The Minister of Finance says that we are facing the worst of any of the scenarios that they had been preparing for.
In response the government’s rescue package is bigger than anything I have ever seen.
Here are the headlines of it. From the Spinoff:
$5.1bn for wage subsidies, available immediately to businesses able to show a 30% decline in revenue compared with the same time last year. For those eligible, employers to be paid $585.80 per week for full time staff, and $350 for part time, capped at $150,000 per business.
$2.8bn income support for most vulnerable New Zealanders, including a permanent $25/week increase for all main benefits and a doubling of the Winter Energy Payment for 2020 to $1400, from April 1. The benefit shift is estimated to affect 350,000 families; the WEP change, 850,000 recipients.
$2.8bn in changes to business tax to free up cashflow, including a provisional tax threshold lift from $2,500 to $5,000, the reinstatement of building depreciation and waiving interest on some late payment of tax.
$126m in COVID-19 leave and self-isolation support. For those unable to work because they are in self-isolation, sick with COVID-19 or caring for dependents in either of these situations. Again, $585.80 per week for full time staff, and $350 for part time.
$100m for redeployment. To support worker redeployment programmes.
$600m aviation support package (Air NZ will be on top of this).
There will be separate support available “for large or complex businesses”.
Yesterday, in concert with many other central banks worldwide, the New Zealand Reserve Bank has slashed its interest rate to banks to .25% for the next 12 months. They were generating soothing noises.
Any hopes that this global pandemic impact would be a one-quarter wonder are gone and there is no V-shaped recovery assumption. We appear to be heading for a world wide recession.
We have to go a fair way back in our political and economic history to a shock that the New Zealand government sought to address head on with this scale of plan. It was the oil shock.
In the climate of the 1978 second oil shock, naturally enough energy policy was the obsession of the Prime Minister and Minister of Finance. A set of capital and energy intensive projects were developed by the state and by large New Zealand or foreign corporations with state support, which were collectively known as Think Big.
In response to the first oil shock, the Labour government had established the Energy Research and Development Committee, and in 1977 Muldoon created a new integrated Ministry of Energy. The Minister from the end of 1978 was Bill Birch, who has been described as “a doer who once he has made his mind up on a course of action pursued it with a missionary zeal, never faltering, and relentlessly getting things done as quickly as possible.”
The government also continued to regulate the price of petrol over the decade. They also reduced the top speed limit from 100km/h to 80km/h to increase petroleum use efficiency.
That scale of both capital and operational spending responding to the oil crisis of the late 1970s is what we face through the government announcements today.
With the Provincial Growth Fund unused portion now reallocated to the bailout, the old form of “intervention” through loans and investments has ceased and the new form of wrapping everything they can find around a rapidly weakening economy has commenced.
As I noted in a previous post, the Auckland part of New Zealand’s three-legged stool now has to work to kick us all out of this in 2021. As the food sector pulls out of drought, the tourism sector and the interrelated hospitality sector may possibly never fully recover and will certainly be re-shaped. It will be the events planned for 2021 that will be used to re-boot this third of the economy, just as the Rugby World Cup successfully did after the GFC.
Many of us will feel the economic pain of this crisis. I would call on the handful of families who control the private wealth in New Zealand to do more than survive by supporting their own self interest. Beneficial corporations such as iwi entities should do the same.
This government has gone all-out to soften the impending economic impact of this crisis. They have acted on a scale comparable to one of the greatest crises we have ever faced. I support it.