David Hargreaves says the time may now be approaching when we need to consider a direct one-off handout of cash to the public

David Hargreaves says the time may now be approaching when we need to consider a direct one-off handout of cash to the public

The time may be quickly approaching when we do want to start seriously considering the option of 'helicopter money'.

This is a subject the current Government kicked around a little as we got towards the end of the lockdown. 

How much money? Well, maybe around $1500 each at a potential cost of about $6 billion.

At the time I disagreed, not because I think the idea is necessarily bad, but because I didn't think it was the right time.

I think we are now getting closer to what might be 'the right time'.

Go spend it

To be clear, when I think helicopter money, I think in terms of a one-off handout of cash, to everybody, with the clear signal being given - urged even - that everybody go out and spend it.  

On the one hand it sounds frivolous, but on the other there is a logic, since the big infusion of cash into businesses, whether they be shops, restaurants, etc, would be a 'kick-start' for the economy.

But the timing would be everything.

I disagreed with the idea of giving such a one-off cash payment to people after the lockdown because it was simply too early in my view.

The key thing about a one-off drop of 'helicopter money' is that you would want to time it so that you literally got the best bang for your bucks.

The best thing would be for the one-off infusion to provide its sugar rush at a key moment where it could lift everything up, without the risk that conflicting forces were going to push the economy down again, effectively wasting the effort.

Uncertainty reigned

Back in April as the lockdown came towards its end, we were still at the very early stages of the pandemic and there was too much uncertainty. As I said at the time, I thought there was the risk people might simply stash the money away - in which case it all would have been a wasted gesture.

Yes, it was thought at the time that the economy might need a bit of a kick-start once it began opening again, but doing the one-off payment then just seemed too risky.

In the event, the natural pent up desire to spend, coupled with the support people had been getting through the wage subsidy and other stimulatory measures, meant that people did emerge from the lockdown in the mood to spend and so a good portion of the economy did start to bounce back very well. I was surprised. Certainly, economists were surprised.

It will be interesting to see more solid up to date data emerging on Auckland spending post its August 'lockdown lite' at Alert Level 3.

The anecdotal evidence so far has been that Auckland has bounced back well. Personally, I've got to say as someone who lives in central Auckland that's not how it has 'felt' to me. And on a personal level, I can say that while I emerged from the first lockdown spending quite enthusiastically, for me anyway it's been a different story after the latest one. And I'm not sure I can really tell you why.

Deadly Auckland

Either way, central Auckland has seemed pretty deadly from where I've been observing it since the second lockdown. Look, it could be that there are other forces in action here - that we are seeing a move away from the old idea of the 'central hub' of a city, particularly as people do more and more things online. And it could be that Covid is just pushing up the rate of this change. 

Therefore because the city centre seems dead doesn't mean money isn't being spent somewhere. Anyway, we will find out.

With the supporting stimulus of the wage subsidy now leaving us though it opens up various questions on how much worse joblessness may become and the extent to which the spending we have seen so far starts to dry up. And if the spending dries up, what happens to the economy? Well, very possibly it begins to wither.

The other interesting thing is: What happens at the end of this year and into early next year with interest rates?

The Reserve Bank indicated last week it's keen to introduce a Funding for Lending Programme, directly lending money to the banks at rates possibly around the Official Cash Rate (currently at 0.25%), before the end of the year. In all likelihood this may well be launched at the next RBNZ Monetary Policy Review on November 11. 

Less than zero

Once this programme is up and running then it is seen as highly likely the RBNZ will take the OCR below zero, probably in April.

This one-two punch will apply a further knockout to mortgage rates and should be supportive for the housing market. But it will also give a fair smack to deposit rates as well. 

With banks able to source money directly from the RBNZ at cheap, cheap rates, they won't need to be laying out the red carpet at all to attract yours and mine funds.

At the moment you can get around 1.2% on a year-long term deposit. Skinny as that rate looks compared with the sorts of rates we've seen in the past it might well look like 'luxury' in a few months time. Putting a finger in the air I would suggest we might see top rates of say 0.5% at best by early next year.

That's going to be problematic for particularly retired people who have been depending on interest. They may cut down on spending.

People who are saving, say for a house, may simply just save harder if they see they can't get returns on interest. So, they will spend less.

