Finance minister Grant Robertson (Photo: Radio NZ / Dom Thomas)
Finance minister Grant Robertson (Photo: Radio NZ / Dom Thomas)

PoliticsMarch 17, 2020

Huge $12bn package to fight Covid-19 downturn: what you need to know

Finance minister Grant Robertson (Photo: Radio NZ / Dom Thomas)
Finance minister Grant Robertson (Photo: Radio NZ / Dom Thomas)

The government is spending $12.1 billion to counter the Covid-19 crisis. Where is the money being targeted? Here are the essentials. 

What’s all this then?

With recession bearing down on the country, and a large numbers of jobs at risk of being lost, the government has ploughed billions of dollars into the economy. The main target of that spending is keeping people in work, and keeping money flowing through the wider economy during the downturn. In a press release signed by prime minister Jacinda Ardern, deputy PM Winston Peters, and Greens co-leader James Shaw, it was described as “the most significant peace-time economic plan in modern New Zealand history”.

How much is $12bn dollars, really?

It’s about 4% of GDP (gross domestic product) which is the standard measurement of the total annual economic output of a country. In comparison, the year ending December 2018 saw GDP growth of 2.8%. So while it’s an imperfect comparison, it’s roughly comparable to more than a year’s worth of economic growth. However, it will be offset by what is likely to be a tough recession, which is defined by two consecutive quarters of falling GDP.

$12bn is also about the same amount of spending that was announced in January, as part of the massive infrastructure package. Today’s spending is coming on top of that (though January’s announcement is spread over a number of years).

So it’s a big number – how is it being broken down and targeted?

The major share of that – $8.7bn – will go towards business support and wage subsidies. $5.1bn of this will be directly tied to wage subsidies, aimed at keeping people in jobs. Those will be available to all businesses and sectors that can show a decline in monthly revenue 30% lower than what they would have had for that month the previous year, between January and June 2020. It would be paid out to businesses at a rate of $585 weekly per full time staff member, and $350 weekly for part time staffers, and capped at $150,000. Employers who sign up for this will need to give an undertaking that they’ll do their best to keep those staffers in work up to at least 80% of their income – i.e a full time staffer working a four day week. They will also have to sign a declaration saying that active steps have been taken to mitigate the impact of Covid-19 on their business.

Business tax changes will also be made, basically to let those affected have a bit of breathing room. From the release: “$2.8bn in business tax changes to free up cashflow, including a provisional tax threshold lift, the reinstatement of building depreciation and writing off interest on the late payment of tax.”

What else?

There’s $2.8bn to go towards income support and getting consumer spending going. The government has given a permanent boost to benefit levels, which will go up by $25 a week, on top of increases indexed to wage rises that had been scheduled to take effect on April 1. Over 2020, the Winter Energy Payment will be doubled, which as a targeted support package for beneficiaries and the elderly is seen as a key mechanism to help those most vulnerable to the coronavirus. These moves will also have flow-on effects for the wider economy, as giving money to those with the least tends to result in them spending it, and spending it locally.

Is the minimum wage still going up?

There’s nothing to indicate that those rises have been scrapped, and Grant Robertson had previously said they would remain.

What about spending to actually, you know, fight the virus?

A $500 million package has been put towards the health system, with $235 million of that being immediately unlocked by Cabinet. Health minister Dr David Clark says with the pandemic raging worldwide, much more money is needed in the health system right now.

Among the specific figures that have been released: $32 million will go towards intensive care units, with the existing system currently considered insufficient if a major outbreak occurs. While only a small proportion of those who contract Covid-19 require hospital care, some of those who do need heavy interventions to survive, and can be in ICU for days.

$50 million will be put towards GPs and primary health facilities, and another $20 million will go towards teleconferencing systems, so that people can get healthcare and information remotely – also quite an important consideration in a viral pandemic. $20 million will also be put towards Healthline, which has had to dramatically scale up operations in recent weeks.

It should also be noted that the two goals of protecting public health and the wider economy are seen by the government as inextricably linked. “Our strong health response is also our frontline economic response. We know the best way to protect the economy is by containing the virus,” said Clark.

Will other moves be made in the future?

Almost certainly, because there are still some big questions to be answered. For example, Air NZ (which is facing a revenue drop of as much as $6bn per year, to forecasts of about $1bn) is not included in an initial $600 million aviation support package. As an entity majority owned by the government, and an essential part of connectivity with the wider world, there may well be more specific support announced for them. Finance minister Grant Robertson said “we are actively discussing working capital support for small and medium businesses and tailor-made support for larger and complex businesses.”

Can we afford all of this?

Even before this announcement, and before the outbreak of coronavirus, many commentators were calling for a big spending increase to manage an expected cyclical downturn. With the Covid-19 recession now likely to make all of that much worse, the real question probably becomes – can we afford not to?

Robertson, for his part, says that there’s no doubt the books are healthy enough to sustain this package. “By running surpluses and keeping debt under control, New Zealand is in one of the strongest positions of any country to respond strongly through our public health and economic stimulus packages.”

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