Coronavirus: What the Govt has in store to protect the economy

Prime Minister Jacinda Ardern has given some hints at what its economic response to the threat of COVID-19 might be.

There have still only been five confirmed cases in New Zealand, and there is yet to be any reported spread of the virus in the community.

But with many experts saying it's only a matter of time before it gets loose, and New Zealand heavily dependant on the global economy, the Government is set to reveal a package of measures aimed at easing the economic blow.

"We've already boosted some of the regional business advisory services that are out there because some businesses are having cash flow, payroll issues," Ardern told The AM Show on Monday.

"IRD are already implementing what I would essentially say is leniency in dealing with provisional tax penalties and so on. 

"The Minister of Finance is meeting with the banks today because they are at the frontline of helping support businesses affected by COVID-19. We want to make sure they've got their hardship packages in place, and what we're doing is complementary to that."

Jacinda Ardern.
Jacinda Ardern. Photo credit: The AM Show

One scheme being lined up is putting people who lose their jobs or have their hours cut back, into paid training.

"If someone's hours have dropped can we put them into additional training where they're then getting supported to be in that training, so they basically end up on a topped-up wage," said Ardern.

"It will come at a cost, but we have to weigh that up against the fact it also comes at a cost of people finding themselves on a Jobseeker benefit. We're doing everything we can to try and reduce that."

The IRD and other officials in the public service have learned a lot from economic shocks in the past decade, including the global financial crisis and the quakes in Kaikoura and Christchurch. The challenge will be adapting that knowledge from a regional response to specific industries being hit hard by the spread of SARS-CoV-2 - the official name of the virus which causes the disease COVID-19. 

Economist Cameron Bagrie says the banks will be key to keeping things running. Businesses will be coming to them for loans to stay afloat, and he says they need to be more willing to lend.

"The big problem we've got is this is a massive disruption across the supply chain. If fiscal policy needs to be the big lever we need to start to pull, what are we going to be looking for? Wage subsidies, tax relief and I suspect ultimately some sort of supply chain finance that's got to be Government-backed."

In other words, the banks will be more willing to lend if the loans are backed by the Government.

"There's some good reasons why the banks have been a little bit frugal when lending into the dairy sector. The dairy sector's got debt of $41 billion, they need to deleverage. 60 percent of that debt is interest-only. So banks are naturally not to keen to lend into that sector."

Cameron Bagrie.
Cameron Bagrie. Photo credit: The AM Show

Ardern said she spoke to Fonterra just last week, and they were doing fine - despite a heavy reliance on exports to China. 

"But for instance over on the flip side, there are parts of our seafood industry that are [in trouble]. Tourism, when I spoke to them last week they'd already seen downward - hospitality in particular - 30 percent impact in some areas. That will probably have gone up since that time in other areas. It is too early to say, but what we need to do rather than wait is get ahead. That's what we're doing with the measures that we're designing and developing, making sure that we get them in place as quickly as we can."

She wouldn't put a cost figure on the impact of COVID-19.

"It is too early to say. Any figure I gave you today would be outdated by tomorrow or even next week. This is something that's obviously moving quite quickly."

As of Monday morning, there were more than 109,000 confirmed cases around the world, with cases outside of China on track to surpass those inside the country by this time next week. 

 

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