Unemployment rate expected to rise if COVID-19 lockdown extended

By Jessica Tyson

The Government has released a range of economic scenarios today to put significant measures in place to protect jobs and support businesses through the COVID-19 lockdown.

Finance Minister Grant Robertson says the scenarios are based on assumptions of different amounts of time under the Alert Levels and shows how extra Government spending will cushion the blow by protecting jobs and supporting businesses.

“This global pandemic is dramatically affecting countries and their economies around the world. We are seeing dire forecasts for global growth and unemployment levels rising rapidly in many countries, says Grant Robertson.

“As an open export-led economy, New Zealand will feel these global effects for some time to come.”

The scenarios show that unemployment can be kept below 10 percent, and return to 5 percent in 2021 with additional Government support. The latest statistics from 2019 show that the unemployment rate was 3.9 percent.

Scenarios also show that without additional support, unemployment could have hit 13.5 percent under scenario 1 (four weeks in Level 4), while scenarios requiring more time in Level 4 showed a peak of 17.5-26 percent.

Lastly, the scenarios show that New Zealand’s underlying strength means the economy can bounce back to be $70 billion larger by 2024 than in 2019.

“New Zealand is in a good position to fight COVID-19 due to our strong public health system, low debt and the growing economy heading into this situation. The best way to protect the economy is to fight this virus, which is why we’ve acted swiftly and decisively to stamp out COVID-19. This will give our businesses and the economy the best chance to get going again on the other side.”

Grant Robertson says the scenarios released today were guided by a range of previously released public health modelling.

“The Treasury has purposefully included scenarios that show what might happen if the lockdown has to be extended, or if the country has to return to Alert Level 4 in the future.”

He says work on further significant Government investment to protect jobs, support cashflow, and prepare the economy for recovery is well advanced.

“These should not be taken as any guide as to the Government’s thinking or decision on changing alert levels. That decision will be taken on April 20 as the Prime Minister has foreshadowed. What they do show is how important it is that we continue to unite against COVID-19 and follow the public health guidelines; stay home and save lives – we know it’s working.”

Grant Robertson says the next steps in the Government’s plan to support businesses will be released later this week.

The Government has already provided support to businesses including:

  • $9.6 billion through the wage subsidy to protect the jobs of over a million working New Zealanders and keep them connected to their employers during the lockdown.
  • Changes to the business tax system worth $2.8 billion to boost cashflow, encourage investment, and support working from home, including:
  • Allowing businesses to immediately claim tax deductions for low value assets like computers, mobile phones, cameras, microphones, headphones and other equipment required to work from home
  • Raising the threshold for provisional tax to support cashflow
  • Writing off penalties for late tax payments to take pressure off business owners
  • Restoring the ability to depreciate some buildings to support cashflow and investment
  • Working with the banks to deliver a six-month mortgage deferral scheme so Kiwis don’t lose their homes as a result of COVID-19, and a $6.25 billion Business Finance Guarantee to encourage bank lending to small and medium-sized businesses.