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Image: Archi Banal
Image: Archi Banal

OPINIONMoneyDecember 6, 2021

The real impact of New Zealand’s economic response to Covid-19

Image: Archi Banal
Image: Archi Banal

Contrary to many assumptions, New Zealand’s economic response to Covid was among the worst in the world in terms of widening wealth inequality and the wasteful use of taxpayer funds, argues Bernard Hickey.

This is an edited version of a post first published on Bernard Hickey’s newsletter The Kākā.

Since the onset of Covid in March 2020, the government of Aotearoa has delivered one of the biggest fiscal and monetary policy responses in the OECD in terms of taxpayer money spent and central bank money printed, relative to GDP. It also unleashed the strongest economic recovery, the fastest asset price inflation, and delivered the lowest unemployment rate in the OECD.

Surely that’s all good? The Labour government certainly paints its response as a kind and progressive one that has not left the most vulnerable behind. It has touted the success of its wage subsidies and regularly highlighted the various dollops of funds paid to food banks and for emergency housing and special needs grants.

But what was the scale of the support, and who is better or worse off as a result? The headlines look good, but what are the bottom lines?

The effects now evident in asset values and bank accounts nearly two years after the outbreak are simply astonishing. They show asset owners, who have been the beneficiaries of almost all the government’s direct support and central bank actions, are now astoundingly more wealthy.

Working families and beneficiaries who pay rent are now mostly worse off or barely treading water since the first lockdowns in March 2020. Food banks are seeing record demand and the waiting list for public housing has risen 65% to 24,475 since the beginning of Covid. It has trebled in the last three years.

The rich’s wealth rose by 50%

In short, by my calculations from Reserve Bank figures on term deposits, household financial assets and house and land valuations, asset owners’ wealth is on track to rise by $872 billion or 50% to $2.63 trillion within two years of the outbreak, including:

  • a $45b increase in cash in bank deposits to $319b, which incorporates a $21b rise in non-financial bank deposits to $110b and a $24b increase in household deposits to $209b;
  • a $608b increase in housing equity due to a $648b rise in the value of houses and land to $1.74t and a $40b rise in home loans to $318b; and,
  • a $257b increase in the value of shares, bonds and other non-bank financial assets to $954b.

All of that increased wealth and cash on hand is due to government payouts and the actions of central banks here and overseas. Yet the money keeps flowing to those who already have it.

Here’s another chunk of change

The government announced last week that it would pay up to another $490m of cash grants to business owners as a transition payment going into the traffic light system, extending taxpayer support for the owners of capital and assets to a total of $20b in cash since the onset of Covid.

Just to be clear: wage subsidies were not paid to workers. They were paid to business owners to offset the wages of the employees they would otherwise have made redundant, although that willingness to fire staff or the ability to use their own existing buffers was never tested.

Meanwhile, the cash balances of transaction and term deposit bank accounts of non-financial businesses and households owning property have risen by a net $45b since Feb 2020 to $319b at the end of September. Significant increases in cash deposits can be seen in March and September soon after the government payments, and have continued increasing since then.

None of the wage subsidies, resurgence payments or the new transitional support payments were ever means tested or given as loans for repayment. An assumption was made in March 2020 that there was not enough time to check and business owners needed a shot of confidence to keep employing people. Somehow, that assumption was not challenged or revisited in August 2020 or August 2021 when fresh resurgence payments were made, even though the experience after March 2020 was of quick economic and spending recoveries, and a strong labour market.

Why no means testing or clawbacks?

There was never any suggestion of clawing it back if, in the event of a strong recovery, businesses ended up with cash surpluses, which is indeed what happened.

The desperate situation forecast in March 2020 of double-digit unemployment meant the first handouts of cash labelled as wage subsidies were forgiveable and certainly worked spectacularly to stabilise the situation, largely due to the speed and lack of conditions with the cash.

