The ghost of Michael Joseph Savage

Prime Minister Jacinda Ardern has stamped her leadership on her Governments response to the coronavirus

It was there in her reply to  mostly negative attack on the package from Opposition Leader Simon Bridges.

“There are moments in our history where it’s not business as usual, where New Zealanders expect us to come together, when we need unity, not politics as usual,” she said.

“And today, Mr Bridges, is one of those days.

“And on this side of the House, that is what we’ll do.”

Despite Bridges’ complaints, the package has drawn widespread acknowledgement that it is at least a start down the right road to deal with what the Finance Minister said would be a three per cent drop in GDP in the current financial year if nothing was done.

Robertson said the package would mean that the drop in GDP for the 2020/21 fiscal year  might now be only one per cent.

Nevertheless he could not resist his own politicking.

“In New Zealand, we have been here before, with major economic and social crises,” he said.

“In my lifetime, we have seen Governments respond with austerity—an ideology that has done enormous damage to the fabric of our society.

“We have also seen other examples, such as the first Labour Government, who responded with investment, pragmatism, optimism, and kindness.

“It is from them that I take my lesson on how we recover and rebuild in a just, fair, and far-sighted manner.”

Perhaps what was really significant about that is that the first Labour Government’s response was not to a recession, but a depression.

It is only this week that the Government has admitted this is a recession but look between the lines yesterday and you can hear whispers of a fear that coronavirus will be something much bigger.

They were there in Ardern’s response to Bridges.

They were there in Robertson’s invocation of Michael Joseph Savage and 1935.

And NZ First Leader, Winston Peters, was even more direct.

“We can learn from how New Zealanders have responded to other great global disruptions – like Depression and War,” he said

“What got the country through those dark periods was a shared sense of self- sacrifice, a belief in ourselves, and community.

“Now, we draw upon those strengths again.”

The package itself needs to be placed alongside the moves announced yesterday by the Reserve Bank.

The Bank’s decision to postpone the requirements for increased capital for the trading banks has given them an additional $47 billion of headroom that can be extended as credit to their customers.

Reserve Bank Governor Adrian Orr said on Monday that was equivalent to one and a half years of regular usual credit growth.

The Government is relying on the banks to provide much of the finance to support businesses that are losing revenue as a consequence of the various coronavirus control measures.

Officials are meeting with banks to discuss the potential for future working capital support, including loan guarantees for businesses that face temporary credit constraints.

There will also be discussions about how best to help very large companies.

However, Robertson refused to comment on the future of Air New Zealand which remains in a trading halt as discussions continue between the company and the Government over a bailout.

But the most tangible immediate support for business will be $5.1 billion of wage subsidies for affected businesses in all sectors and regions.

The subsidy will be $585. a week for a fulltime worker and $350 for a part-time worker.

Businesses will have to show that they have had a 30 per cent decline in revenue for any month between January and June this year as a consequence of coronavirus.

The scheme requires employers to make their best efforts to retain employees on 80 per cent of their regular income for the period of the subsidy

“Depending on uptake, this package could inject up to five point one billion dollars into the New Zealand economy in the next two to three months,” said Robertson.

Workers along with sole traders and self-employed who are unable to work because they have been self-isolated because of the virus or who are sick or caring for dependents who are self-isolated or sick will be eligible for payments at the same rate as the wage subsidy scheme.

Robertson has costed this at $126 million, but obviously, that is a guess since no-one really knows how many people are going to end up in self-isolation.

There are other moves that will assist business:

• $100 million for worker re-deployment
• The provisional tax threshold lifts to $5000 from April 1. This is estimated to be worth $4 million because it will allow 95,000 businesses to defer tax payments.
• The depreciation allowance for commercial buildings will be reinstated, estimated to cost $2.1 billion.
• Interest will be waived on some late tax payments though businesses will have to convince IRD that they can’t pay because of coronavirus impacting on their business.
• Immediate deductions for assets up to $5000.

BusinessNZ were generally happy with the package. The Government had been talking about making the subsidies more targeted which would have increased compliance work. Aty the same time business might have liked to have seen some movement on GST, possibly a forgiving or deferment of business GST returns and payments.

National has been calling for a stop to raising the minimum wage which goes up $48 a week on April 1. Bridges wanted this included in yesterday’s package.

