TLDR: Rather than print more money to make asset owners even wealthier again, the Reserve Bank should instead prepare to distribute ‘helicopter money’ in equal amounts into a separate Reserve Bank account for every resident called a Matariki account.
This money should be a new central bank digital currency called the e-tāra, which is pegged to the regular New Zealand dollar, and able to be used by account-holding residents or their guardians with Matariki cards and Matariki apps via EFTPOS and credit/debit card system. It would create a new way to quickly, fairly and cleanly distribute Government payments, run monetary policy and back up the existing banking system in the next crisis.
This article and podcast above is a tweaked version of a proposal I included in my daily Chorus email for paid subscribers. They’ve asked me to break it out and may it available for the public. You are welcome to forward and share it. Only paid subscribers can comment below.
Why is giving every resident cash so hard?
This morning we awoke to news that the IRD has struggled to find the bank accounts of all the 2.1m people eligible for the $350 ‘cost of living’ payments for non-beneficiaries earning less than $70,000 per year that was announced in the Budget in May.
Also, we’ve discovered IRD argued it would not be able to easily make a ‘helicopter money’ payment of $100 per person to Aucklanders, as was suggested (and then rejected) internally by the Government late last year during extended Covid lockdowns in Auckland and the Waikato.
Interest.co.nz alumni Jenee Tibshraeny reports for the NZ Herald-$$$’s front page story this morning that IRD initially didn’t have bank account numbers for 170,000 of the 2.1m when the $350 payment was announced in May, and has now found 130,000 of them. It thinks it will be able to get all but 11,000 of them. Jenee reported the IRD’s acting commissioner and CEO Cath Atkins told a select committee yesterday IRD had taken on 300 contractors to administer the payments over five months and expected to need as many as 750 IRD staff to handle inquiries at peak payment times.
Meanwhile, Marc Daalder reports this morning for Newsroom that the Government considered making ‘helicopter cash’ payments of $100 per Aucklander during the extended Covid lockdowns late last year, but that they decided against it after IRD warned it would struggle to roll out such a payment to all New Zealanders, let alone anything more targeted.
Citing OIA documents, Marc quotes IRD officials writing in a November 3 briefing about a suggested one-off payment to all New Zealanders that:
"Designing, implementing and administering this payment would require a significant reprioritisation of Inland Revenue's work programme. Our experience is that it would be very challenging to design and stand up an untargeted one-off payment before the end of the year.
"We need further confirmation and details on the parameters to design the payment, and to assess whether it is feasible, cost effective, and establish a timeline if Inland Revenue is asked to deliver the payment."
A week later, Marc reports ministers asked about narrowing the payment to Aucklanders only, which elicited this IRD response on November 10:
"The level of operational support required to accurately deliver a $100 payment to Aucklanders prior to Christmas would be significant and beyond Inland Revenue's current capacity.
"Given the Government's and public expectations around these [Regional Support Payment] measures, we consider there would be significant reputational fallout if progressing the one-off payment resulted in Inland Revenue failing to meet these expectations.”
Marc reports Revenue Minister David Parker saying the Government decided against the payments after the November 10 briefing. Parker is quoted as saying:
"Ministers focused on support for businesses and the CBD, which was why in the end they went with other measures including vouchers.” David Parker quoted from an email via Newsroom.
The case for a helicopter payment system instead
This highlights the issues around why the Government did not make ‘helicopter money’ cash payments to all residents during the lockdowns of 2020 and 2021. Instead, the Reserve Bank printed $55b to buy Government bonds in financial markets from banks and fund managers. The Government, in turn, used $20b of that money to pay cash directly as few-questions-asked grants to employers as wage subsidies and resurgence payments.