Spending could really dry up

So, combine possibly rising levels of unemployment, with savers bemoaning non-existent returns on deposits and we could seen spending in the economy really drying up.

March-April time then could be the time to bring in the helicopters. 

The key factor here also is that by March-April we should have a reasonable idea of whether the vaccines currently being developed to combat Covid are indeed going to work or not. If they are going to work then by March-April we may start to have some view of when this virus may no longer be a problem.

I've always thought that the best point to hit the people with a one-off payment would be at a time when we can realistically see an end point for the virus.

It could be therefore that given all we know at the moment, and the way things are developing, that March-April 2021 might be just the time to get those helicopters in the air and give that economy a boost. 

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

87 Comments

45
up

It's time we start again with monetary policy. The current method of providing cash to home owners in the form of mortgage discounts is destroying productive investment while just ballooning inequality.

Exactly, lets face it we are in debt based society. We must have inflation at any cost. We must have increasing house prices at any cost. We must also have ever expanding debt which rather than being at a healthy level has now taken on the characteristics of a ponzi scheme. Too many people borrowing too much from the future. What happens when the music stops..... no savings, banks give people holidays and governments/central banks issue more debt to to cover the outstanding debt commitments that cannot be paid.

And eventually you become like Argentina, Venezuela or Zimbabwe

20
up

I’ve said it before - while we still have “funny money” we might as well put it to use for something other than just propping up house prices through lower interest rates.

16
up

$1,500 + ($1,500 x 5 LVR) = $10,000 more that can be plonked down on an investment property? Even better! $1,500 + ($1,500 X 9 LVR ) = $15,000 more that can inflate FHBer targets!

Seriously. If NZ is at the stage where $1,500 per person in one-off spending is the difference between saving the economy or seeing it sink, we are in REAL trouble. (Korean TV's and Chinese made phones will do well though!)

10
up

With the possibility of being unemployed, or business taking a downturn surely anyone receiving this payment should either pay off debt or sit on it to prop up a rainy day? Julie Anne Genter was very critical of the rich "who accumulate wealth." Isn't this what we should be encouraging i.e-self sufficiency so we don't burden the Gov (tax payer). I'm largely immune to changes in Gov or economic outcomes but any money I receive will be saved and put away for retirement.

As happened in Australia when they did helicopter money a few years back. Their RBA did an analysis on it afterwards, the spending boost and money multiplier the economy received was worth less than the cash handed out.

18
up

Precisely.
We actually don't need more debt, whatever it's noble intent.
We need to apply what debt we already have better.
It's all tied up in the wrong places and encouraging more of the same is lunacy.

NO
We need more Debt
Otherwise the bicycle stalls

Wrong places?
Are you suggesting all that QE money has a better use ... ie an untapped resource base to plunder?

I was living there when we all got munny from the good fairy Ruddfather. Retail spending went crazy, retailers were happy, the peeps was happy but then it all seemed to fizzle out so I'm not surprised to hear the outcome didn't stack up to the cost of doing it.

Made people really happy for a while though so that was kinda worth it.

Governments around the world are themselves using borrowed money to detrain people out of financial prudence.

The plan here is to restore our economy at any cost to its past 'glory' of pre-Covid when people were, unlike these days, confident enough to spend money that they didn't have on goods and services produced in other parts of the world so that businesses and our government could could clip the ticket and pay low wages to local workers.

you need to get your head around what money / wealth / debt is ... ie its all one and the same
How long do you think businesses/incomes would survive if everyone concentrated on just "paying off debt and saving" like those clever rich folk?
The rich basically become rich through leverage (ie NEVER paying off Debt), increasing Debt where possible combined with tax minimisation ...

Self sufficient? LOL
The rich are TOTALLY dependent on the system holding.

Isn’t that what Donald Trump has done?

Exception fallacy and everything, but I could spend all my family's allotment, and would. For the kids, a boost to their Kiwisaver = investment might help the economy - investing in productive assets. For me and my wife, there's plenty of deferred spending we're saving up for. The first item - a quarter beast for the freezer bought from a local farm (we've gone vegetarian to save up for it. Please make it end)

22
up

If we stopped the importation of cheap labour it would give workers more money every month.

12
up

Kiwis can't be trained to pick fruit or drive farm machinery, don't you know

No, Kiwis cant be assed working those sorts of jobs, and a lot of them lack work ethic, don't you know?

