The Minister of Finance Grant Robertson has released Treasury scenarios that look at the economic impact of the Covid-19 virus. Not surprisingly Treasury supports the ‘go hard, go early’ approach of the Government.

The scenarios show:

• That unemployment can be kept below 10%, and return to 5% in 2021 with additional Government support. Work is already well advanced on further fiscal support.
• Without additional support, unemployment could have hit 13.5% under scenario 1 (four weeks in Level 4), while scenarios requiring more time in Level 4 showed a peak of 17.5%-26%.
• New Zealand’s underlying strength means the economy can bounce back to be $70 billion larger by 2024 than in 2019.

There must be a lot of unknowns at this stage, and the information given is very sparse.

From the Beehive:

COVID economic scenarios back ‘go hard, go early’

Economic scenarios released today back the Government’s decision to go hard and early in the fight against COVID-19 while putting significant measures in place to protect jobs and support businesses through the lockdown, Finance Minister Grant Robertson says.

The Treasury has released a range of scenarios for the economy, based on assumptions of different amounts of time under the Alert Levels. The report shows how extra Government spending will cushion the blow by protecting jobs and supporting businesses.

“This global pandemic is dramatically affecting countries and their economies around the world. We are seeing dire forecasts for global growth and unemployment levels rising rapidly in many countries. As an open export-led economy, New Zealand will feel these global effects for some time to come,” Grant Robertson said.

“New Zealand is in a good position to fight COVID-19 due to our strong public health system, low debt and growing economy heading into this situation. The best way to protect the economy is to fight this virus, which is why we’ve acted swiftly and decisively to stamp out COVID-19. This will give our businesses and the economy the best chance to get going again on the other side.”

The scenarios released today were guided by a range of previously released public health modelling. The Treasury has purposefully included scenarios that show what might happen if the lockdown has to be extended, or if the country has to return to Alert Level 4 in the future.

“These should not be taken as any guide as to the Government’s thinking or decision on changing alert levels. That decision will be taken on April 20 as the Prime Minister has foreshadowed. What they do show is how important it is that we continue to unite against COVID-19 and follow the public health guidelines; stay home and save lives – we know it’s working,” Grant Robertson said.

The scenarios show:

• That unemployment can be kept below 10%, and return to 5% in 2021 with additional Government support. Work is already well advanced on further fiscal support.
• Without additional support, unemployment could have hit 13.5% under scenario 1 (four weeks in Level 4), while scenarios requiring more time in Level 4 showed a peak of 17.5%-26%.
• New Zealand’s underlying strength means the economy can bounce back to be $70 billion larger by 2024 than in 2019.

Work on further significant Government investment to protect jobs, support cashflow, and prepare the economy for recovery is well advanced. The next steps in the Government’s plan to support businesses will be released later this week.

“The Budget is also another important part of the response, and it will include significant support to respond to and recover from COVID-19. As is usual with the Budget, there may well be pre-announcements, especially where they relate to urgent COVID-19 response activities,” Grant Robertson said.

The Government has already provided support to businesses including:

• $9.6 billion through the wage subsidy to protect the jobs of over a million working New Zealanders and keep them connected to their employers during the lockdown.
• Changes to the business tax system worth $2.8 billion to boost cashflow, encourage investment, and support working from home, including:

1. Allowing businesses to immediately claim tax deductions for low value assets like computers, mobile phones, cameras, microphones, headphones and other equipment required to work from home
2. Raising the threshold for provisional tax to support cashflow
3. Writing off penalties for late tax payments to take pressure off business owners
4. Restoring the ability to depreciate some buildings to support cashflow and investment

• Working with the banks to deliver a six-month mortgage deferral scheme so Kiwis don’t lose their homes as a result of COVID-19, and a $6.25 billion Business Finance Guarantee to encourage bank lending to small and medium-sized businesses.

“We can do this because we entered this situation with strong Government books and a growing economy. Net debt at 19.2% of GDP is well below the OECD average around 70%, giving us greater ability than many to protect jobs and incomes with the Government’s strong balance sheet,” Grant Robertson said.

Notes:

1. The scenarios do not foreshadow Government decisions on the lockdown. Cabinet will make the decision on whether to exit Alert Level 4 on April 20.

2. Fiscal forecasts, including for measures like the Government’s operating balance and net debt, will be released as normal in the Budget on 14 May.