Govt announces $16b in new spending through ‘Covid Response Fund’

Finance Minister Grant Robertson has announced nearly $16 billion of new spending on New Zealand’s coronavirus response, saying investment rather than austerity is the best way to steer the country through the global pandemic.

The money is part of a new, $50b Covid Response and Recovery Fund established by the Government, with up to $20.2b still available for future investment in coming years.

Support for business and workers make up the largest chunk of Budget spending, with a $3.2b targeted expansion of the wage subsidy scheme, a $3b infrastructure investment and $1.4b for a trades and training package.

National leader Simon Bridges has accused the Government's recovery plan of lacking coherence, warning of the billions in debt that would be placed on future generations as a result.

Unveiling the Budget for 2020 – a document forced to undergo significant revision as the full scale of Covid-19 became clear – Robertson said the world was facing an economic and health crisis unlike anything since the Great Depression.

The Government’s public health response had been what was best for the economy in the initial aftermath, and the time was now right to lay out an economic recovery framework, he said.

The pandemic would have wide-ranging effects on the wellbeing of New Zealanders, with lower-income workers and new entrants to the job market worst affected.

Robertson said the targeted wage subsidy extension would provide support to sectors like tourism, retail and hospitality who were still suffering from the ramifications of the epidemic and associated public health restrictions.

“One of the things that happened after the global financial crisis was employment [in the construction industry] fell away greatly, so when we needed people to build houses they weren’t there.”

Businesses would need to show a revenue loss of at least 50 percent in the last month compared to last year, with the extended scheme open for 12 weeks and paying out an eight-week lump sum at the same rates as the initial version.

The tourism sector has received an additional $400m in an initial contribution to a dedicated recovery fund, with Robertson acknowledging the closure of borders to control Covid-19 had “turned off the tap” to millions of tourists who supported the industry.

There are also dedicated packages for the sports and arts and culture industries, accounted for in the Budget figures but not yet announced, while more sector packages – including further media support – to be developed in the coming days and weeks.

Robertson said a $1.6b trades and training package would help to avoid the mistakes made by governments during previous downturns, where a failure to invest upfront in retraining workers meant they were not ready when an eventual recovery did take place.

“One of the things that happened after the global financial crisis was employment [in the construction industry] fell away greatly, so when we needed people to build houses they weren’t there.”

Another $3b of infrastructure investment, on top of the $12b pre-pandemic New Zealand Upgrade programme announced in January, will be allocated to specific projects by Cabinet in the coming months.

Robertson said a $1.1b environmental jobs package would allow for the swift creation of new environment-based employment, such as restoring native bush and waterways, for Kiwis who lost their jobs during the recovery.

“Some will be temporary, some permanent, all will give good range of skills to people who need them.”

Treasury's Covid forecasts 'art, not science'

The $50b Covid fund, established by Cabinet on April 6, includes $13.9b of pre-Budget spending that had already been committed but excluded the $12.1b on the initial wage subsidy scheme, leaving $20.2b which could still be spent.

While the Government has stressed the $50b figure is not a target, Robertson said he expected the money would be fully allocated across the four-year forecast period as further initiatives were announced.

Treasury’s forecasts show average deficits of $28b, or 9.3 percent of GDP, from 2020 to 2022 during the response phase, reducing to $4.9b by June 2024 and a possible return to surplus from 2024/25.

Unemployment would peak at 9.6 percent in June 2020,  before returning to the current rate of 4.2 percent within two years.

Asked whether the forecasts were too optimistic, Robertson said predicting the long-term fiscal impact of Covid-19 was an art rather than a science.

“I don’t envy their [Treasury’s] task at the moment – it is almost impossible at the moment to be able to forecast with accuracy.”

Sharply rising debt

Treasury also forecasts core Crown debt to peak at 53.6 percent in 2023 and 2024, before slowly beginning to fall.

In his response to the Budget, Bridges said the Government was creating $100b in deficits over the next four years.

Funding for the recovery needed to be spent in a responsible and disciplined way, but Bridges said the Budget lacked "any detail and accountability of how it will be spent and what it will achieve".

“The problem with debt is that it needs to be paid back and the problem with Labour is they’ll increase your taxes to do that.”

Asked whether he was worried about the repayment burdens being placed on future generations, Robertson said young New Zealanders would face more suffering in the present day if the Government did not invest now.

“I am not a fan of austerity: I believe the way we will get through this is investing in people, in business, and in supporting our communities.”

New Zealand’s debt levels would still remain well below the average for comparable countries, he said.

The Government was open to further extensions to the wage subsidy scheme if circumstances required it, while it was still looking at potential forms of long-term stimulus such as “helicopter money”.

“I’ve used the phrase before: it will be a rolling maul of initiatives. Our economic response to Covid-19 has to happen every day, not just on Budget Day,” Robertson said.

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