Probably because we're not stupid enough to pick fruit for minimum wage

Easier to just collect the benefit.

When I was managing an apple orchard, some of the pickers were on 4 times more per week than I was.

Gallo....Exactly, maybe the alternative to working is far too good and easy. If the unemployed were forced to rely on their families (like in most of Asia) it would provide the moral pressure to get out there and find work, any work. And if they had to live away from their families for a few months a year, so be it.

Rising wages and rising prices -- some of that inflation that is apparently so hard to generate.

LIKE, if you would consider putting it towards moving to Oz.

26
up

Why do we need to kickstart the economy? Why can't we just have a recession, it's not going to be a permanent thing - eventually things will bottom out and start to recover on their own.

The ever increasing interventions into the economy(ZIRP, NIRP, QE, Helicopter money) seem to be creating all sorts of weird incentives and behavior.

13
up

Economic correction and gradual, sustained recovery are not glamourous to most young voters, who expect instant gratification and completely off-the-table for baby boomers, who won't live long enough to see full recovery.

If the government of the day were to rely solely on infrastructure and policy reforms-led recovery, it would end up polling in negative territory.

We have a failing education system, inadequate public healthcare facilities, leaky pipes and poorly-planned transport systems run up to our unaffordable homes but our 'global' cities boast one eatery per 210 residents.

"Not glamorous to most young voters"???

GTFO.
Seriously, I can't stress the F enough.

The reason we're not having a correction is to protect Boomers from a collapse in their precious, over-inflated assets.
That's the generation currently running Central Banks and thinking they can extend and pretend long enough to save them from reality.
That's the generation who vote over-whemlingly in their own self-interest and in such numbers that they are the focus of all rubbish populist policy.

The young are the ones who are going to inherit this dumpster fire.

Asset prices must not fall otherwise the debt ponzi breaks. That is why.

But as Dalio points out, fiat fractional reserve currency systems break every 75 years or so (debt becomes unsustainable - people gamble with leverage at the end of the cycle) and it just happens to be 75 years since Bretton Woods - and many people have been gambling with leverage.

Like the username and like the thinking.

Recessions are measured on GDP, a false indicator of wellbeing if there ever was one.

snake eating its tail

Let's do a rather non-scientific poll, shall we? Given we can't predict the future (and thus excusing the March/April 2021 timeframe), based on your current personal situation and confidence in the economy if the government was to deposit $1500 in your account tomorrow would you spend or save it?

I'll go first,,, SAVE.

I'd do the same thing I do with any money I have left over after my cost of living. 50% bitcoin, 50% NZX50 ETF

I'll take what little interest I get on my bank deposits over spending the entire amount on a meal, drink or clothes that has zero value instantly after purchase.

Free sats, ill take it all in Bitcoin thank you very much!

I would save it..... in my TAB account, which just returned 46.26% over the past 12 months!

I love my TAB account :-).

Yeah, clever and responsible sports betting provides solid returns

Tax-free too! :-)

Agreed, the more Kiwis being enticed into TAB, Casinos, being kind to them. The more likely that the NZ govt & RBNZ shall tweak the economic policy to sustain it, that is for sure. Fully support the idea.

Spend on long-lived appliance replacement, a ULEB fire or a washer or drier, most likely. Something with a decade or two of life in it.

It's immer besser

Gift it to someone that will SPEND it.

Spend it and try to make as much of it go to nz businesses as possible and not ones that just import stuff from overseas. I actually think the tax cut would be better achieving it than a one off payment.

I'd probably save a third and spend two thirds.

Why not a 12 or even 24 month GST-free period together with a price freeze? Might work better than copter $.

Stock up on toilet rolls

Spend most of it. The few dollars left I would approach the bank to borrow a million for a house via the RBNZ offering. What could go wrong..... Lost my job in May, have no income except this potential drop but all I hear from the so called experts is borrow mate, she'll be right. Crazy times.

Would almost certainly be saved and spent long term on essentials, particularly if the future was looking bleak.

Did the massive rise in deposits after the wage subsidy was implemented not show you something?

The massive rise in deposits showed me that lots of financially literate people can see the writing on the wall and are moving more of their wealth into (relative) safety just as I have. Prolly not much to do with the subsidies at all IMO.

Really? Where do you think the extra money came from with the rise of deposits? You reckon all that money came out of sold off assets (housing/shares etc)?

