Broad support needed in recession

New Zealand is heading for recession. The extent to which we should be worried now depends on how the Government reacts — and how many billions of dollars it makes available to underpin its reaction.

There is little doubt many thousands of people have been saved from the potentially fast-paced spread of Covid-19 now that our borders have been effectively closed to large-scale tourism. We can now focus much more readily on controlling our local-level interactions while achieving some breathing room for the localised medical response.

But the border restrictions and the rapidly devolving state of global trade and financial markets mean New Zealanders have dual concerns: they certainly want to keep their loved ones healthy, but they also want to know how they might weather the potentially lengthy and far-reaching storm with their jobs and livelihoods intact.

Successive news reports ably demonstrate the significant fiscal hole we are in danger of falling into. Serious pundits warn the next year, at least, will be worse for the world economy than the 2008 global financial crisis.

There are myriad ways in which the local economy will suffer, and many of them will not be clear until we understand more about how world trade and commerce will be affected by a global crisis that seems to have no bounds, and no definite end date. It is clear, though, that nobody will be left untouched by its impacts.

Some of the most obvious immediate impacts are already being felt. Anyone reliant on the tourism dollar — attraction operators, hospitality businesses, accommodation providers, even food stops and supermarkets — has been feeling the pinch since late January, when early border restrictions forced the potential pool of Chinese visitors to dry up.

Now, the triple forces of the 14-day self-isolation period, wide-ranging border controls at foreign ports and Air New Zealand slashing its international carrying capacity by 85% — and 30% domestically — have effectively turned off the taps to the country’s biggest export earner. Events and conferences are being cancelled at a great rate of knots, removing the potential for domestic tourism to pick up the losses.

The money-go-round that helps drive our economy has lost a vital cog in its wheel, and is poised for a period of profound disruption and pain.

The Reserve Bank has cut the Official Cash Rate to 0.25% and delayed tougher requirements for bank capital, and the benefit stand-down periods for workers will be removed on March 23.

Prime Minister Jacinda Ardern expects today to announce some of the most significant measures she has as leader. A broad-based fiscal stimulus to support businesses and people directly hit by the slowdown is needed, and to a degree that provides confidence to the wider economy.

Many expect something rivalling the Provincial Growth Fund and the $12billion infrastructure spend-up and business leaders will assuredly want it to combine targeted assistance and tax relief to stave off massive job losses, especially in the almost immediately hit tourism industry, as well as broader stimulus.

As Australia launched its $17billion response, Finance Minister Grant Robertson last week said a wage subsidy scheme had been developed to be rolled out quickly and officials were developing a suite of macroeconomic measures, including tax and welfare changes, in case of a major global downturn.

At the time, he said a cash stimulus would be considered only as part of the longer-term plan if the situation worsened. That was before our borders were tightened, and before the United States lifted its drawbridges and exacerbated the panic sweeping the global economy.

Whatever comes today, it will not be the last word. Officials will also need to examine the potential economic and social impact of upcoming policy and regulations that made sense before the world seemed destined for recession.

Because that is where we are heading. Covid-19 will test us all, regardless of our health.

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