From left: Iain Lees-Galloway, Grant Robertson, David Clark
The Government is pledging to inject $12.1 billion into the economy in what it called its “most significant peace-time economic plan in New Zealand history”.
This is equivalent to 4% of gross domestic product (GDP), which is greater than the response to the 2008 Global Financial Crisis, and greater than Covid-19 relief packages announced in Australia, the UK and the US.
The bulk of funding - $5.1 billion - is expected to go to wage subsidies for businesses that can show a 30% decline in revenue for any month between January and June 2020.
Eligible employers will be paid $585.80 a week for full-time employees and $350 per week for part-timers. The subsidy will only be available for 12 weeks at this stage and support will be capped at $150,000 per business.
Robertson said the $5.1 billion figure was predicated on the assumption half of businesses will use the subsidy.
The second largest bundle of funding, worth $2.8 billion, will go towards an income support package.
This includes a permanent $25 per week increase in all main benefits from April 1.
The third largest amount of money, $2.1 billion, will go towards reinstating depreciation and deductions for commercial and industrial buildings.
Other support measures include waiving interest on some late tax payments and a $600 million support package for the aviation sector.
Finance Minister Grant Robertson said there are "ongoing discussions" underway between Air New Zealand and the Government, which is a majority shareholder.
Furthermore, $500 million is being put towards boosting health resourcing.
This is only the first phase of support that will be provided.
The Government is still working on how larger or more complex businesses that fall out of the scope of this package will be assisted.
Officials are also meeting with banks to discuss the potential for future working capital support, including in the form of loan guarantees for businesses that face temporary credit constraints.
Robertson said preliminary forecasts indicate GDP growth for the year to March 2021 is expected to be -1% with the package. Without the package, it would’ve been -3%.
Robertson said New Zealand’s net core Crown debt is expected to breach the 15% to 25% of GDP target range in the near-term. Debt to GDP was 19.5% at the latest reading. Robertson noted his Budget Responsibility Rules have a caveat for a "major economic shock or crisis".
He warned New Zealand should prepare for a number of budget deficits, with Budget 2020 being recast as a "recovery budget".
“This is the rainy day that we have been planning for,” Robertson said.
“Any measures the Government takes must be timely, fiscally sustainable, targeted to those who need it, and proportionate to the level of economic shock…
“Today’s economic package is all about cashflow and confidence.”
The forecast 2019/20 New Zealand Government Bond (NZGB) programme is now set $3 billion higher than forecast at the Half Year Economic and Fiscal Update, at $13 billion.
$7.5 billion of bonds have already been issued in the fiscal year to date. The forecast borrowing programmes for subsequent years are currently unchanged.
However, Treasury expects increases to programmes for future years will be necessary. It will provide updated forecasts alongside Budget 2020, to be released on May 14.
BusinessNZ CEO Kirk Hope said the package will "substantially help businesses keep operating through the period of the coronavirus outbreak".
He said the wage support and tax measures were well-focused on key areas of need.
The Council of Trade Unions president Richard Wagstaff said: "This package provides an immediate boost to get through these challenging times.
"Ensuring that working kiwis, including those working as contractors or casuals, are financially supported so that they can self-isolate and take sick leave, is tremendously important. Employers have a pivotal role to play in responding to the impacts of COVID-19 and slowing down the spread. The government is doing its bit - now business and employers must do theirs."
Tibshraeny, J., 2020. First Phase Of Govt's Covid-19 Support Package Worth 4% Of GDP; Includes Wage Subsidies, Benefit Increases And Depreciation Deductions For Commercial And Industrial Buildings. [online] interest.co.nz. Available at: <https://www.interest.co.nz/news/104095/first-phase-govts-covid-19-support-package-worth-4-gdp-includes-wage-subsidies-benefit> [Accessed 18 August 2020].