The latest GDP figures are due out at any moment, and are expected to show that growth has slipped to about 2.1% per annum, down from over 3% a year ago. While not disastrous in itself, this is part of a worrying trend. The world situation, while volatile, is not causing too much pressure on trade – yet. We are still selling most of our products very successfully overseas, and we probably have new trade deals with the UK and possibly the EU to come.
Yet GDP growth is falling. Government policy must have a lot to do with that.
Interest rates are at historic lows. Everyone is talking about economic stimulus. Economist Shamubeel Eaqub has the answer.
Just give money away.
“Literally just cash out to poor people,” Shamubeel Eaqub told The AM Show on Thursday morning. “If you give poor people money, they will spend it.”
Obviously, Mr Eaqub has had a dose of Jacinda’s fairy dust, which seems to be in short supply these days. This is his answer? Just give money away?
Does he not realise that he is talking about your taxes here? The money that you work hard to earn should just be given away to poor people, for no better reason than they are poor?
“Right now what we need is fiscal stimulus, right? That’s the big thing that’s going to work,” said Eaqub. “The Reserve Bank’s monetary policy’s impotent. It’s not going to work. At these low rates, nothing matters.”
Most of the ‘poor’ are already receiving government handouts. So, he thinks they should just receive more of them?
Some economists back cash payments to the poor over other stimulus methods, such as tax cuts, because the poor have little choice but to spend it on things they need. This spending becomes income for another person, increasing their ability to spend too, so the overall benefit to the economy exceeds the Government’s initial spending. Economists call this the multiplier effect.
What about people on relatively low incomes who do not get any government support? Single people, childless couples, older workers. Many of these earn relatively modest incomes and pay their taxes with no government assistance. So they should just continue to be taxed to fund a better lifestyle for those who don’t bother to work? Is this what Eaqub means?
Surely tax cuts would be more equitable because, as benefits are taxed too, this would mean that everyone gets more money in their pocket. But Eaqub would never suggest this, of course, because those pesky rich people might gain a few dollars from such a policy, and we can’t have that, can we?
The AM Show host Duncan Garner asked Eaqub whether tax cuts could achieve the same thing, citing Australia’s recent package targeted at people on middle and moderately high incomes.
“Funnily enough, their tax cuts haven’t worked very well,” said Eaqub. “When they gave cash payments to families, that worked – but the tax cuts have actually been very, very slow.”
It is important to note though that Australia paid a cash handout to ALL families, not just poor ones. This was part of their economic stimulus package in 2008, as the GFC was starting to bite.
The current sluggishness in the economy dates back to 2016, Eaqub said.
“This has been really unusual in how slow and gradual it has been. So when we’re talking about a downturn, we’re not talking about the economy going backwards. It’s very sluggish. Everything has kind of just ground to a halt. Everyone is on strike.”
Well, that is what you get with a Labour government…
Asked by sportsreader Mark Richardson what the Government could do for rich people that might help the economy, Eaqub said nothing.
“They’re fine. They don’t need help. What we need for everybody else is a lot more opening of the pipes. We need more infrastructure, more capacity. Because New Zealand can grow, but we’re being constrained by a lack of infrastructure, whether it’s housing, roads or trains and all that stuff.”
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The way to bring the economy out of its current fall into recession is indeed by building infrastructure, but Eaqub is missing a very important point. The government does not need to loosen the purse strings to achieve that. It simply needs to get on and fund some of the things it has promised to do, such as build houses, roads, railways and hospitals. Many such projects are in the pipeline, but this government is so inept that none of these projects is actually in progress. Think the Auckland light rail project, promised in 2017, which is not even going to be put to Cabinet before 2020. NZTA is now looking to redistribute funds already allocated to that project because it is clearly going nowhere.
We would all like to see some major infrastructure projects carried out, but with an inept government with a Green arm that hates roads, it is not going to happen soon. In the meantime, just giving away taxpayers money is completely unacceptable. I do not work so that the money can simply be thrown away to people who can’t be bothered to earn anything for themselves. I’d rather go on the dole myself than do that.
And if enough people start to think like that, then you really will have a problem, Mr Eaqub.