Finance Minister Speech to Business New Zealand
Thank you to Kirk and Business NZ for hosting me again today, and indeed for all your help and input into the Government’s response to the COVID pandemic thus far. The relationship has been extremely beneficial and I look forward to continuing to work together as we move through the lockdown and out the other side.
For me, like many New Zealanders I think, the last month has been the most extraordinary of my life. Not least because having spent the last two and a half years as Finance Minister operating a tight fiscal ship, I have approved expenditure of more than $20 billion in three weeks. Despite the dramatic shift I am convinced it has been the right thing to do.
I am not saying for a minute that we have got every single action as a government 100% right but in a fast moving, uncertain and uncharted situation we have been as decisive, clear and compassionate as we possible could be.
And it appears to be working. We have turned the corner, or come down from the peak as the Director General of Health said yesterday. It’s the result of the whānau of five million pulling off a monumental team effort. I recall when we were getting ready to move to Alert Level Four someone saying to me that they did not think New Zealanders had the discipline or the temperament to deal with a lockdown, as compared with countries who were seemingly having some success with these sorts of measures.
Well, New Zealanders have well and truly proved that wrong. I actually don’t think it’s about discipline so much as our innate sense of loyalty to one another and pride in our country to beat any enemy who comes our way.
And to carry that thought on - that’s why as I said to the PM, we can’t squander a good halftime lead by getting complacent. We will stay the course, break the chain, control the virus and come out the other side, ready to build our nation again.
Of all the things we have done, the wage subsidy scheme has been one of the most extraordinary aspects of an extraordinary time. In just over three weeks more than $9 billion has been paid out to support nearly 1.5 million employees. And actually paid out too. While some may argue that schemes being put in place overseas are more generous, ours has paid out. No money will be paid across the Tasman from their scheme until May. In the UK it is just about to start- but only for furloughed workers.
The Wage Subsidy Scheme has as its core principle keeping people attached to their jobs. Giving business and households the cashflow and confidence to look to the future, uncertain as it is.
In some senses for me this draws together the threads of one of my driving forces for being in politics. My fundamental belief in the dignity and importance of decent work. Many of you know that the project that gave me the greatest satisfaction in opposition was The Future of Work Commission. It was both about how we make sure there is decent work and higher wages in our future, but also working differently, drawing together business, unions, academics, entrepreneurs and more to develop ideas and solutions.
Well now the Future of Work has arrived, and it looks a bit different than I imagined, but it is the challenge I have been waiting for, and one I want to work with you on making the best of for our people.
What I want to do today is further fill out the detail our plan for the response and recovery from COVID19, through the first wave of the immediate response, to the second wave of kickstarting the economy and the third wave where we reset and rebuild our nation from this once in a century shock.
I also want to spend a little bit of time on the economic context, and the topic on so many people’s minds - what our exit from Level 4 and moves through Level 3 and Level 2 look and feels like.
Our Plan to Respond and Recover
Wave One: Fight The Virus and Cushion the Blow
From the outset we have acted decisively to contain the virus and avoid the extreme human and economic costs of an uncontrolled outbreak.
That’s why this is first and foremost a health response - because the best protection for the economy is to stop the spread and eliminate the virus from New Zealand.
In doing so, we have applied three key principles to our economic approach: First to act swiftly with no regrets. Second to improve cashflow and confidence. Third to act in coordination to secure and support our financial and business sector.
Our response has already seen unprecedented support rapidly deployed by the Government.
Our initial $12 billion package included an initial $500 million boost for health, wage subsidies for affected businesses in all sectors and regions, a $2.8 billion income support package for our most vulnerable, a $100 million worker redeployment package, $2.8 billion in business tax changes to free up cashflow encourage investment, and support working from home, and a $600 million aviation support package.
But in acting swiftly, we have been prepared to shift our response as conditions change or new information comes to light. We have continued to add to and modify the range of policies aimed at cushioning the blow of COVID-19 on New Zealanders.
We’ve put together the Business Finance Guarantee Scheme, alongside the Reserve Bank and retail banks. The Scheme is designed to help enable banks to provide credit to customers where otherwise the bank may not be willing to do so.
Nine banks have signed up to participate in the scheme including ANZ, ASB, BNZ, Heartland Bank, HSBC, Kiwibank, SBS Bank, TSB and Westpac. Over the weekend I signed the deed, executing the agreement between the Crown and the banks, with some banks now able to deliver on the scheme as of yesterday.
We’ve also recently announced changes to the Companies Act to help companies facing insolvency remain viable.
These changes include giving directors of companies a ‘safe harbour’ from insolvency duties under the Companies Act, enabling businesses to place existing debts into hibernation, allowing the use of electronic signatures, and giving temporary relief for entities that are unable to comply with requirements in their constitutions or rules because of COVID-19.
In addition to these changes, this morning we announced a suite of further support measures for Small and Medium Sized Enterprises.
