In 2020, the world has been in a stagnant state, as it had been ever since the days of the Second World War. Originating from the province of Wuhan, China, this disease by the name of Covid-19 has gripped the world in shock, claiming over hundreds of thousands of lives, with millions more affected around the world.
The coronavirus is having a profound and serious impact on the global economy and has sent policy-makers looking for ways to respond.
New Zealand’s experience so far shows that the right policies make a difference in fighting the disease and mitigating its impact -- but some of these policies come with difficult economic trade-offs.
Hard choices
Success in containing the virus comes at the price of slowing economic activity, no matter whether social distancing and reduced mobility are voluntary or enforced. What started as a series of sudden stops in economic activity, quickly cascaded and morphed into a full-blown shock simultaneously impeding supply and demand.
The coronavirus shock is severe even compared to the Great Financial Crisis in 2007-08, as it hit households, businesses, financial institutions, and markets all at the same time -- first in China and now globally.
However, there are many things to be learned from what New Zealand and Australia have been doing in order to bring this pandemic under their control.
From what the prime minister of New Zealand, Jacinda Ardern said, her country has “done what few countries have been able to do so” and contained the community spread of Covid-19 and can start easing its lockdown measures.
So how did this happen? How was her government able to do things that very few governments, even in the most developed nations, could not undertake? Let us have a look.
Health before the economy
Although New Zealand is quite a small nation with its population being less than New York’s, and being remote with easily sealable borders, one might go on to argue that all of these played in its favour to fight it when the virus broke out.
However, its relative success -- it has among the lowest cases per capita in the world -- has mainly been attributed to the clarity of the message coming from the government.
Unlike the countries that declared “war on Covid-19,” the government’s message was that of a country coming together. It urged people to “Unite Against Covid-19.” Ardern has repeatedly called the country “our team of five million.”
“Jacinda [Ardern] is a brilliant communicator and an empathetic leader,” says Prof Michael Baker from Otago University’s Public Health Department, who helped advise the government on its response. “But what she’s said also made sense and I think people really trusted that. There’s been a high level of compliance.”
For a pandemic response to be effective, he says, “science and leadership have to go together.”
In New Zealand, that scientific insight has come through Director-General of Health Ashley Bloomfield, who has stood alongside Ardern at her daily press conferences.
Be strong, be kind
But similar to the time of the mass shootings in Christchurch, it’s her leadership style that’s caught particular global attention. While telling the public in detail the rules of the lockdown and the trajectory of the new cases, Ardern has also focused on kindness. She has ended almost all her public appearances with the same message: “Be strong. Be kind.”
According to the government, a legislative package has been enacted in New Zealand to mitigate the impact of Covid-19. Key measures include:
Business income tax
- Reintroduction, from the 2020-21 income year, of a 2% DV depreciation
- Deduction for commercial and industrial buildings, including hotels and motels
- Changes to the calculation of the in-work tax credit to remove the hours worked
- NZD 2.8 billion in business tax changes to free up cash flow, including a provisional tax threshold lift, the reinstatement of building depreciation, and writing off interest on the late payment of tax
- Refundability rules for R&D tax credits have been brought forward to the 2019-20 income year
Liquidity measures
The minister of finance on April 14, 2020, announced three tax measures that are focused on providing and enabling cash-flow and freeing Inland Revenue’s (the public service department of New Zealand charged with advising the government on tax policy, collecting and disbursing payments for social support programs, and collecting tax.) ability to respond to the consequences of the coronavirus (Covid-19) pandemic.
Three tax measures include:
- A tax loss “carry back” rule to allow refunds of tax paid in a prior year -- there would be a temporary rule for tax losses in the 2020 and 2021 tax years and a permanent rule for future years
- A same or similar “business test” to allow tax losses to be carried forward -- this would be intended to help companies to raise capital
- A temporary rule to give Inland Revenue flexibility to “relax” time frames and processes without the need for cabinet approval
What next?
New Zealanders have begun moving out of the most severe lockdown level, with a partial reopening of schools and businesses, and the prime minister has said the sacrifices made so far cannot be wasted by rushing to open up the economy too soon.
After five weeks in lockdown, New Zealand will be easing from Level 4 restrictions to Level 3, which appear like Australia’s current restrictions.
All in one, Jacinda Ardern deserves to be praised for her leadership skills and has proved herself to be an epitome of what we call “an effective leader.” However, she seems to be praising the front liners.
She gives the credit for the country’s success to medical staff and the way the public has supported the rules of the lockdown, telling them: “New Zealanders have proven themselves, and they’ve done so in the most incredible way.”
Adib Akhtab is a freelance contributor.