On 17 March, New Zealand announced one of the world’s largest per capita stimulus packages, reaching 4% of GDP, to help ease Covid-19’s negative impact on the economy.
The stimulus package, amounting to NZ$12 billion, includes tax cuts, wage subsidies, income support, health investments and support for the aviation industry. It is targeted to those at risk and started with immediate effect.
Prime Minister Jacinda Ardern said during a news conference, “The government is pulling out all the stops to protect the health of New Zealanders and the health of our economy.”
The stock exchange in New Zealand had a quick reaction to the fiscal stimulus, Reuters reports, reversing a decline of more than 5%. The NZ dollar rose 0.3% to $0.6061.
With the package coming into effect, preliminary forecasts from the Treasury department revealed yearly growth was predicted to contract by 1% year-on-year in March next year. Without the support, the yearly growth was predicted to contract by 3%.
The country’s Finance Minister, Grant Robertson said that the stimulus will increase debt considerably, with core government debt now forecast to surpass New Zealand’s present target of 15-25% of GDP.
He told lawmakers that there will be an extended period of deficits and the country’s debt will have to substantially increase. He added that a recession is almost certain.
The country’s central bank eased rates by 75 basis points after an emergency meeting on the day before the stimulus package was announced, as it readied for a substantial hit to the economy.
The NZ$12bn stimulus package is about the same amount of spending that was announced in January, as part of the massive infrastructure package, which is spread over a number of years. The infrastructure package would go into the building and upgrading of roads, rail, schools and hospitals across the country. Arden said, “It will take time to rebuild our infrastructure after nine years of neglect, but we’re getting on with it – and this package is the next big step.”