Our tax loss carry-back scheme will allow a large number of businesses to access their previous tax payments as cash refunds, at an estimated benefit of $3.1 billion.
We are bringing forward the tax loss continuity rules to make it easier for firms to raise new capital without losing the tax benefit of their existing losses. This is a useful initiative particularly for start-up companies.
We also know that some businesses are struggling to meet their non-wage fixed costs, like interest, rent and insurance, but are not currently in a position to take on additional debt.
That’s why we’re providing greater flexibility for businesses to meet their tax obligations, which should provide cashflow relief, as well as providing tailored support services to help businesses weather the storm, at no charge to the business.
Using established services including the Regional Business Partner Network and the helplines run by the Employers and Manufacturers Association and Canterbury Chamber of Commerce, we are providing $25 million to fund specialist, tailored advice to where it is needed, fast. We have been getting clear feedback that particularly small and medium enterprises are asking for support on business continuity.
We have also introduced measures to support commercial tenants and landlords.
Many businesses may be finding it difficult or impossible to pay rent if they are no longer able to access their property, and if landlords are not receiving rent, they may not be able to meet their mortgage obligations.
As a result, the Government will extend the current 10 working day timeframe that commercial landlords may cancel the lease to 30 working days. This will be for both the period the tenant is in arrears before the notice is given, and for the period to remedy the breach.
The Government will also extend the timeframes for lenders from 20 to 40 working days for mortgaged land, and from 10 to 20 working days for mortgaged goods.
These measures will support an orderly process to deal with commercial lease disputes caused by COVID-19.
These changes will require legislation, however we have announced these decisions early to give businesses certainty, and will be asking Parliament to agree to make some of these changes retrospective.
Wave Two: Kickstarting the Economy
Our response is not about distinct phases that follow one after the other. They are waves that are all under way at once, lapping over and under each other. Much of the work we have done and continue to do on the first phase – cushioning the blow and fighting the virus - will continue in the coming months.
We are also actively working on what comes after the Wage Subsidy Scheme, assessing what further backing businesses and households need as we further understand the impact of COVID 19, alongside further support for the health system.
The guidance we are releasing on Thursday for coming out of Level 4 will give businesses and workers a much better idea of what the more medium-term picture looks like for them, for the economy, and for society.
But we also have an obligation to work together now to prepare to kick start the economy as we move down the alert levels. Our way of working has to continue to be collaborative and decisive.
We have a range of workstreams well underway aimed at the medium term positioning for recovery. I will mention some critical ones today.
- We have established the Economically Significant Business Group inside the Treasury to guide our work with New Zealand’s major businesses. We have brought in outside commercial expertise to support this, and have begun conversations with a range of network critical businesses. There are a variety of options available should the Government need to support businesses that are essential to our recovery and our supply chains. We showed with our $900 million package for Air New Zealand what we can do.
- Phil Twyford and Shane Jones have tasked the Infrastructure Industry Reference Group to prepare a list of infrastructure projects and programmes from across central and local government, and the private sector, that are shovelready. These could be deployed as part of a stimulatory package as soon as the construction industry returns to normal.
The Reference Group is headed by the Chair of Crown Infrastructure Partners, Mark Binns. It is supported by the work David Parker is doing in terms of changes to the RMA and consenting process to move things forward as quickly as possible.
Phil Twyford and Shane Jones have also continued to work on redeployment support, especially in our regions and they will have more announcements to make about that in the near future.
- Megan Woods as Housing Minister is working to bring forward projects that will drive not only jobs, but also deal with our long term housing issues.
- I have asked Chris Hipkins to lead the work on the critical training and employment support programme that has to take place from here. Thousands of New Zealanders are going to need to retrain, gain new skills and support the kickstarting of our economy. This work is in partnership with business, with unions and with training providers.
- The Prime Minister, drawing on advice from her Business Advisory Group, has called for the creation of the world’s smartest border. Using technology and our ‘natural moat’ as she calls it, to give us not just protection against the virus but a window to a future where we can move people and goods safely again.
- Winston Peters and David Parker are charting a new course for trade and diplomacy in a radically changed world. We need to continue to trade, and look again at our relationships to see how we can leverage our natural advantages and excellent progress on controlling the virus.
In every sector of our economy and society we have a need, and an opportunity, to come through the other side of this with a strong recovery plan. We have tasked all Ministers with reaching out to their sector to help develop these plans.
It is important not to see this narrowly. Our ingenuity and innovation will matter as we re-imagine what our arts and music scenes look like in an era of physical distancing, as much as in other sectors of the economy.
As we move towards the Budget on the 14th of May we are drawing these recovery plans together to play our part in kickstarting the economy.
The Budget will be a Recovery Budget. It will include funding for the cost pressures that are necessary part of keeping our country ticking over. But we will devote much of our resources to kickstarting this recovery. We will do this through the lens of the intergenerational wellbeing of our people and with the long term adjustments we need to make in our sights.
