Go hard and early on the economy too
The Government is set to massively ramp up its budgetary response to the Covid-19 crisis. Bernard Hickey looks at what NZ Inc could and should do economically to "go hard and go early."
Jacinda Ardern and Grant Robertson are the closest Prime Minister and Finance Minister duo we have had in modern times (short of Robert Muldoon, who did both jobs himself).
That was clear at the weekend at the darkest moment the New Zealand economy has faced since the weekend of October 11-12, 2008, when the last Labour duo, Helen Clark and Michael Cullen, were forced by Australian Prime Minister Kevin Rudd to guarantee all our banks and finance companies on the morning of the re-election campaign launch.
Robertson stood before Ardern as she announced among the most draconian border controls of any country and steps to stop mass gatherings spreading the virus.
He took the picture below of her from behind the television cameras on his phone and tweeted this from his personal account: "We have to go hard and go early to flatten the curve of COVID 19. Unprecedented times need unprecedented action #weareallinthistogether."
Go direct or broad?
Robertson left little doubt that the Government is about to dramatically ramp up its economic response to the global economic shock from Covid-19.
Ardern also told TVNZ's Q+A on Sunday morning it would be a big package.
"This will be the most significant package that I will announce while I am Prime Minister," she said.
This suggests it could be bigger than the $12b infrastructure spending package announced in December.
But will it be broad enough and fast enough?
Until the weekend's dramatic moves overseas and here, the Government was talking about a limited and very targeted patchwork of payments to small businesses directly affected, in contrast to what was announced in Britain and Australia, where widespread cash payments were announced for small businesses, the low paid and beneficiaries.
Ardern was still talking about targeted payments on Sunday morning.
"I need to make sure that we are targeting those businesses that need help the most and that its sufficient to make a difference to keep people in work," she said.
Last week the Government was preparing for its 'second scenario' of a global economic downturn lasting into late 2020 that would require targeted payments to small businesses and help for some sectors in some regions. Ardern and Robertson pointed to the Christchurch earthquake and Kaikoura earthquake packages of wage subsidies as precedents.
The then-government agreed to pay companies $3,000 gross per employee after the Christchurch earthquakes in February 2011 for six weeks ($500 gross a week), or $1,800 gross to pay a part-time employee for six weeks ($300 a week). By the end of June 2011, 20,000 employers and 50,000 employees had received a combined total of $202 million from the earthquake wage subsidy. This was administered by the Ministry for Social Development and included a $400/week subsidy for six weeks ($240/week part time) for those who were unable to contact their employer or whose employer had closed permanently.
"We have models that have been previously rolled out," Ardern said last Tuesday.
"The difference here is that they were discretely applied to regions. Now we're talking about a scenario where we'll have businesses across the country that are potentially affected. That is the detail that's being worked on now," she said then.
Ardern and Robertson said last week the Treasury was only in the early stages of planning for the 'third scenario' of a much deeper and longer global recession that would require much wider and bigger economic stimulus.
The question is whether the Government should leapfrog option two and go straight for the 'big bazooka' of option three.
Go straight to option three?
Business leaders are now calling for a much broader and less targeted package to offset what is now expected to be a global recession and devastation for the tourism sector in the short term.
"Frankly, if we need to move beyond the BRR to deal with an economic and health shock of this magnitude, I don't think anyone would have any problem with that," BusinessNZ CEO Kirk Hope was quoted as saying yesterday, adding he saw the package being bigger than the $12b infrastructure package.
Tourism Industry Aotearoa CEO Chris Roberts wanted much broader support too.
"This impact will be across all of New Zealand," Roberts was quoted as saying.
"There can be no regional targeting. It has to apply countrywide, and there will be thousands of businesses applying to keep their staff on - large businesses too. They can't be expected to retain staff when they're got no work for them," he said.
"Realistically we are looking at six months without international visitors because the tap doesn't just turn back on."
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