Indian Tax Solution

Andrew Dickens: Cutting GST will not solve coronavirus economic woes

I had a week off due to a number of personal reasons including moving house so I have had a merciful break.

For a week I haven't had to say the c word.It's got so ubiquitous that I think it should be the second c word to be banned on the radio.

The word of course is Coronavirus.There is a third c word we could ban and that's Covid-19.

Now I hate to say I told you so but I told you so.A month ago I wrote that that you and I are highly unlikely to catch this new viral bug, but it's effect on the world will be enormous because of the effect on the global economy. An effect that was totally predictable as entire regions of countries are shut and production halted for 14 days or more.

And so it's been proven.

The front page of any news website today highlights that hundreds of jobs have already been lost in the tourism industry.The Air New Zealand boss has today taken a pay cut and suspended earnings guidance as people stop travelling here and New Zealanders stop travelling abroad. I personally know of three kids on three separate overseas school trips that have been cancelled in the past week.

Meanwhile, business after business are preparing for a more widespread arrival of the virus in this country making sure that work from home provisions have been made.I know of one business where all the staff have been issued the Zoom app on their home computers and work laptops to enable video conferencing in the event of self-quarantining.

So we're getting there but now attention focuses on the Government. A lot of people have been having their two cents worth and one of the frequently mentioned ideas is the suspension of GST until the economic impact of the virus has passed.

The thinking is that with more money in their pockets, New Zealanders will spend more on services and stuff, keeping the economy moving.

But I don't understand the thinking behind this because what's the point of having more money to spend on stuff and services when there's no stuff or services to be bought?

All along I and others like Liam Dann have been saying this is a new type of economic crisis. It's not like the GFC where money and demand fell down,

This is a supply side crisis. The quarantining has stopped stuff being made in China and now Italy. They can't supply us with products so we can't buy it. If a TV retailer suddenly has no TVs to sell it doesn't matter how rich his customers are or how big their tax cuts are. He's got nothing to sell.

It's like the tourism sector. The supply of tourists has dried up. A GST cut will not fix that.

The ongoing repercussions of a GST cut and then a reinstatement after the crisis will be large and of course it impoverishes the Government's purse and their ability to provide targeted support through the tough times.

Tough times that I hope are short. China has already restarted 40 per cent of the productivity it lost through their epidemic .

To me a restructuring of the country's tax system in response to this virus would be a massive over-reaction. Way more so than all the people who said the travel bans and self-quarantining was an over-reaction.

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