As the Government’s lead economic and financial advisor, the Treasury’s major focus in 2020 and into 2021 has been leading work across the whole of government to support the COVID-19 economic response. So, what does that mean and how has the Treasury been doing this?
COVID-19 has required the Treasury to be agile and innovative in supporting Ministers through an unexpected challenge, while continuing to deliver on its core responsibilities. This blog draws on information from the Treasury’s 2020 Annual Report to paint a picture of the Treasury’s ‘Year of COVID’.
An all-of-government effort …
From the time COVID-19 began to cast a shadow on New Zealand’s economy in early 2020, the Treasury has been providing policy advice for many elements of the Government’s economic response to the pandemic. This has been as part of an all-of-government effort.
Eleven workstreams, or ‘Pillars’, were established as part of the all-of-government response led by the National Crisis Management Centre, with Treasury Deputy Secretary Bryan Chapple as the Senior Responsible Official for the Economic Pillar and the Treasury as the lead agency. This workstream encompassed the Reserve Bank, Inland Revenue, Ministry of Social Development, Ministry of Business, Innovation and Employment, Ministry of Foreign Affairs & Trade, Public Service Commission, National Emergency Management Agency, Ministry of Health, Tourism NZ, Education NZ, Ministry of Education and NZ Trade & Enterprise.
We worked proactively and quickly to advise the Minister of Finance on the major steps taken, including:
- advising on the wage subsidy and income support policies.
- additional financial support for the public health system to respond to the pandemic and to ensure continuity of critical services.
- advising on the appropriate and prudent fiscal strategy and establishing the COVID-19 Response and Recovery Fund as part of Budget 2020 (as well as implementing the largest-ever borrowing programme to support it).
- advising on and setting up additional support for business via the banking and tax systems (including the Business Finance Guarantee Scheme and the Small Business Cashflow Loan Scheme).
- re-orienting economic and fiscal forecasts to include scenarios that reflected the inherent uncertainty of the crisis.
- assisting the Reserve Bank of New Zealand to implement significant monetary policy support.
- advising on how infrastructure projects should proceed and establishing governance arrangements across the program.
In October 2020 the Treasury, Ministry of Social Development, Inland Revenue and Ministry of Business, Innovation and Employment were jointly awarded Te Tohu mō ngā Hua E Pai Ake Ana | The Better Outcomes Award at the Public Service Commission’s Spirit of Service Awards, in recognition of their collective work on the Wage Subsidy, Leave Support and Small Business Cashflow Loan Schemes to support NZ businesses and employees during COVID-19.
The judges acknowledged the collaborative spirit of service shown by these agencies in delivering the biggest change to the personal income tax system in a generation and providing support to half a million businesses to keep 1.7 million New Zealanders in work during the COVID-19 lockdown.
In just 18 days, the Treasury and Inland Revenue designed and implemented a loan scheme that has helped more than 92,000 small business owners manage through the COVID-19 crisis. More than $1.5 billion has been lent, mostly within 24 hours of a business applying. The MSD team worked with the Treasury, Inland Revenue and MBIE to pull off the near impossible: developing a proposal for the nation-wide Wage Subsidy Scheme in five days and rolling it out 48 hours later.
… demanding adaptability and responsiveness
All of this work has been carried out within the context of rapid change, considerable uncertainty and large information gaps. It has demanded adaptability and responsiveness in the way the Treasury operates. Early on, the Treasury quickly reprioritised effort to ensure its core work was delivered, while creating capacity to provide specific advice to the Government on its COVID-19 response.
In March 2020 the Treasury established a new COVID Economic Response Directorate, to drive its overarching strategy and policy advice on the response and to ensure all of the Treasury's work was coordinated and aligned with this strategy. The team works with, and draws on the expert knowledge of, other teams across the Treasury, with Deputy Secretary and Chief Economic Advisor Tim Ng leading the Treasury’s advice on changes to COVID-19 Alert Levels. Internal strategic and operational governance groups were also set up to support the quality and sustainability of this advice work.
The Minister of Finance’s 17 March 2020 announcement of an initial $12.1 billion Economic Response Package was the first outward indication of the work being done by and through the new Directorate and the Economic Pillar agencies. It included $5.1 billion in wage subsidies for affected businesses in all sectors and regions; a $2.8 billion income support package including a permanent $25 per week benefit increase and a doubling of the Winter Energy Payment for 2020; and $2.8 billion in business tax changes to free up cashflow, including a provisional tax threshold lift, the reinstatement of building depreciation and writing off interest on the late payment of tax.
This was followed two months later by the Budget and the COVID Response and Recovery Fund. The Treasury’s adaptability came to the fore in its preparation of Budget 2020. In exceptional circumstances and tight timeframes, teams met the challenge to deliver a Budget that reflected the real-life impact that COVID-19 is having on New Zealanders’ lives and livelihoods. The usual process for producing the Budget was revised and the content changed, very close to when final decisions on spending would normally have been made, to take into account the impacts of COVID-19.
The core of Budget 2020, delivered by the Minister of Finance on 14 May 2020, focused on meeting cost pressures and supporting public services to fight and rebuild from COVID-19, while the $50 billion COVID-19 Response and Recovery Fund (CRRF) established in Budget 2020 supports initiatives from the Budget, and further measures announced since.
