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Quantitative easing for the masses

Written By: - Date published: 8:25 am, March 13th, 2016 - 136 comments
Categories: economy, Financial markets, Keynes, monetary policy - Tags: , , ,

Banks create money out of nothing all the time. When governments do it the process is dressed up in the pseudo-technical term “quantitative easing”. There’s a lot of debate about QE, but some credit it with saving both the American and the European economies after the global financial crisis.

The money created by QE goes to banks and other financial institutions – helping the 1% rich to get richer and contributing to the ever-widening inequality gap. I wasn’t aware that anyone had seriously proposed creating money for ordinary individuals – QE for the masses – but a piece last week from Bernard Hickey covers exactly that!

Want some free money?

Just imagine that one day the Reserve Bank deposited $1000 in your account, and that of every other citizen in New Zealand. It’s sounds crazy, yet it’s something some central bankers are talking about in a world of deflation, negative interest rates and slow economic growth.

This idea is called Helicopter Money and it’s suddenly the hot topic in the sometimes arcane and always sober world of central banking. It’s a truly radical idea that would seem utterly irresponsible and dangerous in normal times.

…the world’s biggest Central Banks cut their interest rates to almost 0 per cent during the Global Financial Crisis. It helped avoid financial armageddon, but proved ineffective in restarting the engine of growth. Almost a quarter of the world’s economy now has negative interest rates. The theory is it will force banks to lend money and encourage people to spend. But it appears this apparent last resort isn’t working either.

Late last year the former chairman of Britain’s Financial Services Authority, Adair Turner, recommended something similar. He suggested monetary financing of Government deficits, which means the central bank prints money to lend to the Government to spend on new infrastructure or tax cuts or whatever it feels like.

The other suggestion is the central bank simply pay the money into everyone’s accounts. It would be fair and have an immediate effect because much more of it would go to poorer spenders, rather than richer savers.

No one is suggesting this is appropriate for New Zealand any time soon. Our Reserve Bank still has another 2.5 per cent of interest rate cuts to go and is expected to signal a few as early as this Thursday. But Helicopter Money is now being actively discussed in the Northern Hemisphere and, as we’ve seen over the last decade, where they go, we often follow.

Prior to the last election The Greens toyed with a form of QE to reduce the value of the NZ dollar. Naturally the Nats attacked the idea with cheap “printing money” ridicule and it never made it in to policy. But The Greens might have the last laugh if helicopter money makes it out of economic theory and in to the real world.

136 comments on “Quantitative easing for the masses ”

  1. dv 1

    Naturally the Nats attacked the idea with cheap “printing money”

    But the nats have borrowed
    NZ$ 117,798,075,204

    • NZJester 1.1

      Most of that borrowed money has been to keep the tax cuts for the rich so that according to their philosophy trickle down market economics would happen with it. But as normal all those that got the tax cut instead of spending it just locked it away in long term investments or real estate that does not allow it to trickle down. Market economics would work well if both management and workers had equal power. But the more National chips away at workers power the more those at the top refuse to share the profits with those doing the actual work and producing it. The big flaw in a market economy is always the greed of those higher up the ladder doing all the can to keep those below from getting up to where they are. The only trickle down they want to see is yellow rain as they stand above everyone else.

      • Draco T Bastard 1.1.1

        +1

      • Let’s highlight too that even if they invested that money, it’s STILL not as likely to “trickle down”. That theory has other problems than just the fact that tax cuts to the rich are often saved or banked in “inactive” capital.

        • Draco T Bastard 1.1.2.1

          Money in the capitalist system always flows upwards as research shows quite conclusively. The rich don’t pay for anything at all ever – it’s how they became rich in the first place.

      • Tautuhi 1.1.3

        “Trickle Down Theory” actually works in reverse and what we have in fact is “Trickle Up Theory”, those at the top want to maximize profit and pay minimum wages to those at the bottom?

      • Bob 1.1.4

        “Most of that borrowed money has been to keep the tax cuts for the rich”
        Citation?
        The figures I have seen show at worst $1.5Bn a year has gone on tax cuts, that is around $10Bn over 7 years. Show me where you would have saved the other $90Bn? Health? Education? Increased taxes that remove money from circulation?

        As, “according to their philosophy trickle down market economics”, I would be interested in reading about this economic philosophy, who was the author of this one? I can’t seem to find such an philosophy on Google…

    • Mike S 1.2

      ” Naturally the Nats attacked the idea with cheap “printing money”

      But the nats have borrowed
      NZ$ 117,798,075,204″

      Yes but they rely on the fact that most people don’t understand that when the government “borrows” money it is the same thing as “printing” money. They’ve got many many people fooled into believing that borrowing money is somehow the responsible safe way for the government to get some extra credit and that the government creating it is irresponsible and leads to hyperinflation. Borrow or create yourself, in terms of inflation both have pretty much the same effect. However, borrowing of course means taxpayers are lumped with interest payments for years to come.

      It cracks me up when people trot out the same old ‘hyperinflation’ argument against money printing yet don’t seem to mind the borrowing so much. “Oh, but if the government was allowed to just create the money out of thin air then they’d end up creating too much and we’d get hyperinflation….blah blah,,,Nazi Germany….Zimbabwe…blah blah”

      They never stop and think that we don’t have hyperinflation right now, despite the government creating..(oops i mean ‘borrowing’) so much money. If the government had created the $117 billion itself rather than borrowing it, would we have hyperinflation??

  2. miravox 2

    “The other suggestion is the central bank simply pay the money into everyone’s accounts. It would be fair and have an immediate effect because much more of it would go to poorer spenders, rather than richer savers”

    Isn’t this similar to the Australian stimulus package after the GFC? If so, there must be some analysis somewhere to show it was successful? Or else it’s a bit of a just go for it and hope?

    • alwyn 2.1

      “Australian stimulus package”
      You might be interested in this study.
      http://andrewleigh.org/pdf/fiscalstimulus.pdf
      About 40.5% was spent, 24% saved and 35.5% used to pay of debt according to this work. The amount spent was much greater than in US work. A significant factor in how much is spent has been put down to people’s confidence in retaining their job. If you are sure you will still be employed next year the more likely you are to spend a “bonus”.
      If you have a look at page 14 you will also see that lower income people did not spend a higher percentage of the amount. The theory of “poorer spenders” as opposed to “richer savers” was not observed.
      I am sure there are other studies of the scheme. This is the only one I ever read though.

