Regardless of how well or badly you think the Government has executed the lockdown process to date, the focus must now be on limiting the level of economic damage that has been done, and for this we need much greater urgency, flexibility and pragmatism.
While, right now, New Zealand and Australia have almost identical Covid-19 health outcomes per capita, the economic damage in NZ has been much worse than is occurring in Australia.
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Our annualised GDP is forecast to fall by about 13 per cent vs 5 per cent in Australia and our unemployment levels to be close to 15 per cent vs Australia's 10 per cent or so.
Australia has had a more pragmatic approach to lockdown, allowing businesses that could operate safely to do so.
Nobody is advocating engaging in any unsafe practices in NZ, but every day that goes by with unnecessarily strict rules, which have no beneficial effect, will result in more job losses and a greater level of national debt that will ultimately need to be repaid by our children.
The process of coming out of level 4 was slow, with the Government meeting on a Monday, then pushing out the transition by a full week to allow for an additional long weekend. What are some practical steps the Government can take to make sure NZ comes out of this sad period in the best possible shape? Some ideas:
• Bring forward the Cabinet meeting from Monday, May 11 to Friday, May 8 so that if a decision is made to move to level 2, then businesses can do this from Monday the 11th. By the time Cabinet meets on the Monday and announces its decision, we will be lucky to have businesses open by the Thursday, losing almost another week.
• Give everyone some transparency for the basis on which the decision will be made on moving from level 3 to level 2. We really have no idea.
• Explain right now what the rules will be under level 2, as by necessity these will be complex and we need to start planning now. The education sector in particular, critical for getting many parents back to work, struggled with the shift to level 3 and needs to plan for level 2 now.
• It is a pity that ideological views prevent the Government from reversing the 8 per cent increase in the minimum wage on April 1. Due to relativity issues, this pushed wage structures up across the scale. In this environment the increase is madness and should be reversed, or it will result in tens of thousands of additional job losses. The last thing businesses can handle is having their cost base go up so significantly. It is far better for the individual and the economy to have someone employed in a low paying job, than no job at all.
• Immediately review all ineffective government expenditure. Ours is a small and open economy, subject to the occasional natural disaster or economic shock, so we need prudent debt levels. Our debt-to-GDP ratio is likely to blow out from 20 per cent to around 50 per cent as a result of this crisis and we need to get it back down. Immediate savings that could be made are the $3 billion NZ First slush fund and the ineffective free tertiary education scheme.
• The Government should not try to pick winners and support some sectors over others. Let the market sort this out, but the Government needs to provide the right economic framework.
• Provide clarity around rent relief, an area which is a shambles. Rent is typically the second largest cost for many businesses. The Australian Government produced a policy, which has been widely adopted, weeks ago.
• Get far more urgency into tracking, tracing and testing regimes which have been so slow to ramp up.
• At some point we need a radical overhaul of the Wellington bureaucracy which seems to hamstring our economy. For instance, for a country of only 5 million people, we seem to have a ridiculously complicated healthcare system with more regional health boards than you can shake a stick at. Likewise, our statistical data is hopelessly out of date and often meaningless. For example, we take months to produce GDP figures compared to just weeks in larger economies like the US or China.
New Zealand is very fortunate in that we have had a series of very capable, intelligent and eloquent people performing the roles of Prime Minister and Finance Minister over the last 20 years.
The struggle our political leadership has right now is a lack of real-world experience and an inability to push fast against a very slow-moving bureaucracy. We need far more urgency from Wellington.
- Paul Glass is the executive chairman of Devon Funds Management.