We must turn our attention to the economy and focus on stimulus
The world has changed in a little less than a year with the advent of COVID19. In Aotearoa people have now endured a series of staged lock downs to enable the Government, health authorities and agencies to eliminate the virus and return New Zealand to some form of normality.
There is no doubt that the Governments response has been swift and focussed but in all reality there are sections of the economy and society that will be impacted – that is just the nature of beasts such as global pandemics; while we hope the majority will be able to return to some sort of normality the fact is there are those in our society and communities that will be detrimentally affected. Around the world COVID19 is affecting countries in different ways depending on the response being taken – some are more impacted in terms of the health response while others have seen significant declines in the economy.
In April Creon Butler, the Director, Global Economy and Finance at Chatham House wrote that “With the IMF forecasting a 6.1% fall in advanced economy GDP in 2020 and world trade expected to contract by 11%, there is intense focus on the question of how and when to re-open economies currently in lockdown.” And that “But no ‘opening up’ plan has a chance of succeeding unless it commands the confidence of all the main actors in the economy – employees, consumers, firms, investors and local authorities.”
Butler went on to say “Without public confidence, these groups may follow official guidance only sporadically; consumers will preserve cash rather than spend it on goods and services; employees will delay returning to work wherever possible; businesses will face worsening bottlenecks as some parts of the economy open up while key suppliers remain closed; and firms will continue to delay many discretionary investment and hiring decisions.”
Back home in New Zealand Treasury, in its weekly economic update (28/8) made it clear that economic activity in Auckland as a result of the regional lock down to level two continued to constrain the rest of the economy especially when it came to the retail sector (already under pressure alongside the hospitality and tourism sectors): “High-frequency data continue to show a sharp decrease in Auckland activity, while activity in the rest of New Zealand has remained close to normal levels. Retail sales experienced their biggest quarterly drop on record, while median incomes fell for the first time. The annual trade deficit narrowed further, as imports fell sharply and exports generally held up.”
“Card spending was 43% below the January/February average on 24 August, while light and heavy traffic volumes were 43% and 11% below 2019 levels, respectively.” Treasury did indicate that activity remained close to normal levels in the rest of the country but taking Auckland out of the equation means we are in for a longhaul journey towards economic recovery.
When you take a look at the increasing number of New Zealanders on income support you can escape the per week increase still in the thousands.
Around 24,000 people were receiving the COVID-19 Income Relief Payment (CIRP) as of 21 August, up 1,200 on the previous week. The total number of people receiving income support (Jobseeker and CIRP) was 219,500 – up 2,700 on the week prior. Meanwhile income across the board continues to fall. Median weekly incomes fell 7.6% in the June 2020 quarter compared to June 2019 in the wake of COVID-19, according to Stats NZ. This is the first fall since records began in 1998. Median incomes are now $652 a week. The measure captures income from wages and salaries, government transfers (such as New Zealand Superannuation and Jobseeker Support), and self-employment. People away from jobs without pay due to the pandemic and more people receiving government transfers contributed to the fall in income. Median self-employed incomes fell 12.5%, partly owing to fewer high-end earners. Median wage and salary earnings rose 4.3%, mainly because many lower income workers reported no earnings.
As it stands COVID19 has cost the New Zealand economy tens of billions of dollars and it is likely it will be some time before we see the end of the rabbit hole. So, what can we expect? The last quarter unemployment rate, underemployment estimates and those no longer looking for work appears to be an anomaly given we were still to see the decline in hours worked roll through as well as having a tight and meaningful understanding of the role of underemployment in our work place – this means unemployment is likely to rise as the wage subsidies begin to wind down and the take up of small business loans remains stagnant. So far just over $150 million in loans have been taken out from a pool of $5 billion which has meant the Government needed to relax the criteria. That said, the loans may simply be there for cashflow as opposed to being used as stimulus in the economy. The wage subsidy extension saw $167 million paid out to a further 47,000 business with last estimates showing more than 157,000 jobs were now being supported because of the new lockdown. Between 5 and 21 August, more than 325,000 jobs came off the wage subsidy.
But the truth is many of these small businesses will not be able to trade beyond Government support because of one of the reasons will be consumers are less likely to spend cash – instead keeping spending at bay. This means not only small business closures but the loss of jobs that will inevitably see the unemployment rise and my prediction is that the 4% seasonally adjust rate was nothing more than an anomaly therefore rising to above 10% by the years end. For Maori this means an unemployment rate of around 14% and higher in already economically depressed regions.
While we dwell on the health response what we really need to be looking at is the economy and shifting away from welfare dependency to stimulus and growth. One example is freeing up more capital to stimulate small business to purchase goods and services for the business – this is in turn will see greater investment in trade retail, the electronics and equipment sectors.
Another tool the Government can put into place is to see smaller amounts invested into community based infrastructure projects as opposed to singular located larger projects (or a combination of the two) – this means investing more in infrastructure renewal from schools and community halls to Marae local Government. That means every community, or as many as possible is stimulated. All of this means local small business growth as well as jobs.
From hospitals to schools, from Marae to home insulation – these are the types of activities that will get the country moving again – I call it “Building to Recovery” and Maori can play a leading role both as project developers and managers right through to investors. Whatever happens our core focus must turn to the economy while we still fight the health battle ahead.
About the Author: Matthew Tukaki is the former head of one of the world’s oldest and largest employment companies, Drake International, and guided it through the Global Financial Crisis. He is formerly the Chair of Deakin University CSaRO and Australia’s representative to the United Nations Global Compact. Matthew is currently Executive Director of the New Zealand Maori Council, the CEO of the Maori Carbon Collective and Chairman of the National Maori Authority.