Coronavirus: Economist calls for benefit rules to be suspended

A prominent economist is calling for all conditions on benefits to be lifted, as officials won't be able to cope with the massive influx of people losing their jobs over the next 12 months.

While few in New Zealand have caught COVID-19 yet, the economic impacts are already starting to be felt, with anecdotal reports of job losses in the tourism sector already. New Zealand shut the borders to foreigners last week for the first time ever, in a desperate attempt to keep the virus out.

It's already killed 13,000 people and infected more than 300,000 overseas.

New Zealand's biggest export industry is tourism, but the border closure, and advice from the Government to limit non-essential travel and avoid large gatherings, is expected to deliver it a huge blow.

"My view is that the shock to the tourism industry is so big that many businesses cannot survive, and we cannot prop them up for the duration," economist Shamubeel Eaqub told Newshub Nation on Sunday.

"There will be many dominoes. If tourism shrinks, there are many industries that supply into tourism."

He expects the number of Kiwis needing a benefit will double in the next year. Included in the Government's $12 billion rescue package announced last week was an instant $25 boost to benefits.

"We already have safety net with our welfare system, but it's not very generous and is very difficult," said Eaqub.

"Our welfare system, MSD (Ministry of Social Development), is going to be overwhelmed if we try to impose the same rules and conditions that we do on our existing beneficiaries and try to deal with the increase." 

Simon Shepherd and Shamubeel Eaqub on Newshub Nation.
Simon Shepherd and Shamubeel Eaqub on Newshub Nation. Photo credit: Newshub Nation

One solution could be universal basic income (UBI) - an amount paid to every Kiwi regardless of their employment status or income. Supporters - such as former US presidential candidate Andrew Yang and New Zealand's own Opportunities Party - say it would eliminate the need for byzantine bureaucracy, reducing costs, and be a lifeline for anyone suddenly without work without having to jump through any hoops. 

But Eaqub isn't convinced, saying it would see a lot of money go to people who don't need it.

"The UBI is a really big piece of work that's going to cost a hell of a lot of money and a big resetting of our entire tax system. I'd rather we focused it on the people who really need it the most, because it's the poor and vulnerable that are going to be hit the hardest, and those are the ranks that will grow the most."

The Government's package has been criticised by the Opposition for not going far enough. Papakura MP Judith Collins on Sunday said it was "simply not enough".

"During the global financial crisis, National had to borrow $50 billion to keep people in jobs. It was the right thing to do... The alternative is to end up paying more income support through MSD while businesses fail and there are no jobs for people to go back to once the CORVID-19 virus crisis passes (sic)," she wrote on Facebook. 

And National finance spokesperson Paul Goldsmith said the rules around which businesses and employees can get financial help are "too tight".

"Most workers - who work for medium-sized and larger firms - are not covered."

Since the package was unveiled on Tuesday, the Government has toughened its wording on travel, now saying over-70s should stay in their homes, employees should work from home where possible and non-essential travel - including between cities - should be restricted. 

"While entirely justifiable on public health grounds, Government decisions to severely restrict movement and significant parts of everyday life are already having a significant economic cost."

Eaqub says the $12 billion package won't be the entire response from the Government however, suggesting more drastic moves such as suspending mortgage and rent payments could be considered next.

"Nothing is off the table. We are looking at an unprecedented shock. Nobody has a rulebook in terms of how to deal with it. As the crisis unfolds we will see many more measures being announced. What we saw last week was only the beginning."

Finance Minister Grant Robertson said as much on Tuesday.

"I want to make it clear that this is not a one-off package... As we go through this crisis towards economic recovery the Government will be constantly monitoring the situation and adjusting its response."