Two separate contributions yesterday have now set the stage for what will be an intense political debate over whether New Zealand should exit the Level Four lockdown and if so what should replace it.
POLITIK understands that there are divisions within the Cabinet, principally between the New Zealand First Ministers and their Labour counterparts, over how far to relax the restraints on economic activity.
But at the same time, the Cabinet is under intense pressure from the health sector to maintain restrictions until it can show the virus has been eliminated.
Meanwhile economic pressures are piling up on the Government with NZME firing 200 workers yesterday and a major hotel chain ending 600 jobs.
However NZ First leader Winston Peters last week told Newstalk ZB’s Mike Hosking that health was an imperative, but it could not be at all costs.
“If it’s at all costs, we can’t afford to pay for it, we’ll be broke,” he said.
“We have to be rational, sane and keep our feet on the ground and keep a commonsense approach.”
Peters would have found some justification for his comments from a series of Treasury scenarios published yesterday which showed what would happen to the economy under certain conditions.
The optimistic scenario assumed that the country held at Level 4 for a month; then Level 3 for another month and down through Levels 1 and 2 for the next ten months. In other words that some form of restriction lasted till March next year.
The borders would be closed to foreign visitors for up to 12 months. World annual average real GDP growth is assumed to be six per cent lower than that forecast in the Half Yearly Economic and Fiscal Update for 2020.
In these circumstances, Treasury says services exports would fall to around one-third of their previous levels, a loss of around $16 billion over the year. GDP falls by around 25% in the June quarter, followed by a 20% rise in the September quarter as the lower Alert Levels enable a greater range of economic activities to resume.
Deactivation of the alert level system by the June 2021 quarter leads to a further pickup in activity as confidence improves and international visitors begin to return.
In the labour market, the unemployment rate rises sharply, to 13% in the June 2020 quarter before gradually easing as alert levels are lowered, and more activity occurs
The rise in unemployment is mitigated by existing fiscal support and slower labour supply growth, as both net migration inflows and labour force participation falls.
This is a best-case scenario, but it contains two fish-hooks.
The first is that no one is able to define exactly what economic activity will be permitted at Level 3.
Finance Minister Grant Robertson is set this Thursday to outline what he says will be the principles that will guide this.
“It will be a principles-based approach,” he told the Covid-19 Epidemic Response Committee yesterday.
“That’s what we’re working on right now.
Robertson said the goal in Level 4 had been to minimize interactions to prevent transmission of the virus.
“And so those decisions about things like the scale of online purchasing that was available were made with that in mind,” he said.
“That was tweaked in order for people to be able to buy particularly important goods for them to get through winter and so on.
“But obviously, what we’re trying to do, if we step down to level 3 and into level 2 is to create that safe economic activity.
“And clearly contactless provision of goods is a very good way of helping to protect those kinds of public health principles.”
Robertson said the Government wanted was a set of principles that could then be applied to particular industries, particular sectors, particular businesses.
“I think one of the things we’ve learned on the whole approach we’ve had under level 4 is what are essential businesses,” he said.
“We do need to be as clear and precise as we can be.
“And so while the basis of the decision is a principles-based approach, I know that individual firms will want as much guidance as possible about how this applies to this sector and their business. “
But POLITIK understands that though much of this work is being done within the Ministry of Business, Innovation and Employment, the ultimate advice is coming from the Ministry of Health.
It is their dominant role that is believed to be one of the sources of tension within the Cabinet.
And the pressures from the health sector are not to relax the restrictions.
The former Otago epidemiologist, Sir David Skegg told the committee yesterday that he was worried about Cabinet making a decision next Monday to move out of Level 4.
He asked whether an expanded and improved system for contact tracing with the capacity to deal rapidly with emerging clusters of cases would be in place by next Monday.
And he argued that what was needed was what he called “sentinel” studies.
“Sentinel surveillance really means the carefully planned collection of data about the occurrence of a disease, in particular groups of people, especially those who may be at higher risk,” he said.
“That’s why we call them sentinel groups because they give us an early warning of what’s going to happen to the whole community if we don’t bring the thing under control.”
Sir David said the Director-General of Health, Dr Ashley Bloomfield, confirmed at his Monday press conference that no such studies had yet been carried out.
“And secondly, will, sentinel surveillance studies be, carried out, completed and reported this week so that we have a better idea of community spread,” he said.
“If the answer to those questions is no, I would submit that we’re asking the Cabinet to play Russian roulette with the health of New Zealanders.
“I’m concerned that the public health authorities have not yet completed the tasks that are needed to ensure that we are on a path to elimination,”
Skegg said that a lockdown on its own would not achieve elimination.
“It’s like pressing the pause button on your device,” he said.
“It can’t possibly achieve elimination without other measures.
“This virus must still be circulating today in New Zealand among the many essential workers and others who are leaving their bubbles every day.
“And of course, as soon as the lockdown is lifted, the epidemic will take off again unless we have the other measures in place.
“Those other measures are widespread testing. And I think we’ve made a lot of progress in that area, but also effective systems for very rapid tracing of contacts. And I’m not confident that we’ve achieved that yet.”
The worry is that if we move out of Level 4 to Level 3, there might be a new explosion of cases and we would have to return to Level 4.
Treasury looked at an alternative where we stayed in Level 4 for three months and then spent the next nine months at levels one or two.
This would see unemployment rise to 18 per cent in the June 2020 quarter — that would be nearly double what it got to in 1992.
And then they looked at a worst-case scenario where a total of six months was spent at level 4 and six months at level 3 over the course of the next 12 months.
Treasury said the scenario limited the ability of the economy to recover in the September quarter and enabled only a partial recovery in the following two quarters.
“Consequently, the additional loss in output is very large,” its paper said.
“Compared to the 2019 Half Yearly Economic and Fiscal Update real GDP in the year to March 2021 is estimated to be approximately 35% lower, with the difference over the entire forecast period around 14%.
“The unemployment rate rises to a peak of around 25% by the end of 2020, before easing slightly in the June 2021 quarter when restrictions on activity are removed.”
The Unitec economic historian, Keith Rankin, has estimated that in 1933 the Great Depression unemployment peaked at 25 per cent.
In other words, the scenario would have New Zealand plunged back to one of the darkest eras of its history.
That is the dilemma facing the Government.
Does it relax to level 3 now only for the virus to return, forcing a retreat back to level four?
How much longer can the country, stand living under the Level 4 lockdown measures?
As each day passes, we get closer to the election and the political stakes rise. These are the key dates that now apply:
|April-22||End of current Level 4 lockdown|
|Possible start of 4 week Level 3 lockdown|
|May-20||Possible end of Level 3 lockdown|
|Possible start of level 2 lockdown|
|June-26||Wage subsidy runs out|
|June-30||At least 13.5% unemployment|
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