Yesterday afternoon the government announced a recovery package aimed at limiting the impacts of the impending recession on businesses and workers. While it is too soon to say with any certainty how all of these changes will play out, or even to provide an in depth analysis of the entire package, there are some preliminary comments that can be made.
First, it should be noted that as with all natural disasters, the Covid-19 pandemic and its economic ramifications are playing out on top of the already existing fissures, divisions, and inequalities in our economy and society. The impacts of the crisis are conditioned not only by the natural characteristics of the disease, but also by the ways in which our healthcare, welfare, and housing systems are structured. The coming crisis will reveal and exacerbate these contradictions, but it will also provide an opportunity to embed structural changes that will not only alleviate the worst effects of a short- to medium-term recession, but also make us better prepared to handle future shocks of this sort.
Yesterday’s announcement, while it contains many positive aspects, does not do this. Almost all of the changes are short-term in nature and designed to offer immediate relief. Given this is a quick response to a crisis, that might have been all we could expect. Fortunately, the government has announced that this is only the beginning of their recovery package. The government’s 2020 Budget, to be released in early May, has already been christened the ‘Recovery Budget’, and Grant Robertson has signposted it will contain more significant spending announcements. It is key that in the coming weeks and months progressive organisations and individuals make clear and coherent spending demands for this budget to ensure that the working class leaves this crisis in stronger shape than we entered it.
In what follows I provide a brief analysis of each of the main components of the initial package and point to some possible future spending priorities.
By far the largest component of the package consists of programs to support businesses to retain workers. Measures that would ensure as many workers as possible remain in work were called for by both unions and business groups in the lead up to the government’s announcement, and it appears that in the short term at least both groups will be reasonably happy with what has emerged.
Any business that can prove a 30% drop in revenue from this time last year will be able to apply for wage subsidies of $585 per week for full time workers and $350 per week for part time workers, up to a maximum of $150,000. Importantly, self-employed sole traders will also be able to apply for this assistance. Employers will be able to apply for reimbursement of sick pay for workers at the same rates for up to 8 weeks. Combined, these programs should ensure that workers can depend on stable employment through the short term and will not have to worry about sick leave entitlements if needing to self isolate, which should help to slow the spread of the virus. Further areas of improvement being called for by unions include raising statutory sick leave requirements from the current 5 days per year and introducing legislation guaranteeing redundancy payments to all workers.
Temporary changes to the tax system have also been announced to lessen the tax burden on struggling employers. This is reasonable as a short-term measure, but it is essential that changes remain temporary as the tax base will need to be expanded rather than shrunk in order to pay for further reforms. As much as possible, any increased burden should be shouldered by businesses and the wealthy, not working people, and this may be a key fight in coming months.
An aviation package to the value of $600 million has been announced, but details at the time of writing remain scarce, beyond a general commitment to keeping air cargo routes operational. Similarly, a $100 million work-redeployment scheme, aimed at finding new employment for workers who have been laid off, will need to be fleshed out before further comment can be made. Consultation with, and involvement from, unions, community groups and iwi will be key to the success of this element.
Not all workers will be able to be redeployed after facing redundancy, and many workers are already unemployed or underutilised. For this sector, the government’s package includes a permanent $25 a week increase in main benefits and the doubling of the Winter Energy Payment to $1400 for couples and $900 for single people paid over the winter weeks, though the latter applies for this year only. In-work tax credits, available to parents up to a value of $72.50 per week, will have their work requirement dropped. These are all positive changes, especially as the main benefit increases and loosening of in-work tax credit eligibility are permanent.
While this will help stimulate spending in the short term, increases far larger than $25 per week are required to lift benefit levels above the poverty line. Advocacy groups such as Auckland Action Against Poverty are instead demanding a transformation of the welfare system so that future government responses to crises, whether in the form of a viral pandemic or a financial-crisis induced recession, do not lead to austerity approaches disproportionately impacting low-income workers and beneficiaries. An appropriate start for such an approach would be for the government to revisit the recommendations of the Welfare Expert Advisory Group, which it commissioned, and implement them in full. Key elements of this would include ensuring benefits are set at a level above the poverty line and are individualised rather than relationship-based, and that punitive sanctions and stand-down periods are dropped.
