Coronavirus: Please open the Crown's wallet now, we'll support you
Government decisions, on justifiable public health grounds, to severely restrict movement and significant parts of everyday life is already having a significant economic cost. It looks likely this will get much more severe in the next few weeks.
We are facing the sharpest and deepest recession in living memory.
To avoid an accelerating downward spiral, with the mass failure of previously healthy firms, large scale job losses, mortgage foreclosures and serious hardship, a massive economic package is required now. Bring out the bazooka.
The primary economic goal must be to reduce the number of business collapses, and thereby to sustain jobs and incomes.
We'd support an economic response that is bigger and faster than what has been delivered so far.
The Government announced a $12.1 billion economic package on Tuesday "to support New Zealanders and their jobs from the global impact of Covid-19". This equates to around 4 per cent of New Zealand's GDP (Gross Domestic Product).
The reality is, however, that only around half of that package can possibly be spent in the next two or three months. When we need it. That is around two per cent of GDP.
Much of package relates to spending on depreciation rates and benefits over the next four years, which maybe good ideas but are mostly irrelevant to the current challenges.
The primary source of urgent assistance is the $5.1b wage subsidy scheme. This we support. But the $150,000 cap for businesses, which translates to 21 full time staff, means that around half or more of New Zealand's workforce won't be covered the scheme.
While it's true that most businesses in New Zealand are small, the majority of workers currently work for the 5000 businesses that employ more than 50 people.
Just think of a large scale tourist bus operator with hundreds of employees. This business's revenues will have collapsed. A subsidy capped at 21 employees will be of little assistance.
Our strong view is that the government's immediate package of economic support - $6b at best – is far too light.
The $150,000 cap needs to be much higher, so that workers are covered no matter what the size of the business.
Urgent further consideration also needs to be given to the shape of the scheme. The Government's scheme pays the money with no guarantee people will be kept in employment – only 'best endeavours' are required. The British scheme, recently announced, is a more generous payment for employees kept on the payroll but sent home.
The costs of the British scheme will be eye-watering, but some variation of that will likely be the least worst option.
Monetary policy, meantime, is not yet doing anything like the hard work it did during the GFC. The Reserve Bank will need to do more.
There is no doubt that if further dramatic restrictions on movement and work follow, we will have to go even further.
Regulators, meantime, should move swiftly to sweep away any barriers to swift and substantial capital raising across the markets to get more capital into the hands of listed businesses, so they can get themselves through.
Working capital will be the greatest challenges facing most businesses. The banks are rightly the first port of call. A government backed line of credit to banks to on-lend to businesses in trouble is required now. I know the government and banks are working on this; I'd encourage them to fast-track their plans.
On the assumption that this disruption could run to months, we should also move urgently to start on useful transport and water infrastructure – work that definitely needs to be done against nice-to-haves. We should fast-track legislation to get the shovels on the ground.
We cannot possibly stop every job loss, nor avoid every business collapse. But we can, and we should, do more to save as many jobs as we can.
Remember this is an economic shock created by government responses to a virus. This is why successive governments have reduced debt when they could. This is what we've prepared for.
My plea to the government is to focus on the here and now, and move more rapidly to stabilise businesses as best we can to save jobs. The National Party stands ready to help in any way we can.
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