      • Puddleglum 2.1.1

        Hi alwyn,

        The way I interpret that table is that those below $40,000 household income spend 40-45% of their ‘bonus’; those between $40,000 and $100,000 spend 31 -39%; and those above $100,000 spend 44-49% of the ‘bonus’.

        Seems like a ‘U’ shaped-curve to me.

        It would be interesting to see the proportions of ‘paying off debt’ for each of these household income categories.

        Interestingly (Table 3 on page 15), those who intend to vote Liberal of National have spending rates of 0.29 and 0.24, respectively. By contrast, Labor and Green intended voters have rates of 0.5 and 0.46, respectively.

        • alwyn 2.1.1.1

          “Seems like a ‘U’ shaped-curve to me”
          Yes it does look like that. However that isn’t what is usually claimed about what will happen to spending by a lot of commenters on this blog..
          The premise is often proposed that providing more to the poor will give greater stimulus to the economy than if it is provided to the rich. The theory is that the poor spend everything where the rich save. These numbers don’t seem to justify the proposition do they?
          Perhaps if you want to stimulate the economy you should only give money to the poor AND the rich but leave out all middle income people (not a serious comment of course).

          I find 2 things interesting about the political split. The first is an obvious one, I think. There was a Labour Government at the time. Like here if your preferred party is in power you are likely to be optimistic. If “the other lot” you are likely to be pessimistic. You are more likely to spend if it is your Government as you are likely to be more optimistic about the future. Look at people here who claim that the New Zealand economy is collapsing because National are in power. There doesn’t need to be any evidence does there?
          The other one is the Green’s numbers. They are about 14% of the respondents in this survey. In Australia in 2013 the Green Party got 8.65% of the Primary vote.
          I think they have a similar situation to ours. The Green Party always get significantly less votes than polls, or surveys like this one, seem to claim. People want to appear Green and when interviewed claim they are Green supporters, but back away in private when they vote, perhaps.

          • Puddleglum 2.1.1.1.1

            All interesting points.

            There’s also the possibility that lower income people are more ‘reliable’ spenders than upper income people. The latter may be more influenced in their spending propensity by magnitude of the payment, personal optimism about their circumstances and the like. The former, by contrast, may be more at the financial margins and so always likely to spend to a relatively high rate.

            On the political party finding the author has this to say:

            Somewhat surprisingly, those who said that they would vote for Labor (the incumbent party) were much more likely to spend the stimulus payments than those who said that they would vote for the opposition Liberal or National parties. This result is not merely an artefact of the income, age, or debt attitudes of the respondents, since it remains statistically significant (at the 1 percent level) in a multivariate regression. One possible interpretation is that individuals’ willingness to respond to government exhortations to spend is partly a function of their political views. Another possibility is reverse causality: respondents with a predisposition towards spending the payments might have been more inclined to think that the payment was good policy, and therefore more inclined to support the government.

          • miravox 2.1.1.1.2

            “It would be interesting to see the proportions of ‘paying off debt’ for each of these household income categories.”

            It would. Also interesting would be who used the money as a windfall and went on holiday. The answer to what the money was spent on could add to the information required to determine whether giving money to the poor is a greater stimulus to the economy

            Thanks for the link, Alwyn.

    • Nic the NZer 2.2

      Australia never had a recorded recession. It clearly worked, though arguably Chinese stimulus was also a big part of that success.
      http://bilbo.economicoutlook.net/blog/?p=11911

    • Lanthanide 2.3

      I expect that the Australian government borrowed and/or used surplus money to pay for that, ie they didn’t print the money to do it.

      • Nic the NZer 2.3.1

        They borrowed it traditionally but printing it would be functionally identical.
        http://bilbo.economicoutlook.net/blog/?p=381

        ” I invented this Tin Shed analogy to disabuse the public of the notion that somewhere down in Canberra was a storage area where the national government was putting all those surpluses away for later use” – Bill Mitchell

        “Imagine that the central bank traded government securities with the treasury, which then increased government spending. The excess reserves would force the central bank to sell the same amount of government securities to the private market or allow the overnight rate to fall to the support level. This is not monetisation but rather the central bank simply acting as broker in the context of the logic of the interest rate setting monetary policy.” -Bill Mitchell

  3. AsleepWhileWalking 3

    Inflating away the debt you mean.

    Ultimately a stupid idea, but exactly the type that politicians go for.

    • aerobubble 3.1

      Agreed. Missing the point. The reason the wealthy are getting richer is the same one neutralizing inflation. When they know what you will pay there is no room for negotiations which provides the opportunity for inflationary pressure. When they track and data store your u choices, pref, etc, and cross with your income, credit rating, they have all the choice, all the power. Similarly, when they crush your ability to unionize, wages stagnate. The market disppears when microsoft locks out programmers to seize opportunities present by its ubiquitious platform. When you cant make mix apes any music is just the same, no infation demand. When individuals have no time, no opportunity to invest and create value, they learn to be nn-inflation, the market, the uniformity, the lack of real leisure time, the lack of privacy, that lack of ability to assert power by real choice, with and adv. Tppa hurts us all as it demands more protectiin fir copyright, ncentives to govt o protect big businness less they sue.

  4. Murray Simmonds 4

    NZ State Advances Corproration:

    http://www.teara.govt.nz/en/1966/finance-public/page-9

    The big Kahuna:
    http://www.bigkahuna.org.nz/

    There’s nothing particularly new about Canada’s experiment.

    • alwyn 4.1

      In your first reference have a look at this comment.

      “Cheap loans on new houses, by stimulating demand, have led to higher costs of sections and houses. They have also had effects on local authorities. Combined with the policy from the mid-fifties to the mid-sixties of restricting State Advances housing loans to mainly new houses, 3 per cent lending led to a sudden rash of new houses on the periphery of towns, with consequential effects on municipal services and costs, transport systems, and on values in the older residential areas. It may take some years for the recent change in policy on existing houses to revive the inner areas.”

