Government and National may cooperate on Covid-19 economic response

Much of what makes the news from Parliament is combative, controversial or the worst of MP behaviour. Here’s an example of how speeches (by Grant Robertson and Paul Goldsmith) can be reasoned and reasonable, with offers of cooperation between the Government and the National opposition.

It’s good to see and important that they actually follow through with their cooperation on dealing with Covid-19.

MINISTERIAL STATEMENTS

COVID-19—Government’s Response to Economic Effects

Hon GRANT ROBERTSON (Minister of Finance):

I wish to make a ministerial statement on the Government’s response to the economic effects of COVID-19. While there is much uncertainty about the COVID-19 outbreak, it is clear that it is going to impact the world economy, and therefore New Zealand’s economy, for much of 2020. As we know from events like the global financial crisis, New Zealand is not immune to economic shocks that occur offshore and that are beyond our control, but what we can do, alongside our public health response, is to support confidence with a plan to address domestic economic impacts.

Our first responsibility as a Government is the health and wellbeing of our citizens; that is why our response continues to be led by our public health response. This strong public health response will also ultimately be critical to ensuring our economy and our people come through this outbreak in good shape. We have committed to providing the necessary resources to support our health system to protect New Zealanders’ health and wellbeing.

From an economic perspective, the Government has already made a number of immediate interventions, including support for the tourism and seafood industries, funding to increase regional business support programmes, and directing Government departments to pay businesses faster to support cash flow. Inland Revenue and the Ministry of Social Development (MSD) are supporting businesses and workers on issues like provisional tax readjustments, late payment and filing fees, wage instalment plans, and income support.

MSD’s rapid response teams are in place in regions like Tai Rāwhiti, and we have removed the stand-down period. I met yesterday with the chief executives of New Zealand’s major banks, who told me that they are well-prepared, both in terms of their own operations and in their ability to work with their customers, to get through this. The options they highlighted for customers are reducing or suspending principal payments on loans and temporarily moving to interest-only repayments, helping with restructuring business loans, consolidating loans to help make repayments more manageable, providing access to short-term funding, and referring individual customers to budgeting services. I strongly encourage businesses and banks to talk now and make a plan to get through this challenging situation.

Yesterday, the Government signalled its further steps as the impacts spread across the economy. Decisions on these measures need to balance the risks of poorly targeted spending and moving in time to support affected firms and individuals when they need it. Our business continuity package includes a targeted wage subsidy scheme for workers in the most adversely affected sectors, training and redeployment options for affected employees, and working with banks on the potential for future working capital support for companies that face temporary credit constraints. We will not be able to provide a wage subsidy for all affected firms during the duration of COVID-19. It will have to be temporary. It will also have to be tailor-made. We want to target the subsidies to those who are most affected and least able to adjust. Further details of this package will be announced next week.

These initiatives do not stop us from providing other forms of assistance to people and firms, but they are a sensible place to begin. We have also directed officials to develop longer-term macroeconomic measures that may be required to support the economy, businesses, and workers if there is a major, sustained global downturn. I reiterate that while we are planning for that situation, we are not predicting it, but planning for it is the responsible thing to do.

I want to be clear that this situation is very different to other challenges the New Zealand economy has faced in the past decade. The Canterbury and Kaikōura earthquakes were events that impacted defined areas, where it was clear which businesses were affected, why, and how. With COVID-19, which is an evolving, global health crisis, we are seeing different businesses in the same industries and in the same regions impacted differently. That is why a tailor-made response is required.

The global financial crisis was caused by the concerns about what financial institutions like banks were experiencing, but that’s not what is happening here. We have a very sound and stable banking system and a sound underlying economy. We have been running surpluses. Our net debt position, at 19.5 percent of GDP, is well below what we inherited and well below other countries. We are already ahead of the curve with the $12 billion New Zealand Upgrade Programme, which is supporting the economy.

This is a global problem that New Zealand is well positioned to deal with, and because this Government has the interests of all New Zealanders at heart, if we all work together—Government, businesses, and workers—we will get through this.

Hon PAUL GOLDSMITH (National):

Video “available shortly”

Thank you, Mr Speaker. The National Party shares the Government’s concern about the economic consequences of the COVID-19 outbreak. Already, these have been significant for the businesses affected. People have lost their jobs, they’ve had their hours reduced, they’ve lost income, and they’ve closed their restaurants without knowing when they’ll open again. Some struggling businesses will fall over, and there’s no longer a sense that the impact will be short and sharp, but only a question of how damaging it will be, and we have seen today that the latest business confidence figures are at their lowest levels since 2009.

