Is the government doing enough to stimulate the economy?

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tchart

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#275954 18-Sep-2020 13:53

So I was just watching the EEVblog youtube channel and the guy there has bought a brand new electric vehicle.

https://www.youtube.com/watch?v=CPcZm1Tu5VI&t=926s&ab_channel=EEVblog

However what I thought was interesting in his pre-amble he mentions that Australia is only paying 10% GST and also as part of their COVID business stimulus that businesses can write off assets up to $150 000 (until the end of the year).

I might have been living under a rock as I havent been to Oz recently (apart from transit lounge) but 10% GST is pretty low. I know there are ramblings about raising GST - which I think is a pretty good way to effectively tax people.

What was really surprising is the "$150,000 Instant Asset Write-Off" that is accessible to businesses. Thats seems like a pretty good way to get businesses to spend money - compared to our (limited time) $5000 low value asset write-off.

Which kind of got me wonder if our goverment is doing enough to stimulate the economy?

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#2567618 18-Sep-2020 14:37

They seem to be. Avoiding lock-downs by controlling C-19 adequately the single best thing they have done.

If the forecasts are right, we'll come out the other end of the recession with less debt as % of GDP than most western democracies had before the recession hit.

So long as we don't do something dumb like offer tax cuts, which are an ineffective stimulus measure in demand side recession - the rich just save the bonus money rather than spend on things that boost production, the poor can't spend more - because they don't get much from the tax cuts.

tchart

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#2567628 18-Sep-2020 14:45

I was more interested in the "Instant Asset Write-Off" aspect of this rather than the tax take from Joe Public.

NZ situation; you can write off up to $5K. That'll get you a fancy laptop for an existing employee.

OZ situation; you can write off up to $150K. That'll get you several new delivery vans - that means you'll probably hire new staff to drive those vans.

So it just seems like NZ businesses arent really being encoraged to spend money that have the potential to create new jobs.

Zeon

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#2567630 18-Sep-2020 14:47

Fred99:

They seem to be. Avoiding lock-downs by controlling C-19 adequately the single best thing they have done.

If the forecasts are right, we'll come out the other end of the recession with less debt as % of GDP than most western democracies had before the recession hit.

So long as we don't do something dumb like offer tax cuts, which are an ineffective stimulus measure in demand side recession - the rich just save the bonus money rather than spend on things that boost production, the poor can't spend more - because they don't get much from the tax cuts.

If there is never a vaccine it also could be the most fruitless thing too. Other countries are slowly building herd immunity and will get to the point where the R rate starts to slide. We can try and control it forever and perhaps it is possible with ever more future lockdowns and closed borders for a long time but once its in we will go through the same pains as the other countries are now.

The bigger problem for New Zealand is that the flow of people is so integral to the economy with international tourism being one of the country's largest industries so we have a worse dip than other countries e.g. Australia and could do for a very long time.

The whole strategy now is so reliant on there being a vaccine - it is a real gamble. Our remoteness allows us to make that gamble but we all better hope the odds are in our favour.

In terms of economic stimulus, I'm not sure if there is an easy answer here. We are in constant infrastructure deficit so seems like an area of focus. Not sure if consumer spending will provide much long term advantage. But with quantiative easing going full bore - hey why not have both....

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Fred99

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#2567634 18-Sep-2020 14:49

Zeon:

Other countries are slowly building herd immunity and will get to the point where the R rate starts to slide.

They won't be close to it for many years at the present rates of infection.

(And there absolutely will be a vaccine - though efficacy and duration of immunity won't be known for a while)

neb

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#2567637 18-Sep-2020 14:50

Fred99:
They seem to be. Avoiding lock-downs by controlling C-19 adequately the single best thing they have done.

If the forecasts are right, we'll come out the other end of the recession with less debt as % of GDP than most western democracies had before the recession hit.

So long as we don't do something dumb like offer tax cuts, which are an ineffective stimulus measure in demand side recession - the rich just save the bonus money rather than spend on things that boost production, the poor can't spend more - because they don't get much from the tax cuts.

Sometimes you need something like a +5 mega-agree for posts...

Dingbatt

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#2567644 18-Sep-2020 15:02

Wrong forum.

Belongs in Politics*. You are just going to get the same tired political views from the same bunch of contributors.

*(Biggest clue is the word Government in the title).

