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Holding off the COVID-19 recession – Expert Reaction

The government has extended a financial lifeline to businesses, employees, and contractors affected by coronavirus self-isolation.

The $12.1 billion package is worth 4% of GDP, making it the largest peacetime economic package seen in modern New Zealand. It contains $126 million for employers to offer paid self-isolation leave, a permanent $25 per week benefit increase, a doubling of the Winter Energy Payment for this year, $600 million for the aviation sector, as well as a $500 million boost for health services.

The SMC asked experts to comment on the package.

Professor Philippa Howden-Chapman, Co-Director, He Kainga Oranga/Housing and Health Research Programme; Director, New Zealand Centre for Sustainable Cities, University of Otago, Wellington, comments:

“The emphasis in the government’s unprecedented $12.1 billion economic package today, will be book-ended by a second instalment in the May Budget. Leaving behind the usual prescription of austerity, this is action of an entrepreneurial government.

“The government is using all available resources to explicitly focus on ameliorating the dramatic uncertainties of the impact of COVID-19 on the wellbeing of vulnerable people in the population – those on welfare benefits, older people, those running small businesses, those who are self-employed in the gig economy.

“The government has thought through the barriers facing the inevitable growth in people who will have to quarantine themselves. The wage subsidy scheme of $585 per week for the period is sensibly generous and the doubling of the Winter Fuel Payment will help them to keep warm. Part of the fiscal stimulus is to increase all benefits by $25, again sensible, as this money is targeted to those who need to spend for the basics.

“Commercial sectors of the economy have not been forgotten either – the aviation industry and the wider commercial sector have been handed tax breaks, such as the reintroduction of depreciation allowances in commercial buildings.

“However, the first priority was a major funding boost to the public health sector to delay person-to-person transmission in New Zealand as long as possible. This is a well-informed systems approach which rightly highlights that we are at a pivotal point and if we can widen testing of those with symptoms of COVID-19 we may be able to prevent the dreaded exponential rise in New-Zealand acquired cases.”

Conflict of interest statement: I am a director on the Board of Kāinga Ora- Homes and Communities. The views expressed here are my own and do not necessarily reflect the views of the Board of Kāinga Ora.

Associate Professor Bernard Walker, College of Business & Law, University of Canterbury, comments:

“This is a bold move from the government. Internationally, grants and subsidies after events like natural disasters don’t have great success rates, but NZ has broken that trend and learned how to make these work well.

“The support after the Canterbury and Kaikōura quakes saved companies and saved jobs. This latest plan continues that pattern. It’s prompt and looks like it will work on that same ‘high trust’ basis.”It gives business the chance to look at how they can adapt or innovate, and keep functioning until the situation resolves.

“This current plan seems to target businesses with up to about 250 full-time staff, and there’s a second part on the way for larger businesses.

“Apart from money, there’s a whole lot still to be worked out. After the quakes, business ‘hubs’ were vital for providing business advice and support, especially for small businesses. We’ll need to find ways to provide that, even if it is online.

“Our routines of work and school are a key part of keeping a sense of normality amid widespread disruption. The social connections in those places are also a core part of our social wellbeing. It’s going to be a real challenge for organisations to find ways of maintaining those elements, looking after physical and mental wellbeing.”

Conflict of interest statement: No conflict of interest.

Professor Michael Baker, Department of Public Health, University of Otago, Wellington, comments:

“The health package announced by the Government today adds to the strong New Zealand commitment to containment of this pandemic signalled in the weekend. That announcement on Saturday was about supporting the ‘keep it out’ component through tightening border controls. The announcement today was particularly about the second component, being the ‘stamp it out’ part. This includes resources for expanding testing and implementing Community Based Assessment Centres which will help to swiftly identify cases. There were also resources to increase public health capacity to support contact tracing which will help to identify these contacts so they can be quarantined, which is also a critical part of the ‘stamp it out’ activity.

“There was also support for scaling up public communications. These messages can support improvements in hygiene and other personal behaviour to reduce virus transmission. Communication will also be vital to support the social distancing measures which are critical during the containment stage. These measures range from working from home and cancelling mass gatherings, to the more disruptive interventions of school closures and stopping public transport.

“Other parts of the health package relate more to treating the huge surge of cases that will occur if containment fails. This includes resources for primary care and support for care in the home through to additional ICU and ventilator capacity and personal protective equipment for health care workers.

“This health package is comprehensive and timely. It should be welcomed by the entire health and public health sectors. We are at the first phase of what will be a long journey with this pandemic.”

