Appropriate steps, more to address in Budget

Dr Eric Crampton
The Dominion Post
17 March, 2020

There were three things I was looking for in this week's pandemic budget announcement. I was not disappointed. But there will be more to do in the coming Budget. 

The first priority in a pandemic has to be health. Direct health spending only made up $500 million of the $12 billion announced, but hit the right areas. The Government needs to be increasing capabilities in Covid-19 testing, in ICU capacity, in contact tracing, and in staffing to deal with the surge that could yet come. 

That surge will be substantial. Modelling released by Imperial College London this week suggested even best-case mitigation strategies will result in peak demand for critical care running at eight times higher than available 'surge' capacity in the US and Great Britain. Avoiding that kind of surge matters; Italy's high death rates result from a health system trying to run beyond its capabilities. Building up capabilities to deal with it will matter as well, but is hard because many things need to scale up at once: the system will need equipment, the people to run it, and the places to put everyone in need of assistance.

In the weeks ahead, we hope our medical professionals are making their lists of what is needed to deal with the surge, and that they face close to an open chequebook come the Budget. 

Next, I wanted to see a strong compensation regime for workers and firms affected by self-isolation requirements. Staying home from work if sick leave has run out is simply beyond the means of too many workers. Asking them to do so, for the benefit of all of the rest of us, is inequitable. Worse, it gets the incentives all wrong. We should be paying people for the benefit they provide when self-isolating, rather than punishing them for it through loss of earnings. 

Since mid-February, I have been wishing the Government would follow Singapore's example. There, employers who continue to pay self-isolated workers receive $100 per day from the government. This encourages both employers and employees to respect self-isolation; very severe punishment for both employer and employees breaking quarantine also helps. It also encourages employers to keep those workers on staff. 

The Government's announced Covid-19 leave and self-isolation support programme will pay employers $585.80 per week for fulltime workers required to self-isolate and unable to work from home, or who are recovering from Covid-19. But those deciding to leave New Zealand today will sensibly be ineligible for that support on their self-isolation after returning home – the Government does not want to be encouraging people to take very cheap vacations abroad. Employers are required to pass it along to employees, who can then choose to top it up with any available annual leave or sick leave if they wish. 

Finally, we needed to see support through an international economic environment that seems worse than the Great Financial Crisis. This week's package brings an assortment of minor changes to tax administration and depreciation that may provide some help; they can also encourage smaller businesses to bring forward some smaller bits of investment. It also brings wage support for small businesses taking a substantial financial hit, helping them to keep staff on as tourists disappear. 

More will be needed come the Budget. The Government will need to avoid locking in long-term spending commitments while being ready to do what it takes to deal with both the pandemic and, potentially, a severe recession. This week's mini-budget sets some of the stage. I expect the health system at least will yet need a lot more. 

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