New Zealand to set up $30bn Covid-19 recovery fund
Jamie Smyth in Sydney
New Zealand will establish a NZ$50bn (US$30bn) Covid-19 recovery and investment fund to help rebuild its economy following an unprecedented 20 per cent decline in economic activity in the June quarter, the government said on Thursday.
The fund will disburse the largest stimulus in the Pacific nation’s history over three years by extending an existing wage subsidy scheme to keep more workers in employment and pay for a range of business support schemes and new infrastructure projects.
Wellington hopes to save 140,000 jobs through the massive spending programme, which will more than double government debt by 2023.
New Zealand’s Treasury will issue NZ$60bn in bonds in 2020-21 and a further NZ$105bn over the following three years to finance the stimulus programme, an increase of NZ$50bn on previous forecasts, according to budget documents.
Grant Robertson, New Zealand’s treasurer, said the 2020 budget was being delivered in a “one-in-100-year” threat to the wellbeing of communities and the economy.
Mr Robertson, pictured delivering his Budget address on Thursday, said the recovery fund would play a critical role in enabling New Zealand to meet the coming economic struggle.
After imposing one of the world’s strictest lockdowns in mid-March, New Zealand may be on course to eliminate the coronavirus, reporting no new cases for three successive days this week. But the closure of most businesses and schools has had a devastating economic impact with budget forecasts showing the economy contracted 20 per cent in the June quarter.
On an annual basis New Zealand’s gross domestic product is forecast to decline 4.8 per cent in the year to end June, compared to a 2.8 per cent increase in the previous 12 months. Annual growth rates are forecast to return to positive from the year ending September 2021 onwards, according to Treasury forecasts.
Unemployment is forecast to increase significantly, rising to 8.3 per cent in the year ending June 2020, before peaking at 9.8 per cent in September 2020 and then recovering thereafter.
Budget deficits are forecast to average 9.3 per cent between 2020 and 2022 before reducing to 1.3 per cent of GDP by 2024. Government debt is forecast to be 30.2 per cent by the end of June, and to reach 53.6 per cent of GDP by the 2023 fiscal year before stabilising.
“Running operating deficits and allowing net core Crown debt to increase in the short term is necessary. This level of investment in the short term will support the economy recovering to where we can return to a more sustainable fiscal position,” said Mr Robertson.