No conflict of interest declared.

Professor Martin Berka, Head of School of Economics and Finance, Massey University, comments:

“This is certainly a welcome announcement to help New Zealand deal with what may well be a substantial recession.

“On the economic side, there are several specific steps, all of them positive. The COVID-19 leave and self-isolation support gives affected workers some basic income support.

“The wage subsidy scheme supports employment of most-affected firms with a subsidy of NZ$585 per week per full-time worker for up to 12 weeks. This should help in reducing job losses (but limits the total support to a maximum of about 21 full-time employees, or NZ$150,000 in total, with separate negotiations for larger companies).

“It is sensible to limit the government’s exposure and more generally shares costs of a temporary downturn with employers. I imagine the 12-week window will be reviewed and adjusted as necessary. There is also various targeted business tax support in the form of deductions, delays, etc.

“All of this is good in that it provides incentives to not shed too many jobs in an economic downturn. There is a risk that policies are too specific, though. The government could have been less prescriptive with its subsidies, and have instead followed the German approach of providing unlimited finance to companies to bridge them through the tough times. In the world of zero interest rates, this is a relatively cheap lifeline to offer – but with some additional risks.

“While I’m not an expert on health care, today’s announcement was relatively light on details about the NZ$500 million for new health spending. Cheques can be issued to people and businesses fairly quickly, but scaling up of the health care response is more difficult. Health facilities take time to build, testing facilities need to be imported, ventilators need to be shipped from overseas, plans take time to execute, and staff take time to recruit and train.

“So beyond this valuable effort to help the economy, I’d like to hear a lot more from the government on how it will really deliver on protecting the health care of New Zealanders in a major global health pandemic.”

No conflict of interest declared.

NB: Martin’s comments were originally published on The Conversation.

Professor Frank Scrimgeour, Head of School of Accounting, Finance and Economics, University of Waikato, comments:

“The announcement today is welcome and appropriate. It is a helpful step and complementary to the action of the Reserve Bank. It is a valuable contribution to sustaining employment and business activity.

“It is imperative that the Government processes are implemented in a timely way to ensure the cash moves. Implementing the business support will be frustrating for both Government and businesses. The challenge now is to ensure that Government and local and regional policy decisions align with these monetary and fiscal decisions.

“The Government also needs to address the challenges that remain in the public sector. The education sector for instance is under great stress and their continued functioning is good for the local economy but if they end up with financially stressed institutions we create problems down the track. The Government in aggregate has a strong balance sheet but many state sector organisations do not have balance sheets that can sustain prolonged periods of low cash flows.

“Further, it is essential that the next steps are defined in such a way that they do not lock in unsustainable decisions. In the short run we need to sustain employment and firms but in the long run some jobs and firms will not have a future and there transition needs to be facilitated.

“Hence, all eyes will start to focus on the upcoming budget. How it will address the inevitable gaps not covered and how it will address the adjustment out the other side of the disease crisis whenever that is. So far the imperative has been Government spending. The next stage will be to address the quality of that spend.”

Conflict of interest statement: I have not worked for the Government or any other party in relation to the development of policies and expenditures announced by the Government on 17 March 2020.

Michael Fletcher, Senior Research Fellow, Institute for Governance and Policy Studies, Victoria University of Wellington, comments:

“Overall, this is an impressive package. It’s substantial, meets the most urgent needs, and is mostly well targeted.

“Perhaps the most significant change is that all main government benefits will increase by NZ$25 per week, starting straight away from April 1. This change is permanent. Although we know from the recent report by the Welfare Experts Advisory Group that this in itself is not going to be enough to lift many beneficiaries out of poverty, it is a significant increase and will make a lasting difference to a lot of people.

“The extra money they receive will also flow directly back into the economy helping to stimulate demand.

“The next important change is that working families who are not receiving a main benefit will no longer have to satisfy the hours test to receive the in-work tax credit. That avoids the situation where a family’s work hours get cut back and, as a result, they no longer qualify for the NZ$72 in-work tax credit. It would have been better to also give beneficiary families the in-work tax credit, but at least this is a step in the right direction.

“The wage subsidy scheme will also be significant in reducing the number of workers laid off because of the downturn. The NZ$585 per week for full-time staff, and NZ$350 for part timers, is likely to be large enough to mean that many affected employers will be able to keep workers employed at least over the next three months.”

No conflict of interest declared.

Note: Michael’s comments were originally published on The Conversation.