Wage subsidy essential for successful lockdown, says economist

Source: 1News

An economist says the Government’s wage subsidies are paying a great dividend.

Rosie Collins, an economist with Sense Partners, told Q+A the wage subsidy is an essential component in ensuring people lock down safely.

She says international comparisons show it is an effective way to keep lockdowns short and sharp.

“I think, overseas, when it's not been in place, people have just gone out and found cash jobs or other ways to make an income and haven’t done what’s most necessary which is to stay at home and get through the lockdown as quickly as we can so we can get back to normal.”

“Something like 40% of New Zealand households don’t have any basic savings, so less than $1,000 in the bank at any one time. And if you don’t pay people to stay home, or subsidise their loss of income, people just won’t,” says Collins.

The Finance Minister indicated last week he has roughly $6 billion available for the wage subsidy. But Collins told Jack Tame that she’s not concerned if Grant Robertson has to borrow to continue the subsidy.

“The cost of debt right now is so colossally low, it's 2 per cent of our tax income, in 2008 it was 6 per cent of our tax income, in the eighties it was 25 per cent of our tax income. So just in the last hundred year period it has never been so cheap to borrow money.”

“We’re about $8 billion better off than Sweden as of March this year just because of our lockdowns. And a lockdown cost us about $10 billion for that first one, in terms of the wage subsidy anyway, so that’s paid itself off. And so I think given that debt is so cheap it makes sense to borrow to pay the wage subsidies etc.”

However Collins warned New Zealand was not out of the woods just yet. She predicted that unlike the economic bounce back after the last lockdown, this time it could be a slightly different story.

“We’ve had very few business closures in the last year – actually less than in 2018 and 2019. So we’ve done remarkably well to keep businesses afloat, but that will be temporary and business closures will comes as a result of this disruption”, says Collins.

Economist at Sense Partners Rosie Collins assesses the government’s economic support package with the latest lockdown, and discusses whether the Reserve Bank was right to hold the Official Cash Rate steady.

“I think the labour shortages will be a key part of that, you hear a lot already and I think that’s only going to worsen as people realise they can move to Australia and get paid a lot more and have cost of living a lot lower.”