Responding, Recovering and RebuildingFinance
Kia ora koutou katoa,
Thank you to John Milford and the Wellington Chamber of Commerce team for hosting this event today. I know it must have been difficult pulling together an event in circumstances such as these, not least because your guest speaker is in a different part of town than you are. But in this Zoom era, we are nothing if not flexible.
One week from today I will be in a different part of this building, delivering Budget 2020. It will be of no surprise to you that it will not be the Budget I thought I would be delivering if you had asked me only a couple of months ago.
It is a Budget delivered in the shadow of 1-in-100 year shock to our society and economy. The sweeping global health crisis has left almost every country in the world facing a devastating death toll, health systems under strain, and economies that have all but ground to a halt, with millions around the world losing their jobs and businesses.
So, it is far from business as usual. In most years the Budget represents the end of a process that began six months before, the sum total of the Government’s economic action plan for the year ahead. That is one clear difference. The Budget this year is just one staging post in our fight against, and recovery from, COVID-19.
Our response to COVID-19 has been characterised by swift, regular and pragmatic actions. This will continue. The Budget next week will set our direction for the next stages of responding and rebuilding. But COVID-19 requires far more than that. It is a tricky virus, one that keeps moving. Its impact is only just beginning to be felt in our economy.
Our economic response to COVID-19 has to happen every day, not just on Budget Day. Just as businesses and workers are fighting every day to secure their futures, so we will keep fighting to protect lives and livelihoods. Every day, supporting New Zealanders to get through and to rebuild stronger and better.
Our plan in the face of COVID 19 is simple:
1. Respond: Go Hard, Go Early
Our purpose is clear: to fight the virus, to keep people in work and to support those in need.
I’ve said from the start of our response to this crisis that the best economic response is a health response – the two are closely connected. Our best chance to get our economy back up and running and get people back to work is to stay the course. As any good tradie would say, do it once and do it right.
We can look all around the world at the devastation of the exponential curve of cases and deaths and see the prospects of social and economic restrictions for many, many months to know what that could do for our economy.
And we can celebrate our success so far in fighting the virus.
Let’s not forget that New Zealand confirmed its first case of the virus on the 28th of February, when global cases outside China numbered just 5,000. From that day on, global cases rose to 782,000 by the end of March, and to 3.3 million by the end of April.
We were rapidly faced with a choice between a public health catastrophe, as has been seen in other countries, or unprecedented and difficult measures. As part our first support package released on the 17th of March we provided half a billion dollars to ensure our health response was up to speed.
And, touch wood, thanks to the commitment of all 5 million New Zealanders, we have been successful in our initial fight against the virus.
I know this success has come at a price. The Level 4 and Level 3 restrictions have meant hundreds of thousands of Kiwi workers have had to stay home. We are acutely aware of the stress this has caused to businesses and households, and the sacrifices they have had to make.
There are no costless decisions in this situation, nor is there any playbook to go by.
But had we not escalated to Alert Level 4, the effects on business and the economy could have been far worse. By going hard and early – and getting on top of the virus – we have maximised our chances of getting things moving faster than many other economies which could be seriously crippled for months or years.
That’s why our economic response has matched our public health efforts by going hard and early. On March 17, a week before we went into lockdown, we announced an unprecedented $12.1 billion package to support businesses, jobs and incomes. This included the wage subsidy scheme, income support package for low income New Zealanders, business tax changes, and the aviation support package.
Since then, the wage subsidy has paid out more than $10.6 billion to support 1.7 million employees. I have seen some criticism of the scheme, and given the circumstances of its birth it was never going to be perfect. But I stand by our approach. Unlike many countries, we got money into the pockets of Kiwis right away, kept them in work and supported the businesses who urgently needed it. I know that we saved jobs by this action.
We always said that there would be transparency about who got funded, and consequences for those who abused the scheme. We’ve implemented enforcement measures, with MSD’s audits requiring dozens of firms to return funds they were not eligible for.
We have also been agile and prepared to shift to account for the unfolding situation. Since the package was announced on March 17, we’ve made adjustments to the wage subsidy and also implemented the Business Finance Guarantee Scheme and further small business support including the loss carry-back tax refund initiative.
I want to emphasise that from the outset we have worked alongside businesses in the development of this initial response. Their input at every stage of the process has been invaluable.
Rob Fyfe and his fellow business leaders have leveraged their resources and networks to provide critical assistance to the All-of-Government response.
Business New Zealand, Retail NZ, the CTU and other sector groups have advocated hard for their members, providing useful insights and advice, and I want to thank them for that.
The retail banks have worked constructively with the Government and the Reserve Bank to assist the worst-affected businesses and households.