      Doesn’t that sound familiar? Isn’t that the policies that some political parties are promoting at the moment? Can we expect exactly the same result?

      • Draco T Bastard 4.1.1

        So, you would be calling for central control of the money and how it should be spent?

  5. Murray Simmonds 5

    Yep Alwyn, you found the paragraph that suits your particular philosophy.

    How about this then: Not long back the Nats were boasting about how they had succeeded in pruning millions out of WINZ benefits. That is, they had reduced the spending power of a large number of low-income people. Yet one of the present problems with the world economy at the moment is that there is not enough consumption – hence the idea of helicopter money to boost spending.

    I’m not addressing the points raised in your quote because this is not the 1940’s to 1950’s. World economies are currently facing a totally different set of issues than those that pertained in that decade. Like we are now on the verge of going INTO a major depression, not newly emerging from one.

    • alwyn 5.1

      I suggest you have a look at the paper I referenced in response to miravox.
      There was no evidence in Australia that low income people spent more than high income ones out of a “bonus” payment.
      A more significant factor seemed to be how confident you were in keeping your job.
      If, as you suggest, we are going into a major depression confidence, and hence spending, is likely to be low.

      • Nic the NZer 5.1.1

        You have said in the past your an economist Alwyn. I think someone in that position you ought to explain that a “bonus” payment doesnt need to have the same pattern as an “income” payment does. Rather than just leaving the point salient and engaging in a pointless discussion conparing oranges to apples.

      • Murray Simmonds 5.1.2

        I had a look at the abstract of the article you quote Alwyn. It says “Forty percent of households who said that they received a payment reported having spent it. This is a higher spending rate than has been recorded in surveys assessing the 2001 and 2008 tax rebates in the United States. One possible explanation
        for this is that individuals are more likely to spend “bonuses” .

        in other words, the “Aussie experiment” acted a bit like Ben Bernancke’s (Sp??) Helicopter money.

  6. Colonial Viper 6

    The Universal Basic Income would be an excellent way of distributing new money into the real economy: Main Street, not Wall Street.

    • Craig H 6.1

      Agreed – I’m in favour.

    • Draco T Bastard 6.3

      Yep. A UBI would give a good, solid base to the economy. Done properly with the correct tax structure and the economy would be unlikely to ever go into recession again.

      • Jones 6.3.1

        +100

      • Not sure a UBI would prevent inflationary bubbles and compensatory recessions, but it certainly would help a lot in dampening recessions and keeping them short.

        • Colonial Viper 6.3.2.1

          In terms of general inflation, that would be controlled by NZ building up a strongly competitive productive economy which does not tolerate rorts, rentierism or ticket clipping.

          In terms of property price asset bubbles, that would be controlled by pulling the behaviour of the retail banks into line.

          In terms of global financial instability, that would be controlled by a Reserve Bank setting up a strong, well insulated financial and monetary system.

          • Draco T Bastard 6.3.2.1.1

            In terms of property price asset bubbles, that would be controlled by pulling the behaviour of the retail banks into line.

            Actually, that wouldn’t do it as our asset bubbles are primarily driven from offshore. So, what we need to do to handle property price asset bubbles is to ban offshore ownership.

        • Draco T Bastard 6.3.2.2

          Not sure a UBI would prevent inflationary bubbles and compensatory recessions

          That would be what the proper tax structures are for.

    • Kiwiri 6.4

      Facebook has a NZ-based community currently building critical mass for UBI – feel free to check out BINZ Basic Income New Zealand:

      https://www.facebook.com/BINZ-Basic-Income-New-Zealand-822330264514287/?ref=aymt_homepage_panel

      • weka 6.4.1

        thanks!

        Looking at their website, http://www.basicincomenz.org/#!our_team/cqn6

        It’d be good if they put a bit more in their bios about what their background are (esp as they are asking for membership and donations).

        (hmm, they might have to do a bit of work on their class and ethnicity diversity too, just looking at the website imagery).

    • saveNZ 6.5

      +1

  7. weka 7

    How would a universal lump sum payment contribute to GHG emissions?

    • Andre 7.1

      Yes, putting more money into the hands of low income people may lead to them spending more money on things like heating their house in winter, driving their kids to things they haven’t previously afforded, adding a bit more meat to their diet…all of which increase GHG emissions in our current energy and general societal structure.

      • Colonial Viper 7.1.1

        This is the conundrum that the Left have not thoroughly addressed, and it’s a biggie.

        • weka 7.1.1.1

          No-one has addressed it apart from the steady state economy, powerdown people. It’s predicated on growing the economy, which means increased GHG emissions. Not that it’s anything new for economists to practice their profession as if CC didn’t exist.

        • Andre 7.1.1.2

          Which leads very nicely back to a Greenhouse Gas Emissions tax, the proceeds being used to (at least partially) fund some kind of universal lump sum or basic income.

          • Colonial Viper 7.1.1.2.1

            we don’t need to tax the use of fossil fuels, we need to get off fossil fuels so that fossil fuel taxes bring in nothing.

            • Andre 7.1.1.2.1.1

              Looks to me like taxing the crap out of fossil fuels is the fastest and least disruptive route to eliminating them. So the challenge is finding the politically palatable way to introduce and rapidly increase that tax.

              • Colonial Viper

                OK a tax may be a useful tool but that’s just one tool.

                What are you going to say to all those Aucklanders who will no longer be able to afford running a car or those builders who can no longer afford running a truck?

                • Andre

                  Go electric. The way electric transport is improving and reducing in cost means the point where electric is the lowest cost option isn’t that far in the future. But a Greenhouse Gas Tax could bring it a lot closer.

                  • Lanthanide

                    That’s still unrealistic.

                    New Zealand has one of the oldest car fleets in the developed world, at something like 13 years old on average. That is actually quite old.

                    Our cars are old because we import lots of 2nd hand ones from overseas, because people can’t afford to buy brand-new.

                    There is no ready supply of 2nd hand electric vehicles, because they already make up such a small amount of cars sold globally. It’ll take something like 20-30 years of all existing car manufacturers swapping from petrol to electric just to replace the existing global fleet.

                    Petrol cars are going to be on the roads for as long as petrol prices are low enough for people to afford to fuel them. It doesn’t matter if electric cars cost less to run if they simply aren’t available at the necessary price point.

