Eye of the storm
How NZ faced down Great Depression 2.0
On Wednesday, February 5, Grant Robertson’s phone rang. The Finance Minister was at the Treaty Grounds at Waitangi, helping to open a museum chronicling the history of the Māori Battalion ahead of the nearly week-long festival celebrating New Zealand’s national day.
That much-decorated unit had been in the thick of fighting around the Mediterranean during World War II, and three of out four who served in its ranks during that conflict had been killed, injured or taken prisoner.
Robertson took the call outside on the deck in the early evening twilight, while a jovial function carried on inside. In the coming weeks and months, ghosts of past mass casualties and calamities would increasingly come to haunt the Finance Minister.
On the other end of the line was Rodney Jones, an economic analyst who, until returning home to Auckland at the
end of 2018, had been based long-term in Beijing. Jones said the spread of the 2019-nCoV virus through China’s population and its economy had been devastating and, despite moves by Robertson and his Cabinet colleagues the previous weekend to effectively close the border with that country, New Zealand was far from immune.
“This is a guy I trust on China 100 per cent, who had the best knowledge of, and perspective on, China that I know of anybody,” Robertson recalls thinking at the time.
Says Jones: “Even back then it was clearly much worse than Sars, and if it got out of China we were in trouble.”
Robertson says that call, and a follow-up meeting a week later with Jones — who cancelled a trip to New York and instead went to Wellington — was the first time he’d been introduced to the R0 concept of transmissibility and marked the point when the virus began to dominate his every waking moment.
“I actually have a vivid memory of that phonecall,” Robertson says. “At that moment Covid really went right up to the top of my list.”
The meeting triggered a flurry of activity inside the Treasury as Robertson tasked officials with better-understanding what the evolving situation in China meant for New Zealand. On February 21, the Finance Minister was briefed on three potential scenarios, in increasing order of severity: a temporary global shock; a year-long plunge in affected domestic industries that spread wider and reduced economic growth; and a fullfledged global recession.
At this point, the best-case scenario was considered most likely. On the worst-case, officials said: “For avoidance of doubt, this scenario is not the current expectation. But characterising this worst-case scenario is helpful to consider how economic policy may need to be prepared for this eventuality.”
“We were talking about three potential scenarios at that point, what I colloquially called the mild, medium and hot,” Robertson tells the Herald from the vantage point of late May.
“Really, in late February, that was very much the period where all three were possible. We were planning for the first one and preparing for the latter two.”
Not only are there no costless decisions, there’s no playbook either.
As it turns out, the worst eventuality was now well in train.
The virus was spreading rapidly, and globally, and markets and economies would soon experience slides exceeding those of the oncein-a-generation global financial crisis.
The clock was ticking and the time for Robertson to prepare and roll out the biggest economic stimulus package in New Zealand history would end up being just over two weeks.
On Friday, March 6, signs of deterioration were becoming stark, both domestically and internationally. New Zealand had recorded its first case of Covid-19 the week prior, and markets internationally began wobbling.
Treasury now surrendered to the uncertainty and moved scenario planning up a level. Officials still did not think a global recession was likely, but recognised that Covid would have a “substantial and prolonged impact on the New Zealand economy” that could not be easily ridden out.
Officials told Robertson that day that traditional policymaking — where decisions were carefully considered and crafted over many months — would likely need to be abandoned as the ground had begun moving too quickly beneath them and decisionmaking was being overtaken by events.
“Ministers will therefore need to make a series of judgments about their risk tolerances when considering the scale and type of policy response. Fast action may pose implementation risks and could end up being unnecessary. In contrast, the Government may be unable to provide a timely response if it decides to delay action until better information is available,” said a pivotal briefing to Robertson.
Robertson says this memo, dated March 6, was the trigger to begin work on what would have been considered, only weeks earlier, as an unthinkably radical economic support package.
The Finance Minister disputes the suggestion he was being forced to make things up as he went along, but does describe the governing process in this period as: “Having to make monumental decisions in very short spaces of time without all of the information you need.
“I never felt I was flying blind during that period, but what I did feel, though, was we were clearly in a situation where we were going to need to move quickly.”
By this point, in the week leading into the weekend of March 14-15, Robertson was preoccupied with stitching together that stimulus package and engaged in wider Cabinet discussions on closing the borders — a decision on which would be made that Saturday.
Late that week he met with Prime Minister Jacinda Ardern in her Beehive office to sketch out the bare bones of the stimulus package. “I can remember her saying to me ‘that’s a massive percentage of GDP.’ It was about 4 per cent, but we were saying ‘it is, but this is what we’ve got to do’.”
Rodney Jones was around now, again briefing Robertson and Government officials. This time not on the progress of the virus through China, but on how the nascent local outbreak was expected to quickly rip through New Zealand.
“I talked about the hop, skip and the jump: how cases quickly move from 10, to 20, and then to 200,” Jones says.
“And once you jump it is all too late.”
This advice — similar to other views flooding into the Beehive, some unsolicited, from boardrooms and faculties of science — spooked ministers.
Robertson cancelled a trip to Australia to talk to his counterpart Josh Frydenberg, scheduled for Friday, March 13. The pair instead talked by phone. The gravity of the moment was not lost on either.
