A leading economist has warned the Government to be "careful" about extending the COVID-19 lockdown period, because the looming recession will be "very expensive" and have an intergenerational impact.
Shamubeel Eaqub told the Epidemic Response Committee on Wednesday that the Government's programmes to support struggling workers and businesses, such as the wage subsidy scheme, is welcomed, but it won't be enough long-term.
He said the Government needs to be "careful" about extending the lockdown, and that if it does, there needs to be a clear understanding of what businesses can do to prevent them from going under, to avoid stretching the welfare system.
Eaqub said it's also time for the Government to step forward with more communications about the current state of the economy, rather relying on banks to release reports - and Finance Minister Grant Robertson agreed.
"Right now we have no way to tell what the economy is responding to," Eaqub told MPs, adding that he wants New Zealand to be in a position where there is a clear plan for people who lose their job, and clear information about the demand for subsidies.
The Finance Minister expects the wage subsidy to cost between $8 billion and $12 billion.
Eaqub said New Zealanders should prepare for the borders to remain "restrictive" for quite some time, even when the lockdown is eventually lifted, so the Government will need to steer the country towards new opportunities with tourism likely to struggle.
"We need to prepare for an increase in the welfare system," he told MPs, adding that people who are losing their jobs because of the economic impact of the virus need to be looked after because it's not their fault.
"I fear we will still see a lot of insolvency in the coming months," he said. "I also think the global backdrop will be challenging compared to past recessions."
Supply chains will be impacted "for some time", Eaqub added, which will make diplomacy "very important" to ensure that New Zealand still has trading partners.
New Zealand, Singapore, Australia, Canada, Chile, Brunei and Myanmar recently announced a shared commitment to maintain open and connected trade and supply chains during the pandemic.
Eaqub said while the Government has an important role to play in helping to save the economy, the country cannot rely on the Government alone: he said it's time to "unleash" the private sector.
He said that will include encouraging growth in investment and getting more credit into startups - the kinds of things that will make sure the fundamental parts of our economy are operating as best as possible.
The Government is now looking for "shovel-ready" infrastructure projects worth about $10 million to get underway as soon as the lockdown period ends, to boost the construction sector and stimulate the economy.
Eaqub said in the new period after the lockdown when a recession is expected to hit, New Zealand will see intergenerational impacts, with new entrants to the workforce likely to walk into a "challenging environment".
He said those new workers will probably have their careers delayed, so the Government should be thinking of ways to help them into jobs so "we don't have a level of dependency in future years".
"It's going to be a very expensive recession," Eaqub said. "At the moment, we don't have enough information - how is the economy actually going? Preserving businesses and jobs is an absolute priority."
It comes as the Government now predicts to borrow $25 billion in the 2019/2020 financial year, up from a forecast of $13 billion released two weeks ago.
Eaqub said the Government borrowed about $50 billion in the aftermath of the Global Financial Crisis (GFC) in 2008.
The Government passed legislation before the lockdown allowing it to spend up to $52 billion if required, to cushion the blow of the economic impacts of COVID-19.