One example of this collaboration that has not had the attention it might is the work to keep vital links going for our exporters. With flights being grounded, we knew we had to act. We have put in place a $330 million scheme to restore vital international air freight capacity, with 56 additional weekly cargo flights from New Zealand, and more to come.
This scheme is market-led; funding is provided to guarantee cargo on key routes under agreements with the carriers. Carriers then offer that capacity directly to freight customers on commercial terms.
Our exporters are continuing to do well in trying circumstances. Statistics out last week showed that overall primary sector export revenue between 1 February and 22 April remains higher than for the same period in 2018. Apples and kiwifruit are performing strongly, while dairy and meat are holding their own.
Our strong exports and commitment to trading fairly and freely with the world will be a big part of our recovery and rebuilding.
While there are things to celebrate, make no mistake that this global pandemic and the resulting economic damage will be felt acutely here. As we have said from the beginning, we know that we won't be able to save every job and every business, but we are doing everything we can to cushion the blow.
Taken together, the commitments announced in the first stage of our economic response represent over $20 billion in support from the Government to help businesses and households weather the initial shock.
2. Recover – Back to Work
As we move forward from our immediate response, our purpose is to see people back at work, to clear the pathway back for communities and sectors most affected by COVID 19, and to lay the foundations for our rebuild.
The move into Level 3 saw the very beginning of recovery, with around 400,000 people back at work as more parts of our economy opened up including forestry, construction, manufacturing, and online retail.
Next week, Cabinet will decide on moving to Alert Level 2. A move to Level 2 will see the vast majority of our businesses and workers back at it.
With more options available for consumers to spend, the Government’s ability to stimulate the wider economy is greatly increased, as is the effectiveness of more targeted support measures.
This was reflected in the Small Business Loan Scheme announced last Friday. It will deliver up to $100,000 to small businesses to meet fixed costs. It’s a scheme that reflects a targeted and balanced approach to recovery for viable businesses.
Our recovery will continue with interventions to sustain households and businesses and get people working, in combination with sector-specific support to help boost wider economic confidence, and regenerate some of the sectors hit hardest by the pandemic.
We have already supported early hit industries like forestry, tourism and the media. Budget 2020 will carry on this work.
Continuing our collaborative approach, the support packages for sectors are being designed in consultation with industry leadership.
Support will naturally become more targeted, as some industries and firms are able to survive and recover on the back of broader stimulus measures.
Our response goes far beyond direct financial support. Making it easier for activity to get going again will speed the recovery and get the economy back on its feet faster. That’s why we’re making the regulatory and legislative changes necessary to help speed up the recovery through this period.
One important example is the changes to the Resource Management Act announced by Environment Minister David Parker. These will enable fast-track consenting to get job-rich projects like core infrastructure, housing, and environmental restoration moving quickly.
3. Rebuild Better
Our purpose in rebuilding is to grow jobs that pay well, to support businesses and communities who will sustain our future, and to come back stronger as a country.
In the midst of the crisis and our desire to return to a sense of normality, we should all acknowledge that things weren’t perfect before COVID-19 hit us.
Let’s be up front about that. While many of our economic indicators were strong – low debt, low unemployment, rising wages and government surpluses – there were ways in which we had not reached the standards we aspire to as a country.
Too many children were growing up without the basics, housing has been too expensive, many of our waterways are still not swimmable, our emissions have been rising, people are working harder but don’t feel they are getting ahead. In other words, we are not quite the nation we like to think we are.
There are few times in life when the clock is reset. Now is the time we should address these long-term issues. It is a privilege many countries won’t have. It’s not one we should squander.
As someone said to me the other day, if your house were to burn down, you probably wouldn’t build it back exactly the same, would you?
Budget 2020 gives us the chance to begin this rebuild, better and together.
Some significant long-term issues are now right in front of us.
The Future of Work has arrived, even if not how we expected. Enabling businesses to grow in a digital age, to trade with a country they might not be able to even visit and to sell new added-value products to the world is essential.
Equipping workers with new skills, training opportunities and apprenticeships, and breaking down the digital divide for our workers and families is more critical than ever.
We will build the infrastructure we need to unclog our cities, to connect our towns, and support sustainable development. We began this with our $12 billion New Zealand Upgrade Programme announced in January. We look forward to seeing the proposals generated by the private sector, local government and more in the coming weeks.
The opportunity is there to break our housing shortage once and for all, and give New Zealanders the shot at the Kiwi dream they have been denied.
In short, in the wake of this dreadful and devastating crisis we have a shot at making things better. And we will take it.
So this year’s Budget will continue our response, recovery and rebuilding. It is, as I said at the start of the speech, different to what we had intended.
As we have faced up to COVID-19, and deployed such significant support in such a short space of time, we took another look at our plans as a Government.
