Building a bridge across the coronavirus ravine

Yesterday I had the pleasure of appearing in front of the Epidemic Response Committee in a session about the potential economic and social shape of the recovery from coronavirus. My fellow speakers were Rod Drury, Traci Houpapa, Ian Proudfoot, Oliver Hartwich and Ayesha Verrall. The video of the session is here; below is a version, somewhat elaborated, of the key points I made to the committee.

When we look at the graphs that the Treasury has prepared on coronavirus’s effect on the economy, even the best-case scenarios look like a very deep V. We might think of that as being like a ravine, or a crevasse. And the sad reality is that although some New Zealanders will have enough wealth, enough security, enough by way of buffers to build themselves a bridge over that ravine, others will not, and risk falling into it, either permanently or temporarily.

When we look back at the last major calamity to New Zealand, the global financial crisis (GFC), we see that although our government handled it better than many of its overseas counterparts, inequality still resulted. Incomes for those in the richest tenth barely fell, then rose rapidly from 2010. Incomes for the poorest New Zealanders fell distinctly after 2009, and did not recover their pre-crisis level until 2015.

Even temporary dips in income can be devastating. We know from the Dunedin longitudinal study that children who were poor in their early years end up, on average, with much lower reading scores than those who were never poor. They also experience worse health. Even temporary poverty can leave lasting scars.

Some adults, meanwhile, never find their way out of the ravine. The sudden economic shock leads to job loss and poverty, which leads to life falling apart, marital and family breakups, resort to substance abuse as a coping mechanism, depression, and sometimes suicide.

We should be worried about these things recurring in the current crisis, because many households are not well buffered against it, economically speaking. The 2018 Household Economic Survey showed the average or median household had just $8,000 in cash, the kind of “liquid” asset they could use to deal with income losses and build their own bridge across the ravine. A separate 2018 survey showed that a quarter of people have no cash in the bank at all.

So we need to do more collectively to help our fellow citizens manage their way through this crisis. In saying this I reflect the experiences of my distant ancestor Harry Atkinson, a politician for several decades in the second half of nineteenth-century New Zealand. A farmer by background, he believed in hard work, thrift and individual enterprise.

But he saw in the 1870s and 1880s that major economic shocks and depressions simply overwhelmed individuals’ – and even small communities’ – attempts at saving and building up reserves. Accordingly, he became an early proponent of the welfare state, arguing in 1882:

“The only effectual remedy against pauperism seems to me to be not private thrift or saving, but cooperative thrift or insurance, and that to be thoroughly successful… must be national and compulsory.”

This vision of collective security has been constantly renewed by successive governments of all stripes. The coronavirus crisis offers us an opportunity to renew that vision once again.

So what can we do to collectively manage this crisis, both in the short term and long term? In the short term, we need to build a bridge on which everyone can walk across the ravine. We need to enhance stability and security for everyone.

That means, for instance, helping people who have lost their jobs, by providing detailed and high-quality skills and retraining schemes. People may not have security in a particular job, but they can have security of overall employment.

It also means doing more for casual and gig-economy workers – making it easier for them to show that they are in fact permanent employees and deserve all the relevant rights, but also building a welfare system that they can access seamlessly and which tops up unexpected shortfalls in income in real time.

It means providing greater security and dignity for people on benefits – not through a Universal Basic Income, which spreads its support too thinly, but something like a Guaranteed Minimum Income, a generous and no-sanctions benefit which is slowly and carefully clawed back (abated) as people earn more income.

It means providing greater security of housing – both greater rights for renters, but also a renewed drive to build more public housing, using prefabricated techniques to save money, reduce waste, and provide a guaranteed boost to the nascent prefab market.

It also means ensuring that the welfare state does not just provide secure incomes but also helps people build up assets – through, for instance, a Kids KiwiSaver scheme that provides government support for poorer families to save and ensure their children reach adulthood with solid savings.

Finally, once we have reached the other side and are assessing the financial costs of coronavirus, we will need to think about how payment of those costs is apportioned. Former Prime Minister Bill English has already suggested that a capital gains tax might need to be back on the table, if the stock market recovers quickly and it looks as if the pain is not being evenly shared. Gareth Kiernan from Infometrics has suggested a wealth tax. Others are discussing land taxes.

Whatever solution is chosen, we must all be relentlessly focused on ensuring that the coronavirus crisis does not exacerbate inequality. Thinking about inequality cannot be an add-on; it must be woven into everything government does. We need to do everything possible to ensure that a bridge is built for everyone to cross this dangerous ravine, and to ensure that everyone has the stability and security that has always been part of what it means to live well in this country.