Focus Live: The Government has unveiled a $12.1 billion support package for the New Zealand economy.
COMMENT:
In the early days of the coronavirus outbreak, when a crisis seemed a long way away, the Government appeared flat-footed, telling anyone affected to speak to their bank or other authorities.
A log truck company owner told me she called IRD to ask what support was available, with the company's trucks and workforce idle, only to be told that perhaps she could consider breaking into her KiwiSaver account on hardship grounds.
Weeks later, Finance Minister Grant Robertson seemed fixated on a highly targeted response, pointing to feedback from employers that even across industries, some employers were seeing a major downturn, while elsewhere it was business as usual.
Finance Minister Grant Robertson has been working in earnest on a package to cushion the economy from the impacts of Covid-19. Photo / Mark Mitchell.
While some of that spending is spread out over years, ANZ said half of the money would be spent by the end of June.
In the last week, Robertson said, the threat posed became clearer and more severe, with a growing number of countries around the world closing their borders, including New Zealand.
"It became clear that targeting this at any one sector would be at best a short term exercise, and at worst, a fruitless one."
Covid-19 is already expected to hit New Zealand harder than the Global Financial Crisis.
According to Treasury, even with the stimulus package, the New Zealand economy is expected to shrink by around 1 per cent, without it, by around 3 per cent.
Robertson cautioned on Tuesday that the Government is not going to be able to save every job or every business. But the business package could give it a nudge.
Any employer, sole trader, or anyone self-employed, based anywhere in New Zealand, that can point to at least a 30 per cent decline in revenue, will be eligible for a major wage subsidy programme, of around $585 a week, for each full time employee, for 12 weeks.
New Zealand companies will be able to draw up to $150,000. This is a massive attempt to keep business going in a time of expected major disruption.
Over 12 weeks the scheme is expected to cost $5.1b.
There are changes to the tax system which will favour small businesses (raising the threshold for provisional tax) and commercial property owners, by reintroducing depreciation on buildings.
Leave entitlements are also covered, meaning businesses and workers will not suffer financially for electing to go into self-isolation.
Benefits and winter energy payments are being increased, measures which were likely to be included in the Budget.
But the big news for the economy is the nationwide subsidy, which Robertson estimated could be drawn on by half of all New Zealand businesses.
Finance Minister Grant Robertson has been working in earnest on a package to cushion the economy from the impacts of Covid-19. Photo / File
The scale of the subsidy shows how serious the problem is, as does the structure.
A website to apply for the money from the Ministry of Social Development could be operating today and payments - paid in lumps sums - could be paid out this week.
Why in lump sums? The bad news for businesses is that the disruption caused by Covid-19 may be around for a long time, and the Government cannot subsidise them forever.
Although Tuesday's announcement was the first of a likely series of announcements, wage subsidies on this scale simply cannot continue indefinitely.
As the disruption to supply chains, and trade overall, becomes clear, the response will have to as well.
Robertson conceded today that he did not know how long New Zealand's borders could be closed.
Even bank economists concede estimating the looming impact is still largely guesswork.
"None of us really know what's going to happen," BNZ head of research Stephen Toplis said. Asked if he thought the package was enough, Toplis said no, but nor did the Government.
"All this is about [is] making businesses and people survive until it all goes again, and my suspicion is it will last longer than anybody suspects," Toplis said.
The spending will not be enough to make the problems go away. Bad businesses will fail, as they may have anyway. Some good businesses will fail too, as happens.
But as a short term measure it is significant, and it certainly shows that the Government now knows how serious the situation is.