But it was clearly abused in retrospect, and then the government failed to follow up and pull back funds through the end of 2020. By then the government had given $14b in cash to businesses and less than $1b had been paid back. MSD did not even send letters to businesses asking them to check if they had indeed needed the money and whether they should pay it back. Auditor general John Ryan has criticised the MSD’s lack of proper audits and follow-ups with subsidy recipients.

Many companies, including Hallensteins Glassons, Fletcher Building, Harvey Norman, the James Pascoe Group (Pascoes the Jewellers, Stewart Dawsons, Goldmark, Whitcoulls and Farmers), NZME and Fulton Hogan took the cash and did not repay any or all of it, even though they quickly returned to profit and are again paying dividends to shareholders.

Some refused to pay the money back on both sides of the Tasman, including Michael Hill Jewellers, Kathmandu and Harvey Norman. Then there were the luxury product and services businesses, often owned by rich-listers, that took the money and never repaid it, including The Wellington Club, The Northern Club, the Kauri Cliffs golf course and the Millbrook resort and golf course in Queenstown. The luxury lodges, wineries and golf courses owned by US hedge fund billionaire Julian Robertson claimed more than $1.2m in subsidies and didn’t return them, despite making hefty profits by the end of the year.

Some were embarrassed into repaying

Some businesses were effectively shamed into repaying their wage subsidies through mid-2020, including The Warehouse, Briscoes, Ryman Healthcare and Vector. Others hastily repaid the money slightly earlier when they realised their customers, staff, regulators and competitors could find out here the names of which large companies were paid and how much. There were some embarrassingly high-end names who had to scramble to give the money back, including blue-chip law firms such as Bell Gully, Simpson Grierson, MinterEllisonRuddWatts, Meredith Connell and Lane Neave. Some, including the private equity-owned and heavily-indebted Trade Me only repaid after revolts from embarrassed staff.

So far, only one reported prosecution has been launched by MSD against those who took the money without justification, out of over 1,000 cases referred for investigation. During that time, MSD has launched dozens of prosecutions against beneficiaries.

Various advisers, including in a detailed report from the auditor general’s office, recommended someone in the government simply ask those who received cash to prove with GST receipts that they needed the money and if not, repay the money. Neither has happened. There has also never been proper audits of how the money was sent, used, and not repaid. Newsroom’s David Williams, who has been doing some excellent reporting on this, reported earlier this month that MSD had asked for about $6.8m of repayments from the 10 largest companies it had requested repayments from.

Meanwhile, here’s the list compiled via Newsroom of the top 30 recipients of wage subsidies, who received a total of $842m, most of who are large overseas-owned or listed companies. Newsroom reported last month that MSD had done sample checks on 339 of the 396,817 businesses that received the subsidy last year.

Not nearly as much for the working poor

The biggest losers in the Covid recovery have been those in itinerant work or piecemeal work, who have lost income, along with those renting. Last year those on benefits and the working poor received benefit increases that were not enough to cover rent increases. Last year they received a doubling of the winter energy payment, but not this year.

The government announced earlier this month it would lift the incomes of 346,000 families by an average of $20 a week with various increases in best start payments and higher tax credits, but only from April next year. The PM said it would lift 6,000 children out of poverty. It is costing $68m a year for the next four years. Just imagine what $20b worth of cash paid to increase benefits, let alone to invest in housing and infrastructure, would have done to reduce child poverty.

Last month, MSD minister Carmel Sepuloni announced an extra $9.6m in hardship assistance for low income workers, although some of it can be clawed back at a later date.

Child poverty activists have described the recent one-off grants and tax credits, some of which are clawed back as recipient incomes rise, as disappointing and out of touch.

That has been reflected in massive increases in demand for food parcels and a rise in debt owed by beneficiaries to MSD. As of March 2020, 67% of beneficiaries owed an average of $3,600 in debt to MSD, with debt rising $150m to $750m in the year to March, 2020. The Govt has rejected suggestions of an MSD debt moratorium or writeoff.