“In the course of that conversation we talked about Covid being a one-in-ahundred-year event,” Robertson says.
The next day, on Saturday morning, the Cabinet held an emergency meeting and started the monumental process of closing New Zealand’s borders. Robertson stayed at his office afterwards, and then again the following day and late into the night, pulling together details of the stimulus package he’d present to Cabinet the following morning on Monday.
On Tuesday March 17, a day after the travel ban came into force — wiping out what were at that stage the merely stricken aviation, international education and tourism industries — Robertson announced a $12 billion support package centred on the wage subsidy scheme.
That scheme would itself mushroom in the weeks to come and end up costing $1b a week by itself.
But the healthcare tsunami was cresting at the same time as the economic impact.
While Robertson was grappling with the economic fallout, he and other senior ministers were also at ground zero, scrambling logistics for reagents and test kits, and
Grant Robertson
throwing together plans for what appeared to be an increasingly likely nationwide lockdown.
The trigger was pulled over the weekend of March 21, before being announced to the public on the Monday. As the country entered lockdown later that week, Robertson became part of the highestpowered bubble in the country, alongside Ardern.
Critical shortages of test kits in the early stages of lockdown meant only six days’ supply of the kits was in the country. Nonetheless, a decision was made to keep ramping up their use, to better combat the virus, and hope additional supplies would arrive on rapidly withering airfreight routes.
On the first Saturday of lockdown, March 28, Robertson took to Facebook to express admiration for Ardern. Asked about the shortage of test kits, and the high-stakes gamble of pressing on with high-velocity testing despite uncertain supply, he says this particular line from that Facebook post was written when this issue was at the top of his mind: “Up close I see the burden of life-and-death decisions are not easily carried, they hang heavy.”
Talking now, of that decision and others made in haste — to close borders and enter lockdown — Robertson says they were required, by urgency and incomplete information, to be driven by principles.
“They were big calls to make. Not only are there no costless decisions, there’s no playbook either,” he says.
The rest is recent history: the planeloads of test kits arrived and daily case numbers began to start receding, until today they resemble a sequence of test-match cricket scoring. Alternate realities where decisions were made less decisively, or logistics fell over, are begin played out in real time in the United States, the United Kingdom and Brazil.
But three weeks into lockdown in mid-April, with Cabinet still meeting by Zoom (Robertson says he found disabling video freed up bandwidth for better audio) the economic crisis was still peaking and tensions began to emerge between advice from Treasury and health sources.
Advice on April 15 from Treasury officials said modelling was predicting — even in the best case with a relatively prompt move to level one — unemployment would soon peak at 13 per cent and GDP for the year was likely to contract by a similar percentage.
Six weeks earlier on February 14, Treasury projections of a mild impact had still been seeing annual growth predicted for 2020, of around 2.5 per cent. In March, unemployment was 4.2 per cent.
In the worst recession in recent history — in 1991 — annual GDP contractions bottomed out at 1 per cent. According to Statistics NZ, 1991 also saw the worst recorded recent unemployment rate: 10.7 per cent.
Robertson says at the time that paper passed his desk he immediately understood the historical context: “I saw those numbers and they were — and are — frightening.”
They provided a spur to begin finally moving away from day-to-day crisis management and begin planning for the future.
“I got into politics in part because of my belief in the importance and dignity of work and there’s no way I’m going to allow this,” Robertson says now. He says that modelling didn’t factor in moves he could make to mitigate the worst of what was shaping to be the worst depression in a generation.
At this stage he was a month away from delivering what had been a nearly-finalised Budget. Now, thanks to the radical change in circumstances, it had to be rewritten in weeks, with many of those contributing to its drafting working from home.
On May 14 he delivered a Budget flagged as “Rebuilding Together”, taking the brakes off fiscal policy and forecasting $85.1b in deficit spending over the next three years to shore up the teetering economy.
Robertson proposed $50b in new spending over the next 12 months, with large slices earmarked as Covid contingencies for the crises to come. Unemployment is still predicted to rise sharply, but now there are hopes that it will peak at below 10 per cent, saving perhaps 140,000 jobs that seemed lost a month prior.
Robertson says the Pandemic Papers, a vast trove of Cabinet documents publicly released a fortnight ago, are an extraordinary insight into recent New Zealand history: “You’re looking at real-time decision-making from moves we were making in the eye of the storm,” he says.
“Here we are today in a position where our economy is amongst the most opened up in the world and we’ve got one of the lowest rates of death and infection. I’m not saying everything’s been perfect ... but I think those early decisions were made with principle and instinct, and that is what we had to do.”
With epidemics raging across much of the globe and New Zealand only beginning to take its first tentative steps out of crisis management, this series has not yet concluded.
Robertson has budgeted $20b of his Covid war chest to deploy in the coming months, and knows the judgment of history will only be properly delivered in the years to come as New Zealand is buffeted by forces — both global and microbial — he can only mitigate and not control.
“The full story of the virus is still being told.”
I talked about the hop, skip and the jump: how cases quickly move from 10, to 20, and then to 200. And once you jump it is all too late.
Economic analyst Rodney Jones (above)