First phase of Govt's Covid-19 support package worth 4% of GDP; Includes wage subsidies, benefit increases and depreciation deductions for commercial and industrial buildings

The Government is pledging to inject $12.1 billion into the economy in what it called its “most significant peace-time economic plan in New Zealand history”.

This is equivalent to 4% of gross domestic product (GDP), which is greater than the response to the 2008 Global Financial Crisis.

The bulk of funding - $5.1 billion - is expected to go to wage subsidies for businesses that can show a 30% decline in revenue for any month between January and June 2020.

Eligible employers will be paid $585.80 a week for full time employees and $350 per week for part-timers.

The second largest bundle of funding, worth $2.8 billion, will go towards an income support package.

This includes a permanent $25 per week increase in all main benefits from April 1.

The third largest amount of money, $2.1 billion, will go towards reinstating depreciation and deductions for commercial and industrial buildings.

Other support measures include waiving interest on some late tax payments and a $600 million support package for the aviation sector.

Finance Minister Grant Robertson can’t yet comment on what support will specifically be given to Air New Zealand.

Furthermore, $500 million is being put towards boosting health resourcing.

This is only the first phase of support that will be provided.

The Government is still working on how larger or more complex businesses that fall out of the scope of this package will be assisted.

Officials are also meeting with banks to discuss the potential for future working capital support, including in the form of loan guarantees for businesses that face temporary credit constraints.

Robertson said very preliminary forecasts indicate GDP growth for the year to March 2021 is expected to be -1% with the package. Without the package, it would’ve been -3%.

He warned the “provided economic conditions allow” caveat in his Budget Responsibility Rules will apply, as New Zealand’s net core Crown debt is expected to breach the 15% to 25% of GDP target range.

And he warned New Zealand should prepare for a number of budget deficits.

“This is the rainy day that we have been planning for,” Robertson said.

“Any measures the Government takes must be timely, fiscally sustainable, targeted to those who need it, and proportionate to the level of economic shock…

“Today’s economic package is all about cashflow and confidence.”