The New Zealand government of Jacinda Arden has revealed a massive coronavirus assistance package that aims to support businesses and their employees through the looming downturn.
Up to 9 pm, last night 12 cases of the virus had been reported in NZ – it doesn’t sound much, but that was a 50% increase in a day. Two of yesterday’s cases were people who had just returned from the US.
The package is worth 4% of NZ GDP (around $NZ12 billion), or nearly four times the size of the Scott Morrison package from a week ago that was around 1.1% of Australian GDP.
About $NZ5 billion will go toward wage subsidies for businesses, $NZ2.8 billion toward income support, $NZ2.8 billion in business tax relief, and $NZ600 million toward the airline industry.
A package of equivalent size from the Morrison government would be worth around $A70 billion – vastly more than the $A17 billion announced a week ago tomorrow.
There will be no tax rises or job cuts to help pay for the massive spending plan – New Zealand will lift its market borrowings.
Seeing the government currently has a net debt level equivalent to about 20% of GDP, (which is much lower than many other countries) it had plenty of room to move and not damage its AA credit rating.
The move came five days after the Arden government cracked down on its borders, and a day after the Reserve Bank of New Zealand cut its key rate to a record low of 0.25% and said it was ready if needed to start a program of quantitative easing by buying NZ government bonds.
Much of the package will go to business as a wage subsidy designed to last at least 12 weeks.
The new spending will go to businesses that have lost more than 30% of their income as a result of the downturn. Other money will go toward health costs, income support, and the airline industry.
Finance Minister Grant Robertson told the NZ parliament yesterday that a recession in New Zealand is almost certain and would likely be more severe than the downturn after the 2008 global financial crisis.
“This will affect every part of our economy, now and for some time to come,” Robertson told the NZ Parliament yesterday. “We are going to see many New Zealanders lose their jobs, and some businesses fail. We will have an extended period of deficits and our debt as a country will have to substantially increase.”
New Zealand only eight confirmed cases of COVID-19, but many parts of the economy have already been hard it, especially the tourism industry, the country’s single largest earner of foreign income. Sports have also been hit, especially Rugby Union games (and cricket, NRL and soccer).
“We are a trading nation, with a huge amount of our income being derived from tourism,” Ms. Ardern said yesterday. “So this response acknowledges that right now, people are hurting, jobs are being affected, and we’re doing what we can to cushion that blow.”
The NZ government is in separate negotiations to help Air New Zealand the national carrier and 52% owned by the state. The airline already cut seats on international routes by 85% and on local routes by 30%.
Fears about the impact of the virus have sent the shares in the NZ exchange down 29% year to date and more than 15% in the past five trading sessions.
