New Zealand’s roads to recovery
All eyes are on New Zealand’s economic recovery, post-COVID-19. But which party is up to the task?
- NZ’s economic recovery from the pandemic will be central to this year’s election campaigns.
- Labour plans to continue drawing on the NZ$50 billion COVID Response and Recovery Fund.
- The National Party opposition is focusing on supporting entrepreneurs and businesses to drive growth.
By Chris Niesche
New Zealand’s economic recovery from the pandemic will form the centrepiece of this year’s election campaign, with the major parties each promising different recovery plans.
Labour plans to continue drawing on the NZ$50 billion COVID Response and Recovery Fund it announced in its May budget.
Prime Minister Jacinda Ardern says her government would invest in a targeted wage subsidy extension, training and apprenticeships, a building program for 8000 public houses, infrastructure development, job-rich environmental projects, and support for SMEs, exporters and entrepreneurs to grow the economy.
“It’s about creating new jobs and preparing people for new jobs. We are doing what it takes to cushion the blow, support businesses and workers, and position the economy for recovery,” she says in response to questions from Acuity.
The prime minister said the government had acted quickly and decisively to protect jobs and keep businesses afloat during the first stage of the COVID-19 response. It had focused on a strong health response because winning the fight against the virus was the best way to get the economy back up and running.
“We still have a long way to go, and we are not immune to the global economic crisis the pandemic has caused, but we will bring the same determination and focus that we brought to the health response, to jobs and the economic rebuild,” she says.
The National Party opposition is focusing on supporting entrepreneurs and businesses to drive growth by keeping taxes low, reducing regulation and allowing inward investment to flow.
Before his shock resignation on 14 July, Opposition Leader Todd Muller told Acuity: “New Zealand needs a comprehensive economic recovery plan, not just spend, borrow and hope while we wait for a vaccine like this government appears to be content to do.”
The National Party has already announced a NZ$10,000 JobStart scheme to help create new jobs and a NZ$100,000 GST refund scheme for businesses to help them meet their fixed costs.
A National-led government would also launch a NZ$100 million grant program called Tourism Accelerator to help fund projects to get NZ’s tourism sector back on its feet. “Our Tourism Accelerator will provide direct cash support to businesses and tourist operators that are currently tossing up whether to re-open or shut up shop for good,” Muller said.
The international issue
The National Party would also “move a lot faster” to get international students back into the country. It has argued that New Zealand’s international reputation and hundreds of millions of dollars are at risk if the government can’t get problems at the border and quarantining sorted.
Ardern says enabling student re-entry while protecting New Zealand’s border against COVID-19 is a complex issue with many details to be worked through including quarantine and isolation arrangements, monitoring processes and how the costs can be shared by those arriving.
“Given the complexity of the issues, international students will not be returning to New Zealand in July or August this year,” she says. “We hope that a suitable model can be developed so we can start to investigate bringing in small cohorts of students as we go into 2021.”
The government has already announced a NZ$400 million targeted Tourism Recovery Fund, to work with the extension of the Wage Subsidy Scheme and a domestic tourism campaign, to assist the industry to recover and restart.
What happens after the contraction?
New Zealand’s economy contracted 1.6% in the March quarter, just as the economic effects of the coronavirus crisis started to take hold. Official data for the June quarter isn’t yet available, but the drop-off in economic activity will be huge – Westpac is forecasting a 13.5% fall and BNZ a 16% fall, with both banks expecting a solid bounce-back in the following quarter.
Stats NZ says that during the June 2020 quarter the extended unemployment rate was 4.6%. About 650,000 people were away from their job, working fewer hours or less than they wanted, or were otherwise less active in the labour market due to reasons related to COVID-19.
Under normal circumstances, any government that presided over such an economic plunge would almost certainly be turfed out of office, but as with so much else regarding coronavirus, these are not normal circumstances.
The government’s “trump card” in the election is its response to the COVID-19 health emergency, which, despite some hiccups, saw the virus largely eradicated from New Zealand while it was still rising across much of the rest of the world, says economist Donal Curtin.
Picture: Donal Curtin.
The medical response has come at a huge economic cost, but Curtin says “a lot of people have been prepared to pay that price given that the social and health costs of the lockdown were so low.”
“A lot of people have been prepared to pay that [economic] price given that the social and health costs of the lockdown were so low.”
In late June, Labour held a commanding lead with 50% of the vote compared with the National’s 38%, according to Colmar Brunton polling. In a 30 July poll, taken after Judith Collins replaced Muller as National Party leader, Labour was up to 53% and the National Party had dipped to 32%.
Beyond the immediate economic recovery, Curtin says the parties need to improve the country’s productivity performance, which for many years has sat near the bottom of the OECD and which Curtin calls the “productivity paradox”.
“New Zealand is a lovely place. It’s got sensible policies, honest and transparent institutions. Everything we should do, we’ve done, and we still end up with an income level that’s considerably lower than Australia’s, considerably lower than most of Western Europe in places that look just like us,” he says.
Productivity is king
At the centre of Labour’s productivity plan is its R&D tax incentive, which provides a tax credit of up to 15%. Additionally, the government has established an R&D Loan Scheme worth NZ$150 million to help R&D-intensive firms recover from the COVID-19 crisis. The Prime Minister also pointed to the role of infrastructure upgrades to transport, schools and hospitals in boosting productivity.
“We recognise that R&D spend is critical to unlocking our future economic potential, and these investments will ensure companies can maintain R&D spend, retain jobs and continue this important contribution to the economy,” Ardern says.
Picture: NZ Prime Minister Jacinda Ardern and Education Minister Chris Hipkins.
“We established these initiatives before COVID-19 was even in our vocabulary and have worked hard to get them up and running because, as we’ve seen from the Productivity Commissioner’s report that came out several years ago, we know that this is a problem that New Zealand has faced for a long time now.”