                    • weka

                      +1. And the GHG emissions in replacing the whole fleet won’t be insignificant. If the replacement is incentivised we will see petrol cars being dumped.

                      Electrified public transport, including bikes is more of a viable option, but I think the most important thing is to change people’s head spaces about what is needed.

                    • Andre

                      I’m not going to try to predict what answers people will come up with if imported petrol and diesel gets too expensive, either by oil going back up again or GHG taxation. If oil prices had stayed high, we might now be seeing the start of a booming electric car conversion industry. Kind of like all those CNG and LPG conversions in the early 80s. Companies like Wellington Drive (electric motors) and ArcActive (batteries) might see a new opportunity. Or there might be a lot more ventures like Z’s new biodiesel plant, maybe using novel feedstocks such as lignin.

                      I’m enough of a capitalist to believe that creating on opportunity for money-making is a good way to drive innovation. And the easiest way to create a money-making opportunity out of substituting fossil fuels is to make fossil fuels more expensive. By taxation. The level of taxation can be easily adjusted to create as much or as little pressure for change as desired.

                    • Colonial Viper

                      If oil prices had stayed high, we might now be seeing the start of a booming electric car conversion industry.

                      It’s time we started moving away from the concept of personal cars, electric or otherwise

                    • katipo

                      Perhaps we could be making a few of our own electric cars, get rid of corporate teat suckers Rio Tinto, use the people/money/electricity to start researching, building and powering our own electric fleet. We have many advantages in this space compared to other countries we should doing so much more.

                • sabine

                  Germany taxed like hell gasoline on the pump, and subsidised Public Transport users via tax return on their bus/train/tram/bicycle expenses.

                  aka. the litre in the 90’s was already at around 3$+ per litre, but using the public transport system allowed every worker to claim up to 50+% back at the end of the year.

                  now in NZ this can’t be done, insert what ever reason you could make up that would allow people to drive their humongous trucks from a suburb to the CBD, in any town of NZ.

                  it is actually not hard nor complicated, however it would demand a set of steel balls or brass ovary, and these are sadly lacking in NZ Parliament.

            • mikesh 7.1.1.2.1.2

              If we got rid of fossil fuels we could still use road user charges with electric vehicles.

          • greywarshark 7.1.1.2.2

            I think Andre that such a tax is a tax on business, and we need business and trading and transport of things and people to continue. The tax must go on finding alternative fuels, even on a short-term basis, to keep business chugging on. Such as making fuels from discarded animal fat, from oil from fish and chip shops etc, collecting the supermarket bags which at present can not be recycled and turn them back to oil.

            There needs to be expenditure on this sort of fuel, which may have to be subsidised both in the building of the plants, and the fuel sold at near cost.
            It needs to be nationally planned, time for an intelligent, reliable, responsible government to step up to help us move forward instead of letting us sink back into the quicksand to the past. One of our injections of initiative and investment in technology was setting up shipping that took our meat to the UK in chillers.
            We adapted and profited from that and built business on it.

            Now new technology is required – let’s get on with it or we’ll be laggards here.

            • Andre 7.1.1.2.2.1

              There’s plenty of that new technology already available. It’s just that it’s still a bit more expensive than the old fossil fuel way of doing things. A Greenhouse Gas Tax, introduced low but ramped up quickly, would give a big incentive to change in a reasonable transition time.

              • greywarshark

                Did you read what I said Andre? I think I said that the tax should be applied to helping set up other fuel alternatives (in readiness for the decline in deliveries of oil to NZ, ultimately when prices rise again and at the same time our debt overseas is called in). Also I mentioned the subject of the new fuel having to be subsidised both for the fuel and the production plants.

                Sorry if I didn’t make this clear, or wrote too many words for you to cope with reading them.

                • Andre

                  The snark is strong in this one today…

                  Are you referring to things like Z’s new biodiesel plant? http://www.radionz.co.nz/news/business/295429/first-big-biodiesel-plant-opens-in-june

                  Things like that can be made competitive either by direct subsidy, or by making the alternative more expensive. If you do it by direct subsidy, then you open the door to all kinds of rorting, cronyism and white elephants at taxpayer expense (such as the Motunui synthetic petrol plant). Not to mention that it’s clueless politicians that end picking the winners. If you do it by making the undesirable choice (imported fossil fuel) more expensive (ie GHG tax) then everyone has an incentive to either come up with a substitute (such as electric or biofuel) and/or reduce their use. And it gives the government a revenue stream until the undesirable alternative (fossil fuels) has been eliminated.

                  • greywarshark

                    I think your snark is alive today. Andre. You have plenty of ideas but run down others if they don’t agree with yours within the first sentence.

                    It seems likely that a gradually rising tax on fossil fuels would help to ease people from their vehicles and provide funds to go into –
                    1 Public transport and perhaps little jeepnies to take them from their stop to where they need to go.
                    2 Into electric cars that can be subsidised by obtaining a low interest loan from the government for turning in an old car that will result in a steady but not excessive stream to be crushed. The car cannot be sold on but returned to government if not wanted, with a remission of the loan. Then the same again.

                    This would help in weaning people off old cars and encouraging the mass of electric with more services.

                    And i don’t see why some exploratory businesses making small amounts of fuel can’t be funded by government. Perhaps supplying Auckland and Christchurch. You mention rorts. We know that people can get all keen to rip others off, make a quick buck etc. It could be that these are the sort of people needed to get going on this type of technology. With the prize of making a big profit at the end they will get into the game. Use them would be the idea.

                    Just check their ideas and specifications are viable according to already known data. They would need constant inspection with payments made in steps and constant visits to make sure that it isn’t a ‘moon landing’ scenario. We would probably need someone who definitely knows about it from overseas, not leave it to Steven Joyce or the other clueless politicians with echo chambers for advisors. Or perhaps you really do know enough and would be able to advise the government.

                    • Andre

                      Help me out, please, greywarshark. I’ve looked over what I’ve said and I really can’t see where I’ve run down other people or their ideas, except the my first sentence just above. I get really put off by the kind of pissing contests that occur too frequently here and I try really hard not to start them. So if you could point out to me where I’m dishing out the snark in this thread, I’d appreciate it.

