New Zealand has the most stringent Covid-19 policy restrictions in the world, matched only by Israel and India, according to Oxford University's coronavirus government response tracker.

The current level 4 restrictions have brought the number of cases down, and I am delighted the Government acted quickly and strongly. But the newly announced level 3 conditions remain stringent, with ongoing border controls, limited domestic travel, and continued closures in many business sectors, including retail and hospitality.

Today, the Government will announce whether we will remain in level 4 lockdown for longer, or move to level 3. The obvious trade-off lies between the loss of economic opportunities and the preservation of life.


New Zealand boasts the lowest mortality rate (0.1 per cent, as of April 8) and ranks among the lowest on the number of confirmed cases per 100,000 people. The Government can be proud of these health outcomes, which are largely the result of stringent policy. In Italy, the reverse is the case.

From an economic point of view, the key difference is while many countries required workplaces to shut down, our Government went further; its closures during level 4 have extended to every non-essential business, leaving only supermarkets and pharmacies open.

This week, Treasury released a report with five different scenarios of economic impacts from Covid-19.

In one of the worst-case scenarios, in which we stay at level 4 lockdown for six months, followed by six months of level 3, Treasury forecast unemployment of about 26 per cent and a drop in GDP by 37 per cent. This would be unprecedented in our history.

In the most positive scenario, we would end the level 4 lockdown after one month, followed by another month of level 3 and 10 months at levels 2 and 1. In this case, Treasury estimates GDP would drop by about 5 per cent and unemployment would peak at about 8 per cent, but only because of the Government's $12 billion rescue package. This is still far worse than the recession after the 2008 global financial crisis, when our GDP declined by 2.2 per cent and unemployment peaked at 6.9 per cent.

The Government's unprecedented fiscal response will protect employment, but offers limited protection from a drop in GDP, because the Government is effectively paying workers to not work. This protects incomes, but because most aren't allowed to work, GDP drops more than employment.

We rightfully feel repulsed by the notion of putting a price tag on life. But every government uses estimates of a "value of statistical life" in designing its healthcare policies and decisions about which life-saving drugs to fund. If we assume value of statistical life of $5 million (similar to the estimates in this report for the NZ Fire Service Commission), a calculation suggests the policies in the tougher Treasury scenario would need to save at least 16,800 lives, statistically speaking, to have been worth it.

Having the most stringent policy stance has resulted in an enviable decline in new confirmed coronavirus cases here and prevented overloading the healthcare system.


But Treasury estimates if level 4 continued for a year, GDP would drop by 15 per cent compared to level 3 — around $45.5b per year.

I think a strong economic and humane case can be made to relax the rules to level 3 from Thursday. Level 3 restrictions are strict enough to protect lives, while also helping people recover their livelihoods.


Martin Berka is a professor of macro-economics, head of School of Economics and Finance at Massey University.

- The Conversation