MPs and economists are calling for greater transparency on the use of welfare and business subsidies, as the Finance Minister outlines the economic challenge ahead for New Zealand.
The financial fallout from the coronavirus pandemic is set to be markedly worse for New Zealand than that from the global financial crisis, Finance Minister Grant Robertson has warned.
Appearing before Parliament’s epidemic response committee, Robertson and Treasury officials spoke about the Government’s fiscal response to the pandemic, including its wage subsidy scheme and longer-term plans for the economy.
While it was not possible to deliver accurate projections or forecasts at present given the level of uncertainty, Robertson said the unemployment rate would be in excess of the 6.7 percent under the GFC, with the final figure dependent on the success of the wage subsidy scheme and other elements of the fiscal response.
Treasury Secretary Caralee McLiesh said the lockdown and other measures would lead to a “very severe and negative contraction in the economy”.
While Treasury was still finalising its own forecasts, predictions from others of reductions in GDP of between 10 and 17 percent for the June quarter were “in the ballpark” of what officials were looking at, as was forecasts of an unemployment rate between 5 percent and “well into double digits”.
The Government’s financial package would have a significant cushioning impact on unemployment, although the exact level of mitigation was yet to be determined.
Robertson said the Government’s fiscal response was being driven by three principles: acting swiftly and with a “no regrets” approach while being prepared to shift later if needed, dealing with issues of cash flow and confidence for businesses, and working with financial institutions and business organisations to ensure a coordinated response.
A $500m boost for the health system was just the start of extra funding, and Parliament’s approval of up to $52 billion in spending by the Government would help it to deal with the challenges ahead, he said.
“It’s an envelope, it’s not a target to reach, but having that large sum of money available does mean we can respond quickly and push New Zealand through this to the extent that’s possible.”
Robertson said there had been 10,000 enquiries last week about the “mortgage holiday” scheme announced by the Government and trading banks, while a $600m support package for the aviation sector was helping to keep freight flowing from New Zealand and assist the exporters who were still operating.
Commerce and Consumer Affairs Minister Kris Faafoi was working on insolvency reforms, the details of which would be announced within days.
Pressed by National finance spokesman Paul Goldsmith on the lack of transparency about the numbers of New Zealanders accessing the wage subsidy scheme, benefits and other welfare services, Robertson said he agreed in principle that more data should be released, but government agencies were focused on getting money out the door to those who needed it.
In response to questions from National MPs and ACT leader David Seymour about whether new regulations not yet in force would be placed on hold, as the Reserve Bank had done with its bank capital requirements, Robertson said ministers were currently reviewing impending changes and whether or not they had to be postponed.
“In terms of things that are distracting in terms of regulatory change … we’re definitely mindful in terms of reducing that burden on people.”
However, he said the Government would not direct councils to hold off on any rates increases, saying it was for local authorities to decide but he was sure councils were “having a rethink” in light of the lockdown.
‘We are going to see many more businesses fail the longer the lockdown goes.”
Speaking before Robertson, economist and committee adviser Shamubeel Eaqub said the Government needed to think about the economic environment in three stages: the initial lockdown, the period of “purgatory” afterwards, and the new normal that was eventually established.
Eaqub said the sudden and non-linear halting of the economy due to the Covid-19 outbreak presented a unique challenge for governments and economists.
The Government’s wage subsidy scheme and other business support mechanisms had been largely welcomed, with cash flow critical to save as many companies and jobs as possible.
However, there needed to be clear criteria for the lockdown as the economic consequences of any extension would be non-linear, he said.
“We are going to see many more businesses fail the longer the lockdown goes, unless there are many more generous provisions.”
Eaqub expressed concern about reports of public service organisations pulling work from contractors, saying they needed to “lead by example” and boost jobs at a difficult time for the private sector.
He also urged consenting work to be ramped up, as shovel-ready projects had to be in place once the country came out of lockdown.
Even when the lockdown lifted, there would be enduring effects with a “cascading impact” on exporters and supply chains.
Monetary policy was “a spent force”, with fiscal policy now “the big game in town” for the first time since the 1950s.
However, Eaqub said the Government’s balance sheet alone could not support the recovery, with the private sector also able to help with potential changes to banking rules and business support.
Eaqub backed calls for greater releases of government data on jobless claims and demands for subsidies, saying a regular release would ensure the country was ready to respond to any emerging issues.