PM Jacinda Ardern and Grant Robertson predict NZ's economy will 'rebound' after the worst GDP fall since records began. Video / Mark Mitchell
COMMENT
Recently, in an article published in the Financial Times, New Zealand's Finance Minister Grant Robertson defended one of the world's toughest Covid-19 lockdowns following a record economic contraction, insisting the restrictions saved lives and was facilitating a strong recovery.
Robertson suggested that "the best economic response remainsa strong public health response".
New Zealand's GDP contracted by around 12 per cent in the second quarter. But probably more important is what lies underneath those GDP figures. According to current forecasts, we will expect to see fairly high levels of unemployment till at least 2027.
It is likely that the current unemployment figures are conservative because one would really need to account for the wage subsidies that are in place now. If a lot of workers get laid off once the subsidies expire then the unemployment rate will obviously jump up.
Long term it is also worth thinking about our debt levels. Deficit financing under current circumstances is certainly not unusual. Our current debt levels are not that high compared to others like Japan, Singapore or Greece whose debt amounts to more than 100 per cent of GDP. But it is worth noting that NZ more than tripled its net debt this fiscal year alone.
Net crown debt is forecast to peak at over $200 billion in three years' time, from around $57 billion pre-Covid-19. That is $143 billion of additional borrowing. This will become a significant burden for today's younger workers, who will also be the most adversely affected by the economic fallout of Covid-19.
Robertson's responses are problematic at multiple levels.
First, if it is indeed the case that the best economic response is a strong health response in the form of stringent lockdowns, then why does Robertson not commission a study to show us the data that backs this up?
Robertson can pick anyone he wants as long as he gets representatives from the Treasury, the Reserve Bank and the Productivity Commission and some independent economists with serious research credentials and peer reviewed publications such as Martin Berka of Massey or John Gibson of Waikato, who have already worked on the relevant cost-benefit modelling.
The only independent study conducted so far, that I am aware of, is the Productivity Commission one showing the opposite of what Robertson claims.
Robertson's answer is also disingenuous because most people realise that the government has pivoted away from its so-called elimination strategy and has quietly decided to manage the virus without actually saying so.
This is apparent from the current tinkering of the alert level settings and also the fact that even Robertson's colleagues do not take their own proclamations seriously. Recently, the Herald featured a photo of Ashley Bloomfield taking a selfie with an elderly gentleman and guess what? No masks on either face. The same was true of the Prime Minister as she toured Massey's Palmerston North campus and took selfies with large groups of admirers.
Another example. The University of Auckland recently made news for supposedly "forcing" students back to campus. In doing so, the university and its Vice Chancellor were following clear guidelines laid down by the Ministry of Health until Ashley Bloomfield declared that gatherings of more than ten were not allowed. In doing so he was contradicting the guidelines laid down by his own department.
The third reason I find Robertson's response troubling is the following comment: "It's a game of two halves, to use a rugby analogy. In the short-term, New Zealand is better than was expected," said the finance minister. "But the medium and long-term is more challenging and we put that very squarely at the feet of the global economy."
Come on. If you are going to impose significant economic hardship on many because the "best economic response remains a strong public health response" then at least have the courage of conviction to stand by your own policy choices.
It is not Covid-19 or the global economy causing all of this. Some of this is the result of our own policy choices. If you think the economic cost and hardship is worth it in the long-run, then at least stand by your own policies rather than shifting blame.
The fact remains that this government launched into a set of policy choices without adequate fore-thought or consultation about the consequences. Now that those consequences are becoming clear, it is scrambling to find an appropriate response. After having staked its reputation on elimination, ego and hubris is making it difficult to change course.
But recovering from the coming recession requires that the government does some soul-searching and adapt its future approach by calling upon a wide range of experts and expertise.
Covid-19 would have been challenging enough but we made things more difficult for ourselves by not investing the time and effort to think through alternative scenarios.
Recently, an interlocutor asked me: Where would you rather be, if not in New Zealand? I find this to be a non sequitur.
For one thing, the outlook for a middle-aged tenured professor is vastly different from a that of a young family struggling with debt and mortgage payments while worrying about their jobs.
And secondly, just because many others around us are losing their minds does not make irrationality rational.
• Ananish Chaudhuri is Professor of Experimental Economics at the Department of Economics, University of Auckland.
