Back in the dark autumn of 2020, when the prospect of Covid was freaking the country out, Finance Minister Grant Robertson set himself and Treasury a series of questions about what a post-Covid economy might look like.
Those were fearful days, and the questions in part reflected a series of economic scenarios Treasury had prepared for the impact Covid might have on the economy.
Most notably, in a worst-case scenario, they projected unemployment to possibly rise to 17.5 per cent, assuming there was no fiscal response from the Government.
But the questions were also those you would expect from a Labour Finance Minister and the answers and conclusions that have been reached are going to go a long way to define the kind of economic policies Robertson will present to the electorate this year.
The Treasury forecasts provoked an immediate response; the massive $61.6 billion Covid Response and Recovery Fund supplemented by another $55 billion from the Reserve Bank with its Large Scale Asset Programme and another $26 billion in low-interest loans to banks.
The total funding, over three years, got to nearly 50 per cent of New Zealand’s annual GDP.
Now comes the hangover; most notably inflation.
Somewhere along the line, as Covid and lockdowns defined the economy and the 2020 election campaign defined the politics, the questions got put to one side.
“’I think it is really interesting to go back and remember where we were in terms of our headspace as a country in April 2020,” Robertson told POLITIK.
“And one of the things that clearly occurred was that it wasn’t as bad as we expected.
“The New Zealand economy was more resilient.
“We didn’t know how long we were going to be shutting things down for.”
He outlined the questions to a Business New Zealand audience in April 2020.
“We have formed a core Ministerial Oversight Group for this work with the Prime Minister, the Deputy Prime Minister, myself and Minister Parker,” he said.
“We will soon be reaching out to both Ministerial colleagues but also the private sector, unions and more to have input into this work.
“We must answer the big questions about our economy in these unprecedented times; what should we make and do here in New Zealand to ensure our sustainability; what institutions do we need to support our economy; what is the role of the State; how do we trade with the rest of the world in this new environment; and how will the financial system, both here and globally, cope?”
But the urgency that prompted the speech diminished quickly as Covid unfolded.
“Within a month of the speech, we were back to level two, and so a lot of the challenges, and in some senses, the opportunities didn’t quite materialise in that way.
“And so that means that a number of the things that I talked about went on to slower timetables.”
But now, with Covid an unpleasant memory and the Government talking about reinventing itself, it’s worthwhile going back to the questions.
One, the question about trade more or less answered itself as free trade agreements were completed with Britain and the European Union, and it became clear that short of opening New Zealand up to virtually unlimited Indian immigration, there would be no deal possible there, and any hopes of a Free Trade Agreement with the USA had long since gone.
The question about what we should make and do in New Zealand gained a new relevance as international borders closed, and New Zealand became an isolated island.
“This is a piece of work that involves in MFAT, Treasury, and a wide range of agencies asking the question it might be a pandemic, it might be something else, but what is what does resilience look like in the New Zealand economy?” Robertson told POLITIK.
“The sort of base starting point is we can feed ourselves because we have enormous food production in New Zealand, but what else do we need?
“And I made the joke comment a few times that thank goodness we made toilet paper in New Zealand, given what happened to COVID and everybody going nuts about it.
So we have been doing work about where that resilience sits, and by and large, we’re okay.
“But there are some things we want to make sure we’ve got capability on.”
Covid focused attention on the Government and its role in the economy.
Not only was much of the $55 billion Covid response and recovery fund directed towards wage subsidy and business assistance programmes, but more subtly, the Government began to be seen as being on business’s side.
“I asked, what institutions do we need to support our economy?” Robertson said.
“I think that what I was really getting at was structurally, were we in the right place for things like the Reserve Bank’s role?
“I think one of the things that’s happened there that was that a bit more work has gone on with the Commerce Commission, so you would have seen that the Commission has upped its profile over the course of the last year or so, particularly looking at, supermarkets, fuel and building supplies.
