27 Jan 2022

The cost of the pandemic: the financial winners and losers

From Nine To Noon, 9:10 am on 27 January 2022

Analysis by a financial journalist has found the government's Covid-19 policies have made the wealthy hundreds of billions of dollars richer, while the poor sank $400 million further into debt to the government itself.

Bernard Hickey says the explosion in inequality has been driven by government and Reserve Bank interventions, including quantitative easing - effectively the printing of money - which has been blamed in part for fuelling the surge in house prices over the past two years. 

Hickey, formerly of interest.co.nz, now writing the political and economic blog The Kākā, says the Labour Government, supported by the Green Party, has presided over the biggest transfer of wealth from current and future renters, to asset owners, in the history of New Zealand.

Newsroom.co.nz Managing Editor Bernard Hickey

Photo: RNZ / Dan Cook

Stats NZ data shows the government gave almost $20 billion cash in wage subsidies and resurgence payments to businesses. While the Reserve Bank bought over $50 billion worth of government bonds effectively through money printing, he told Kathryn Ryan.

“And the point of the analysis from the Stats NZ numbers is to look at the effects on inequality now that we're 21 months on from the beginning of Covid.

“The net worth of businesses rose by more than $300 billion, and the net worth of households over that Covid period rose by more than $600 billion.”

Good news for those already holding assets, bad for those who don’t, he says.

“Those people who are renters and who don't have assets, they're now significantly worse off, because the government didn't give them much more cash at all, only an extra $48 million in special cash payments.”

Initially the cash payments to business was needed, he says, as there were widespread fears of the pandemic triggering a depression.

“But within three or four months, it was clear that the economy was recovering quite strongly.

“When you look at the profits that are reported by Stats NZ for the 21 months after Covid businesses made a gross operating surplus of $27 billion.

“Well, that doesn't mean much unless you look at the previous period before Covid, and the profit there was only $11.6 billion.

“So, what we've seen here is that businesses increased their collective profits by $15.5 billion, which magically is not much different from the extra $18.9 billion they were given in cash by the government.”

These interventions triggered a massive increase in inequality, he says.

“Those people who are renters who didn't have assets at the start of Covid are so much further behind those who had assets.

“And anyone who wants to jump the gap, if you like, to be able to buy their first home, they're now completely out of options, in part because of that rise in house prices has forced the Reserve Bank to make it much harder to borrow money.

“So, in effect Covid was the moment that blew away a generation’s hope for their first home.”

The government has shown little inclination to reflect on where the money has gone or to reclaim it, he says.

“Stats NZ numbers show cash holdings of businesses effectively and households collectively

“Between the beginning of Covid and the end of Covid, businesses collectively increased their cash balances and term deposits by $26 billion.

“And households increased their cash balances by $25 billion. So, in effect, that 10s of billions of dollars of government cash, which the government had to borrow, effectively went straight into the cash accounts of businesses.”

What the government didn't do was ask, after the panic had finished, did business need the money, says Hickey.

“Many companies that made big profits and paid big dividends to their shareholders, often overseas, who refuse to pay back the wage subsidies.

“And they include the likes of Harvey Norman, Kathmandu, Fulton Hogan, and many, many others.

“I'm really surprised that the business community are not, frankly embarrassed that as a collective whole, they have just taken $19 billion from the taxpayers of New Zealand, seeing their assets rise by almost a trillion dollars, and are not looking to repay that to rebuild the social contract that we have.”

Using the net wealth effect to stimulate the economy has changed the face of New Zealand in just two years, he says.

“The scale of it is enormous. We're talking a trillion dollars of wealth in less than two years landed in the hands of people who were already wealthy. At the same time as the government last Christmas refused to increase the benefits by $50 because they were worried that it would increase the government debt.”

Cash loans given to people struggling financially by MSD should be forgiven, he says.

“Forgiving that debt and frankly doing what the Welfare Expert Advisory Group said the government should do nearly three years ago