WELLINGTON – New Zealand's government said Tuesday it would spend billions of dollars supporting hard-hit companies as it tries to shore up an economy headed for recession because of the coronavirus.
The stimulus package is equivalent to 4% of GDP. A large chunk of the new spending will go to businesses that have lost more than 30% of their income as a result of the downturn. Other money will go toward health costs, income support, and the airline industry.
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Finance Minister Grant Robertson said a recession in New Zealand is almost certain and would likely be more severe than the downturn after the 2008 global financial crisis.
“This will affect every part of our economy, now and for some time to come,” Robertson told lawmakers. “We are going to see many New Zealanders lose their jobs, and some businesses fail. We will have an extended period of deficits and our debt as a country will have to substantially increase.”
The government currently has a net debt level equivalent to about 20% of GDP, much lower than many other countries and giving it room to borrow more.
New Zealand has so far been largely spared from the disease itself, with only eight confirmed cases of COVID-19. But many parts of the economy have already been hard it, especially the tourism industry, the nation's single largest earner of foreign income.
The government over the weekend announced tough new border restrictions that require just about everybody arriving in the country to isolate themselves for two weeks, effectively halting the flow of tourists.
“We are a trading nation, with a huge amount of our income being derived from tourism,” said Prime Minister Jacinda Ardern. “So this response acknowledges that right now, people are hurting, jobs are being affected, and we’re doing what we can to cushion that blow.”
The stimulus package amounts to just over 12 billion New Zealand dollars ($7.3 billion). About NZ$5 billion will go toward wage subsidies for businesses, NZ$2.8 billion toward income support, NZ$2.8 billion in business tax relief, and NZ$600 million toward the airline industry.
Robertson said the government is in separate negotiations to help Air New Zealand, the national carrier. The airline already will seats on international routes by 85% and on local routes by 30%.
The stimulus package appears to have enough support from lawmakers to be passed into law.
The announcement came after New Zealand's central bank on Monday cut the benchmark interest rate from 1% to a record low 0.25%. The Reserve Bank of New Zealand said the negative impact of the coronavirus pandemic on the New Zealand economy would be significant.