There was a pretty strong correlation with the rise of deposits and the wage subsidy being implemented. Which makes sense - all those receiving it (businesses in particular) were squirreling it away to pay workers over a longer period - whether these businesses needed it or not. This was reported at the time quite extensively.

blobbles....can't speak for others with certainty but personally unloaded a truck load of shares and moved funds to term deposits this year. Yes, am far worse off for it today; bad decision?, definitely maybe. But to answer your question, Yes, IMO lots of big, new TDs have been set up by people with a similar outlook to me. Presumably the subsidy money held by businesses in TDs will have totally gone (to employees) within a few months. I would guess funds in TDs of more than 12 months have increased sig as well and most of these just can't be wage subsidy money for obv reasons.

Suggest you look up the OBR if you aren't aware of it, if your bank get's into trouble, you may lose it all...

I've said several times I thought National's "temporary tax cut" policy was stupid.

Why 16 months? Silly. Instead they should do a helicopter payment of $1,000 in December, right ahead of Christmas, which would likely help buoy domestic tourism. Then do their 'temporary tax cut' starting on 1st April and scale back the cuts a bit to make it cheaper on account of the helicopter money.

Far more defensible as a policy that would boost the economy than their current temporary tax cut policy is, and would give a clear reason for those of lower means to vote for National instead of Labour. I honestly think a policy like this could've been worth a 5% bump in the polls, which is the sort of movement they dearly need.

I think the tax cut would be spent in the local economy more than a one off payment. Large one off payments are more likely to go one large one off purchases which are likely to be imported

Yes I agree.
I actually quite like National's temporary tax plan.
Still won't vote for them though.

Every dollar pumped in to my bank account will be stashed in an account, because crazy house prices mean that as a FHB, I have to save an enormous deposit, and it won't grow itself in this environment. Yet prices rise faster than I can save. It's a doom loop.

FHB should realize that low interest rate has been offset by high house price resulting in more debts and the way government is supporting the ponzi seems unlikely that any saving by FHB for deposit will match the speed of rising house price unless dexide to pay a bomb for pigeon hole and lifetime of debt.

I do realise that, and it's depressing. Every initiative to improve affordability just pushes up prices. At this point, I don't even think increasing supply massively would help. In Spain, they have a massive oversupply -- huge numbers of houses left empty -- but owners won't lower their asking rent, or sell, because they're convinced that capital gains are just around the corner. So they have high homelessness and ghost cities at the same time. I think the same will happen here -- the cash will continue to pile into housing and keep prices up regardless of demand/supply/return considerations, because banks/gov't will prop up loss-making investors at any price. Forget low yields, no real Kiwi investor is going to sell their property unless their losses are *catastrophic* and the bank pulls the pin.

Use the money to be prepared for the young and poor Vs rich and old civil war coming, the ones with nothing to lose have nothing to lose. No point buying houses when the young are simply going to take by force once they get screwed down a bit further.. I can't see the oldies holding there own against the empathy-less meth'd up youngsters.
Then the new broom can look to fixing past mistakes.. personally I would like to see a MMT which doesn't involve inflation

I thought economy has recovered in NZ but still need.....

Labour needs to promise/ hand it out now and hopefully avoid having to run the show with the Greens.
If the Greens get in we are screwed!

But Kindly, and with vegetable-based organic lubricants....

Will National/Act voters who firmly believe that, vote for Labour so they can govern alone?

Jacinda will most likely drag them along anyway like the last term.
Oh well, this will be Labours last crack for quite a few terms after this round anyway.
Massive economy issue, meets lack of delivery Labour.

You always vote ACT. Their deputy was quoted on TV last night stating the amount of money used for the COVID recovery equated to "fiscal child abuse".... if that's not an ACT soundbite I don't know what is,,,, disgusting.

The second LD is a fine example of money being spent when it wasnt needed. Labour failed at the simple stuff and allowed CV back into the community. Will they be able to manage something much bigger as an economy that is going backwards???? Little to no chance..

You are delusional if you think the same thing wouldn't have happened on pretty much anyone else's watch. What do you think happens after an election? All the government workers get fired and the government re-hires the people it likes? Having worked for the government quite a bit, I can tell you that it pretty much doesn't matter who is in power, 95% of government workers will still be there working in the same (or slightly different) jobs a year after the election.

