August 18 2021
'We are here to support New Zealanders through this' - Finance Minister Grant Robertson
A level 4 lockdown will be costing the country about $290 million a day, although history suggests some of that loss will be offset as the economy rebounds, says ASB chief economist Nick Tuffley.
Finance Minister Grant Robertson has estimated that the cost of the national lockdown as it iscurrently planned would be around $1.5 billion.
These kinds of "back of the envelope" calculations were done based on what we have learned about lost economic output during lockdowns.
Assumptions that roughly 67 per cent of output was still occurring at level 4 seemed to match up pretty well with reality last year, Tuffley said.
"Nominal GDP is about $325b ( a year) at the moment. So a full year of lockdown is losing $107b. Divide that by 365 and we're looking at about $290m per day that is lost," he said.
"If you did that for seven days you're looking at $2b, if you did it for five you're looking at $1.5b, as a rough estimate."
Robertson's estimate was presumably a similar calculation factoring seven days for Auckland and the three days for the rest of New Zealand, Tuffley said.
"When you're doing these kinds of calculations what you're asking is: what can we actually do under lockdown conditions?
"So okay that's $1.5b to $2b a week but the key thing is the extent of catch-up activity that occurs afterwards. To what extent do we just make up for that afterwards?"
We had seen that with retail spending and construction activity after the various lockdowns, he said.
"At level 2 and level 3 we're actually pretty good at selling and buying stuff off each other. We've figured out how to do all the click and collect and delivery. With things like manufacturing and construction it's probably people just working longer hours to make up for lost time."
The big worry was areas like hospitality where the longer it went on, the less likely you were to have enough catch-up celebrations and activities, Tuffley said.
The shorter the lockdown, the more likely that activity just had a shift in timing rather than a permanent loss, he said.
Getting out of level 4 as quickly as possible was crucial.
"At level 3, level 2 we've shown several times over that the long-term impacts tend to be very, very mild."
Westpac chief economist Michael Gordon said past experience with Covid lockdowns now provided "a reasonable sense of their economic impact".
"We've previously estimated that at alert level 4, the value of lost activity is around $1.5b per week," he said.
"The impact at alert level 3 is significantly lower at around $600m per week, while the effects of alert level 2 restrictions are small overall and limited to a few sectors.
"Whatever the cost of early action may be, it pales in comparison to the potential cost of a slow response that results in a longer period of restrictions.
"This highlights a point we have often made: In the long run, there is not a trade-off between public health and the economy."
ASB chief economist Nick Tuffley. Photo / NZME
Meanwhile, the cost to the Government would be large but manageable as tax revenue was already several billion dollars ahead of what was projected in the May Budget, Gordon said.
Robertson has said there is around $1b left over from the money set aside for the Wage Subsidy Scheme and Resurgence Support Payment.
In addition, the Covid-19 Relief and Recovery Fund still had around $5b in it.
Beyond that, our Crown debt position is stronger than forecast with accounts to the end of April showing net core Crown debt was 33.9 per cent of GDP, or $2.6b less than forecast.
The Government still had "financial firepower" to get through this, said ASB's Tuffley.
"They are not needing to borrow as much as was expected at the peak of the pandemic last year."
