It’s been five years since the outbreak of the Covid pandemic, since the lockdowns, border closures, queuing for supermarkets, the masks, 1pm press conferences, social distancing.
During the early stages of the outbreak, many people talked about “building back better” – taking the opportunity to construct a more just world, a fairer economy in the post-pandemic era. But the French novelist Michel Houellebecq promised that the world after Covid would be “the same but worse”, and this is how many of us have experienced it.
The virus is still with us: endemic, constantly present, constantly circulating. People are still dying of Covid. At the end of last month, Health New Zealand attributed 4585 deaths directly to Covid-19, one of the lowest per capita rates in the world. A total 2.7 million “recovered” cases are recorded; 770 new cases were reported in the last week of February. Between 4% and 14% of sufferers will go on to experience long Covid, with impacts on parts of the brain and nervous system that are still not fully understood.
We’re also living with the long-term consequences of the pandemic: high inflation, recession, high migration, and decreasing trust in institutions.
In the years after the lockdowns, school truancy soared. The number of people experiencing psychological distress increased, especially among younger New Zealanders, and the Mental Health Commission warned in 2022 of a youth mental health crisis.
Child poverty has worsened: the number of children experiencing material hardship increased to 13.4% in 2024, the highest since 2015. Nearly 24% of Māori children were in this category, up from 19.7% in June 2020.
The nation experienced a surge in violent crime, in retail theft, in gang shootings. Stats NZ’s 2023 wellbeing data revealed a population that felt less safe and had lost trust – in other New Zealanders and with institutions, especially politicians and the news media.
How did the world-beating response of Jacinda Ardern’s team of 5 million curdle into the sourness of the mid 2020s?
“Social cohesion” is a term that recurs throughout the scientific literature of the past five years.
The pandemic and its responses damaged the sense of community and belonging most New Zealanders took for granted until it began to degrade. This fraying of the social fabric was aggravated by the grim economic conditions of the post-viral era.
Printing money
When the government sent the nation into lockdown in March 2020, it would have contemplated a nightmare scenario in which most companies’ revenue would crash. To avoid insolvency, they would lay off most of their workers, causing a wave of mortgage defaults. At the same time, savers around the country would try to withdraw their deposits to cover their bills. The banks would be unable to cover their debt obligations and the Reserve Bank would be forced to guarantee them, at ruinous cost. Because of the dire economic conditions people would defy lockdown: open their shops, go back to work. The attempt to contain the virus would fail and the pandemic would devastate an unprotected, unvaccinated population alongside a deep and sustained depression.
Governments have two key policy tools for managing economic shocks: monetary, ie, adjusting interest rates via the central bank, and fiscal, spending money. In 2020 and 2021, finance minister Grant Robertson and Reserve Bank governor Adrian Orr deployed both of these on a dramatic scale.
In March 2020, Robertson announced a $12.1 billion economic rescue package. The most significant component was the wage subsidy, in which the state paid the wages of workers during the lockdown period, securing their jobs. The Ministry of Social Development was able to roll this out in a matter of days. At its peak, the wage subsidy covered 72% of all businesses and supported 59% of New Zealand’s workforce.
In his May Budget, Robertson announced a dedicated Covid 19 Response and Recovery Fund of up to $50b to draw on for pandemic-related spending.
This spending equated to roughly 30% of the nation’s annual GDP – and was funded by borrowing. Treasury officials acknowledged that the scale was huge but advised that the benefits of protecting jobs and businesses outweighed the costs of higher public debt.
In March that year, the Reserve Bank lowered interest rates to an unprecedented 0.25% and pledged to fix them there for at least 12 months. It also printed $55b between March 2020 and July 2021 and used this to buy government debt (a practice known as large scale asset purchases, or LSAP, because calling it money printing makes the public nervous), driving down longer-term interest rates and injecting cash into the domestic economy.
It introduced cheap funding for commercial banks, relaxed lending requirements and announced it would do “whatever it took” to maintain monetary stability during the pandemic.
All of these measures worked – rather too well. New Zealand’s GDP crashed by 12.2% in the June quarter, when everyone was locked down, then exploded by 14.1% in the September quarter when the economy roared back into life, supercharged by the torrents of cash flooding through the economy. From mid-2020 to late 2021, house prices in New Zealand soared by 44%, according to the Real Estate Institute. This created a windfall for homeowners – Reserve Bank data shows the collective wealth of property owners increased by $535b between December 2019 and March 2022, and that has only partly reversed in subsequent years.
Reeling it in
All of the extra money surging around the economy collided with increased fuel prices, higher housing costs and international supply-chain disruptions, sending the Consumer Price Index surging from 1.5% in the March 2021 quarter to 7.3% by June 2022. The Reserve Bank started raising interest rates in late 2021 and continued until mid-2023.
Orr frankly admitted the aim was to engineer a recession, with the goal of reducing inflation back to its target band. GDP growth has been low or negative since late 2022. By 2024, we were one of the worst performing economies in the developed world, and the new coalition government was struggling to address the state’s structural deficit.