“So one of the things we did and budgets that followed on from this was we strengthened the Commerce Commission to try and make sure that we were trying to get to some of the causes of where inflation pressures might lie.”
But perhaps more importantly, and a revealing insight into the Government’s economic priorities comes with Robertson’s declaration that the emissions reduction plan not only put the state at its centre but was guiding a lot of what the Government did now.
“And so when we think about what we invest in now, what we do as a government that stands out to me is as a product of this.”
And then, he points to the Industry Transformation Plans.
Industry Transformation Plans are created in partnership by business, workers, Māori, and Government, setting a long-term vision for transformative change and identifying near-term actions that will shift the sector toward realising it.
So far, eight are being developed, ranging from new industries like digi and agri tech to economic mainstays like forestry and tourism.
The plans have their origin in Robertson’s “Future of Work” paper, which he launched in Opposition in 2016.
At their heart is workforce planning which now even National has acknowledged by creating a spokesperson’s role for it.
But, of course, the post-Covid period has already underlined skill shortages in the economy.
“A big part of that is skills and making sure that they have the workforces they need and being more targeted in how we use the training programs for the new people coming in and polytechnic programs, but also all of the skill development programs being much more agile and active and strategic in what we invest in terms of skills,” he said.
“And that’s come out of almost every one of those industry transformation plans.
“Immigration policy relates to that as well.”
Robertson also links the science and innovation reforms, which are currently being overseen by Ayesha Verrall, as an important part of the industry planning process.
And then the question becomes how does business get the cash to join the whole process together.
“Right; so you’ve got the skills, you got the R&D, and then the other one is the attraction of capital to these sectors.
“And how do we make sure that we are getting the resources and money they need?
“The state’s role there is more enabling probably than direct, but it’s still there.”
Maybe it wouldn’t have taken Covid for this kind of policy prescription; strong institutions and workforce planning and research and development with the state standing in the background to help things along.
But Robertson believes the Government’s performance during Covid brought a new legitimacy to its role in the economy.
He says the kinds of conversations he has with business about the role of the state are now very different to what he had when he was in Opposition.
“I think the private sector looks more towards the government to partner now than it ever has before,’ he said.
That doesn’t mean the relationship is all that comfortable; it would seem support from business for Robertson’s social insurance proposals is dropping away.
Whether that could be solved by dropping the proposal embracing sick leave as well as redundancy might now be a live question as the policy reset begins.
Robertson is also keen to point out that the proposal is still some way off from becoming a reality.
“One of the things that became very clear to me as I talked about it was a lack of understanding of the timing of the introduction.
“ I think this is one of the issues we had.
“Sometimes, if we’re talking about something, there is an automatic assumption that it must be happening tomorrow when in actual fact, this was always some way off and certainly not now in the midst of a cost of living crisis.
“But there’s a communications issue, I guess, that we have to pick up.”
That cost of living crisis, which is partly a product of the Covid response, is going to define much of the country’s politics this year, and Robertson will be central to that campaign.
“The core message from me is this is going to be a tricky year,” he said.
“It is one where it’s at the moment, if you look at the forecasts, is bookended by two different parts of the economic cycle, the bit where inflation is higher than everyone wants and you have to pull in the reins and the bit of the economic cycle where you start to see the slow slowdown, and you’ve got people affected by a recession.
“That requires us to be nimble.
“If you think about it, you know, all the metaphors are around brakes and accelerators, and you know, I think there’s plenty of resilience in the economy. And actually we should bounce back out of the shallow recession pretty quickly.
“But some of it depends on our trading partners.
“So yeah, it’s going to be an interesting year.
“But from the political message is that we are the people with the experience to get through this.
“ In the five years I’ve been finance minister, I’ve made sure that we reduce debt; I have made sure that we got real surpluses, but we then had to spend our way through Covid, and now I feel like I’m somebody who can adjust to the circumstances around me.
“And so I think the political message has got to be we’re going to need a steady hand to get through this.”
As far as Robertson is concerned, that is the legacy of Covid.
