Financial package a golden opportunity for long-term change

New Zealand must ensure the billions we borrow right now for the pandemic financial bailout, which our children will have to repay, will benefit them too, writes Professor Ilan Noy of Victoria University of Wellington.

The Government has rolled out an extensive package of fiscal measures to help our economy deal with a crisis unexpectedly thrust on us by a microscopic virus.

The size of the fiscal package probably doesn’t matter right now. After all, it is unclear at this point how many entities—employees, employers, and firms big and small—will seek help and for how long that help will be required. It is important, however, for the Government to project a unified and forceful willingness to help, and a readiness to deploy quickly and efficiently.

After the global financial crisis erupted in the United States in September 2008 and the government there announced a $720 Billion bailout, a Treasury official let slip that the only rationale behind that precise number was that “they needed a big one”. Equally, we needed “a big one”. And it seems we have got it. Thankfully, we can also afford it.

Now is also the time to define carefully what we want to achieve with these measures, so we can have clear yardsticks with which to assess them and re-target them as needed.

We should be focusing on three aims. The first and most obvious is to make sure that no one living in New Zealand lacks the basics in the weeks ahead. That we all get the shelter, nutrition, and essential services we need. This has rightly been the focus of the largest component of the Government’s programme (the wage subsidy) and has already been mobilised to put money in people’s pockets, with payments placed in tens of thousands of bank accounts.

The second aim is that once the necessary public health measures that have caused this economic downturn are relaxed, our economy is ready to spring back into action. That means making sure everything is in place, so that once the threat of the virus recedes (and it surely will at some point) our businesses are ready to start operating as quickly and as fully as possible.

For that to occur, we want to make sure our successful businesses are being propped up and are ready to forge ahead, make money, and employ more and more people once the viral seas are calmer. This is indeed being pursued through generous lending programmes for businesses and also Reserve Bank policies making credit cheaper and more available.

Air New Zealand, for example, received a large loan from the Government (with an appropriately high interest rate), and indeed we want our biggest airline to survive this turmoil so it can continue to serve our economy’s needs in the years ahead.

There is a risk here that we will continue to support businesses that were destined to fail, and that we will be pouring good money after bad in a futile effort. Therefore, the decision announced this week that the Government will provide only a partial credit guarantee for loans provided by the banks is a welcome one.

Politically, the Government is not in a position to decide which businesses should not be resuscitated, nor does it have the knowledge required to so. As the existing creditors of these businesses, banks are in the best position to do that and should be the ones deciding. But we need to keep a watchful eye, erring on the side of generosity, and make sure the decisions that come out of this privatisation of the lending decisions align with our society’s interests.

Our society’s interest is the last aim of this massive fiscal injection—to generate or create change. We need to make sure we don’t “let this crisis go to waste”, and that the billions we borrow right now, which our children will have to repay, will benefit them too. We owe it to them.

We also need to proceed carefully and not push too far ahead of public sentiment. There are things we can all agree on. Ethically, we cannot continue emitting carbon dioxide into the atmosphere and pretend that the climate is not changing. Nor can we ignore the state of our health system. Parts of it are underfunded and consequently are underperforming.

With this fiscal boost we can afford these long-term changes and invest, for example, in greener technologies and in better health care. We should use the funding that comes out of the Government coffers in the next months to push for that.

This is an opportunity many governments around the world missed in 2008. They spent their taxpayers’ money on bailouts for big firms that hid their corrupt practices. We have an opportunity to spend this money more wisely, in ways that not only assist our fellow New Zealanders in their times of need, but also guarantee their future.

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