Orr, who was roundly criticised, resigned on March 5, but in December defended the bank’s decisions during Covid, saying the economy could have turned out far worse.
The pandemic ushered in a dramatic expansion in the size of government and the scale of its debt: government spending as a percentage of GDP went from 29% in 2019 to 34% in 2023. Net debt, which had fallen to 18% of GDP in the three years to 2019, soared to 39% of GDP in 2023. But there wasn’t an increase in revenue to offset the spending: instead, the new government cut taxes. The crown expects to keep borrowing to make up the deficit until at least 2028.
Much too much
Brad Olsen, chief executive at economics consultancy Infometrics, maintains the government’s initial economic response was appropriate and effective. The problems came during the recovery phase, when it continued to borrow and spend, despite the economy looking healthier than anyone expected. “The pandemic paused the economy rather than destroyed it,” says Olsen. “Within probably two to three months, we were all a lot more confident that actually things looked pretty fine. Not awesome, but fine. Not enough that it needed the level of support that was still being given.”
For Olsen, there was a failure of counter-cyclical policy: the state was spending heavily when the economy was already overheating, and this, combined with the Reserve Bank’s monetary policy and dramatic shifts in migration policy – from border closures and a residency backlog to the immigration reset of May 2021, which dramatically scaled back the number of migrant workers – destabilised prices.
“At the time, the thinking was we were facing a dark economic period, and we needed activity and spending to keep us out of a deep hole,” he says. “That logic made sense then. But as we continued, we kept borrowing even when the economy was recovering enough to handle a slowdown in support.”
This sustained spending fed the price increases. Olsen acknowledges that external factors, such as Russia’s invasion of Ukraine, made things worse, but inflation was already building up before that.
“Expanding the money supply so much was a big part of it. If we were to re-run the pandemic response today, I think most people would still drop the official cash rate, but I don’t think we would have done as much large-scale asset purchasing as we did.”
Why didn’t the government cut back spending when the economy recovered? Part of the build-back-better ethos for left-wing governments was that Covid created an opportunity to create a larger economic role for the state; to pivot away from the market-led model of the past 40 years.
What went wrong? “Build back better works when something is destroyed, and you have a chance to rebuild differently,” says Olsen. “But in reality, we just hit pause, then resumed.”
He believes the response reinforced existing economic structures rather than transformed them. “The biggest economic shift we got was inflation, which hurt the very groups that ‘build-back-better’ policies were supposed to help.”
Defying the Ardern government’s nightmare scenario at the pandemic’s start, unemployment actually shrank in the early Covid years: falling from 116,000 in March 2020 to just under 100,000, or 3.2%, in March 2022, economic consultancy Berl found. But by March 2024 after the economic downturn kicked in, it was 4.4% and by December last year had risen to 5.1%, or 156,000 people.
And sectors such as retailing and hospitality have yet to recover fully – retailing in particular was dealt a double whammy from the rush to online shopping.
Skills shortages emerged in construction, technology and health, exacerbated by border closures and the changes to immigration settings.
The government’s Cultural Recovery Programme distributed $460 million over four years to prop up the performing arts, film and television production, museums and local arts and culture programmes. But lockdowns changed habits – audiences were slow to return and costs became a barrier to participation, a 2024 review of the programme noted.
Coming apart
Phase 1 of the Royal Commission of Inquiry into Covid 19 Lessons Learned was released last November. It celebrated the government’s performance during the early phases of the pandemic and the high levels of public trust this generated – but concluded that the prolonged nature of the Auckland lockdown in late 2021, the limited benefits and long-term costs of vaccine mandate policies, and poor communication practices during the later stages of the pandemic all had negative consequences, degrading trust and social cohesion.
Paediatrician and health researcher Sir Peter Gluckman, the Prime Minister’s inaugural Chief Science Adviser from 2009-18, warned in June 2023 that the country’s social cohesion was “straining at the seams”. In a paper released by Koi Tū: The Centre for Informed Futures, the Auckland University-based think tank he cofounded in 2019, Gluckman and colleagues argued that New Zealand’s status as a cohesive high-trust society was under threat from “political, economic and environmental pressures, exacerbated by technological disruptors”.
Koi Tū's diagnosis is similar to the Royal Commission’s: the pandemic response showed an initial strength that deteriorated over time. He believes it became too driven by a narrow set of experts – primarily public health officials – and neglected advice from economists, educators and social welfare advisers. “The focus was too much just on health, not enough on the plurality of inputs that were needed … It was not even clear to me who actually had input to give advice? It was very, very tightly held. I was in a rather unique position at the time, and even I wasn’t sure who was advising whom.”
And while the early Covid messaging was effective, it later became politicised, and “patronising, rather than engaging”.
Gluckman also notes the “rigid, top-down decision-making” that came to dominate the response. “If you talk to Ngāti Whātua Ōrākei, they were actually penalised by Health New Zealand for moving ahead of targets in vaccinating their communities. There were all sorts of strange decisions, stemming from what I think was a narrow, command-and-control model of governance.”
