Coronavirus: Wage subsidy unsustainable, 'incredible economic pain' inevitable - economist

The new outbreak of COVID-19 is a "reality check" for already struggling businesses and tough decisions are looming, according to Infometrics senior economist Brad Olsen. 

"We could be looking at $1.6b less spending happening across the country over the next few weeks. For Auckland, you're talking 250,000 workers who can't operate at alert level three," he told Newshub Nation on Saturday. 

Workers once again stuck at home will still be supported by the wage subsidy scheme, applications initially set to expire September 1, but now extended nationwide to cover the new alert level period. 

While Olsen says this is the right call in the short-term it's not sustainable in the months to come, particularly if the borders remain closed.

"I think we've also got to realise that it's not the sort of thing we can continue to pay out if we have to continue to yo-yo for the next two years. Eventually, we've got to get smarter with the funding we provide instead of just trying to keep businesses afloat. 

"This week's been a reality check for businesses up and down the country... If the borders remain closed for an extended period businesses who are outwardly focused to external tourists are not going to be as viable." 

Olsen stressed this doesn't mean giving up on struggling industries but instead focusing funding on finding ways for them to operate even at higher alert levels. However, he warns that not everyone will be able to adapt.

"We are going to see some incredible pain in the economy and we've already seen that...we will see more job losses from this. The goal is to keep those job losses as low as possible." 

The economist also questioned the Government's preparedness for the economic shock of this outbreak.

"We should have been ready to roll out some sort of regional wage subsidy as quickly as possible once we knew. The Government taking five additional days to do that seems to indicate they might have been prepared for the health response of a second resurgence, but not necessarily the economic support that businesses are crying out for."

Level 3 restrictions are currently in place for Auckland and level 2 for the rest of the country until 11:59 pm August 26. Cabinet will review the alert levels next Friday.