Coronavirus travel ban bought NZ some time - Government has to use it wisely

Dr Eric Crampton
10 March, 2020

Travel bans bought New Zealand a little time, nothing more. We hope the Government is using this time well to prepare for the more widespread Covid-19 outbreak that seems likely to arrive, sometime.

Effects on the health sector will be serious, especially if the spread cannot be slowed. Every bit of delay in transmission can help.

If six hundred people catch it over the course of a year, it could be manageable. If the same six hundred catch it all at once, intensive care units could quickly be overwhelmed.

The Government's pandemic plan for influenza is being adapted for use in this outbreak. It includes measures designed to slow the spread of contagious disease or possibly stamp things out. States of local emergency can be declared, schools closed, public gatherings restricted and travel bans can be implemented to and from an affected area.

For some businesses, work from home arrangements are feasible but impossible for others.

An unchecked pandemic would be an economic disaster. But measures slowing a pandemic will have their own substantial costs.

Handled badly, those costs can also reduce the likelihood of people complying with quarantine recommendations. Firms may have difficulty in making payroll when revenues slow or cease and workers use up any available sick or annual leave. Workers who run out of leave will be tempted to show up for work despite quarantines.

The Government is worried about the appropriate economic policy response to a pandemic. Monetary policy cannot rebuild broken supply chains and fiscal policy is unlikely to encourage people to go out and spend money if they can't leave the house. But fiscal policy could reduce the spread of both economic and Covid-19 pandemics.

Singapore has maintained a tight lid on its outbreak. There, quarantine carries both a carrot and stick. Contacts of people with Covid-19 are placed under Quarantine Orders; workers returning from places with the virus are placed under precautionary Leaves of Absence; those recently returning from risky places with symptoms face a Stay-Home Notice.

Breach of these orders can result in hefty penalties, including firms' being barred from hiring foreign workers in future. Equally, businesses and self-employed persons are eligible for support: $100 per day per affected worker.

The combination of carrots and sticks has some nice effects.

Staying home when you pose a risk to others during a pandemic is a substantial public good. The benefits of an infected person staying home are shared by everyone else but the costs are borne by the worker and the employer.

Singapore's scheme providing compensation for this public good, combined with penalties, changes the calculus.

By helping firms continue to pay furloughed workers, it can mitigate some of the flow-on effects that otherwise result when reduced earnings lead to reductions in demand, leading to layoffs elsewhere.

The Government could consider similar programmes in New Zealand. We could follow Singapore, whose government has already worked through an awful lot of the policy fishhooks. Or, it could consider a government-funded annual leave programme only available during a declared pandemic for those under quarantine orders where work-from-home options are not possible.

This would target government spending to places most directly affected should more extreme pandemic measures be necessary. Reducing the costs to workers and firms affected by quarantine measures would not only make it easier for government to implement quarantine measures, but also encourage compliance.

It is debatable whether government should be in the business of bailing out firms with fragile business models depending too greatly on suppliers or customers from one particular region.

Those kinds of support programmes effectively punish companies with more resilient business models and discourage others from doing so in future. Again, Singapore has provided some interesting models encouraging workers in tourism to take up training opportunities.

But pandemic measures effectively stopping most business activity in a region really are outside of the control of any firm. The case for support is stronger.

Using fiscal measures to encourage compliance with quarantine would alleviate some of the economic consequences of a pandemic when it properly arrives here. And, encouraging quarantine compliance can dramatically slow the spread of contagious disease.

Slowing the spread really matters. Our hospitals simply are not capable of handling a large and fast outbreak. If it spreads more evenly over time it will have lower death rates – even if the same number of people wind up catching the virus.

The travel ban has given us some time. Let's hope the boffins have been using it productively.

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