Surprisingly, healthcare was one of the smaller spending areas in yesterday’s announcement. $70 million was put aside to fund extra in-person and video-linked appointments with GPs, tracing resources were increased, funds were made available for the resourcing of intensive care units, Healthline was topped up by $20 million, and a further $500 million was allocated to cover immediate and future healthcare costs, almost half of which is to go towards the cost of vaccines and protective equipment. On the surface level, it appears this will be enough to keep hospitals afloat and essential services operating under huge strain. Diving a bit deeper, however, shows that the funding increase is almost all to pay for new services and resourcing, meaning the current account deficits many DHBs have been operating under for years remain, which was noted in the response of the Leader of the Opposition. Fixing these deficits is not the aim of this package, but will need to be a future spending priority if the government intends for healthcare facilities to be able to provide adequate care throughout and beyond the COVID-19 pandemic. Already, DHBs struggle to meet demand in busy times such as the winter flu season. Ensuring continuity of all care, not just for COVID-19 cases but for all illnesses, will require another large spending commitment in the budget.
Given current infrastructure constraints, one potential solution to increase capacity in the short-term is the public requisitioning of private hospitals. This is currently happening in Spain, and should be seriously considered by the government if the curve cannot be flattened enough for supply to accommodate demand for healthcare services. Adding private hospitals into the public system would immediately increase the amount of beds, nurses, and equipment available while ensuring that care is not rationed according to wealth.
What’s not there
As the government has noted, this is only the beginning of a response to the multi-faceted crisis we are facing. Many of the flow-on effects of the pandemic are not addressed at all, and others will need to be expanded for working people to feel confident in their positions over the next few months.
The most obvious area for further action is in housing. Homeless people and whānau, whether living on the streets, in cars, or in overcrowded housing, need access to housing immediately so that they are able to self-isolate safely. Not increasing the provision of public emergency housing immediately will lead to an increase in infections once community transmission begins. While the virus is immediate, longer-term solutions such as a mass build in secure state rental housing could help to shelter people from this and future crises.
Owners and renters of properties are facing potential deleterious consequences from the pandemic as well. Despite the wage subsidies offered, jobs will be lost and people will move from work to benefits. If lots of jobs are lost, sustaining spending on rents and mortgages could become a systemic problem and deepen economic recession. Other countries have already instituted mortgage freezes because of the pandemic, and it is only logical to extend this to a freeze on household rents as well. Depending on the severity of the crisis, utility freezes or expansion of winter-warmer payments to become universal could also be on the cards.
Of course, almost all of these programs would cost money. Already, the package announced yesterday will add 2-3% to our debt- to GDP ratio per quarter. Though this looks bad, it is not necessarily a huge problem as New Zealand has some of the lowest levels of public debt in the OECD and interest rates are at historic lows. Despite this, revenue may need to be raised to fund future spending packages. If this is the case, there exists a large untapped tax base able to pay for extra spending. Options for raising revenue once we’re out of the immediate crisis include putting in place taxes on financial speculation, taxes on land ownership or on rent, and simple and administratively efficient measures such as the wealth tax proposed by Thomas Piketty. Of course, the idea of a capital gains tax could always be resurrected.
Over the next few months, the case for these and other progressive policies needs to be made consistently and coherently. The government should make sure that unions and advocacy organisations like Auckland Action Against Poverty are at the centre of providing solutions, and these organisations need to place themselves there. A serious campaign should be run to ensure that this government embeds structural changes that strengthen the hand of working people and increase our capacity to cope with future crises, while getting us through this one as comfortably as possible. We all have a role to play in making this a reality.