Locked down for a year
Tougher restrictions than level 4, longer lockdowns, food rationing, and blocking exports were all considered in the Government’s worst-case scenario for Covid-19.
On April 7, 2020, New Zealand reached a milestone. With 54 new cases and 65 recoveries, the number of recovered cases exceeded the number of new cases for the first time since lockdown began
Prime Minister Jacinda Ardern said the result suggested the lockdown was working. We now know she was right.
But behind the scenes, the Government was laying the groundwork for a strategy that would kick into action if Ardern was wrong and Covid was of control.
That paper landed on ministers’ (virtual) desks on the same day, April 7.
Called the ‘‘All-of-Government paper on Managed Economy’’, it laid out what it called the ‘‘worst-case scenario’’.
It foresaw lockdowns of various rigour and length (a separate paper considered six months of level 4 restrictions and another six at level 3) and had the Government picking up a greater and greater share of the economy as the private sector slowly atrophied.
The worst-case scenario
This scenario envisaged disruption to supply chains, meaning essential businesses wouldn’t have enough goods to sell.
‘‘New Zealand’s inclusion in international shipping routes may be reduced if our imports of nonessential goods are limited and our exports are significantly reduced,’’ the paper warned.
Despite the climbing unemployment rate then envisaged, the Government also foresaw workforce shortages for essential businesses, in same cases because of ‘‘people refusing to work due to concerns about health risks’’.
Worse still, the Government feared ‘‘level 4 proving insufficient’’, and that this could require the use of ‘‘a more extreme form of lockdown, for example a narrower definition of ‘essential’, stronger restrictions on movement and deliveries only permitted for essential supplies’’.
And what to do about it
With international trade routes deteriorating, the Government was worried that New Zealand would be ‘‘unlikely to be able to source the normal range of food, beverage and other products, and temporary shortages will become more likely’’.
The Government looked at rationing the amount of essential goods New Zealanders could access, and blocking the export of some essential products.
‘‘In some critical areas, New Zealand may want or need to (rapidly) become more self-sufficient, to the extent practicable,’’ the paper said.
The Government proposed underwriting manufacturers as they sought to repurpose factories to make things such as PPE, and expediting the consents of new plants that would manufacture things onshore.
Rationing could be brought in to ensure that the limited resources left in the country were doled out fairly, although people would still have to pay for goods.
‘‘A worst-case scenario might require the Government to consider some combination of rationing and price control to ensure as much as possible that everyone in New Zealand has access to sufficient essential goods and services,’’ the paper said, although it said the probability of rationing was ‘‘low’’.
Another reason for rationing could be because a more extreme form of lockdown shut supermarkets, forcing some sort of delivery system to be set up. To prevent price gouging, these deliveries would be made at prices dictated by the Government.
‘‘Formal food rationing could be considered in the future because of sustained shortage of staples or because of a more extreme form of lockdown, most likely at a subregional level.
‘‘This could be based on a rapid scaling-up of existing arrangements, for example online ordering, physical delivery and administered prices.
‘‘Alternative arrangements would have to be found for those not online. Consumers would pay for their rations, with existing income support mechanisms helping those otherwise unable to meet the cost,’’ the paper said.
Getting people to work
Officials were also concerned that there might not be enough people to staff the public health response. Some staff would be sick, while others would have to take time off for their families.
But the Government was also concerned that fears around the pandemic would be so great that some people would refuse to go to work. At the time, its modelling feared tens of thousands of New Zealanders would die from causes related to Covid-19.
Officials came up with a few ideas to ensure the health response was staffed. One was targeted ‘‘incentives’’ to work in critical roles, probably involving increased pay.
Officials mulled ‘‘targeted additional incentives to work in critical public sector roles, if necessary and feasible (which would depend on prospects for eliciting increased supply rather than driving up cost)’’.
Another option was ‘‘relaxing occupational regulation to enable less qualified people to perform essential tasks (and accepting the associated risks)’’.
This could mean people without appropriate registration performing essential tasks.
Banning exports
Officials also considered banning the export of some essentials and redirecting them to New Zealanders.
‘‘There is potential for conflict between business interest and the public good if, for example, a New Zealand-based business decides to export medical products or primary produce that also are in demand locally,’’ the paper said.
There were concerns that this would risk retaliation from other countries, so it was decided against.
‘‘Selectively banning export of ‘essentials’ would be difficult to do and would risk retaliatory action by trading partners,’’ officials said.
The one-year lockdown
From where we are now, these scenarios seem like an overreaction. However, a glimpse at other briefings from April offers a reminder of just how frightening the future looked in the first couple of weeks of lockdown.
A day after the managed economy briefing was delivered to ministers, the Treasury presented Finance Minister Grant Robertson with a list of economic scenarios.
It couldn’t pin down what was likely to happen to the economy – there was too much uncertainty. It thought Covid would cost the Government anywhere between $19 billion and $70b in financial support.
Unemployment was expected to be between 8 and 20 per cent.
Those forecasts were updated just five days later in another briefing on economic scenarios. This time, the peak in the unemployment rate would vary from 13 to 26 per cent.
The worst-case scenario for those high unemployment rates came from what Treasury called a ‘‘suppression’’ scenario, which involved the country spending six months at alert level 4 restrictions and another six at level 3. These scenarios were proactively released by Robertson later in April, with the finance minister saying they backed the Government’s ‘‘go hard, go early’’ strategy.
. . . and a very expensive wage subsidy
In the background, though, the Government was readying a plan for if the lockdown did not work.
On April 9, one day after the first set of economic scenarios was delivered, Robertson was given a
Treasury paper that looked at what to do next with the wage subsidy. Applications for the first round were to end on June 9, and Treasury wanted Robertson to be ready to roll out a further round of support for businesses that needed it.
The problem was, with the situation evolving rapidly, Treasury did not know ‘‘with any precision’’ what the public health or economic situation would be when wage subsidy applications ended.
With that in mind, it came up with a couple of replacement ideas. The worst scenario Treasury was working to involved New Zealand cycling between levels 3 and 4 for 18 months.
‘‘Under a long lockdown in which level 4 is lifted at the end of September, only essential-services firms will be able to operate for six months and a high number of others will face problems with solvency.
‘‘Following the lifting of level 4, level 3 restrictions remain in place for the following six months. With mainly essential services firms operating for a year, many firms will face problems with solvency.
‘‘The number of people moving into the welfare system will be significant, and they will likely spend even longer there than in shorter lockdown scenarios,’’ Treasury said.
One of the options was to extend the wage subsidy in its current form, but this was staggeringly expensive. Extending the scheme to December
2020 would have cost $29.5b. That’s an enormous sum, roughly equivalent to half of New Zealand’s net core Crown debt at the start of the crisis.
Treasury thought about trimming the payment to roughly half of what was then being paid out, to $254 for all fulltime staff and $152 for parttime staff. It also looked at excluding the self-employed and putting a cap on the amount that could be claimed by any firm.
In the end, it was obvious that the economic situation was improving. The Government did extend the wage subsidy in a package announced at the Budget in May.
That scheme trimmed the eligibility so that only businesses severely hammered by Covid could apply. As by then the situation was plainly improving, very few applied and the scheme came in well under budget.