The National Party, however, says there is no single “silver bullet” that would boost productivity, and that what is needed is “a large number of changes that all support businesses to hire extra people or invest in extra equipment and technology.”
According to the National Party, significantly lifting productivity is the only way to materially improve New Zealanders’ living standards. “Increasing productivity means we can produce and sell more of what the world wants, at better prices, using fewer resources,” Muller told Acuity.
The party would allow businesses to instantly deduct capital investments of up to NZ$150,000 and also remove the “worst” restrictions the government has placed on foreign direct investment, which is critical to productivity growth.
The key to lifting productivity, the party argues, is to encourage the flow of direct investment, a skilled and willing workforce, increased innovation, greater access to global markets and New Zealand’s natural resources, and quality technical and physical infrastructure.
On greenhouse emissions policy, National says NZ has a comprehensive emissions trading scheme, world-leading farmers and an 85%-plus level of renewable electricity supply, but the government needs to support a faster transition to low-carbon transport options.
“The best thing government can do to balance the goal of reducing greenhouse emissions with supporting the economy is to provide business with certainty,” said Muller. “A sensible, long-term framework for environmental rules gives business the incentive to invest and innovate.”
New Zealand has the advantage of bipartisanship when it comes to carbon emissions. The Zero Carbon Act – which provides a framework for NZ to develop and implement climate change policies in support of the Paris Agreement – was passed by Parliament without dissent and has given business confidence that the broad direction of policy direction is now set.
However, Ardern says the government’s “enduring policy framework” sets the direction for future investment and innovation. “The key parts of this are a reformed emissions trading scheme and the Zero Carbon Act. Together, they will create new investment opportunities and help grow our economy and create new jobs,” she says.
The government is aiming to have 100% renewable electricity by 2035 and net zero carbon emissions by 2050.
Finally, Acuity asked the parties for their vision for New Zealand in three years.
“I want to see a productive, sustainable, inclusive economy which all New Zealanders and their families share in and benefit from,” Ardern responds. “COVID has created huge challenges for us but, if anything, we need to use our recovery to respond to the challenges we were already facing: productivity issues, climate change, diversification. I believe we can do that.”
The opposition National Party aspires to: “An open and competitive economy which provides job security for New Zealanders and supports those who need help through the social investment approach.”
Its vision is for a New Zealand where “all of us can choose our own paths and stand tall in whatever we seek to do; that we feel confident in our nation and its place in the world.”
What the accountants say
Peter Vial FCA
New Zealand country head, Chartered Accountants Australia and New Zealand
The economic recovery is the immediate issue. The government can be commended on its immediate reaction to the pandemic and the public health issue and the economic challenges. It was totally appropriate for the government to spend a lot of money immediately to fund a wage subsidy program and on low-interest loans to businesses.
We’ve moved on from the time for universal support and now we need tighter targeted support, both in terms of benefits and in terms of business. In terms of benefits, any party must not take its foot off the accelerator in terms of the most vulnerable in society. It’s still really important that we focus on Māori and Pasifika outcomes, on child poverty and on mental health.
“Any party must not take its foot off the accelerator in terms of the most vulnerable in society.”
Medium term, we need to look at what needs to change. The COVID period has highlighted some challenges for New Zealand in terms of things such as technology and innovation and diversification of export markets. All of those need to be a part of the medium- and long-term plan. So, how do we learn from COVID and move into a stronger and more prosperous economy?
Hannah McQueen CA
Managing director, enableMe financial planners
It’s about re-establishing business confidence and doing that so businesses can find the capital to invest and grow. And for that to happen, there needs to be a clear plan of attack as to where this economy is going, and how that’s going to be driven to create the outcome that’s needed.
I don’t care which party does this, but they need to be incentivising people to recruit new talent. I think there should be a payment made to an employer who’s going to recruit someone within the next six months.
The challenge we have at the moment is that we’ve emptied the war chest to combat COVID and we’re borrowing to the hilt in the name of COVID, and that seriously impacts the next generation’s chances of having a good time or even just a passable time.
“The challenge we have at the moment is that we’ve emptied the war chest to combat COVID.”
James Harvey CA
Partner, McCulloch & Partners
There needs to be a solid focus on the rebuild of the NZ economy after COVID-19 and coming up with some firm plans. These should include taking advantage of what NZ has achieved in effectively eliminating COVID and illustrate to the world that while we are isolated, this provides benefits, which in turn provides a good place to do business, and good stories for our export markets.
We should make investment decisions on infrastructure projects that provide long-term benefits to New Zealand. We were always struggling with infrastructure with too much tourism when it was going full-noise, so we should deal with those structural issues now – get them sorted so that when it comes back again, we can actually take advantage of additional tourism.
We should look at tax rates and so on to make us more appealing to overseas companies to come and set up in New Zealand. We could be a great place to have companies’ head offices.
There’s been a lot of confusion on the messaging around environmental policy previously, which for farmers has meant they’ve had to decrease production. That story must be changed to how can this environmental policy help us to become more resilient and also potentially increase productivity and value on-farm?
Nicky Old CA
Director, True North Chartered Accountants
It’s a battle of the head versus the heart, this election. The heart will want to vote with Jacinda because she’s ‘the people’s Prime Minister’ and I believe she’s the most popular prime minister we’ve ever had. But on the other side of the coin, the head would tell you that we need someone who can really manage us out of this economic crisis.
Does the Labour Party have the competency and strong fiscal management ability to get us out of this recession or do we need to look to someone more right wing and more business-minded, such as the National Party?
We want to see some strong fiscal management, some ideas about how we can get our economy moving. That’s not about giving money to people but more about stimulating activities such as the government spending on infrastructure and that type of thing.
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