The government has announced a $12.1 billion package to assist with job losses and general economic stimulus as a result of Covid-19. Before we look at it in more detail, it is important to remember that it is the fiscal responsibility of the last 3 finance ministers (including Grant Robertson) that has put this country in a position to be able to do this without losing our valuable credit rating. Let us give credit where it is due.
The basics of the package are as follows:
• Extra spending of $12.1 billion for businesses, beneficiaries, pensioners and the health system.
• $8.7 billion in support for businesses and jobs. ($5.1 billion for wage subsidies and $2.8 billion for tax changes
• $2.8 billion for income support. ($25 per week additional benefit for all beneficiaries after April 1 indexing)
• $500 million for health.
The first thing that strikes me about this is that $500 million for the health sector is nothing more than a drop in the bucket at a time like this. If our aim is to stop the health sector from becoming overwhelmed, my guess is that it will need considerably more money than that.
I am pleased to see some assistance for businesses, and for those who are unsure about this, self-employed people are covered by these provisions. Wage subsidies are available for employers for up to 12 weeks and up to $150,000 if they have suffered a 30 per cent decline in revenue compared to last year, at a rate of $585 a week for full-timers, $350 a week for part-timers, which are available to all employers and self-employed.
Some of the tax provisions are strange. Raising the provisional tax threshold from $2500 to $5000 is long overdue, and I hope it remains once this crisis is over. This will allow some businesses to defer tax payments, and there is mention of the remission of some late payment penalties. It sounds as if this might be a matter for IRD discretion, as any penalty remission has to be virus related. Proving that, particularly if you are a supplier to an affected business, may be a problem.
And then there is this:
Reinstatement of depreciation deductions for commercial and industrial buildings at an estimated cost of $2.1 billion to 2024.
Are we expecting this pandemic to go on until 2024? Depreciation is a non-cash item. Sure, it can reduce income tax, and can also be factored into provisional tax payments, but depreciation rates on buildings were only in the 2% to 3% range anyway. While I don’t necessarily disagree with it, it seems odd to have it included as part of a package designed to save us all from ruin, particularly as $2.1 billion of today’s funding is allocated to it.
But let us deal with the elephant in the room. $2.8 billion on beneficiaries.
Grant Robertson’s rationale for increasing benefits at a time like this is that beneficiaries spend all the money they have, meaning that anything given to them will be spent and will act as an economic stimulus. That may be true, but it doesn’t justify their position. This $12.1 billion is emergency funds. It is to be hoped that it will not all be needed, although that may be a vain hope. But every cent allocated to income support will be spent. This is not part of an emergency stimulus package. It is simply an increase in benefits, and the timing of this couldn’t be worse.
In other words, this is electioneering. I’m not sure why Jacinda is bothering though. She should save valuable taxpayers’ money on this part of the package. After all, I doubt very much that many beneficiaries fail to vote Labour. But now she is making sure of it. This is scandalous.
I would rather see that money go into the health sector. That is where it will be needed… probably 10 times over before we get through all this.
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