Coronavirus: Economist calls for GST cut to ward off recession

An economist is calling on the Government to slash GST as part of its COVID-19 response package.

Finance Minister Grant Robertson on Tuesday will reveal how the Government plans to lessen the carnage wrought on the economy by the virus' spread and its own strict border controls, designed to keep the virus out of the country. 

From 1am Monday, everyone coming into New Zealand - even citizens and residents - have to go into self-isolation for two weeks (except people arriving from the Pacific Islands).

The tourism industry around the world is worth about $17 trillion, New Zealand contributing about $40 billion of that - making up nearly 6 percent of our GDP. 

"The international tourism industry is going to grind to an absolute halt," economist Cameron Bagrie told The AM Show on Monday. "I don't think it's going to be a two- or three-month affair - we're talking you know, probably right out to the end of 2020."

New Zealand Air Line Pilots' Association President Andrew Ridling says the expected recession is going to hit some airlines very hard, and they're hoping the Government's plan will allow them to keep staff on board. 

"Eventually this virus is going to be beaten, and we need those skilled people to pick the pieces up and come back flying."

Prime Minister Jacinda Ardern on Sunday morning said the package would be the most significant of her entire time as Prime Minister. While it wasn't clear if she meant to date or included potential future terms, Bagrie said it would have to be "bigger than Ben-Hur" - suggesting a boost of between $10 billion and $20 billion over the next two years.

Luckily our current Government debt is relatively small by international standards at 20 percent, he said.

"We've been saving, putting money away for the rainy day - it's not just raining, it's torrential rain. Money needs to be redeployed, there's going to have to be obviously wage subsidies."

Another tack could be cutting GST, Bagrie said. GST is a regressive tax, as it's the same for everyone - rich or poor. Some economists say it's better to cut taxes for the poor than the rich, as the poor are more likely to spend up and boost the local economy.

Bagrie said we all need to up our spending if we're going to avoid a recession worse that seen after the global financial crisis of 2008.

"I'd be tempted to tweak GST - take GST from 15c in the dollar, get that down to 10c. That provides a pretty clear signal to New Zealanders to get out there and spend. 

"What we need over the coming 12 months is spend, and spend big in New Zealand to try to mitigate that black hole."

That could be difficult though, with overseas countries shutting down businesses to stop the spread of the virus - a likely scenario for New Zealand, if it starts spreading from person-to-person here.

Cameron Bagrie.
Cameron Bagrie. Photo credit: The AM Show

Minimum wage increase needs to be 'torched'

At the same time, Bagrie's calling for the increase to the minimum wage scheduled for April 1 to be cancelled. 

"The minimum wage [increase] certainly, that needs absolutely torched. You've got businesses out there at the moment fighting for their survival. It's absolutely insane to be clobbering small businesses by increasing the minimum wage from April 1."

Ardern last week ruled out cancelling the hike, which would take the minimum wage from $17.70 to $18.90. But a week ago there were fewer than 30,000 confirmed COVID-19 cases outside of China - there are now about 82,000, and it's rising exponentially.