A briefing by former Prime Minister Sir Bill English gives a remarkably candid warning of the long-term problems New Zealand faces from Covid-19.
Former Prime Minister Sir Bill English appeared to deliver a warning to financial markets: if the stockmarket doesn't fall further the public will realise something is amiss and wealth or capital gains taxes could follow.
In late March, as it was first emerging that Finance Minister Grant Robertson was preparing to offer loans to private enterprise and markets globally were bouncing strongly off multi-year lows, English gave a presentation to Jarden, the wealth management firm where he has been a strategic adviser for around 18 months.
A summary - understood to have been drawn from a 90-minute presentation - was distributed to clients. It has been circulating in political and business circles since.
The document provides a candid glimpse into English's views on the behaviour of both financial markets and the likely environment within the Beehive as it deals with a public health crisis and prepares for the resulting economic fallout.
English reportedly said the market surge of the time, if correct, suggested the US Federal Reserve could control the turmoil of Covid-19.
"Anyone who believes that is naive," English said. The market was working out that the "out" usually provided by central banks had been extended to a taxpayer "put" - an arrangement to buy an asset for a pre-agreed price - "for now".
But the summary said where markets had repeatedly been bailed out in recent years by politicians or central bankers, this time it was different.
"This is not about financial markets; it is about the real world. It can't just be talked up. This is going to be a long haul as confidence is rebuilt. Currently all companies, regardless of whether they are financially strong or weak, are hoarding cash."
Even major companies were living in fear, confronted by a major drop in revenue, and were lobbying governments to try to influence decision making.
"If they are feeling that exposed, imagine what small business owners are feeling right now."
New Zealand, a small country at the end of the world, would eventually need to repair its balance sheet and "all forms of taxes will be on the table".
How the burden of the crisis impacted different groups would likely influence the response, but if markets shrugged off the major threat to the wider economy, a public response could be expected.
"If the equity market falls 30 per cent, coughs and then recovers, the Government would likely have no hesitation in pushing through a capital gains tax (CGT).
"An equity market that seems to shrug off such an enormous dislocation would attract broad consensus across the political spectrum that something is amiss, and a CGT is needed.
"We are meant to be a risk-adjusted market economy. If markets go on as normal something isn't right and the 'taxpayer put' is causing bad outcomes."
Since making his presentation, the NZX-50 and most major global markets have edged higher, despite increasing warnings about the impact of the disruption.
Independent economist Cameron Bagrie said it was likely that as New Zealand moved past the initial impact of Covid-19, all forms of revenue gathering would be on the table in a means to improve the state of the Government's books.
With more bad news likely in the coming months, Bagrie said sharemarkets could head lower. "My personal view is we haven't hit the bottom yet. Risk needs to be repriced. You look at every asset class. Housing, commercial property, equities. They're all hellishly expensive compared to the risk you're taking on board."
English declined to comment.
Jarden chief James Lee said English was just one of a number of experts the firm had been using to improve its thinking on Covid-19. The summary had been sent to clients in a form which was not designed for a wider audience.
A 'structural shift'
As the four-week nationwide lockdown has dragged on, the warnings of how large and lasting the impact of Covid-19 could get have been growing increasingly severe.
English pulled no punches about how much of a change in conditions New Zealand faced.
"New Zealand now has zero net migration, zero tourists, zero foreign students and zero inflow of temporary workers. These flows, which have been drivers of the labour market and the housing market, won't just turn on again," English said.
"Let that sink in. This could be a structural shift. Our economy is not going to fire up again at the flick of a switch."
While there have been few hard indicators of how the economy has been impacted by the pandemic, most economists expect a severe contraction in activity and a sharp rise in unemployment.
Tourism Industry Aotearoa chief executive Chris Roberts warned MPs on Wednesday that 100,000 jobs could be shed from the sector, while the freight industry warned of a growing fear that bills would not be paid.
Infometrics economist Brad Olsen warned the structural changes facing the economy would be huge.
"Some of the ways businesses usually operated, or the conditions we always assumed are going to be there are not going to continue.
"We're not going to have net migration in the same way we previously had. That's been a huge part of the New Zealand story over the past five years."
The search for solutions
English said making decisions in Wellington's "beltway" was difficult at any time, but especially now as the pressure for a quick solution to the problems mounted.
"The feedback loop from the lockdown, job losses and financial and social impacts will be very difficult for many people and it could get really tough for the politicians as people look for fast, effective solutions the Government can't deliver," English reportedly said.
"In six months, people will be wanting to see signs of a recovery in the real economy. People will not care about financial markets – it is the real economy that matters."
With the issue being about "economic survival", the Government may be forced to make decisions that did not necessarily sit naturally with its political beliefs to get the economy going.
English appeared to acknowledge that the scale of the challenge looming now was far worse than the GFC.
There was no precedent for what New Zealand was about to experience, English warned, but he pointed to a period when the deregulation of financial markets led to a period of severe disruption as farmers were put under severe financial strain.
"The closest I can think of, which hasn't really come up much, is the rural restructure over the late 1980s.
"It was an exceptionally painful time for the rural sector as the fabric of its economic underpinning was unwound."
Former United Future leader Peter Dunne, who served as a minister through much of the former National Government's nine years in office, said he was struck by the comparison to the pressures of the 1980s to rural New Zealand.
"That wasn't just a restructure of a sector in a mechanical sense. It was a change of lifestyle, a change of attitude and the whole way in which we did things and the impacts at a personal level were extraordinarily high and probably not properly accounted for."
Dunne said the Government would do well to consider English's comments when considering both the mental health impact of the lockdown, but also the trauma which could be caused by the resulting job and business losses.
Victoria University's Bryce Edwards said the English document was likely to be closely listened to in the business community, but he doubted the Government would struggle to make decisions required to rebuild the economy.
"I view the Government as being very pragmatic, ideologically. English paints them as maybe having to do some pro-business things that won't sit well with a Labour-led Government, but I don't really believe that Grant Robertson will have any issue in bringing in pro-business regulation cutting if that's what's demanded by business."