So in summary…

Due to government policies for cash payments and money printing to create a wealth effect and rescue the economy and jobs:

  • the wealthy were made $872b richer, largely because of a 54% rise in house prices forecast in the two years (the RBNZ sees another 10% rise over the next year) after the onset of Covid;
  • the government will have given at least $20b in cash to business and asset owners in a period when those asset owners have increased their cash savings accounts by $45b to $319b;
  • the even-wealthier recipients of those cash grants have largely refused to repay the money, even though it is considered normal for the recipients of benefits to repay money deemed not necessary to overpaid; and,
  • workers and beneficiaries who rent are worse off because of part time and extra hour job losses, along with rent increases and inflation in costs of petrol and food.

Yet many boards and leaders talk about ‘Building Back Better’ and just transitions. Some have even said workers should be grateful for low unemployment and that the measures taken have made New Zealand a model for the rest of the world.

A counterproductive erosion of social cohesion

One feature of the double standard when it comes to the double standard described above is that the poor notice – and, understandably, can sometimes be uncooperative when the government needs them to do something for society as a whole. Such as get vaccinated.

Essentially, the social contract is broken.

The clearest sign of that inevitable loss of social cohesion can be seen in low vaccination rates, which are closely aligned with the most deprived and vulnerable suburbs.

When business leaders and asset owners express surprise and disappointment when poorer voters and citizens are uncooperative or vote for the ‘wrong’ candidates, they should look first at whether they seriously think the last two responses by government to crises were just and effective.

The strategy of bailing out businesses and making the wealthy wealthier has worked for the wealthiest during the GFC and Covid, but it has further deepened the societal divisions in the process, storing up yet more social and political conflict for the next crisis.


Follow When the Facts Change, Bernard Hickey’s essential weekly guide to the intersection of economics, politics and business on Apple Podcasts, Spotify or your favourite podcast provider

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Image: Archi Banal
Image: Archi Banal

InternetDecember 2, 2021

Can crypto be used for good?

Image: Archi Banal
Image: Archi Banal

New Zealand cryptocurrency enthusiasts are raising money for charity. For IRL, Shanti Mathias explores whether the model will work.

Ankita Dhakar wants to get 100,000 women into STEM by the end of 2022. A hundred thousand, I repeat, wanting to make sure I got that right, by the end of 2022? “That is the mission,” she tells me. The goal is lofty, and the means of achieving it is unusual; Dhakar plans to raise the money to do this by selling NFTs. 

NFTs, or “non-fungible tokens,” are an application of the blockchain technology that also creates cryptocurrencies like bitcoin and ethereum. As my colleague Josie Adams has explained, NFTs are different from cryptocurrency because they’re non-exchangeable: each one is unique. While NFTs have been around for a while, they’ve become very popular this year, as celebrities like Grimes, internet figures like the family from ‘Charlie bit my finger’ and artists like Damien Hirst have all minted NFTs, making many thousands of dollars. 

“People were already not able to understand blockchain, then comes this NFT hype, which made things worse,” says Walter Langelaar, a senior lecturer in design innovation at Victoria University of Wellington. Langelaar runs New Zealand’s only tertiary-level blockchain course in the design and culture of cryptographic technologies. 

The hype is real. Dhakar, a cybersecurity engineer based in Hamilton, says that she chose NFTs for her project because the search term has been trending on Google; people are interested. Her plan is to mint 10,000 unique pieces of art as NFTs on the Ethereum blockchain. Anyone who buys one of these digital objects, as well as other interested individuals, will be invited to join a Discord community who will then vote on which charities to give the proceeds to. 

Dhakar hasn’t quite decided on the charities that will be voted on yet, but she feels that there are a lot out there that help get women into tech. I ask what concrete things help get women without technology backgrounds into the tech field. Mentorships are good, she says, and so are internships; these are the kinds of things her donation to charity will enable. 

Ankita Dhakar is enthused by the possibilities of NFTs to encourage women’s involvement in technology fields. (Photo: supplied)

The idea to use NFTs to raise money has precedent. Dhakar was inspired by Cardano Kiwis, an NFT project on the Cardano blockchain, which raised $50,000 for the charity Kiwis for Kiwi in September. (In October, the charity changed its name to Save the Kiwi.) 

