Jane Clifton
Fans of market upredictability should be careful what they wish for.
If anyone had told Grant Robertson a few months ago that he’d be spending 4% of New Zealand’s gross domestic product in a single mini-Budget – and that’s just for openers – he’d probably have hidden under his bed and refused to come out.
Had the same augury told Jacinda Ardern, when she announced our September election, that that, frankly, was the least of her worries, she might have joined her finance minister under there.
As Woody Allen said, “You want to make God laugh? Tell Him your plans.”
Just a few days ago, electoral fraud investigations, gang violence escalation, the All Blacks’ line-up and the extent of US President Donald Trump’s eyemask tan line all seemed desperately important.
Now, all those smug business mavens who’ve been braying about the virtues of “disruption” – aka putting competitors out of business – have met the ultimate disrupter: an invisible, spherical, knobbly particle that nature never intended to stray beyond the bat community. The disease it causes, Covid-19, has brought to light an unexpected and unprecedented unanimity of action from developed nations. Britain, for instance, is spending 15% of GDP on job support and associated stimulus, and Americans can expect a similarly massive top-dressing of cash despite Trump’s initial scepticism.
It’s not just lives that are urgently being protected but livelihoods.
One lesson from countries’ various responses to the 2008 global financial crisis (GFC) is that austerity doesn’t work. The new ethos is borrow, spend, even print money, but on no account let people’s livelihoods be imperilled.
The other belated GFC lesson to dawn is that profits, while desirable, are not compulsory. Banks and businesses are being propped up by some governments, but the clear proviso is that they in turn prop up their staff, clients and others within their realm, even if it means their returns fall. Here, the Reserve Bank has deferred its stricter bank capital requirements; in Britain, borrowers can access a threemonth mortgage “holiday”; Australia, like us, is targeting payroll aid to small and medium businesses as a first step.
As Reserve Bank Governor Adrian Orr has said, some businesses won’t survive, but the banks had best hold hands with as many as they can to get them through. The more businesses that fail, the fewer clients the banks will have and the longer it will take the economy to recover.
The last thing our depleted GDP needs is for banks to go into selfprotective mode and drastically curb lending – a response that prolonged the agony of the GFC.
The other belated global-financial-crisis lesson to dawn is that profits, while desirable, are not compulsory.
BUT WAIT, THERE’LL BE MORE
There’s much more to come in the Government’s rescue package, including for larger businesses, but this week’s triage, via wage subsidies, doubled winter fuel grants and the bringing forward of a one-off $25-aweek benefit rise, was to try to stop the bottom falling out of consumption. Some $2.8 billion will go straight into circulation as spending, rather than debt reduction or savings.
This is head-scrambling, considering we’ve spent the past couple of decades being brow-beaten from on high about our soaring debt levels, poor savings record and lack of productive investment. They now seem rather luxurious preoccupations. What’s urgent is to protect what productive investment there is by stimulating the economy. We can all go back to ruing our credit-card balances when the pandemic and resultant recession are over.
It’s an ill wind, as they say in the clichés. The need for crisis management
is so far beyond dispute it has brought a partial suspension of politicking. Urgent health checks are recommended for New Zealand First’s Shane Jones, who hasn’t orated for at least a week, and for National’s Paul Goldsmith, who has had to go cold turkey on his daily injunction about not interfering with the market.
GENERAL-ELECTION DOUBTS
This gob-stopper effect is partly down to the realisation that a September election may not even be logistically possible if the virus becomes rampant or mutates. There’s also the sheer giddy novelty of our own and other governments deliberately tanking their economies with lockdowns, and making a virtue out of massive spending, borrowing and tax forgiveness to try to prop them up again – and all of it based on under-informed guesswork.
The Opposition here has been dutifully querulous about aspects of the rescue package, but generally supportive. It’s in a thankless zone, where even to raise fair questions is to risk being seen as unpatriotic and point-scoring. The fact is no one – not even Deputy Prime Minister Winston Peters, who usually knows everything – has a clue whether the Government has things about right or disastrously wrong. The only consolation if it’s the latter will be that a slew of other countries will have got it disastrously wrong in the same sorts of ways.
Having seen New Zealand through the GFC – which now seems a passing squall compared to new coronavirus – National knows there are few tools in the state’s kit to deal with the range of horrors we’re facing. That’s exacerbated by not yet knowing our enemy. There’s not enough reliable data on the virus’ mutation, spread or mortality rate to be sure what response is proportionate.
We seem to have been badly off the pace in testing for it here initially, with the authorities bizarrely seeming actively to discourage people from getting screened. It may equally turn out that we’ve overreacted in closing borders or that we’ve underreacted in not closing schools.
Perhaps the true evil genius of this virus is that it’s making governments do the opposite of all the things they would normally do, and it’s making citizens thank them for it and even ask for more of the same.
The likely partial, or even full, re-nationalisation of Air New Zealand is a case in point. This hideously expensive prospect is vital to protect thousands of tourism jobs and will be remarkably uncontroversial in these circumstances. Few would argue we should let our national carrier fall over and leave its carcass to predation from who knows what scavenging interests when global travel is safe to resume.
Still, it’s a teeny bit embarrassing. We’ve bought the same airline back so often, Nigerian gentlemen will soon be trying to interest us in NYC’s Brooklyn Bridge.
The fact is no one – not even know-all Winston Peters – has a clue whether we have things about right.