                      I’m an R&D engineer, not in any kind of energy area. But I am very interested in energy and try to keep on top of developments. So yes, I am very well informed. But I wouldn’t dream of trying to pick which emerging technology companies the government should fund.

                      I think we’re far likelier to get useful results by funding basic research in universities and CRIs, and creating the economic conditions where there is a money-making opportunity for people to commercialise ideas. For instance, the basic Google algorithm, or many of the innovations Apple commercialised, came out of universities. When a good commercialisable idea comes out of a university, there never seems to be a shortage of people to take it to market. So yes, I think the government would do well to fund university research into turning waste streams into biofuels, for instance. But not to try to be a part of commercialising the ideas.

                      The commercial incentive to displace fossil fuels comes when fossil fuels are expensive, either because of tax, or high international market price. That’s why I’m a fan of raising the price of fossil fuels with a tax, and using at least some of the proceeds to make sure low-income people aren’t made worse off.

                      Your last paragraph on the surface describes a reasonable way to manage a large well-defined project in a well-known field. But from personal experience, producing continual reports and having outside overseers constantly looking over your shoulder is a sure way to stifle innovation when you’re trying to develop something completely new.

                      Your scheme to subsidise people into electric cars has a lot of similarities to the “Cash for Clunkers” scheme run in the US a while back. Which I would not describe as a success.

                    • greywarshark

                      Andre
                      I’m getting irritated and not letting things flow by as I usually do. But you mentioned snark. I asked you if you had read my comment as I thought I was largely agreeing with you, with some additions that occurred to me.

                      I have already agreed with you about that tax on fossil fuels, only disagreed with someone who was going to put it towards social costs as I think it should go into funding the new systems for transport and the research that will be needed. And now I think of it that should also look at coastal sea transport and innovations there, and how viable these would be along our stormy coastlines.
                      The old days of coastal shipping can’t return with the old fuel used the same, but what now. Wind vanes or something I have heard of?

                      On reading your ideas it seems to me that you are the sort of person, along with others with the expertise in the field, who would form a useful focus group with intelligent politicians. There must be a few of those in each of the multiple MP political parties of whom one could come forward to form an all-party panel to discuss moves into future transport. Then the steps to drive it, causing the least shock and difficulty to the poor, those who have settled at a distance from jobs, and considering the vehicle importers who will fight to retain their lucrative business. They now seem to specialise in a civilian style of hum-vee. High roofed cars with big bums that spread wide.

                      About university research, I am sure that much has been done already and we will be so far behind that we need to connect up with an institution overseas to get cheap entry into the knowledge market. This country isn’t going to fund ours for anything like that.
                      As for biofuels there has already been an effort to develop these. Perhaps there needs to be a New Transport Technology agency which will note what capacity we already have in NZ, and see what can be done at grassroots level while they are perfecting some large nationwide system.

                      I am interested in the USA cash for clunkers idea. You say it wasn’t a success but how was it to be measured? A country has to start somewhere – this is a new situation. Setting targets is the way that the brave new world of politics measures the viability of programs these days. It’s so royal, to wave a sceptre like a club, and say you will achieve 500 things in a month, which is a typo, and even 50 was pushing it. So lack of success must always be explained fully to be able to analyse a program.

                      I can imagine that having too much on the job interference would be a pain but you did mention rorts, and I did mention that the sort of people who would come forward would be keen and innovative and they would be risk-takers and some would be wide boys as the saying goes. We had them building and surveying in Christchurch, we had them starting shell companies for building in the leaky home time, then folding their tents and slipping away. With these people they have to be watched, maybe with weekly meetings with the managing agency, and a regular drive-by to ensure continual work towards manageable targets. They would be likely building to specifications, not be university research programs, and couldn’t be allowed to get off track. That is why I suggested there would be staged payments, to limit the possibility of rorting.

                      It’s bad for us to do nothing. On the other hand the amount of money that can flow out once a program is started which is new territory can turn to a flood before anyone realises what is going on. We can look at the $millions paid out on flawed IT as an example.

                    • Andre

                      You’re probably not going to like this, but when it comes to shipping, the only viable non-fossil reliable propulsion I see is nuclear. Not the 50’s style pressurised light water reactors that require active control systems at all times (as used in Chernobyl, Three Mile Island and Fukushima), but newer designs that depower using basic physics when not actively controlled (no risk of meltdown). And don’t use uranium so they aren’t military problems, use thorium or a fast-neutron design (which burns what is currently glow-in-the-dark waste). Or else huge quantities of bio-fuel to replace the oil currently used.

                      The wind-vanes you mention may be Flettner rotors, tall rotating cylinders that act like sails. They’re good supplementary propulsion to reduce fuel use, but not viable as primary propulsion.

                      I don’t play well with others when it comes to committees etc. There’s already plenty of good expertise that’s stepped up for energy and transport, Julie Ann Genter, Gareth Hughes and James Shaw can argue the case well (even if I don’t fully agree with all their positions), if they ever get the chance to do so to a government ready to listen. Wish I could name some from other parties, but sorry, none of them seem to really grasp the issues. Though I’m sure there’s already good people behind the scenes, banging their heads against walls in frustration.

                      When it comes to biofuels, yes there’s already a lot of know-how. Hence Z already investing in plant. I’ve heard (no link, sorry) that the animal fats New Zealand exports is enough to substitute a quarter of our diesel use if it was turned into bio-diesel. But not at a price competitive with $40 per barrel oil. I’m happy to let private enterprise take the risk and reap the rewards when it comes to commercialising the knowhow, and just have the government set the scene so the opportunity is there.

                    • Colonial Viper

                      Andre, you can’t build and maintain nuclear reactors without fossil fuels.

                      Nor the large steel vessels displacing many thousands of tonnes that they go into.

                      So that’s the end of that.

                      Clipper ships on the other hand are entirely doable without fossile fuels. Just hard work, like the hold days.

                    • Andre

                      I’ll try to muster the enthusiasm for a guest post on why I think nuclear is a likely, maybe even necessary part of a rapid transition away from fossil fuels. Worldwide, that is, not necessarily in NZ. We’ve got plenty of renewables.

