The Government appears to be stepping up its response to the coronavirus, particularly its economic impact.
A poll conducted by a former Labour party pollster, John Utting, and published by Stuff last week found that only 47 per cent) of New Zealanders were satisfied with the Government’s handling of the coronavirus issue, while a third were dissatisfied (34 per cent) and 19 per cent were unsure.
Some sources suggest the Cabinet has been slow to appreciate the urgency that the crisis will demand.
But Finance Minister Grant Robertson issued a statement last night obviously intended to set the agenda for the week.
“Ministers are actively considering a range of options in response to the impact of COVID-19, and Cabinet will discuss these tomorrow,” Finance Minister Robertson said.
“We’re in regular contact with business, unions and affected industries about how COVID-19 is affecting cashflow.”
This “contact” includes the Bank economists who are now being regularly briefed by Treasury.
Bank CEOs will hold a long-planned meeting with Robertson this afternoon but what was intended to be a regular catchup is now likely to focus on the virus.
The challenge confronting the Government is that the coronavirus is precipitating both a demand and supply shock to the economy at the same time
A demand shock is relatively easily dealt with. The Government just pumps money into the economy to keep people purchasing.
National appeared to propose this yesterday with their finance spokesperson, Paul Goldsmith, calling for tax relief.
The Government is believed to be considering repeating what National did in 2016 during the Havelock North gastro outbreak and waiving interest on late and penalty payments for affected businesses.
But the broader picture is more complex because the virus is affecting different businesses in different ways.
Some, like tourism, the universities and logging, have lost their customers.
Others like some (but not all) manufacturers still have their customers but don’t have some critical inputs to continue working.
Down the track is the possibility that large numbers of people won’t be able to go to work because of self-isolation and the likelihood that will bring businesses to a halt.
“That means a tailor-made response is required. Industry representatives are telling us they are seeing different effects on different industries in different regions. A one-size-fits-all approach is not what is needed,” said Robertson.
“We’re taking the time now to work with industries to plan for how we kick-start activity again as we exit out the other side of COVID-19. What we do know is that this will pass.”
The Finance Minister will also deliver a speech on Thursday to the Wellington Chamber of Commerce Business Summit where further updates on the Government’s economic response will be provided.
The challenge facing Robertson was set out last Thursday in a note from the US-based Peterson Institute for International Economics which said that the usual tools of monetary policy are ill-suited to correct supply-side disruptions.
“No amount of rate-cutting by the Federal Reserve (and there isn’t room for much) is going to persuade local officials not to close schools; businesses not to cancel conferences or conventions, or manufacturers to reopen their plants when they are unable to source parts from suppliers that are shuttered.
“Even fiscal stimulus may not have much effect in the near term, for the same reasons: A little extra cash in the pocketbook won’t ease concerns about sending a child to school when the disease is spreading through the community, for example,” the author, David Wilcox, said.
Wilcox proposed a tax cut indexed to unemployment rates along with a cash grant to all taxpayers.
Harvard University’s Professor of Economics and Public Policy, Kenneth Rogoff, writing last week said policymakers and “altogether too many economic commentators fail to grasp how the supply component may make the next global recession unlike the last two.
“In contrast to recessions driven mainly by a demand shortfall, the challenge posed by a supply-side-driven downturn is that it can result in sharp declines in production and widespread bottlenecks.
“In that case, generalized shortages – something that some countries have not seen since the gas lines of the 1970s – could ultimately push inflation up, not down.”
He said that in that scenario, rising inflation could prop up interest rates and challenge both monetary and fiscal policymakers.
Britain’s “Sunday Times,” says that country’s equivalent of the Finance Minister, its Chancellor, Chancellor Rishi Sunak is expected to use his first budget on Wednesday to make statutory sick pay available from day one and provide loan guarantees for short-term disruption to supply chains and sales.
The Times said: “The Resolution Foundation think tank added that if the hit to the economy intensified, the Treasury should consider a temporary cut in VAT, as during the financial crisis.”
What emerges from the overseas commentary is that this is an economic crisis like no other.
The Government appears to recognize that and that it is going to require many micro-interventions according to the industry and the region to keep the economy ticking over.