“I saw that there were tremendous amounts of money for these authentic pieces of artwork. I thought, ‘I have skills in graphic design, branding, web design, coding’ –  it was this weird combination of everything I’m good at,” says Christian Dixon-McIver, founder of the Cardano Kiwis project. The charity aspect was a way to differentiate his NFT project from others and make it more meaningful; after a trip to Queenstown, Dixon-McIver had learned how endangered kiwis were and wanted to do something to help. 

Each Cardano Kiwi NFT, a pixel-art kiwi, has different traits, like colours and accessories. As with many other NFTs, the artworks are product of a human and computer collaboration; while the traits were designed by a person, a computer generated the tokens so that each one is unique and some are more rare than others. The NFTs, cute and colourful, have sold well. Dixon-McIver guesses that most of those who purchased the tokens were more interested in the collectible value of the art than the charity aspect.

Season two of Cardano Kiwis hasn’t yet launched, but Dixon-McIver is already preparing the artwork for the kiwis. (Image: supplied)

On the other end, he also had trouble convincing Kiwis for Kiwi that his donation was for real. “They thought I was a scammer,” Dixon-McIver says, laughing. Eventually, he got through to them, only a few days before the project launched. “There was a huge fear in myself – what if we don’t sell enough?” he continues. Crypto is unpredictable; it can be “sunshine and rainbows one day, then bleeding red the next”. 

But the fears were unfounded, and Cardano Kiwis tokens were popular. After converting the ada cryptocurrency to New Zealand dollars, Dixon-McIver and his collaborator Josh Smith were able to make the $50,000 donation on a private Zoom call with the charity, then posted the receipts in the Discord community, to demonstrate transparency. There was enough money left over for Dixon-McIver to quit his job, and start planning for season two of the kiwi project. 

It’s exciting to see the possibilities of new technologies being used for social good, but the regulatory environment hasn’t yet caught up. Dixon-McIver notes that his project was a tax nightmare: there’s little guidance on whether NFTs should have GST applied to them, and with ever-shifting currency value, the tokens are taxed at the conversion rate of the timestamp of when they were bought, rather than when they get turned into non-crypto currency. Encrypted technologies promise transparency – you can see every transaction – and anonymity – you don’t know who is behind each transaction. This makes paying taxes difficult. 

That’s something Alison Mackie is trying to change. As the community manager at Blockchain NZ, an organisation that helps connect, promote and advance the use of blockchain technology for its members, she has been writing submissions to government bodies, including the Reserve Bank, about how to make the regulatory environment in New Zealand work better for blockchain users. 

“There’s a narrative that [crypto] is a cash grab,” she says. She sees regulation and education around how these technologies work as essential to change this. Langelaar, like Mackie, hopes the New Zealand government will be able to catch up to the technology. “There’s an impression that the government is lagging behind,” he says. “[But] that might change fast.” 

Better regulation will also help prevent crypto scams. As a highly speculative market with considerable public interest, based on a system that requires some technical knowledge to understand even at a basic level, blockchain technologies are often used to target vulnerable people. Scammers contact people online or by phone and offer crypto “investment opportunities” if they deposit money into a bank account, and will be shown falsified data of the investment growing, though no actual crypto trading takes place. Internationally, lockdowns have encouraged these types of frauds.

Dhakar’s ‘Cyber Cosmos World’ project has 10,000 unique characters that people can purchase as non-fungible tokens. (Image: supplied)

Scams like this make it harder for people to feel convinced about the legitimacy of any crypto project. Dixon-McIver has tried to promote transparency with Cardano Kiwis, running livestreams and answering questions posed to him by the community, and Dhakar assures me that she intends to do the same. Still, there’s little external accountability, and there are thousands of projects to choose from, making it difficult for people wanting to support NFTs to tell what might be legit. 