“We’ve arranged a society based on science and technology, in which nobody understands anything about science technology. Carl Sagan 1996

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Hammerer

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#2567653 18-Sep-2020 15:11

Is the government doing enough to stimulate the economy?

Probably yes. But there are other questions we could have asked which may prove to be more important.

I prefer to see the government considering a different default path other than a stimulus package. Covid-19 has interrupted normal operations so we could have used the opportunity to change what we are doing and how we do it.

The general assumption seems to be that we need to get back to where we were before Covid-19. But what if we don't go back to the previous normal? Then we will have to make some structural changes. Such changes could have been assisted by using some of the large sum of borrowed money.

MikeB4

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#2567654 18-Sep-2020 15:15

Zeon:

If there is never a vaccine it also could be the most fruitless thing too. Other countries are slowly building herd immunity and will get to the point where the R rate starts to slide. We can try and control it forever and perhaps it is possible with ever more future lockdowns and closed borders for a long time but once its in we will go through the same pains as the other countries are now.

The bigger problem for New Zealand is that the flow of people is so integral to the economy with international tourism being one of the country's largest industries so we have a worse dip than other countries e.g. Australia and could do for a very long time.

The whole strategy now is so reliant on there being a vaccine - it is a real gamble. Our remoteness allows us to make that gamble but we all better hope the odds are in our favour.

In terms of economic stimulus, I'm not sure if there is an easy answer here. We are in constant infrastructure deficit so seems like an area of focus. Not sure if consumer spending will provide much long term advantage. But with quantiative easing going full bore - hey why not have both....

Herd immunity if even possible with COVID-19 will take a very long time and a large percentage of the population will need to get infected. This will drastically lower productivity, overwhelm our health service and have an horrific death toll not only directly from COVID-19 but also deaths due to to an overwhelmed health service. How many deaths are you willing to accept to try and achieve this myth?

Here is a crazy notion, lets give peace a chance.

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#2567664 18-Sep-2020 15:21

MikeB4:
Herd immunity if even possible with COVID-19 will take a very long time and a large percentage of the population will need to get infected. This will drastically lower productivity, overwhelm our health service and have an horrific death toll

And that's the killer. There was a great infographic in, I think, the FT that showed how many had died so far vs. how many more would have to die to reach herd immunity. No (sane) person would accept that price.

Note the qualification, added to accommodate Trump.

mattwnz

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#2568214 19-Sep-2020 17:36

tchart:

So I was just watching the EEVblog youtube channel and the guy there has bought a brand new electric vehicle.

https://www.youtube.com/watch?v=CPcZm1Tu5VI&t=926s&ab_channel=EEVblog

I might have been living under a rock as I havent been to Oz recently (apart from transit lounge) but 10% GST is pretty low. I know there are ramblings about raising GST - which I think is a pretty good way to effectively tax people.

Australia's income taxes are a lot higher. IMO they are better than NZs. Labours idea of taxin those who earn over 180k for amounts over 180k is a step in the right direction, but the amount they get back is tiny and people often find loopholes.

MikeAqua

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#2569136 21-Sep-2020 12:18

This is a difficult topic and my answer is Yes .. No.

The problem is govt's ability to stimulate parts of the economy in a way that provides opportunity to people who have lost their job.

For example, there have been losses in the tourism sector. Someone who cleans hotel rooms, or makes cocktails, isn't going to be helped directly by a road-building project or a funding boost for the tech or education sectors.

There may be a general spill-over benefit from stimulating construction, tech and education, but that will take time to spill over. In the examples of tech and construction we may not have sufficient skilled people to support an increase in activity. If so, we would have to import skilled people, while the unemployment rate grows and hope for eventual spill over to create other jobs.

With the specialisation of labour that we now have, Keynesian inspired economic stimulation won't get you the bang for buck it used to. Of course, you can retrain people but that takes time and not everyone succeeds.

Mike

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neb

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#2569138 21-Sep-2020 12:24

MikeAqua:
For example, there have been losses in the tourism sector. Someone who cleans hotel rooms, or makes cocktails, isn't going to be helped directly by a road-building project or a funding boost for the tech or education sectors.

