New projections from Treasury show that the unemployment rate can be kept under 10 per cent if the Government comes to the table with extra financial support to help the country weather the fallout of Covid-19.
Without new support measures, however, the Treasury predicts the unemployment rate in New Zealand could reach as high as 13.5 per cent if the lockdown remains at four weeks.
If the lockdown were to be extended, that figure could reach between 17.5 and 26 per cent - Treasury's worst of seven economic scenarios.
The unemployment rate at 10 per cent would imply the number unemployed would be around 275,000 people.
New Zealand's unemployment rate is currently just over 4 per cent, or 111,000 people, however that figure is expected to increase significantly.
The economic modelling comes as New Zealand grapples with a "once in a century" public health shock, says Finance Minister Grant Robertson.
He said that under the scenario where New Zealand stays at alert level 4 for the planned four weeks, and the Government provides extra support to businesses, the unemployment rate can return to 5 per cent by 2021.
That extra support, according to Treasury, amounts to between an extra $20 billion and $40b in support – taking the Government's total Covid-19 spending to close to $45b and $65b in total, depending on the scenario.
"These should not be taken as any guide as to the Government's thinking or decision on changing alert levels," Robertson said in a statement this morning.
"That decision will be taken on April 20 as the Prime Minister has foreshadowed."
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But he said the economic scenarios released by Treasury today show the Government was right to adopt its "go hard and early" approach in the fight against Covid-19.
Robertson points out that due to New Zealand's underlying economic strength, the economy can bounce back to be $70b larger by 2024 than in 2019.
He is signalling that the Government has even more spending planned outside of the more than $25b it's already spent on the Covid-19 fight.
"The Budget is also another important part of the response, and it will include significant support to respond to and recover from Covid-19.
"As is usual with the Budget, there may well be pre-announcements, especially where they relate to urgent Covid-19 response activities," Robertson said.
He added that work was already "well advanced on further fiscal support" – in other words, more Government spending.
Tomorrow, Robertson will deliver an online speech to Business New Zealand setting out the next steps in the plan to cushion the impact of lockdown.
This will include further measures to assist businesses.
The Treasury scenarios also reveal the impact Covid-19 will have on gross domestic product.
Treasury Secretary Caralee McLiesh said annual average GDP growth could fall by as little as 0.5 per cent, or by as much as 23.5 per cent in the fiscal year ending June 30, 2021
"The best way to protect the economy is to fight this virus, which is why we've acted swiftly and decisively to stamp out Covid-19.
"This will give our businesses and the economy the best chance to get going again on the other side."
Robertson grilled by Epidemic Response Committee
Robertson told the Epidemic Response Committee this morning that Treasury's scenarios do not represent the normal forecasting, given the lack of data.
He said it shows why the Government was right to "go hard, and go early". But he said "generous Government investment" will be needed to keep unemployment under 10 per cent.
As of April 9, the wage subsidy scheme has paid out $8.9b to more than a million workers. No payments were paid over the weekend, Robertson said.
Robertson said he is in the process of looking at what happens next for businesses and what the Government can do to cushion the Covid-19 impact. "We will have more to say on that in the coming days."
McLiesh told the committee that even in the least restrictive scenarios, New Zealand would still spend at least 10 months in alert level 1 and 2.
She said the economic impact from Covid-19 will be the "deepest" economic contraction seen in a lifetime.
The Treasury advice suggests that staying in alert level 4 would lead to a 40 per cent drop in GDP.
But McLiesh warned that a lot of what happens to New Zealand's economy really depends on what happens overseas. If that outlook worsens, so too will the outlook for the New Zealand economy.
She said that New Zealand will return to the "pre-pandemic" levels of growth in 2024, based on current predictions.
Robertson confirmed that the Government will be able to make a decision about coming out of the lockdown, or extending it, this time next week.
"I believe we are getting a good amount of data," Robertson said
"We have got the information that will help us to make a reasoned decision on this," he said, in relation to coming out of level 4.
When it comes to levels 3 and 2, Robertson said he thinks of those levels as a period where "safe economic activity" can take place.
He said economic activity will be increased in level 3, he said.
Both of those levels will be able to allow for safe economy to occur, Robertson said.
"Level 4 is doing exactly what we wanted it to do for New Zealand."
He said the last thing the Government wants is to come out of level 4 and get into a situation where New Zealand has to "yo-yo" between levels.
He said that would create even more economic disruption.
Robertson pointed out that a lot of workers in the primary sector, such as farmers, are still working.
"We can create safe economic activity with physical distancing," Robertson said, answering questions about how the economy would look in level 3.
Level 3 and 2, Robertson said, would be all about maximising economic activity in a safe way.
He said the Government is looking into changes to the RMA to stimulate economic activity going forward.
But the Government would have to work alongside councils on that piece of work.
Robertson signalled there will be more spending on the healthcare sector.
Asked about further Government spending to cushion the impact of Covid-19, Robertson said the Government wants to have "wellbeing lenses".
Asked about the number of businesses which might go into receivership, Robertson said that was an "ongoing piece of work".
On media companies, he said the Government is working with the publications and companies.
But he said "the patient had pre-existing conditions", suggesting there were financial issues before Covid-19 hit.
He reiterated that the Government won't save every job and businesses, but it is doing its "level best".
"I'm pretty confident in our approach."
McLiesh said: "We need healthy people to have a healthy economy".
In an earlier interview with the Herald, Robertson appeared to confirm expectations that unemployment would rise into the double digits.
He said the true state of unemployment could be masked by a wage subsidy scheme which has seen the wages around half of New Zealand's workforce subsidised by the taxpayer, but would eventually come to an end.
"I think the low double digits is where we're going to be in the near-ish term," Robertson said of the unemployment rate.
"That, however, needs to be seen alongside the fact that 1.3 million New Zealanders are receiving the wage subsidy.
He also indicated the economy could shrink by more than 15 per cent were "in the ballpark of where we are".
Almost all economists are expecting New Zealand to go into recession – the question for many, however, is how long and how deep it would be.