Here is my recipe for what Government must do to revive the economy after the coronavirus.
- Have a Debt Jubilee. Our private debt has been growing steadily, fuelled mostly by the housing bubble. It has been going up since the GFC in 2008 and recently flattened out. So how does private debt get relieved? By a one- off handout to all citizens. Australia after the GFC was the only country to not to go into a recession after the GFC, largely because it gave $1000 to all who had paid tax. The handout was reduced for those receiving higher salaries and those receiving $100,000 or more didn’t get one. In addition they doubled the handout to first home buyers. Those receiving it must pay off their debt with it as a first action. Of course this should go to everyone with a bank account not everyone who had paid tax the previous year as it clearly omits those who care for children without pay or who care for elderly.
- Because the virus has exposed the huge poverty and homelessness in New Zealand, it is critical to address the housing issue. So far we have had the wrong approach. The large gap between rich and poor is largely the result of “the getting on the housing ladder” phenomenon. Those who own houses have seen their net wealth increase because the price of houses rises. Recently the best way to invest money is to buy property. The price of houses rises due to a. The building of government infrastructure like railway, hospitals or schools. b. Local government infrastructure like roads, buses, sewage, water, underground rail. c. Natural features like rivers, elevation, lakes, climate. d. Commercial activity in the area. e. Neighbours building. In other words society as a whole is responsible for rises in house prices. The capital gains belong to society not the individual land owner. Of course the building value doesn’t increase it is actually the land value that increases. Land Value Tax is the obvious solution but the nearest thing we have now is the rates let’s look at that. Unfortunately if we have got into the practice of striking rates on the capital value of the house so we disincentivise building. So one of my first actions would be to legislate to require all councils to strike rates on land value alone (or unimproved value). This would also stop urban sprawl. I also think rates should be levied as a percentage of land value, and this should be raised at the same time as income tax and GST are phased out. GST is regressive and income tax is plain illogical. And you could reduce the cost of resource consents which would make it cheaper to build. While talk of a wealth tax is easily understood, it should be for using land and other natural resources not that acquired through entrepreneurship or hard work. This action would also divert investment towards useful businesses. Most investments in NZ now are property because our tax settings have encouraged it.
- The third thing I would do would be immediately would be to establish a public bank like the Bank of Dakota to fund infrastructure. Alternatively the Social Credit leader and many economists have talked about the Reserve Bank buying Government Bonds at zero interest from the Treasury. I am not sure which of these would be better.
- You may have thought that a UBI should have been first on my list. No, it’s not because if it is funded the wrong way it is disastrous. For example by putting up GST or income tax – wrong. UBI should be thought of as “sharing the rents”. People are getting back what they are entitled to. In other words our real wealth is our land, our water, our fisheries, our forests, the air. Those who monopolise more than their share should compensate the rest of society. Carbon taxes and pollution taxes fall into this category as well as land, which is the big one. But also tax on natural monopolies, like the monopoly to create the country’s money which the banks have.
- Legislate to allow councils to create a local currency with a circulation incentive. The law would also require the more well-off local people to back the currency with national currency and a committee to ensure there was no inflation. This currency is strictly for spending and is not a saving currency. It may be that government itself could issue this currency, since it would be simpler to alter all EFTPOS machines to accept two currencies and we are a small country.