                    • Colonial Viper

                      Yep NZ has got plenty of renewables, but currently our transport network is 98% dependent on fossil fuels.

                    • greywarshark

                      Very interesting discussion Andre and when you can find time for a guest post it would be good to read. We’ll all learn something.

        • Stuart Munro 7.1.1.3

          There was a time when the government advised on how to run households – to ensure public health primarily. As contemporary society has been hollowed out by corporate interests, developing a new green household model is desirable.

          Labour moved away from such initiatives as it turned neo-liberal. Also its commitment to gender issues meant it no longer wished to champion conventional families. Nevertheless, one proven path to a healthy economy is to establish the household as a value generating unit. Under current real estate and banking norms that would require some adjustments.

          There are zero waste households in NZ – there is no reason there should not be self clothed and shod households as well. Our grandparents managed it.

          Developmentalist economists in Korea promoted such values by paying workers in unfinished goods (denim initially) instead of currency. This could be traded or made into clothing.

          If a government promoted such initiatives it could promote and model greener or more sustainable lifestyles at the same time.

      • weka 7.1.2

        I’m assuming it’s not an ongoing payment, did I get that wrong?

        If it’s a one off or occasional payment I would have thought that low income people would pay off debt and buy essentials. Middle and high income people will take overseas holidays and drive more and spend on non-essentials. Gross generalisations I know.

    • maui 7.2

      Have a caveat that it can only be spent in a 5km radius from where you live if you’re urban. Not to be spent on fuel, and double your money if you’re buying walking shoes!

    • Graeme 7.3

      Going from the Australian experience in 2009, probably pretty substantially. We had a ripper winter in Queenstown following that effort. Town was full of young Aussies spending their NZ$1200. It was just the right amount for a good ski holiday package.

      It saved a lot of businesses around town though, there could have been some major failures if that season hadn’t fired.

      • weka 7.3.1

        Ae, well tourist towns in NZ really should be thinking about post-carbon strategies by now.

        • Graeme 7.3.1.1

          We are, but that potential crisis is rather well down the list of potential crises we prepare to face. Tourism expenditure is the very peak of discretionary spending, and turns on and off in line with domestic and international economies. Any physical interruption to peoples ability to travel means no income tomorrow. Long term operators are always planning for that, and set their businesses up accordingly, but it can be brutal on new entrants who think they are selling loves of bread.

          And sometimes a crisis can have quite unforeseen outcomes. 9/11 initially stopped everything, no one traveled, of any nationality, and it wasn’t looking good around the town. Then it took off, and we were absolutely flat out with highly paranoid Americans and Europeans. And my example above, GFC wasn’t looking pretty here and businesses were going broke left right and center and the damage was heading towards well established operators.

          Tourism will have a post carbon future, people will still need a change of scenery to recreate their lives. Just it will be different to today’s industry.

          • weka 7.3.1.1.1

            Sure, but you can’t replace av gas with green tech, nor support the huge infrastructure of international and domestic travel without fossil fuels. Air travel won’t disappear, but flying to NZ from Asia will become uneconomic as will renting a campervan to drive around the country. So what is tourism going to do?

            • Graeme 7.3.1.1.1.1

              It’ll be more domestic, more expensive and require more commitment from travellers. The industry has been 50% domestic for last 30 years at least, so it’s actually most of the industry. The more expensive and more committed part of it will bring higher returning and longer staying visitors who will be much easier on resources. The bit that will go will be the cheap 3-5 day bums on seats part of the industry, and I don’t see that as a loss to the country.

              We might get a bit further away from the post carbon world but we won’t go away totally. Might not be too different from the New Zealand I grew up in the 60’s but we’ll be drinking nice wine rather than beer out of tankers.

  8. Draco T Bastard 8

    No one is suggesting this is appropriate for New Zealand any time soon.

    1. That’s because the mainstream economists and politicians are bloody stupid
    2. I am and so are many heterodox economists. Not NZ especially but the entire world should do it.

    The government creating all the money and spending it into the economy. Making money available for loans at 0% interest. And stopping the private banks from creating money at all in any form would seriously stabilise the economy and deal to inflation – especially asset price inflation like we see with housing.

    Our Reserve Bank still has another 2.5 per cent of interest rate cuts to go and is expected to signal a few as early as this Thursday.

    And it still won’t work. The problem is the banks creating money and that there’s really isn’t anything to invest money in to get a good return on any more.

    • Gristle 8.1

      Whilst there may 2.5% of headroom before deflation is a RB policy, do you want to guess how fast that headroom will disappear when Austrailian banks face up to the bad debts when NZ and Austrailian housing bubbles are pricked.

      Don’t you think that there is economic disconnect when interest rates are dropping and house inflation is still strong. IMO the RB want to tell us that we need to quickly get to grips with house prices falling. If the political pressure to try and get a really soft landing for the housing market was not present my guess is that the RB would have rates closer to zero and minimum house deposits being on a progressive basis for the price of the house and Auckland located.

      • The RB is trying to regulate house prices without any significant capital taxes. It’s not a surprise there’s a disconnect.

        (which IMO is why it’s incredibly frustrating Labour is softpedalling backwards on a CGT, they just need to put in some compensatory factors so that people can own their first home more easily, and so that selling your only home to move to a new place doesn’t hit you badly)

        • Nic the NZer 8.1.1.1

          Can you suggest a single example where a CGT has worked then? Hint dont say Australia, Canada or the UK which all had/have significant property bubbles despite a CGT. Note saying a CGT is about fairness is moving the goal posts. Seems best for Labour to reject unpopular policies which dont work IMO.

          • Stuart Munro 8.1.1.1.1

            Absurd – a CGT is not even intended to be a magic wand to control property prices – but it will raise government income while detering an antisocial behaviour. NZ’s position in not having one is unusual and numerous economic bodies have recommended the lack be remedied. It is more the case that in the absence of a CGT measures that might otherwise cool the market to some degree are less effective.

            • Colonial Viper 8.1.1.1.1.1

              I agree that a CGT would be useful, but that’s like saying that an 18mm spanner would be useful in a workshop.

              Yes it definitely would be but we need a full set of tools in the tool box to use, and not have the politicians just fixate on one.

