Behind the curve and out of touch
The Government and the Reserve Bank are looking increasingly out of touch and behind the curve in responding to Covid-19. Our economy, biology and health system are not as exceptional as they think, Bernard Hickey argues.
In the six weeks since the imposition of a travel ban on China in the wake of the first Covid-19 outbreaks, the Government has announced $11 million in tourism marketing and $4m for extra business advisers in regional areas. Yesterday, it announced $12 million of support for drought-hit Northland and the rest of the North Island.
That's $27m or less than 0.01 percent of GDP in response to what some are calling the biggest macro-economic shock to the global economy since the second world war and the worst drought some parts of the country have seen in 100 years.
Yet, again yesterday Finance Minister Grant Robertson and Prime Minister Jacinda Ardern pushed back at the idea the Government should offer more urgent, widespread and direct economic support to small businesses and beneficiaries to help them cope with the cashflow shock that is rippling through the economy. Instead, they have chosen to spend more time designing a scheme to micro-target wage subsidy support for small businesses in different industries and different parts of the economy. They have said we should wait until next week for details, and that business leaders had asked for a targeted response.
This was at the same time that US President Donald Trump was announcing a one month ban on travel from continental Europe and Britain and Australia have both launched large-scale emergency direct payouts to businesses and beneficiaries.
New Zealand has taken the view that it is exceptional amid this global turmoil, able to moderate and target its reaction with only a few cases here and no person-to-person transmission.
'Wait a week or two'
New Zealand has been very slow to respond with monetary and fiscal stimulus amid signs cashflow is drying up across the tourism, hospitality, forestry and retail sectors, with nothing much expected to be announced until next week from the Government, and the following week from the Reserve Bank.
Business leaders are calling for more urgent action to protect jobs, including the suspension of provisional tax payments, a potential GST rate cut and more urgent wage subsidies.
Just 0.01 percent of GDP here
So far since the first travel bans were put in place, the Government has announced $27 million or 0.01 percent of GDP of spending on tourism marketing, small business advice and drought relief. An unspecified and micro-targeted wage subsidy scheme for small businesses is under construction for announcement next week.
Vs 1.5 percent of GDP over there
Meanwhile, Australia and Britain announced stimulus plans worth 1.5 percent of GDP, including direct cash support for all small businesses and many beneficiaries almost immediately. A similar package here would be worth $4.5 billion, but there is no indication of anything like that in the pipeline.
On monetary policy, New Zealand is also looking way behind the curve. The US Federal Reserve and the Bank of England have both announced emergency rate cuts.
The Fed even restarted its Quantitative Easing programme overnight after the Dow fell 10 percent during the session.
Yet both Reserve Bank Governor Adrian Orr and Finance Minister Grant Robertson have warned against "knee-jerk" reactions and have both said they have time to formulate more considered and targeted responses.
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