And I know the same thing is happening in businesses around the country. I have heard the stories of people re-imagining their café or restaurant in a world of physical distancing. The manufacturers shifting gear to meet needs in the health sector, the exporters altering their supply chains in real time to keep exports going.
Supporting that optimism and spirit is essential to making this work.
Wave Three: Reset and Rebuild
We must also make this the opportunity to reset our economy, to take account of the massive disruption to some sectors, but also to address some of the long standing challenges we face. In doing so we also must chart a course to return to a sustainable fiscal position.
This work will again require us to develop new ways of working and break down the barriers between partners in our economy.
We have formed a core Ministerial Oversight Group for this work with the Prime Minister, the Deputy Prime Minister, myself and Minister Parker. We will soon be reaching out to both Ministerial colleagues but also the private sector, unions and more to have input into this work.
We must answer the big questions about our economy in these unprecedented times. What should we make and do here in New Zealand to ensure our sustainability; what institutions do we need to support our economy; what is the role of the State; how do we trade with the rest of the world in this new environment; and how will the financial system, both here and globally, cope?
Climate Change will continue to be a major challenge long after the effects of this pandemic have been mitigated. As Rod Carr raised yesterday, our economic recovery needs to be one where emissions continue to reduce and more sustainable technologies are invested in and taken up.
New Zealand has had a long-run problem of low productivity. We need to look at our uptake of new technology and new ways of working to ensure that this problem does not again become baked into the New Zealand economy through our recovery.
Underpinning all of this, as the Prime Minister said yesterday we must also not allow inequality to take hold in our recovery. In fact we need to take this opportunity to improve the prospects of all New Zealanders and tackle those long standing divisions.
We’ve seen through this virus what happens when sectors and industries are overly reliant on certain markets for their export revenue. New Zealand must always remain a trading nation, but we will need to look at greater diversification of our export markets to make sure we are prepared for any future shocks to trade networks.
The importance of the role of the state has been underlined by this crisis. I hold a strong personal belief in the power of the state to do good. It is through a well-funded, highly functional public service, that we have had the ability to coordinate and provide leadership for New Zealanders, guiding both the public health response and the economic response to this crisis.
I believe it is of the utmost importance that the state continues to play an active part in the economic recovery, providing leadership and direction as we move forward through the challenging times ahead.
Finally, I know that what we have asked New Zealanders to do in this crisis is huge. As we have all had to make sacrifices in doing our bit to stop the spread of the virus, so too will we all have a part to play in our economic recovery.
And as we have all made sacrifices, we all should benefit from our collective recovery on the other side.
A final note on our way of working in this wave. We recognise the important role that the business community has in supporting this big picture thinking. You will hear more from us soon on how we will look to shape that engagement.
To finish, no doubt you will all be aware of the Prime Minister’s announcement last week that on the 20th of April, two days before the lockdown is due to finish, Cabinet will make a decision on next steps based on the most up to date data that we have.
That means, if we are ready to move to Alert Level 3, businesses will have two days to implement arrangements.
In order to support that, tomorrow we will release guidance for how businesses could operate under reduced alert levels and what measures need to be taken for them to do so.
We are taking lessons from the swift move into Alert Level 4, and aim to give as much clarity in advance as possible. This means developing some basic principles for safe economic activity and then working through that on a sector-by-sector basis, and providing examples to businesses to guide their decisions. We will consult and iterate on these in the development and application.
What I can say now is that our emphasis at level 3 moves from “essential” economic activity to “safe” economic activity.
I am aware of the work that businesses large and small are doing to change their way of working to operate in as safe a way as possible so we can allow as much activity as possible. The critical questions are: is it possible for your business to have social distancing? Can you build in contact tracing tools or mechanisms to keep track of your supply chain and customers?
To be clear, any decision to move out of Level 4 will be made within the context of an elimination strategy for COVID-19. The primary factor that Cabinet will take into consideration is whether the Director-General of Health is confident that the disease is under control.
But I can also assure you that Cabinet will consider evidence of the impact of current containment measures on the economy and wider society.
The economic modelling released by the Treasury yesterday will help inform this decision, but I would caution that the path the economy takes from here remains extremely uncertain. What this analysis does do is help us weigh up the implications of different fiscal and regulatory policy decisions.
The Treasury’s economic scenarios detail how the COVID situation could play out differently for the economy based on the amount of time spent at each Alert Level.
These scenarios back our decision to go hard and go early in the fight against COVID-19 because the quicker we stamp it out, the quicker the economy can recover. The longer we waited, the more cases and deaths New Zealand would have had.
This also shows the importance of everyone continuing to do the amazing job they are doing to stay home, break the chain and save lives. This is giving our businesses and the economy the best chance to get going again on the other side.