When Grant Robertson admitted that his latest handouts will result in over 80 per cent of New Zealanders now being on some form of government benefit, he said it with an element of pride. It is disgusting to watch this government turn a nation of mostly hard-working, decent people into bludgers, but that is clearly their aim. The problem is that their actions will soon become a spiral of destruction, that will drag us all down, reduce our standard of living and will leave an almighty mess for the next government to sort out – and the pain that will bring will be appreciated by practically no one.
Let’s be clear about one thing. The original wage subsidies, brought in during the first lockdowns in 2020, were a necessary evil. No one knew what was going to happen; we didn’t know that the virus was going to mutate into one that causes merely mild cold symptoms. Reports of thousands of deaths from overseas sent chills down our proverbial spines; this was another Spanish Flu. But that particular virus targeted healthy young people, whereas Covid-19 attacks mainly older people with health problems. It is always sad to lose a family member, but the logic behind closing down entire countries and economies to save sick people who would die sooner rather than later makes little or no sense. From an economic viewpoint, it created carnage.
Nor did the decision to lock down the entire country for one Delta case in Auckland in August 2021 make sense, but here is where the damage really started. Large parts of the country were forced into lockdowns and into taking government handouts when there were no cases in the area. The South Island started seeing Covid cases in December 2021 – four months after being forced into level-four lockdown. Billions of dollars were squandered unnecessarily on subsidies that were not needed. The government, drunk on power and the approval that they had been given in the 2020 election, truly lost sight of reality. Government bonds were created, money was printed and the party carried on like there was no tomorrow.
But there is always a tomorrow, when the hangover hits and all those empty bottles have to be disposed of somehow.
Inflation reared its ugly head. Only a finance minister and a Reserve Bank governor who really have no idea what they are doing would think they would get away with it. Now we are facing inflation rates not seen for over 30 years. In those days, it was a priority of governments to control inflation, because of the damage it does to economies, to standards of living and to people’s lives.
The definition of inflation is – ‘too much money chasing too few goods’. It is a simple concept really. If there is plenty of money in the economy, people will spend more, demand increases for certain things (housing being a good example) and prices go up. This is one of the reasons why the Reserve Bank’s remit is to keep inflation between one per cent and three per cent… a remit that has failed spectacularly during Adrian Orr’s tenure.
So as inflation hits the poor the most, and the cost of living spirals so that many people struggle to afford basics, what does our esteemed finance minister do? Why, he stokes the fires even further by handing out more free money. But this time, he didn’t even give it to those who need it most. He gave it to those he wanted to target – those middle New Zealanders who voted Labour in 2020.
Make no mistake about what our finance minister is doing. He is trying to buy votes. But in doing so, he is making the living standards of those at the bottom of society worse than before… because, once again, he is flooding the market with money. And what happens when there is too much money in the economy? Inflation. He is stoking inflation.
The effect on the economy overall will be inflationary, even though $350 is not a large sum in the hands of a individual. What is more, it is likely that there will be pressure to extend the plan, and even more pressure to include beneficiaries and superannuitants. Receiving the Winter Energy payment does not make anyone rich; many pensioners are, for the first time in their lives, having to resort to foodbanks to survive.
So how much more money will the government throw at the economy, against the advice of Treasury and against all economic theory aimed at keeping inflation under control?
Splashing money around to control inflation is like trying to put out a fire with petrol. Helicopter money may have a feel-good element to it but it won’t change people’s lives for the better. As always, it will be the poor who suffer most. They always do when bad economic management is at the fore.
The government cannot insulate everyone from the cost of living crisis, but if they want to help anyone, it should at least be aimed at the most vulnerable in our society.
The better way to control inflation would be to allow people to keep more of the money they earn. There is a cost to the government in reduced tax revenue, but it does not require printed money. But this government refuses to even consider this option, claiming that it will be too expensive… as if it were cheap to just spray billions of dollars around in most directions.
Let’s face it. The reason this government will not consider this option is because the National Party is proposing it.
State spending as part of GDP is reaching levels not seen since the post-war era, even though Robertson simply fudges the figures to make them look better. Offsetting the value of assets against the value of debt is the net equity calculation that is done by most accountants, but government does not work that way. A business has assets that are mostly saleable or redeemable, but governments own assets that are of no value to anyone else. And, whichever way you look at it, debt is debt: offsetting it against asset values does not mean you have to pay back less.
Costs are rising. Interest rates are rising and higher wages drag people into higher tax brackets. The government has got this all wrong. You cannot grow an economy or incentivise working people in such conditions. But with 80 per cent of the people now receiving some form of government benefit, it is too late. A formula of lower taxes, prudent spending and effective inflation control is the only way forward. But we will never get that from this government, which is trying to buy its next election win. They should be ashamed of their incompetence, because it is costing us all heavily.