What can the council actually do to boost cafes and bars during an economic downturn?

The largest employer in Wellington, the New Zealand government, wants its employees to stop working from home. Public service minister Nicola Willis cited productivity concerns, especially for younger professionals who miss out on valuable face-to-face time by not coming into the office. “That’s even before we consider the effects for the CBD retailers, restaurants and cafes,” she said in a statement. The announcement came after several high-profile Wellington hospitality businesses closed, highlighting concerns from the industry. 

A strong hospitality scene is essential not just for its economic impact but for the vibrancy and personality of the city itself. It’s also the city’s largest source of working-class jobs, especially for students and young people. Requiring people to work from the office will provide a boost to cafes and pubs in the short term, but requiring a captive market of customers by government decree isn’t a good way to fundamentally address the economic challenges of the city centre. 

It all comes down to choice. You can’t force someone to spend money in a city any more than you can force someone to live there. Most experienced public servants in Wellington are highly qualified and can find work anywhere they want or need. Treating them like a captured market is short-sighted; the most valuable and in-demand workers are the ones with the greatest ability to leave. They aren’t pawns who exist to sustain mediocre bakeries.

There isn’t much the council can do to change the global economic conditions affecting Wellington and all other cities. Things will turn around eventually, but it could take a while. The District Plan changes will help by allowing more people to live in and near the city centre, but that isn’t a quick fix. The Golden Mile redevelopment will be a big boost for the area (even if many business owners don’t believe it), but construction will take at least two years and involve staged steps. 

Apart from rounding up every public servant and shoving them into a Mojo, what can the city council and government do to quickly and affordably give the hospitality sector a boost? Here are a few levers that could be pulled. 

• More lights. Better street lighting is the lowest-hanging fruit when it comes to developing a city’s nighttime economy. Brighter streets reduce crime and, more importantly, make people feel safer, which means they’re more likely to walk around spending money. The council could upgrade its street lights in key areas and consider subsidies and incentives to encourage businesses to install lights on their awnings. 
• Pedestrian-friendly street designs. Wider footpaths, trees and places to sit keep people in town longer and increase retail spending. The new boardwalk and parklets on Dixon Street were a quick and cheap upgrade that has made the street the place to be on a sunny weekend day. For businesses, it’s a cheap way to expand their number of seats and tables. Wellington City Council recently voted to expand the number of parklets in the city from 14 to 50.
• Legalise street food. Food vendors on the footpath are enormously popular at CubaDupa but illegal every other day of the year. Food trucks are only allowed to trade in limited permitted zones. Wellington’s tight restrictions on street vendors can be traced back to a racist clampdown on Chinese fruit hawkers in 1908 and has stuck around as a protectionist measure to reduce competition for restaurants. Is that approach still needed? When you go to a major city in Asia, it’s not the chain bakery you come back raving about, it’s the exciting and confusing piece of fried meat on a stick that you bought from the side of the road. 
• Rates rebates for theatres and music venues. In New York, theatres are exempt from city taxes. The New York City Council recognises that the additional spending generated by theatres is more than the revenue it would gain from taxing them. Toronto recently introduced a permanent tax break on music venues. Wellington prides itself on its cultural scene but could do more to support venues. 

• District licensing reform. Bar owners constantly complain about the cost of doing business in Wellington. Nick Mills’ Newstalk ZB show is about 50% news and 50% bemoaning how hard it is to own a pub. Any bar or nightclub open past 2pm pays $4,700 in licensing fees per year, and that figure jumps to $7,500 after just one enforcement. That cost is on top of all the staff time and legal fees required to be approved by the council’s District Licensing Committee. The council spends $1.2 million a year on alcohol licensing, including $350,000 just on the functions of the committee itself. Strict licensing is well-intended to reduce harm, but lumping additional costs on businesses makes it harder for businesses to turn a profit and reduces the range of options for customers. Maybe if the licensing requirements were relaxed, that money could be reinvested in safety initiatives.
• A Courtenay Place party zone. If the council really wanted to rip the tape away, it could create a legally distinct zone around the Courtenay Precinct with different bylaws that make it easy to get permission for parades, fairs, live performers, street art and other fun things. It could be an opportunity for constructive co-governance with mana whenua; Courtenay Place was built along the south wall of Te Aro Pā. 
• Lift the liquor ban. New Orleans, a city not much larger than Wellington, developed Bourbon Street into one of the world’s great nightlife destinations in large part because people can drink on the street. Bars sell cocktails-to-go in plastic cups, which helps to create a festival-like atmosphere. Given New Zealand’s track record with alcohol, this is probably a bad idea and would almost certainly end in disaster. But still, it’s an option that is available. I have a great memory of walking through Prague on Christmas Day with a €5 cup of mulled wine, and I’d love to be able to recreate it here.

Nicola Willis played an economic Uno reverse card and said a capital gains tax would discourage business investment. We went in search of an economist, financial type, or person who’s once used money, who would back her take.

Nicola Willis appeared on RNZ’s Morning Report last Thursday, beset on all sides by affliction. Wokesters like the chief executive of ANZ, the IMF, and Newstalk ZB’s Kerre Woodham were piling on, urging the government to introduce a capital gains tax. She was there to teach those notorious pinkos a lesson and reintroduce some economic sense into the discussion. Things got off to a rough start. A mere 44 words into her explanation of New Zealand’s full economic context, presenter Corin Dann interrupted, asking her to return to the 35-word question at hand. “You had the benefit of a long question, and I’m going to give you a proper answer,” she said. 

