The New Zealand government’s announcement of a NZ$12.1bn spending package is massive – that’s undeniable. But the economic downturn that New Zealand faces will be even larger. The downturn is going to cause economic chaos, and it will see job losses. The key to limiting the impact of the Covid-19 pandemic on the economy is supporting employment and businesses, and although the package assists these aims, it doesn’t go far enough.

The stimulus package mirrors similar measures around the world, with wage support and paid self-isolation leave. It boldly focuses on businesses, with support for employment as we enter a downturn – and that’s exactly the right area to be targeting. In New Zealand, increased payments to those already out of work have been announced, as have measures to free up business cashflow. It also includes a suite of additional measures. However, there is a glaring gap, with little support for lower-income workers themselves.

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Leave payments for those self-isolating is critical to ensuring that those who need to stay home, do stay home. To flatten the curve and reduce the spread of Covid-19, it’s important that workers can and do self-isolate when they need to. But if the choice was between self-isolating and earning money, the need to pay household bills and put food on the table would make staying at home too difficult. By providing payments for those needing to self-isolate, the government has worked to incentivise people to abide by self-isolation protocols without losing out.

Employment across New Zealand is being supported by wage subsidies totalling $5.1bn, which will see up to $150,000 per business allocated to those that can show a 30% annual decline in revenue in any month between January and June 2020. The payment will be a lump sum covering a 12-week period starting immediately. But the payments for businesses cover only $585 per worker per week, when the average wage would be $1,300 per week. The difference will mean businesses will still struggle to retain all their staff, and so although the support will insulate some workers, New Zealand will still experience job losses.

Just as importantly, the timing of the business support package is too limited. Coverage lasts only until June 2020. The economic downturn will continue for longer, and so the government will need to be prepared for additional spending over a longer period to limit even more job losses.

Alongside business support, a permanent increase of $25 per week for all main benefits was also announced – but this is also something the government had already been advised to do by its own welfare expert advisory group. To be clear, the increase in benefits will provide increased spending from those out of work, but it shouldn’t have required the pandemic to trigger these increases. In essence, the package raises incomes for those who are already out of work, while in large part ignoring those who are still actually in work but who live on the edge.

Those on lower incomes, or who are in vulnerable employment, are the easiest jobs for businesses to cut in a downturn – be that their hours, or their entire job. With living costs continuing to rise, including higher rents still to pay, the support package is underwhelming for the glaring gap in support for this group. There’s little in the way of additional stimulus for poorer households, with no temporary tax breaks or household payments.

The government retains additional spending capacity to respond to this downturn, and we expect additional measures will be announced in May. The funding announced on Tuesday is the interim measure to hold over the economy until a full package can be implemented. The stimulus announced is significant, but the scale of the downturn is larger still.

Brad Olsen is a senior economist for Infometrics New Zealand