We support the initiatives announced so far. We support the tourism and seafood industries, and faster payments from Government departments. We support the efforts of IRD and the Ministry of Social Development to help with provisional tax adjustments and late payments, we agree that businesses in distress should be talking with their banks, and we acknowledge that the Government is putting together its business continuity package, including a targeted wage subsidy scheme for workers in the most adversely affected areas and industries. We were disappointed that the details weren’t available yesterday. This has been going on for several weeks now, and it’s our belief more urgency is required. Yes, it’s complicated, and, yes, the boundaries have to be clearly defined, but we worry that the window to save jobs may be beginning to close.

We also ask the Government to reconsider its plan to lift the minimum wage again on 1 April. The Government announced several very substantial increases to the minimum wage back in 2017, when the economy was growing strongly—a 27 percent increase over three years. The situation has changed dramatically since then in the past few months. The April change will mean the minimum wage has lifted 20 percent in two years.

It doesn’t make sense to be proposing relief to businesses at the same time as significantly adding to their costs. Saving jobs should be the focus. The economic challenge before us is serious. The Government needs to shift its mind-set from adding costs to business to taking pressure off small and medium sized enterprises so that they can survive and continue to employ New Zealanders. So I urge the Minister to reconsider and postpone the 1 April rise for six months while we assess the situation. Nobody knows how widespread and deep the international slow-down will be. We need to hope for the best but prepare for the worst.

Thanks to the discipline of successive Governments, the country has relatively low debt and the ability to provide stimulus if required. The ability to borrow, however, should not stop the Minister from taking a hard look at wasteful spending, such as with elements of the Provincial Growth Fund. Some of the money would be far better used in a business continuity package than it is being used now.

We also need to recognise the longer-term economic challenges haven’t gone away. The Minister is wrong when he says that New Zealand entered this crisis with strong momentum. That’s not correct. The latest estimate from the Reserve Bank is that New Zealand grew at 1.6 percent in 2019. So a clear, coherent growth plan is outlined. We believe it should include tax relief, a substantial infrastructure plan that is delivered, relief for small businesses, regulatory reduction such as we outlined yesterday, and policies focused on putting more money in the hands of New Zealand families.

Finally, we thank the Minister for his offer of briefings from Treasury, and we undertake to work constructively to suggest ways forward as we confront this economic challenge together.

Hon GRANT ROBERTSON (Minister of Finance):

I thank the member the Hon Paul Goldsmith for that contribution—in particular his offer to work together. I’m sure he’ll appreciate the briefing that he’s getting—I think this afternoon—from Treasury.

Three quick points in response. The first of those is that this package and the work we have been doing has all been undertaken in consultation with the business community and, indeed, with the union movement. It is important that we continue to work with them. They are the people who are telling us that this package needs to be targeted and needs to ensure that it reaches the people who need it.

I also note in that regard, with reference to the member’s comment about the minimum wage, that is precisely the across-the-board, sweeping, knee-jerk reaction that is not useful at this point. What is useful at this point is ensuring that support gets to businesses who need it via a targeted approach while also ensuring that our lowest income New Zealanders get a fair go. We know that those on the minimum wage tend to spend the increases that they get because that is the nature of being on a low income, and we continue to support those New Zealanders to be able to move forward in that way.

Thirdly, I just want to make reference to the member’s comment about the timeliness of this package. All countries around the world are grappling with an evolving situation. He will not be able to find countries other than those directly in the eye of the storm who have taken actions beyond what this Government has done. In fact, this Government is well ahead of the curve, in part because of a fully funded infrastructure package that we announced at the end of January. The New Zealand Government has ensured that we are in a good position to deal with what is a serious situation, and we will continue to take a measured and active approach.

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1 Comment

  1. Duker

     /  10th March 2020

    Indeed. It’s basic economics , to maintain consumer demand you have make sure the low paid, who tend to spend all their money, have more money in their pocket.
    Normally ignoring nationals tax cuts to benefit the better off mantra would be easy, and increase the minimum wage would be the way ahead. Maybe their is some tax relief or subsidyfor those businesses to pay the wage increase, but only those who have a fall in revenue.
    There may be other relief for some businesses who can carry more borrowing but the banks need some encouragement

    Reply

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