He claimed a Tauranga  tourism business with 40 employees had begun laying off its workers because of the rise. 

If so, they would be at least  $25 better off a week as a consequence of the package which is applying that amount as an increase to all benefits. There will also be adjustments to the working tax credit which will no longer require a minimum number of hours to be worked.

The benefit rise appears to be a Budget move which has been brought forward.

Superannuitants will also get a doubling of their winter energy payments.

The logic behind the increased benefit payments is that that money will go straight into the economy. Low-income people tend to spend every dollar they have. That is estimated to be $2.8 billion.

This whole package has been greeted with a chorus of approval.

Business NZ CEO Kirk Hope said the business continuity package announced by the Government would substantially help businesses keep operating through the period of the coronavirus outbreak.

He said the wage support and tax measures were well-focused on key areas of need.

The Auckland Employers and Manufacturers’ Association (EMA), CEO Brett O’Riely said their  members would be delighted to hear of the immediate relief offered in the package.

he said four per cent of GDP was  impressive and would significantly help with business confidence and cohesion in the short term.

“We’ve been engaged with officials providing input into this over the last few weeks and it looks like they’ve really been listening,” he said. 

ASB economist Nathan Penny said: “This package is a good start.  $12.1 billion or 4% of GDP is a significant boost to the economy. 

“For comparison, the Australian Government announced a $17.9 billion package last week for an economy many times larger than NZ. 

“This package will help take the edge of the economic impact of the virus outbreak.  

“However, the economic impact is going to be very sharp, and the package is unlikely to prevent a sharp economic contraction in the near term.”

Kiwibank said the package was “big, bold and beautiful in parts”“ But we still believe there’s a need for targeted term lending via bank channels,” their economics team said in a note.

“We’re in recession after all.”

The package is big — on a per capita basis it is $NZ 2,500 compared with $716.50 so far in Australia.

There was a second leg to the package which was a $500 million boost in health spending directed at Healthline, contact tracing and increasing intensive care capacity and equipment for hopsp[tials as well as $50 million for GPs and primary care.

But the Government is flying blind.

They don’t know how many cases will be confirmed within New Zealand

So far we have 12 (another three were confirmed yesterday) and all have been from people arriving in the country. We have not yet seen any community transfer which is where the virus is at its most virulent as it explodes exponentially through a community.

And that is the big question. Will the number of cases increase dramatically. If so, coupled with the travel restrictions, what it is a worst-case scenario for the New Zealand economy.

For the first time, Robertson, yesterday started to acknowledge that we had now reached his third (and worst case) scenario. This is for a pandemic which has a negative economic effect on New Zealand right through to the end of the year.

“When you see entire countries shutting down, which is what’s happening in the  northern hemisphere at the moment , and obviously when we took our border restriction extinctions into account, we’re clearly moving into what I called Scenario 3 in earlier times,” he said.

It is the potential for the impact to be across the country that led to Robertson abandoning an earlier idea of carefully targeting his measures to specific industries and regions.

“Obviously, we also got the advice from the Treasury about the impact of what it (the border restrictions)  would have on our economy and it became clear that targeting this to any one sector would be at best a short term exercise and at worst a fruitless one.”

Robertson is keen to add the $12 billion already allocated for infrastructure in that package announced at the end of January to the package announced yesterday to bring the Government’s total boost to the economy to $24.1 billion or eight per cent of GDP.

Bridges argued that we don’t yet see any of that stimulus. And he’s right; none of the projects has been started.

So is there a case for accelerating progress on them and at the same time re-purposing the provincial Growth Fun to allow it to fill holes in the regions left by all the other schemes announced yesterday.

“Yes and yes,” replied Robertson.

But, again, it was the Prime Minister, who summed up the mood of the day (at least among the Government parties) at Parliament yesterday.

‘There is huge uncertainty out there right now, but one thing I’m certain of: we are a nation that has been shaped because of our experiences, and they often have been tough, harsh, and unpredictable,” she said.

“That is when New Zealanders are at their best.

“That is when we rally: when we look after one another, when we care for the most vulnerable.

“So my final message is this to New Zealanders: be strong but be kind—we will be okay.”

Was that the ghost of Michael Joseph Savage?