Reserve Bank Governor Adrian Orr

Air New Zealand’s chair and chief executive met Transport Minister Phil Twyford late yesterday to talk about the situation facing the airline.

Twyford would not comment after the meeting, but it would seem reasonable to assume that the airline is looking for some sort of bailout.

In 2001 the –then Labour Finance Minister, Michael Cullen, had to spend $885 million to bail the airline out after it declared a loss of $1.4 billion mainly due to its failed ownership of Australia’s Ansett airline.

That money was eventually turned into shares, and the Government now holds 52 per cent of the airline.

The airline is in a much stronger position financially now than it was in 2001, but any bailout bill could still be substantial with the company suggesting yesterday it could shed a third of its staff because of the effective shut down of its long haul business.

The Air, New Zealand situation, was just one of a whole series of pieces of an economic jigsaw which appeared yesterday to set the scene for today;’s major economic announcement by Finance Minister, Grant Robertson.

POLITIK understands that the total package which will focus on health, business continuity, employment and possibly sick pay is likely to cost over $12 billion.

To underline the gravity of the announcement, it will be made as a Ministerial statement in Parliament itself at 2.00 p.m. this afternoon.

These are usually reserved for urgent and highly important Government moves.

A typical use was the day after the Christchurch earthquake when acting Prime Minister Bill English updated the House on the situation in the city.

But in recent years they have tended not to be used for major economic announcements.

Instead, these have taken place in the Beehive Theatrette as press conferences such as the 1987 ill-fated Labour Government response to the stock market crash of that year.

What is becoming clear is that the Government is preparing for a substantial economic shock.

Unemployment peaked five years after the 1987 crash in 1992 at 10.7 per cent and since then has more than halved; it is currently at 4.1 per cent.

If the impact of the epidemic, and particularly the travel restrictions, persists for some time then it is not inconceivable that the Government could see unemployment go back to the levels of the early 90s.

It was the decision to impose the travel restrictions that appears to have galvanised the Reserve Bank in its decision to drop the official Cash Rate from one per cent to an unprecedented point two five per cent.

Governor Adrian Orr told a press conference yesterday that the border closure decision “helped” the Bank’s decision to hold the Monetary Policy Committee meeting which agreed to the rate drop.

Deputy Governor Geoff Bascand provided a blunt assessment of the economic outlook.

“We do expect this to be a severe impact on the economy and on people and that’s the unfortunate circumstance that we in,” he said.

“We don’t have specific numbers, but we are saying that this is going to spill through some business failures and some unemployment.

“That that is what we’re trying to lean against and provide support to the economy for.

“The Government’s fiscal package is very much aimed at that. So, we can’t quantify it specifically, but we acknowledge that this will hurt a number of people in the New Zealand economy.

It is that fear that is driving the Government’s response.

“We are having to plan here for a new normal and trying to make sure that we give them the time to do that with the support package we provide,” said the Prime Minister at her weekly post-Cabinet press conference.

“It’s also about trying to give them time.

“And the reason we’re tailoring that package is because that means that we can try and give them the kind of support that will help them ride out the worst impacts of Covid 19.

“Our absolute focus has been making sure that we support those businesses who are already feeling the effects of Covid 19 and those who are forecast to feel the effects because essentially their businesses turned off overnight,”

Orr conceded that the country could be headed for recession. He said some scenarios considered by the Monetary Policy Committee had more than two negative quarters of growth – the classic definition of a recession.

The Prime Minister later in the day however was more forthright.

“The preliminary advice I have received from the Treasury this week is that the economic impact of the virus on New Zealand could be greater than the impact of the global financial crisis,” she said.

“The difference, of course, is that there is no existing playbook for the economic response here.

“Of course, at this point, we cannot be sure of the impact, but we can be sure it will be significant.”

Asked if that meant Treasury was forecasting a recession because the  GFC had led to one she said: “Obviously based on that advice that is a suggestion from Treasury, but I am going to leave that further discussion for the Minister of Finance who will be giving further information and the entire package tomorrow.”

Today’s announcement will haunt New Zealand politics for years to come. The record shows that it takes years for the unemployment rate to recover from a massive shock; the increased level of debt will constrain Government decision making for a decade, and there are questions being asked about whether some parts of the economy will ever get back to where they were before the virus struck.

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