That money was crucial in the initial weeks of lockdowns in reassuring employers about cash flows and avoiding mass sackings. But it was soon evident the money was not needed and it has ended up as increased cash balances in the bank accounts of households with assets (ie home owners) and non-financial businesses, as the chart shows. It was an indirect transfer of wealth from taxpayers in general, including renters, PAYE wage earners and GST payers, to asset owners in the form of home owners and business owners. Less than $1b has been repaid and many companies, including NZME and Fletcher Building, have chosen to keep the cash and pay it out to shareholders as dividends and share buy-backs.
Why not pay it direct to everyone, not just the richest?
The Government could have instead paid that $20b in cash directly and equally to all residents, including children, to support the economy in the event of feared collapse due to lockdowns. This sort of payment was made in other countries during lockdowns, but the Labour Government chose to focus the cash grants on businesses.
One argument against such helicopter payments, as detailed above by IRD, was the logistical challenges involved in identifying residents and being able to make payments quickly into their bank accounts. Another argument is that ‘helicopter money’ funded directly by the Reserve Bank printing money and handing it directly to the Government would be seen as inflationary, reckless and unfair. That’s one reason why the Government chose the roundabout route of the Reserve Bank buying bonds on the financial markets after the Government had issued the bonds to banks and fund managers.2
One result of that was the banks and fund managers capturing a margin on the way through on the money roundabout. Also, interestingly, the Government never actually spent all of the $55b in freshly printed money it received in that roundabout way. There is still $33.4b sitting in the Crown Settlement Account with the Reserve Bank, the Reserve Bank’s data shows. The difference of $22b almost exactly matches the $23b in extra household and business savings seen in the above chart.
So how could the helicopter money have been done?
My suggestion? One way to ensure immediate, fair, direct and controllable payments to all residents would be for the Reserve Bank to create accounts for every resident of Aotearoa-NZ as soon as they were born, that could be accessed by an app or debit card connected to the EFTPOS payment system.
The Reserve Bank is considering whether (and how) to develop a central bank digital currency that would effectively be able to generate New Zealand dollars independently of the banking system.3 These Reserve Bank-created ‘e-dollars’ would be exchangeable one-for-one with regular private bank dollars. So far, the Reserve Bank has focused on creating wholesale facilities or accounts for these e-dollars, but it could just as easily create retail accounts for each New Zealander on birth.
This could be done by creating an app and a Reserve Bank account for every individual ahead of a crisis. The bank would have to identify someone as a resident of Aotearoa-NZ and ensure that resident had a way of using that account to buy things, through an app linked to the account and/or some form of debit card linked to the EFTPOS system. If a Government was worried about how the money might be spent, it could be limited so the e-dollars could not be used to buy alcohol or for gambling, for example. Australia has issued a similar type of debit card payment system for some beneficiaries.
When the crisis hits, the Reserve Bank could then be directed to inject the fresh e-dollars equally in a one-off way to every resident to spend or convert into a ‘regular’ NZ dollar in a regular bank account. Given the e-dollars could be endowed with smart contract qualities, they could be time-limited and even given a special interest rate, which could even be negative. That would encourage people to spend it quicker, if the rate was negative and highly-enough negative.
Open Matariki accounts for all that use e-tāras
I’d propose every baby born here and everyone classified as a permanent resident be given such a ‘citizen’s dividend’ account. The ‘citizen’s dividend’ idea has been proposed overseas as a way of making universal basic income payments, or setting up endowments for children that can be used for college education.
I’d suggest the accounts be called Matariki accounts and the currency be called the e-tāra. Every child born here could be granted a starting payment of, say, $10,000, which would be linked to the parents’ or guardians’ Matariki account. That could be used to help families in those tough early years, but also create a base of usage that meant people and shops were familiar with the Matariki cards, the Matariki app and the e-tāras. In time, the accounts could be used for benefit payments and, if people chose, as their main transaction account that employers, the IRD, Government departments, ACC and others would use. Anyone being granted residency would be given a Matariki account.
Such an account would solve many of the online identity issues currently handicapping many Government and small business attempts to build the online economy. It would also provide a competitive element for private banks to keep their fees low.
Just a thought. I welcome your comments and suggestions for improvement below.
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