“At the moment, the whole crypto market, including NFTs, is entirely speculative,” says Langelaar. “There is no mass adoption … a lot of [the success] we’re seeing is social media influencers leveraging their user base.” 

This is a concern for Mackie, too. “We are still in the stages of people not understanding [crypto] and taking advantage of it,” she says. She expects the market to settle down eventually, but there are still lots of unknowns. 

The hype around NFTs has created a saturated market. The NFTs the musician Grimes sold in February for millions of dollars have already lost up to 84% of their value, according to Fortune. I ask Dhakar, who is hoping to use NFTs to fundraise for women in STEM, whether the volatility concerns her. Value is subjective, she says. “With my project, it’s not about the money, it’s about creating awareness and using that money,” she says. Still, the money will help her reach her goal of getting a hundred thousand women into STEM. She doesn’t know quite where all those women are going to come from, but she hopes they’ll be inspired, and the money will benefit female-led companies like hers. 

Is raising money via cryptocurrencies an effective strategy for charities? HeartKids, a New Zealand charity supporting children with heart disease, made headlines when it signed up to The Giving Block, a US-based organisation that allows people to donate to charities via cryptocurrencies. Dixon-McIver, who used to work in a call centre for charities, points out that many of the current tactics used by charities to encourage donations are intrusive and “predatory”: people door-knocking in charity uniforms when they’re actually temp workers; consumers entering raffles where it’s unclear how much of the proceeds go to charity; insistent and constant phone calls from fundraisers. Many of the people who bought his Cardano Kiwis had never donated to charities before – at the very least, crypto may be a way to expand the pool of donors. 

There’s a reason, though, that despite the excitement around blockchain technologies, they’re not in widespread use by individuals yet: they’re simply daunting to use. “It’s really intimidating to the everyday person,” says Mackie. As part of her work with Blockchain NZ, she provides education to make crypto more accessible. 

“[Crypto] is all kinds of confusing,” Langelaar says. “I wouldn’t say [it’s] difficult, but there’s a lot of newness.” Novelty is off-putting; he says that someone setting up a crypto account will probably need to use at least four new apps or services before being able to buy anything, so the learning curve is steep. 

For outsiders, there are many reasons to be sceptical of blockchain; those I spoke to for this article largely agreed that the technology is not yet ready for everyone to use. There are some environmental concerns around the use of blockchain, although this is a “misconception,” Mackie says; newer currencies mostly use “proof of stake” to verify transactions with money, rather than the more electricity-hungry “proof of work”.

Alison Mackie works at Blockchain NZ, and wants to make blockchain technologies more accessible. (Photo: supplied)

The technological literacy required to use these technologies means that those profitting are often well educated and have consistent internet access (although it’s certainly not necessary to have a technological background; Mackie has an arts degree, and Dhakar originally studied business). As with many new technologies, those best set up to take advantage of blockchain will have some degree of privilege already. 

Those who have had a taste of the blockchain world feel convinced that this is the future. “This is like in 1991 when the first website went live,” Dhakar says. She only heard of NFTs a few months ago – she doesn’t even own any yet – but she’s already launching her own project. She throws around terms like the metaverse and Web3. I don’t quite understand what any of this means, or what it might imply, and I’m not sure if anyone else does either. Still, my scepticism wanes for a moment. Blockchain technologies raise big questions about centralisation and digital ownership, questions that urgently need to be addressed. Maybe these technologies can change society for the better. 

Dhakar has big plans: conferences that will be free for the NFT owners, awareness campaigns, maybe a game where the characters can trade and sell digital objects – in the future, you could make money from purchasing a sword in a game, or spend cash buying extra lives. Attach the word “NFT” or “crypto” to something, and the nearly unbelievable gets a bit closer. “It’s been very weird [watching NFTs become popular],” Langelaar says. “It’s silly internet money [that] signals a new kind of philanthropy, new kinds of redistribution of wealth.” 

Says Dhakar: “We don’t know who will be buying…I’m not sure what’s going to happen.” Her NFT project, Cyber Cosmos, launches on December 12. I wish her luck. She’ll need it.