions;

5) Tax reform must be reconsidered to broaden the Government’s revenue base and remove investment bias;

6) We need to maintain focus on combating the climate crisis; and

7) Recovery will need effective partnership between all elements of the public and private sectors.


*David Bridgman is a partner at PwC. You can see PwC's Rebuild New Zealand reports here and here.

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17 Comments

17
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This article promised much with its opening rhetoric, before descending into a lot of BAU-think and thoughts so vague as to be meaningless.
Disappointing, and worrying at the same time.

Reality is very hard to face and harsh truth is very hard to be spoken.

NZ is a developed country only because it is one of the five eyes or one of places fully colonised (US, Canda, OZ are fully colonised).

NZ's remaining to be a developed country depends on two things:
1. whether Anglo-Saxon world could remain to be technological advanced
2. whether NZ's natural resource per capita could remain high

Or we could simply tax those who used NZ as a Swiss bank account and have left us with lots of empty homes in our main cities.

12
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Oh dear Xingmo. NZ was developed well before the establishment of 5 eyes.

You should feel embarrassed about the nonsense you peddle here.

On further reflection, I'm wondering if you might have an inferiority complex about the West.

.."an unrealistic feeling of general inadequacy caused by actual or supposed inferiority in one sphere, sometimes marked by aggressive behaviour in compensation."

The world is full of developed and undeveloped countries. Maybe 100 years a large fraction of them were settled Anglo-Saxon but even then many exceptions existed. Five eyes has nothing to do with development but does reflect a past alliance used to win WW2. Places fully colonised: Taiwan was settled by Han 500 years ago and they are certainly developing fast; in fact roughly double China. But what about Switzerland or Denmark or Iceland or Finland - they had no Anglo-Saxon colonisation? There does seem to be an obsession with colonisation as the proof of everything bad but surely it is not so simple. More interesting may be the countries that used to be at the top of development that have now gone backwards - Argentina and NZ were top countries a century ago.

However your last point makes sense - NZ has somewhat fixed natural resources, mainly agriculture so it makes sense to keep the population flat not the rapid growth by exceptionally high immigration. Rather like Norway or Iceland. That would leave exports per capita high and help NZ return to the per captia wealth of say Australia or Singapore .

I'd have thought NZ "remaining to be a developed country" depended on NZ remaining and strengthening our tripartite democratic system of governance, including (and especially) the independence of our judiciary.

So here's an easy win, how about we tax all those offshore Speculative Investors and money launders who have caused a huge amount of empty homes in our main cities like Auckland. Perhaps we use Auckland as a test case as Canada did very successfully with Vancouver. The time is certainly right considering we have 15 times more empty homes then Vancouver did when they first introduced their empty homes tax.

Currently Auckland has 39,393 officially unoccupied dwellings (Based off recent census results).

Bit of background on Vancouver Empty Homes Tax; It's and annual tax on Empty Homes that was 1% of the property relative value (RV) for the first two years. They managed to rake in $30 million from empty homes tax in first year. Since the program started, vacant properties have gone down 14.6 per cent from 2018 and 30 per cent from 2017, the first year the program started.
A total of 787 homes were declared vacant in Vancouver for 2019.

Potentially an Empty Homes Tax in Auckland city could generate revenue of $405,747,900.
And generate huge amounts of revenue that could be used to build new homes for FTB's at affordable prices.

So knowing that most of these empty homes are in the multi million bracket even if you taxed them at 1% year based on their 2017 CV (Council Value), they could generate an average yearly revenue of $405,747,900

This calculation based on Auckland City December 2019 median house price of $1,030,000. Evidence here: https://www.interest.co.nz/sites/default/files/hla/2019/december/Aucklan...
Auckland median house price $1,030,000 - 1% yearly tax = $10,300 per empty home. x 39,393 Auckland officially unoccupied dwellings (Based off recent census results) = $405,747,900‬ potential in revenue fist year of Auckland's empty homes tax!! A Win! Win! for NZ residents since this can help to build new homes.

Sure there will be some money grubbing Aucklander's out there who will object to this tax, But that's probably because they're living overseas and leaving their property empty for over six months a year. What I say is, if they can afford to leave a property empty in a major city for long periods of time then they can afford to pay tax on it!
Oh and they other nice part to this is that most of the Empty Homes offshore owner can't vote here.

More on Vancouver Empty Homes Tax: 'Renters are back in these units': Vancouver mayor says empty homes tax working'. Vancouver’s empty homes tax is returning homes and condos that were once sitting empty to renters, according to the mayor. https://www.citynews1130.com/2020/02/07/empty-homes-tax/

Just institute a universal 1-2% property tax. Same result, waaay simpler. Will bring down price of houses and strongly encourage non-economically active people out of city centers - taking pressure off transport systems currently overstressed by workers displaced out of city centers by rich but economically inactive boomers. Also stops land-banking and makes bachs etc more affordable.

Oh and another thing. The UK has just introduced a 2% surcharge for non-UK residents who are buying property in England and Northern Ireland from April 1, 2021. Couldn't we consider doing the same aimed at overseas developers (non-NZ residents) that are still allowed to purchase residential land for building homes.

Times article: Budget 2020: Stamp duty hiked by 2% for overseas property buyers. https://www.thetimes.co.uk/money-mentor/article/budget-2020-stamp-duty-h...

I think our priority has to be to get our quarantine system 100% watertight. There is no doubt we will need to vastly increase the numbers coming across the border, but it will end in a financial catastrophe if quarantine let's us down, as happened in Melbourne.
We have been lucky that so far the breeches here haven't led to another lockdown. Every few days we hear of someone sneaking in or out, and there are reports of people playing the mental health card to get the rules relaxed.

Given what is at stake, it is time to leave everyone in no doubt that deliberately breaking rules around quarantine will guarantee a swift and harsh penalty. I would start with a $1m fine plus 5 years clink. If you think that's a bit tough then good, don't break the rules.

The americans used to use Ellis Island as a quarantine - we should use an Island too.

Auckland Island.....might be a stretch to guarantee warm, dry Q, though....

10
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So for the last 20 years the elite of NZ has got massively rich from foreign property sales, mass tourism, mass immigration, fake education & residency package deals, and house price hyperinflation. This has led to markedly lower quality of life for everyone not involved in those sectors. Now that all those sectors are screwed for the next 2-5 years, the focus of the elite is to restart the machine at all costs, public interest be damned. The top ‘ideas’ in this article are letting infected people in, tax cuts and privatisation. How about no?

It's a load of tired old bullshit ey?
Really uninspired.
Their new office building looks cool at night though, with illuminated lifts running up and down it.

There was an expression my mother used to use frequently - 'out of the mouths of babes'. Don't know how young you might be 1sthomebuyer, but I see more and more wise heads on young shoulders these days. Great post.

The outlook for the economy is very poor while tight quarantine remains.
Megan Woods is thinking 2 years. Far too much.

If, and Dr B is saying when, covid19 comes through, the population will be knocked for six (much money already spent), plus immunity to other disease is being lost.
Condition of the health system remains opaque.

The PM has really painted us into a corner. Made some big tactical blunders.

History may not care for her.
https://youtu.be/F7nS5ryOFpQ

Days to the General Election: 23
See Party Policies here. Party Lists here.