But Dann continued to insist she explain why we don’t need a capital gains tax when the US, Australia, and nearly every other country in the OECD has one. That was when Willis decided to deploy a bold conversational gambit and play the economic equivalent of an Uno reverse card. 

“When you look at our economy, one of the challenges we have is that our firms don’t actually have that much capital invested in them. That has affected our productivity. So when you look at all of those factors, do we really want to say to small businesses, to KiwiSavers, to people wanting to invest, actually, if you invest more capital, you’ll face more tax,” she said.

This is essentially the opposite of what economists, accountants, commentators, and people who once saw a $20 note tend to claim, which is that a capital gains tax would redirect investment away from unproductive housing assets toward business. Dann said as much. “Are you saying that a capital gains tax would somehow discourage investment in business?” he asked. “Because I think you’ll find most economists and tax experts will argue the opposite; that there has been a bias to housing at the expense of money going into the productive sector.” 

Willis was undeterred. “What I am saying is that it would detract from that, because if you own a mechanics business or an interior decorating business, when you go to sell it, you will be slapped with a capital gains tax. That’s pretty off-putting.”

Maybe the finance minister had access to a different source of economic advice than that generally provided to journalists like Dann. Who was telling her a capital gains tax would reduce business investment? Finding that person or persons sounded like a challenge for The Spinoff.

First it was time to rule out some long shots.

“An absence of a CGT on investment properties puts them at a tax advantage. That means we overinvest in residential property – pushing up rents and house prices along the way. This also strangles investment in other, more productive areas of the economy,” said Council of Trade Unions economist Craig Renney, who spent much of the last election cycle getting repeatedly berated by National candidates for his admittedly correct calculations on their policy costings. 

Tax researcher and capital gains tax advocate Max Rashbrooke also pleaded not guilty to secretly providing anti-CGT advice to the finance minister. He argued our current system incentivised small-scale property investment, which generated little taxable day-to-day income, but did generally spew out a massive untaxed capital gain at point of sale. “It’s plausible a CGT would help shift investment away from residential property,” he said. “The strength of that effect isn’t certain. But what is certain is that there’s no support, as far as I know, for the proposition a CGT harms investment. Admittedly, I’m not an economist. But nor is Nicola Willis.”

As mentioned, it wasn’t Kerre Woodham.

Tax expert Terry Baucher wasn’t convinced by Willis’s argument either. He said prime minister Chris Luxon’s decision to invest in seven houses, including an Onehunga unit recently sold for an untaxed $300,000 capital gain, was an indication of what our current system incentivises.

“By her logic we should have one of the most heavily invested-in business sectors because of the opportunity to grow a business and realise a tax-free capital gain. But we don’t, although America, Australia and the UK, which do have a CGT, have plenty of business investment and are more productive.”

Independent economist Cameron Bagrie supported a CGT, offset by a cut to the company tax rate. “The scrum in NZ is too far screwed towards housing investment, and a CGT on housing is one way of balancing the ledger,” he said.

Infometrics chief executive and media regular Brad Olsen said businesses had nothing to fear from a properly implemented capital gains tax. Like Bagrie, he said a hypothetical tax switcheroo offsetting a CGT with a cut to the company tax rate could encourage investment.

“I can understand the concerns from the minister, but I don’t share them,” he said. “From a fundamental point of view, it’s hard to understand why some people are fine with income tax, where you pay a proportion of the pay you get from using your time, but are against your asset paying a proportion of the gain – not the total value, just the additional gain – in tax.”

Economist Sam Warburton wasn’t sympathetic either.

“I do not endorse Nicola Willis’s views,” he said.

But then he proceeded to do the thing I hate most, and introduce context and nuance to the discussion. “Basically there may be a bit less capital investment overall because capital gains are taxed (so a bit of what Willis was saying), but likely better allocation of capital across the economy and productivity overall because we’d remove the tax distortion that sees capital flowing to sectors where capital gains are more possible (ie the point Corin Dann was making).”

The sectors we currently over-invest in can be seen on this graph from the Tax Working Group.

The Spinoff also contacted economists from New Zealand’s largest banks. Strangely, none of them wanted to weigh in on a highly politicised topic that might require them to be at odds with the finance minister.

“I have no comments on this topic at this time,” said ANZ’s Sharon Zollner.

“I was a bit sick this morning so don’t have much time really to delve into the whole CGT debate,” said ASB’s Nick Tuffley.

Other banks either did not reply, or insisted on anonymity.

Eric Crampton, an economist for right-leaning thinktank The New Zealand Initiative, provided a comprehensive response that could be seen as broadly sympathetic to Willis if held in a certain light at exactly 3pm on the summer equinox. He said the country could see a decline in foreign capital investment if it implemented a CGT without other changes to its tax structure. He preferred to discourage unproductive housing investment by loosening zoning laws to such an extent that property would simply stop generating large capital gains. “If zoned land is no longer scarce and isn’t expected to just keep becoming more scarce, that abolishes the capital gain at point of origin.”

Sense Partners economist Shamubeel Eaqub provided a brief and to-the-point assessment when furnished with a transcript of Willis’s take on a CGT discouraging business investment.

“No. It makes no sense,” he said.