TOP's COVID Economic Response
We've had a lot of questions about TOP's position on COVID - both stopping the resurgence and how we build back better as a country.
Generally speaking TOP is focussed on the long term issues. Labour and National tend to do a pretty good job of responding to crises, but not so well on the long term issues. However, COVID has shone a light on several long term issues, so TOP does have plenty to contribute.
This first blog covered our proposed health response. This second blog covers the economic response. It brings together ideas we have been talking about into one cohesive package, with the addition of a policy on commercial rent. We will look at the following:
- Wage subsidies, tax and welfare
- Infrastructure funding
- Small business support
- Commercial rent [new]
- Monetary Policy and debt
- Local Government funding
Wage Subsidies, Tax and Welfare
The wage subsidies were only ever a band aid to mask a bigger problem. COVID has uncovered the fact that our complex, antiquated and punitive tax and welfare system can't keep up with the pace of change. One in eight people will be made redundant by automation and artificial intelligence in the next decade.
TOP is proposing a Universal Basic Income of $250 per week for everyone, no questions asked. Beneficiaries would be no worse off, but those that work would keep the UBI.
Continued use of wage subsidies will only keep zombie businesses going - our economy needs to adjust. However, we can provide people with a basic level of certainty while they are adjusting. A UBI of $250 per week would remove the welfare trap, and reward effort. It would help people retrain, start businesses, or take up seasonal and flexible work. Those on the minimum wage would be $6k a year better off, taking them over the living wage.
The certainty provided by a UBI would give consumers the confidence to spend, kickstarting the economy. Our proposal is that it is funded by a 33% flat tax, but that change could be phased in to give greater stimulus short term.
New Zealand has a massive infrastructure deficit, and this is the time to address it. With public debt at a relatively low level and interest rates at rock bottom, borrowing to invest makes sense.
However, the emphasis from most parties in Parliament is on shovel ready projects - or worse - projects designed to buy votes. This is a critical time. The investments we make now will determine whether we reach our economic potential and our environmental goals for decades to come.
Investments should be made on the basis of business cases, particularly in terms of productivity improvements and emissions reductions.
Small Business Support
Our COVID 19 Recovery Plan for Small Business sets out several ideas of how we can invest in our small businesses to help them come back stronger than ever before, including:
- Abolish provisional tax to free up cashflow and reduce admin
- $10k grants to uptake digital technology and improve energy efficiency
- $5k grants to work with Universities and polytechnics to solve problems
- Remove Fringe Benefit Tax from electric vehicles
- Rein in big business and make them pay on time
Commercial Rent [new]
The one gap in the Government's response to COVID has been around rent for commercial premises. The accepted practice between landlords and tenants has been to share the burden of lockdown. TOP would formalise this agreement. So when a business can't operate at all for a period due to COVID restrictions, the rent would be reduced by 50% during that period.
For some businesses (such as hospitality) even Level 2 will still have a severe impact on their business. In our view that practice should continue to be the case - whatever the pain in terms of fall in revenue, it is shared between landlords and tenants.
In terms of affordability, landlords are currently able to take up the mortgage deferral. This would be supported by the debt jubilee as per below.
In order to deal with this economic crisis we are importing failed policies such as "Quantitative Easing" (QE) from overseas. All QE does is inflate asset prices and bank profits. Pushing interest rates down just encourages ordinary people to take on more debt. Given the tax loopholes for property in our tax system we can expect QE to lead to much higher property prices in the future.
We urgently need some creative thinking in this area, which is why TOP is calling for the Reserve Bank to directly fund a temporary UBI and Debt Jubilee. This "QE for the people" is much fairer and would reduce debt rather than encouraging people to take on more debt during a crisis.
Local Government Funding
The need to reform local Govt funding has been in our housing policy Building Aotearoa for some time. However, COVID has shone a light on the issue of Local Government funding, with Councils crying out for support right now.
Councils have 40% of the infrastructure in New Zealand and 7% of the revenue to look after it. This is some of the most important infrastructure we have as it allows us to have clean drinking water and clean waterways. If we want to solve our housing crisis and climate emergency we need to 'build up' in our cities, creating medium density housing around our public and active transport networks. Again this requires Local Government investment.
Right now, more than ever before, Local Government needs the help of Central Government. Yet they are being ignored or told to rack up ever higher levels of debt. TOP would give Local Government back the GST on development so they have an incentive to welcome development, and the revenue to provide much needed infrastructure.