The Royal Commission’s phase 1 report notes the problem of “group think” in the government’s response, and a “lack of critical review and full consideration of operational impacts”. Gluckman concurs.
During the pandemic, he proposed that the government create a red team – a group of experts with no political or bureaucratic responsibilities to challenge assumptions and highlight overlooked risks. “This was actually a situation where they needed people who had no line responsibility and no political engagement in the process to actually challenge what they were doing.”
But the suggestion was ignored, reinforcing his view that “the government was unwilling to question its own decisions”. And there was little public debate about the trade-offs being made at the time. They needed someone asking, ‘What are the long-term consequences of these lockdowns? What’s happening to mental health? What are the economic and social risks?’”
Lessons not learnt
Brad Olsen observes there was limited scope during the crisis to question the government’s actions or statements. “There was a question of how do we have a reasonable policy debate about this sort of stuff? I don’t know if people were very keen to be directly contradicting or challenging government views or department views on things. I still remember quite vividly the joke around the ‘podium of truth’ – the government is where you get information from and by implication everywhere else is not.”
Neither Gluckman nor Olsen believe we’ve learnt from the mistakes of the Covid era. “If we were to strike Covid-25 today, would the playbook change at all?” asks Olsen. “I’m not sure it would. I’m not sure that anyone has said definitively what they would or wouldn’t do as much next time. Like, I genuinely don’t think that I would like to see another large-scale asset programme [printing money to buy bonds] go through and I don’t know what the Reserve Bank’s view on that is.”
Gluckman believes that globally, the world is less capable of responding. “The US-China tensions, World Health Organisation dysfunction, and failure to reform global pandemic agreements mean we’re in a worse position than we should be. At the national level – I honestly don’t know. Our risk management processes are still unclear. The National Risk Register was never published properly.”
He argues that the most important project is for institutions to win back the public’s trust. “Trust isn’t just about health messaging – it’s about politicians, the public service, and media behaviour. The media has been forced into polarised, opinion-driven content, which feeds division rather than informed discussion. Institutions need to start being radically transparent about trade-offs. They need to stop playing short-term political games and start thinking long-term.”
Challenge to democracy
Victoria University of Wellington political scientist Lara Greaves (Ngāpuhi, Pākehā, Tararā) says it’s important to remember that the negative trends seen in New Zealand in the post-Covid era are global. “We’ve seen democracy weaken almost everywhere,” she says. “Politics has shifted heavily toward populism and democratic decline.”
New Zealand followed the same trajectory as other nations. “When there’s a big crisis – a war, a natural disaster, or some other external shock – people tend to cling to what they know,” Greaves says. “That means they rally behind the incumbent government, no matter how well or poorly they’re handling the situation. A lot of governments – even those presiding over high death rates – got that initial bump in support. Our New Zealand Attitudes and Values Study showed an increase in trust in scientists, politicians, and institutions during the first lockdown.”
But this trust eroded over time. Greaves attributes this to a combination of factors. The internet fundamentally changed news consumption – people disengaged from traditional platforms. Many weren’t taught how to evaluate information critically, so they didn’t have the skills to sort fact from fiction. And populist politicians find it useful to play on this decline in trust.
“It’s politically useful. If a journalist criticises you, you can dismiss the entire media industry as biased,” Greaves says. “That strategy has been around for over a decade, especially in the US, but now it’s entrenched everywhere.” Finally, the shift to digital media technologies allows small groups of anti-establishment individuals to influence public discourse. “There’s a group that has become radically less trusting, and they pull the overall trust level down.”
Greaves believes that the gloom and rage of the post-Covid era, combined with changes in the media landscape are rewriting the rules of politics. The public are less indulgent of underperforming governments, more suspicious of political elites, voters are more transactional. There’s a shift towards individualism rather than the broader interests of the nation or community. “All those old conventions are breaking down. Governments can no longer assume they’ll get three terms.”
And she’s sympathetic to some of the anti-elite sentiment. “Maybe as elites – and I would put myself in that category now as a associate professor of politics – we need to actually look at ourselves and go, what are we doing?”
Could we afford to repeat another lockdown? Or another similar-scale disaster?
Economics is known as the dismal science for a reason, and Olsen’s summary of our post-Covid fiscal position is appropriately gloomy. “What happens if the Hikurangi subduction zone goes, or the Alpine fault goes, or foot and mouth arrives in New Zealand? The need to respond to those is huge. We have less room to manoeuvre today than we did previously.
“Did that support need to come through at the time? Yes. Did we need to possibly think a bit more about what we did out the other side? That was the part that I think we didn’t consider as much of.
“And again, that was appropriate for the first couple of months, almost for the first year. We had no idea what was happening. Were we going to be closed off from the rest of the world for five, 10 years? What was it going to be?
“But once you start to see vaccines roll out, I feel like that was also where we should have pitched the view or pivoted the view more towards, okay, what are the long-term implications of this? How do we more reasonably manage the fiscal outcomes and everything else? And you know, we’re only finding this out now.”
