New Zealand skyline

New Zealand Politics March 2020

New Zealand: Government approves record stimulus package to buttress economy against coronavirus blow

On 17 March, the government unveiled a NZD 12.1 billion stimulus package, including both tax cuts and additional spending in an effort to soften the economic impact of the coronavirus outbreak. On the heels of the Central Bank’s 75-basis-point rate cut on 17 March, the package amounts to around 4.0% of GDP and is therefore larger than that deployed during the Global Financial Crisis.

The package includes additional investment into the health system; wage and income subsidies; tax cuts and financial support for the aviation sector. In efforts to minimize job losses, it assigns around NZD 8 billion for wage subsidies and income support, as well as funds to redeploy workers in the hardest-hit regions. Moreover, the package allocates NZD 2.8 billion to business tax changes, so as to buttress investment spending; NZD 0.5 billion to sustain health services; and makes specific provisions for the aviation sector, which is set to be hit particularly hard.

Looking ahead, spillovers from coronavirus are set to take a considerable toll on the external sector and will also hit spending decisions, although the bulky stimulus package should help cushion its impact. The measures will raise public debt but should not pose significant fiscal risks given the country’s low debt-to-GDP ratio

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