            • alwyn 8.1.1.1.1.2

              If a CGT is supposed to cool down the housing market and persuade people to invest in productive assets, why do its proponents insist that the only goods to be excluded are family houses?
              Australia does precisely that. Your house is excluded from the CGT and also from the asset test for their National Super scheme. That is a means tested system. The exemption leads to people, particularly those over 65, investing in very large houses rather than in productive assets. If you want to change people’s investment choices away from non-productive housing into productive businesses the first, and possibly only, asset class to which a CGT should apply would be any form of housing.
              It won’t happen of course as it is politically suicidal.

              • vto

                tax should be raised from capital, not income.

                that way efforts and investment would be pushed into income-raising activities instead of capital-raising activities

                high capital values help nobody

                I realise this is opposite to current thinking (lack) so it may take some time to consider alwyn

                • joe90

                  tax should be raised from capital, not income

                  Indeed V, and my preference would be a consumption tax and a tax wealth not work scheme, a universal personal exemption would apply, at .05% – 1% or so on every single asset owned with a three yearly or thereabouts valuation.

                  Can’t afford your tax – defer or sell something, scam the tax man – lose it.

            • Nic the NZer 8.1.1.1.1.3

              “a CGT is not even intended to be a magic wand to control property prices”

              Funny i was replying to a comment claiming NZ was missing its magic wand and hence could not control property prices. I suggest you need to show a few examples where such a policy has been successful before calling on Labour to once again commit electoral suicide with another CGT policy. And as Alwyn points out examples should reflect what is being proposed. I think there are actually reasons a CGT exacerbates asset bubbles myself presently in fact… can you provide evidence to the contrary?

  9. Ad 9

    This kind of logic reminds me of National implementing a massive tax cut a few years ago. Lift all boats, just in different ways.

    Wouldn’t the same effect be achieved – and more targeted – by simply eradicating income tax for the first $15,000 of earnings?

    • arkie 9.1

      Perhaps, except that tax cut was not spread evenly at all, it greatly advantaged those in the higher brackets. The cuts for lower down were quickly absorbed by the rise in the regressive GST.

      I believe a UBI AND a tax-free portion of income is necessary.

      • Colonial Viper 9.1.1

        Correct. A UBI helps give people more negotiating leverage over employers, and more options in life than to seek increasingly difficult to find decent paid employment.

    • b waghorn 9.2

      “”– by simply eradicating income tax for the first $15,000 of earnings?”

      That would be the cheapest simplest way of making a difference, so I can’t see any politician s going for it.

      • sabine 9.2.1

        hahahahahah

        yep indeed. So true.

      • Nic the NZer 9.2.2

        That or eliminate GST. But every time i point out that National could have either left GST alone or dropped GST during their 2010 tax finangle somebody else has a major hernia arguing against it. Its bizare.

        • Colonial Viper 9.2.2.1

          Firstly, GST is a Labour project so Labour loyalists have an affection for it.

          Secondly, people seem to think – but we can’t AFFORD to forego all that tax revenue!!! Where would Government get its $$$ from?

          • Nic the NZer 9.2.2.1.1

            GST is a Labour project

            Yes, figures. Mostly lefties making up the group who want it abolished also fits with that.

      • alwyn 9.2.3

        “eradicating income tax for the first $15,000”
        It wouldn’t make that much difference.
        On your first $15,000 in taxable income you only pay about $1,645 in income tax.
        That is $14,000 at 10.5% and $1,000 at 17.5%.
        If you earn less than $15,000 the amount is less. It isn’t chicken feed but it isn’t a lot either. The total comes to about $4 billion.
        It isn’t nearly as much as GST collections
        You can work it out from here.
        http://www.treasury.govt.nz/government/revenue/estimatesrevenueeffects/personal

        • Ad 9.2.3.1

          Not much difference for the rich.

          But the poorer you were, the more important and effective it would be.

        • sabine 9.2.3.2

          that would be almost like three weeks of extra pay for someone on min wage.
          that would be a month of rent, or almost three month worth of groceries, or maybe a dentists visits and a crooked tooth fixed instead of having it pulled a year later.

          a lot of money for many people.

          • alwyn 9.2.3.2.1

            Sure, but it is nothing like the effect of a UBI of the sort that people are proposing. I still think saying that it isn’t chicken feed but not a lot is accurate.

        • b waghorn 9.2.3.3

          Lift it to 20k then, of course some nut from the right will say that poor people will be offended if they aren’t contributing, but I’m sure most will cope !

          • alwyn 9.2.3.3.1

            That would bring it up to about $2,500 for anyone on $20,000 or above.
            The cost goes up to about $5.75 billion. That’s about 7 times the Pharmac budget isn’t it?
            That’s why they call Economics the dismal science.

            • b waghorn 9.2.3.3.1.1

              I should of added the obvious that there would have to be a shift in income streams for the government, , its a pity this government uses its considerable marketing skills to fill the coffers of the rich and not sell the fact that a more equal society is a happy society.

  10. Michael 10

    The concept could work, but I don’t think it is necessary right now as the NZ economy is growing fairly well. However, if the economy slumps a lot, then it should definitely be a policy tool in addition to increased deficit spending.

    • Stuart Munro 10.1

      What leads you to conclude that the economy is growing fairly well? It looks like an absolute disaster from where I’m standing.

      • ropata 10.1.1

        I think he means the last decade or so have been sweet for those on the “right” side of the tracks. And for bankers.

        http://www.theguardian.com/commentisfree/2014/dec/12/how-new-zealands-rich-poor-divide-killed-its-egalitarian-paradise

        • Stuart Munro 10.1.1.1

          You mean the non-productive sector – yeah I notice they’re pretty happy. Parasite that killed its host.

          • dv 10.1.1.1.1

            Stuart- how do you feel about SCF then?

            • Stuart Munro 10.1.1.1.1.1

              It’s complicated – pretty obvious that Hubbard knew what he was doing and wasn’t a crook – the receivers pretty clearly were – going to the press with slanders to drive the value down. SCF was looted as thoroughly as any privatised state enterprise with a $1.6 billion cherry on the top.

              It was after SCF that I began to routinely refer to the Key junta as kleptocrats.