Somewhat pie-in-the-sky stuff here, but given that this isn't going to go away in a hurry you'd think that e.g. NZ Post could hire up some of these people to deal with the appalling delays in getting anything shipped. There are a pile of industries that are in desperate need of people due to changes in how things are done post-Covid, but there seems to be little movement to fill them. Now admittedly you're not going to be able to magic something like a building inspector (pre-Covid: 24 hours notice to get one, now: a week's notice) out of thin air, but you should be able to retrain people to handle postal sorting/delivery without a huge amount of effort.

sen8or

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#2572103 22-Sep-2020 14:35

tchart:

I was more interested in the "Instant Asset Write-Off" aspect of this rather than the tax take from Joe Public.

NZ situation; you can write off up to $5K. That'll get you a fancy laptop for an existing employee.

OZ situation; you can write off up to $150K. That'll get you several new delivery vans - that means you'll probably hire new staff to drive those vans.

So it just seems like NZ businesses arent really being encoraged to spend money that have the potential to create new jobs.

Thats all well and good in theoretical / political economics, but the reality is you still need cash and demand to go and spend. With business demand down, company's don't have the cashflow to pile on large capital expenditure, sure they can borrow at ridiculously low interest rates, but lenders still have to be satisfied of an ability to repay, something that they are scrutinizing heavily at present.

I had a discussion just recently with my director about our fleet, and that it was aged and overdue for upgrade. What we have shown over the past 6 months is the need for resilience and ability to weather a storm, having too much cash tied up in capital items limits the ability to weather a storm, as does too much debt servicing. We have simply delayed the upgrade for another 6 months as we monitor the local situation and gain comfort in how the business will function in a post covid environment. I'd hazard a guess we aren't alone in delaying expenditure of this nature (and our industry is associated with construction, particularly school upgrades where we know there will be big $ spent over time, I can only but feel for those in other industries that are more volatile - car rental firms anyone?)

MikeAqua

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#2572199 22-Sep-2020 16:02

sen8or:

Thats all well and good in theoretical / political economics, but the reality is you still need cash and demand to go and spend. With business demand down, company's don't have the cashflow to pile on large capital expenditure, sure they can borrow at ridiculously low interest rates, but lenders still have to be satisfied of an ability to repay, something that they are scrutinizing heavily at present.

I had a discussion just recently with my director about our fleet, and that it was aged and overdue for upgrade. What we have shown over the past 6 months is the need for resilience and ability to weather a storm, having too much cash tied up in capital items limits the ability to weather a storm, as does too much debt servicing. We have simply delayed the upgrade for another 6 months as we monitor the local situation and gain comfort in how the business will function in a post covid environment. I'd hazard a guess we aren't alone in delaying expenditure of this nature (and our industry is associated with construction, particularly school upgrades where we know there will be big $ spent over time, I can only but feel for those in other industries that are more volatile - car rental firms anyone?)

If you can take 28% of the value of a new asset off your tax bill, within 12 months, it makes the payback a lot shorter. A $150k asset just became $93k.

If it's an investment that saves you cash quickly , hard to say no.

Mike

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#2572438 22-Sep-2020 22:28

MikeAqua:

sen8or:

Thats all well and good in theoretical / political economics, but the reality is you still need cash and demand to go and spend. With business demand down, company's don't have the cashflow to pile on large capital expenditure, sure they can borrow at ridiculously low interest rates, but lenders still have to be satisfied of an ability to repay, something that they are scrutinizing heavily at present.

I had a discussion just recently with my director about our fleet, and that it was aged and overdue for upgrade. What we have shown over the past 6 months is the need for resilience and ability to weather a storm, having too much cash tied up in capital items limits the ability to weather a storm, as does too much debt servicing. We have simply delayed the upgrade for another 6 months as we monitor the local situation and gain comfort in how the business will function in a post covid environment. I'd hazard a guess we aren't alone in delaying expenditure of this nature (and our industry is associated with construction, particularly school upgrades where we know there will be big $ spent over time, I can only but feel for those in other industries that are more volatile - car rental firms anyone?)

If you can take 28% of the value of a new asset off your tax bill, within 12 months, it makes the payback a lot shorter. A $150k asset just became $93k.

If it's an investment that saves you cash quickly , hard to say no.

You are correct. Equally if you are in a seriously cashflow constrained situation it's not so easy, which I think is what was being said.

I'm clearly telling you how to suck eggs but I don't think a lot of people really understand the problems of cashflow compared to profitability.

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