Just as will have been the case for countless businesses, important work has had to be slowed or postponed, and resources have had to be reprioritised in light of the fight against COVID-19.
The Budget is no exception. The new spending packages planned on our five priorities that were announced in the Budget Policy Statement have been re-assessed. Unless they are meeting a core cost pressure, we have put them on ice.
We may revisit them in future, but the focus for Budget 2020 has now very quickly become providing the strong public services we need and taking our next steps to recover and rebuild.
I want to be clear that there will be further support for the recovery and rebuild after Budget Day. As I said earlier, we have to keep working every day to get through this together and to thrive again. To recall an earlier politician’s words, Budget 2020 is part of a rolling maul of support.
Our work is still guided by the wellbeing approach, ensuring we balance the needs of our economy, our people, our environment and our communities. These principles are more important than ever in getting our response to COVID-19 right.
New Zealand’s ability to respond strongly to COVID-19 has highlighted the importance of investing in and maintaining effective core government services.
For example, agencies such as Health, Inland Revenue, MSD, MBIE, MCDEM and the Treasury have all managed to quickly adapt to the rapid pace of the COVID-19 crisis. I know for many of you who accessed the wage subsidy, you would have been astonished with the response time from MSD, having the money paid out within days.
The effectiveness of the Government’s response is down to the professionals in these agencies. Strengthening and improving these services is crucial to the ongoing protection of our collective wellbeing.
You will see in the Treasury’s Budget forecasts next week that the path forward to recovery will be challenging. While I cannot go into specifics today, obviously we are no longer talking about growth in the near term, but about the scale and length of the economy’s contraction. Business investment and confidence will take a hit. Unemployment will rise.
We will be doing everything in our power to push back on these trends. And we come from a position of strength. Going into this, we have had better economic growth over the past two years than most of our trading partners, unemployment near a ten year low, and wage growth at a ten year high.
But we’ve also seen from modelling released previously by the Treasury how much worse the situation could be if we were to keep moving up and down alert levels. The alternative would not only mean more cases of the virus, but also more businesses going under and more jobs lost.
While the numbers we will see in the Budget next week are sobering, we must remember that we’ve moved decisively on the health front to stamp out the virus, giving us more options in terms of getting the economy moving again. This happens faster if our trajectory out of restrictions is smooth and safe.
The global economy is of course also taking a serious hit. The IMF is forecasting that global growth will reduce by 3% in 2020 – worse than the global financial crisis – and that advanced economies will contract by more than 6%. The WTO have said that trade volumes could reduce by up to 32%.
Unemployment growth in countries such as the US and Australia far outstrips what we have experienced.
We are not alone in facing up to these challenges, and we will need to build on the excellent relationships we have internationally. This is another area where we can re-imagine our future. Our reputation as being free of corruption, and an easy place to do business (we top the world in both right now) can now be added to our success in fighting the virus.
There is opportunity to build that not only into brand New Zealand, but also to our immediate economic approach. The trans-Tasman safe zone is but one example, and further afield with countries such as Singapore we are already making great strides.
It is the reality of life that all the support and rebuilding we are doing must be paid for. Fortunately, New Zealand’s fiscal position was strong going into the COVID-19 pandemic.
We delivered on our plan to reduce net core Crown debt below 20 per cent of GDP and achieved $13 billion of operating surpluses in our first two years in office.
These were conscious choices that did not go unchallenged. But planning for a rainy day was part of the way I was brought up. We all hoped it would not happen but this strong fiscal position now means we are in a much better place to cushion the blow of COVID-19 on New Zealanders than most other countries we compare ourselves to.
However, I will not sugar coat what the scale of these investments will mean. We will be running operating deficits for an extended period and allowing net core Crown debt to increase to levels well beyond our previous targets. This is a necessary and responsible move as we fight the virus, reduce the impact on businesses and workers, and rebuild our country.
This is what other countries around the world are doing. But they are not starting from our position of strength. The UK started with net debt above 75%, the USA 90%, and Ireland 40%. Many countries are already well over 100% as they respond to the virus. Despite the additional borrowing we will need to undertake, we will remain among the least indebted countries among our peers.
I remain committed to managing our books carefully and responsibly. Right now, being responsible means investing our money to support our people, businesses and communities to get through this and to rebuild. In time, we will need to return to a more sustainable fiscal path as we have shown we can. But for now, the rainy day has arrived.
We said at the start of the COVID-19 pandemic that we would do everything we could to protect our people and our economy, and we are doing that. But we could not have done it without the support and buy-in of all New Zealanders.
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, so too the Government will ensure we are all able to benefit from our recovery on the other side.
By building off our existing strengths and seizing the opportunities that lie in front of us, we will rebuild our economy and our country to be better than it was before – to be the country we’ve always said we want it to be.