              Creditors were repaid in full, so smears of Hubbard’s skills were clearly groundless. I’m guessing some very wicked folk really wanted a big batch of vulnerable dairy farms. No conventional legal process was followed – rather like Stalin & the kulaks really.

              • dv

                Thank you for a full answer. It is appreciated.
                There also some VERY murky business around the Scales corporation.
                And the real story is unlikely to be told.

                • Stuart Munro

                  Yes – I think a full inquiry would see some senior government figures in jail for decades. But I don’t have all the details – mind, I’ll bet a lot of working folk have pieces of the puzzle though.

  11. greywarshark 11

    I would spend my $1000 on a dishwasher and then I would have more time to do other things, though not to spend on here, I’m already overdrawn on that time bank.

    • alwyn 11.1

      But you told us the other day that doing the dishes gave you time to think about other matters and to listen to audio recordings.
      I thought you were recommending the practise. Now you are proposing that you get a dishwasher. No further thoughtful opinions?

      Open mike 12/03/2016

      • b waghorn 11.1.1

        Shit with recall like that I pity you’re partner. 🙂

        • alwyn 11.1.1.1

          Actually I thought it was a great idea, which is why I remembered it.
          Thinking about almost anything else is better than considering the pile of dishes.

        • alwyn 11.1.1.2

          I’m sorry but I have just noticed something else.
          Remember the Daily Review the other day, started by Anne with

          Daily Review 10/03/2016

          You’re or your.

          I apologise, as you say my recall of past comments is excessive.

          • b waghorn 11.1.1.2.1

            Ha ha got me. Although if you’re at a lose end one day and you want to fill in your afternoon have a look at some of my early comments on the standard, you’ll see I’ve improved greatly.

    • b waghorn 11.2

      I’d spend it straight away too, there’s lots of things around casa waghorn that need replacing.

      • greywarshark 11.2.1

        Yes I have practical applications and wouldn’t spend it on holiday to the Costa Lota.

        • greywarshark 11.2.1.1

          Now I’ve watched the Keiser show with Steve Keen it seems that I would have to pay off my credit card. But that would be a good thing as lately there seems so much pressure to back this or that, and I scrape up the money and haven’t been able to bring down the debt.

  12. dave 12

    its was QE for the people its the same as basic income with one difference if your in debt the money must be used to retire debt if your debt free the money must be spent in the local economy its also a form of debt jubilee steve keen talks about how it would work
    https://www.youtube.com/watch?v=dRzCdD3-d1c

  13. linda 13

    is strategic default an option for indebted new zealanders ????????/
    did anyone pick up on the report out Australia regarding ponzi finance scam by the big four banks rapidly revaluing homes to ramp up the values http://www.businessinsider.com.au/a-hedge-fund-manager-posing-as-a-home-buyer-says-he-was-shown-the-tricks-for-white-lies-on-mortgage-applications-2016-2

    • alwyn 13.1

      That sounds rather more like an attempt to scam the banks, rather than something the banks are doing. If I was the boss in one of the big four I would be following up on it though.
      It isn’t a Ponzi scheme though. That has a specific meaning.

  14. linda 14

    time to call bullshit on everything (the big nz short)

    • alwyn 14.1

      Sell everything you mean?
      What are you going to do with the money? There would be no point in leaving it in New Zealand dollars if you think that. Move to Switzerland perhaps and become a mate of Fay and Richwhite?

  15. Descendant Of Sssmith 15

    I’m pretty sure we already do this.

    It’s called NZS.

    • Colonial Viper 15.1

      Exactly. It’s something that NZ has plenty of experience with. Time to extend the concept to more age ranges.

  16. stephen bradley 16

    It’s all been done, quite recently, and quite close to home. In 2008 the federal government in Australia squirted $1100 in to my pension account in response to the GFC. Even though I was only the recipient of a tiny pension due to only 3 years work there, and offset by a deduction from my NZ pension, I still got the $1100 and I assume that all other Australian pensioners and beneficiaries got the same. Of course, if you give money to ordinary working class people they spend it because they have not much choice and it multiplies through the community. Give the money to the banksters and they just hoard it due to market fear. It’s a no-brainer.

  17. swordfish 17

    Simon Wren-Lewis posts on Helicopter Money/Quantitative Easing at Mainly Macro
    http://mainlymacro.blogspot.co.nz/search/label/helicopter

  18. gnomic 18

    Can I have $1,000,000 please? That way I could buy a bach at the beach. Some obscure beach far from anywhere. With any luck there would be no TV reception or smartphone coverage and I could live oblivious to all the bull dung. Righto?

    A grand? Wouldn’t even touch the sides. Twenty visits to a quack? Ten full tanks at the garage? Ten trolleys at the supermarket? Five nights in a motel? A year’s bill for the smartphone?

    • Colonial Viper 18.1

      Because society still has to extract productive work from you day to day, no, you can’t have a million dollars.

  19. Murray Simmonds 19

    And no you can’t gnomic, because almost everyone else would be using their million to compete for the same batch and beach that you want . . . . . and guess what happens next!

    Thats why you only get $1000.

  20. vto 20

    Free money would finally expose the true value of money

    the true value of our money system

    worthless

    and consequently dangerous

  21. Graeme 21

    Pretty much what Australia did in response to GFC. But, as the ABC article below shows it was as much, or more, for political reasons.

    http://www.abc.net.au/news/2014-08-26/berg-the-cold-calculations-of-the-gfc-stimulus/5696150

    The concluding paragraph –

    “The decision to deploy massive fiscal stimulus set in train all the events and personality clashes that defined Labor’s term in government.

    The debt racked up in those few months crippled Kevin Rudd’s policy agenda, undermined every one of its future budgets, and, by liquidating the surplus in an instant, damaged its economic management credentials.

    And for what? To avoid “the potential political costs of being seen to do nothing”.

    There’s some interesting links in there too.

    I can see our current government trying this to “buy” an election, current discussion is probably part of the scoping process, but it I can see it go the same was as for the last Australian Labor government. It’ll be done for political reasons, and there will be political costs.

    • Colonial Viper 21.1

      I can see our current government trying this to “buy” an election

      That’s what the surprise minimum wage hike was all about. National are positioning for an early election 2017.

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