John Roughan: Why coronavirus pandemic, not terrorism, is Jacinda Ardern's first real crisis

Prime Minister Jacinda Ardern and Finance Minister Grant Robertson say the priority for the Government is public health. Photo / Mark Mitchell

COMMENT:

On the anniversary of her first "crisis", Jacinda Ardern is in the middle of a real one. The Christchurch atrocity, a year ago tomorrow, was not a crisis though we called it one. It was a shock to our confidence in the goodness and tranquility of New Zealand.

It was a shock to the world because this was terrorism of Muslims in a Western country and New Zealand was perhaps the last place in the world racism of this magnitude would be expected. At least, we like to think so.

But it was not crisis in the sense that it destabilized the way things were and left us uncertain what to do. Our Prime Minister knew what to do, and her instincts, skills and gender made her perfectly suited for the task.

She did not just say the right things – assuring all of us, Muslims included, and the world this was "not us" – she embraced the Muslim community, put on a respectful headscarf, and projected an image to the world that has changed the way Western countries think and talk about terrorism.

She really ought to have received the Nobel Peace Prize.

But now we are in a real crisis, a full-blown global panic over an influenza bug. There is no clear, quick solution to it and nobody knows how long it could last. It's a crisis on two fronts, health and economic, and they are in conflict.

In Parliament this week Simon Bridges asked the Prime Minister whether the economy was the Government's first priority. She replied firmly that its first priority was public health. Fair enough. But at the end of the day, as John Key would say, it's the flu. It's going to go around.

Listen carefully to health authorities and they're saying they cannot stop it, the best they can do is slow it down so that health services will be able to cope when it is circulating, probably this winter. Many of us are likely to get sick for a few days and the frail and elderly will need particular care.

In the meantime, we have the country closed to tourism from China, Iran, South Korea and Italy, and to international students. The Government is reviewing that decision week by week but there is no hint yet that it might relax a little on the health front for the sake of maintaining economic activity.

Instead, it has created a budgetary crisis for itself. Business lobbies are applying pressure for a fiscal stimulus to compensate somehow for the recession we are probably in. (We won't know for sure until GDP for the second quarter is reported, just before the September election.)

Finance Minister Grant Robertson has tried to remind business he announced a $12 billion stimulus back in December, pre-coronavirus, but that seems to cut no ice now. These "packages" have more political than economic value and their timing is critical.

With business wolves baying at the Beehive door, the Cabinet threw them a couple of bones last Monday, notably a payroll subsidy, its terms to be announced this coming week. Reporters are suggesting it will follow the precedents of the Christchurch and Kaikoura earthquakes.

But an earthquake is different from this crisis. An earthquake causes instant damage and the scale of the problem is immediately clear, as is the solution, expensive though it may be. When the Key Government took on the entire payroll of the Christchurch CBD the liability was not open-ended. Boundaries were set by the cordon and a specified period for firms to relocate.

Ardern and Robertson have stressed their package will be "targeted", meaning designed to ensure subsidies are not wasted on firms that don't need them or are losing money for reasons other than Covid-19. But it will not be easy to make that distinction.

A pandemic is an economic shock on the scale of a global financial crisis, which is to say the economy might take a hit and bounce back within a year or two, or it might be put on life support and come to depend on that support indefinitely. Twelve years after the GFC the economies of Europe are still receiving artificial injections from their central banks.

So it is good news that the Reserve Bank of New Zealand might not drop the official cash rate by another 50 points this month as economists have been predicting. The bank's needless loosening last winter has left it little room to move before we'd fall into the same mire as Europe.

A budget stimulus seems to be a better form of life support, so long as the Government is later prepared to take the unpopular decisions required to restore the balance. This crisis is less suited to Ardern's attributes but it may be more fateful for her.