Election 2020: Documents reveal Treasury's risk appetite rising

Prime Minister Jacinda Ardern and Ashley Bloomfield give a Covid update. Photo / Greg Bowker Visuals

Newly released Treasury documents show the Cabinet increased its appetite for risk in seeking Covid-19 elimination in July, making a national return to the upper alert levels 3 and 4 less likely than previously.

The July changes appear to have given rise to the decision to move only Auckland to level 3 on August 12th, despite a limited number of Covid cases elsewhere on the North Island. The increased risk appetite also set the stage for Auckland's exit from lockdown at the end of August, despite continued low level community transmission.

Treasury briefing documents from July and August note that in July the Cabinet agreed to raise the risk thresholds at which New Zealand would move up alert levels. This meant that compared to New Zealand's previous risk thresholds, Covid would need to be relatively more prevalent before alert levels were raised.

The briefings also note that in July Cabinet agreed the principle "that New Zealand will avoid returning to alert level 3 or 4 nationally if at all possible".

The relevant Cabinet minutes themselves were not released. The Department of the Prime Minister and Cabinet did not immediately respond to a request for clarity on the current risk thresholds.

The Treasury documents, released under the OIA, underscore the enormous economic costs incurred by New Zealand's alert settings. However, they "take as given" the Government's elimination strategy and do not weigh the option of moving to a strategy of virus mitigation.

The Treasury documents also illuminate the enormous scope for overspending to achieve elimination, a possibility Prime Minister Jacinda Ardern has repeatedly glossed over in insisting that New Zealand's best health response is also its best economic response.

"Decisions on a response to a possible outbreak could have consequences of tens of billions of dollars that could intensify as time goes on. The various options for responding to an outbreak have very different economic and fiscal implications," a Treasury briefing from early August for the Minister of Finance and associate ministers says.

Police close the State Highway 1 motorway at Bombay as the Auckland region goes into Covid-19 alert level 3 lockdown in August. Photo / Dean Purcell

On Wednesday, Auckland will move to alert Level 2, down from more stringent measures that currently put the city somewhere between level 2 and level 3.

Treasury's figures suggest the cost of keeping Auckland at alert level 2 is $420 million per week (level 2 for the rest of the country, which ended on Monday, cost $280m per week).

Roger Partridge, chairman of think-tank the New Zealand Initiative, welcomed the Government's acceptance of increased risk.

"Lockdowns, like the alert level 3 restrictions Auckland was forced back into come at an enormous cost to livelihoods — and not just of Aucklanders, but of all New Zealanders. It is not possible to make Covid-related decisions about the overall wellbeing of New Zealanders without weighing up both the health benefits of alert level decisions and their consequences for the economy and therefore jobs and livelihoods.

"Two exponential curves are involved — an epidemiological one and an economic one. Overall wellbeing requires the Government to solve for both."

The documents show the Treasury is increasingly trying to understand where Covid policies incur a high cost relative to the level of risk they mitigate. The department has produced no conventional cost benefit analyses for Covid-related policies to date.

The August documents include a series of proposed changes to alert settings for consideration by the Minister of Finance.

Among the most significant is to allow retail and other "in-person" services to operate at alert level 3, subject to mask-use. The department's preliminary estimates are that the change "could increase economic activity by around 5 percentage points at alert level 3 — ie down from normal activity levels by around 20 per cent, rather than 25 per cent."

Overall, officials note, "we recommend pursuing this option only if your risk appetite is relatively high."

Treasury proposals also point to scope for expanding the kinds of businesses allowed to operate at alert level 4, should it be reimposed.

Allowing outdoor work, with no public interaction, it suggests, would reduce the overall economic cost of alert level 4 by about 3.5 percentage points. Previously the setting would throttle normal economic activity by 40 per cent, the change would mean economic activity at level 4 would restrict economic activity by 36.5 per cent.

"While this option does increase health risk ... this increase is likely to be relatively low," officials suggest.

Both the construction and logging industries would likely benefit from such a change.

However, while the Treasury is increasingly providing more nuanced costings for Covid policies, its recommendations appear to remain distant from decision-making. The All of Government Covid-19 Response Group, a business unit within the Department of the Prime Minister and Cabinet, is leading work on the country's alert settings.

An August 11th Treasury briefing for the Minister of Finance recommended exploring the option of substituting mandatory masking for physical distancing requirements on public transport as well as for air travel. New rules introduced on August 31st dropped social distancing on public transport in favour of mandated masks but did not include air travel. Carriers were required to keep distancing measures in place including a very costly policy of an empty middle seat, despite mandatory masking, until mid-September.

Treasury's early August advice noted the "emerging evidence that the health risk of removing physical distancing restrictions may be lower on planes than other forms of transport."

It also noted the economic benefits of removing distancing rules for airlines including "making operation more viable for commercial operators such as Air New Zealand".