ACT would have saved us right? Because they want to slash funding to the public service, so that will result in a more capable public service (???).

The difference between screw ups under Labour 'V' National is that people are fired when it is Natiional driving the ship. That makes a hell of a difference in proformanace. How many were fired in this latest round of Dept screw ups that gets the Wellington shrug? A big fat zero wasnt it.. Those screwups get to keep their jobs and screw up again.
Labour is a dismal failure at management, not to call that is delusional! Add the Greens to that mix and it's even worse.

I don't know, some in National get let off after a few final warnings..

https://en.wikipedia.org/wiki/Judith_Collins#Controversies

Some.. How many were fired due to a shocking lack of delivery over the last 3 years????? A big fat ZERO wasn't it.....

Pretty sure David Clark was given the "resign or be fired" speech... you are right though, barely anyones head rolls. To claim that people's heads rolled under National when they screwed up though is a bit rich! How many "second chances" did Collins get? As I remember it there were a number of National MPs that screwed up and didn't suffer any consequences...

Why would 'we' be screwed? The wealth tax would affect a relatively small proportion of the population.
And if we started initiating some serious environmental policy then maybe our environment will be a little less screwed in the future...

Greens infrastructure plan sure didn't sound environmentally friendly

The scaremongering tactics from the ones who have got to lose the most from higher taxes know no end.

Tax on earnings over $180k means 'Labour hates success' and 'exposes its pettiness' - Mike Hosking.

I even heard an ACT supporters say more taxes on higher earnings and wealth will become a drag on our economic productivity.
By that logic we should've been world leaders in productive investments with zero CGT and a much lower top tax bracket than European and North American nations.

I think Mike "Two carparks" Hosking would know a thing or two about pettiness.

Fritz. We just had 3 years of Labour and the Greens with a bit of NZF handbreak. If we get Labour and the Greens with no handbreak, the dodo's will hit the fan hard.

Depends on how quickly house prices rise. But many who live in Auckland will have to pay such a wealth tax. But the fact is that the people who these taxes will effect, will often rearrange their affairs so they don't end up paying it.

fiscal or monetary? What about aiming towards a trade surplus. Becoming more productive. Selling value added stuff to the rest of the world. At the very least we could sell an additional 17 billion if we forgot about the imaginary pandemic and allowed foreign tourists in. I guess we'd rather harass and intimidate foreigners so they never come back see here https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12368920 What a mean spirited thing to do those poor sailors.

Should have been done a couple of months ago. Now it will look like an election lolly.
May be for Christmas ?

This article is idle speculation. I just don't think it will happen. And probably rightly so.

No need to consider anything David, it's clearly the Wealth effect from subsidy, mortgage deferral, QEs, LSAP, FLPs were all flowing into productive housing market. Within the next three months, close to Christmas, boxing days etc. - we're all shall see the confidence are flowing into the market in forms of credit purchase by those wealthy kiwis. This is economic confidence at play.. supply demand thingy? but hey, I don't mind cash though..

Why not make it $15,000 or possibly $150,000 and declare that MMT is now official government policy?

And lift the Minimum Wage to $100/hr while we are at it - after all, it has no externalities, right?

so much for a resilient New Zealand. Looks like we are no different to any other over in debited country.

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.

The fact that we are printing money and one of our previous Reserve bank governors think i t is a good idea that we go into negative rates, which would have been crazy to even think about a few years ago, shows how bad the situation has got. Helicopter payments were used in Australia during the GFC, so IMO there is a good reason to use them heading into Christmas. Otherwise it could be a very bad time, with lots of layoffs around Christmas.

How bout no.
How bout instead we stop all this ridiculous distortion and let price discovery happen.

Whack idea, I know.

Nationals time limited tax cut are essentially a helicopter payment, but is targeted towards people who earn more. So low income people who spend a bigger percentage of their income will largely miss out. Instead it is likely that a lot of this tax cut will go into the inflation other assets (buy houses or stocks) or saved, rather than spent in the economy.
A least helicopter payments could be targeted to be spent in the economy, if they were done like a 'prezzie' card, and expired after a period of time, forcing people to spend it with NZ businesses.

Also I was watching a video , and it said NZ's housing market bubble was the #1 largest bubble in the world, followed by Australia at number 2. We don't need anything else to inflate these bubbles, because they could go pop in a 1 in 400 year event.