The uncertainty of how COVID-19 would impact on the economy also meant that the Treasury’s normal forecasting approach would offer limited insights. On 14 April 2020, the Treasury published a range of scenarios on the possible economic impacts of COVID-19, based on a range of times spent at different alert levels, the impact on economic activity at each alert level, and the degree of fiscal support.
These were indicative scenarios, based on assumptions and estimates subject to considerable uncertainty, not official Treasury forecasts or its view of what would happen. They provided insight into some of the possibilities to consider in developing responses to COVID-19 and planning for a solid economic recovery.
Scenario analysis has also informed the Treasury’s advice to ministers on trade-offs around the various decisions they have taken to respond to COVID-19. Understanding COVID-19’s impact in this way has made it possible to weigh up some of the wider wellbeing and economic implications of different extensions to fiscal and regulatory policy decisions the Government needed to make.
Protecting and preparing our people …
COVID-19 called for swift changes to the way the Treasury’s people worked and were organised. To protect the health (both mental and physical) and safety of its people, the Treasury created a COVID-19 internal response group that provided consistent, focused communication to staff on anything they needed to know – from guidance for people leaders and wellbeing tips and tricks for staff, to how the Treasury’s operations would respond at different alert levels and how staff would be redeployed as work priorities quickly changed.
The constraints of COVID-19 prompted this group to consider what the Treasury would need to do to ensure the Treasury’s business-as-usual functions would continue, and what key work would need to be changed because of the pandemic. The focus was on protecting the things that matter most to support the Treasury’s functions – all against the backdrop of rapidly-evolving physical work practices that required operational risks to be well managed.
… embedding new ways of working
Transition to almost totally remote operations during lockdown was relatively smooth, thanks in part to the gains achieved through Tāne Whakapiri – a programme of work completed last year to provide Treasury’s people with the flexibility and tools to work in ways that fitted their roles, responsibilities and work preferences. The Treasury’s flexible working policy, established and operating prior to COVID-19, also supported managers and their teams to work flexibly and meet people’s preferences and the needs of the organisation.
Building on the foundations of Tāne Whakapiri, the Treasury’s IT infrastructure, tools and business processes successfully supported remote working and uninterrupted access to systems throughout the lockdown.
Our response to the pandemic was also enabled by a new centralised deployment function, streamlining the deployment of Treasury staff to support COVID-19 advice and critical functions. Over 80 redeployments were made across the Treasury from March to July 2020, including the establishment of virtual project teams, demonstrating a new and more agile way of working. These redeployments made it possible to tackle complex work within short timeframes, provided development opportunities for staff to work on new issues, and helping protect staff wellbeing by spreading workload.
Monitoring and engaging widely …
While it has been important to move quickly to limit the economic damage of COVID-19, the Treasury is also working to measure the effectiveness of this spending and inform decisions about any further measures that may be necessary.
The need for timely information on economic impacts has seen the Treasury work closely with public and private sector partners to track and provide commentary on real-time data. In response to heightened interest in our economic viewpoint since the onset of COVID-19, from April 2020 the Treasury increased the frequency of some of its regular data and commentary releases and developed new commentary focused specifically on the economic impacts of COVID-19.
The COVID-19 Economic Dashboard shows a range of data, including novel high-frequency data sources from across government and the private sector, relevant to economic conditions. It has sections that focus on the domestic economy, such as consumer card spending and business confidence; domestic financial conditions; and the international economic and financial situation.
Commentary on these aspects is provided in the Treasury’s popular Weekly Economic Update, which also includes a summary of financial market reaction to these data releases.
The New Zealand Activity Index (NZAC), launched in June 2020, is the result of collaboration between the Treasury, Statistics New Zealand and the Reserve Bank of New Zealand to provide further timely insight for government, policy makers, economists and the general public into the impacts of COVID-19 on New Zealand’s economy and how its recovery is tracking.
Published monthly as part of the concurrent Weekly Economic Update, the NZAC summarises eight monthly indicators of economic activity, covering consumer spending, unemployment, job vacancies, traffic volumes, electricity generation, economic outlook and manufacturing expectations. As a weighted average of these underlying indicators, it provides a more comprehensive measure than each individual indicator by itself.
The Treasury’s ability to advise the Government on how New Zealand is impacted by COVID-19 also depends on having a clear understanding of how New Zealand’s businesses, communities and sector groups have been impacted by the pandemic, and how well positioned they are to support the nation’s recovery from it.
The Treasury has undertaken broad and frequent virtual engagement to get immediate feedback from businesses, industry sectors and communities to further help its understanding of the direct impact the pandemic has had on various sectors and industries.
During 2020, the Treasury undertook over a hundred engagements across a wide spectrum of organisations. These engagements have been invaluable in helping to inform the Treasury’s policy advice and conversations with Ministers.
- 46 engagements with exporters and export-related organisations
- 20 engagements with regional chambers of commerce and employers’ associations spanning all regions
- 12 engagements with sector organisations covering tourism, transport, retail & hospitality, construction, manufacturing and heavy industry
- Over a dozen engagements with iwi, NGOs, trade unions and business advisory organisations
Treasury leaders have greatly appreciated hearing first-hand the range of issues and concerns across an industry or sector; the most significant challenges they're facing right now and where they see any opportunities; thoughts on the outlook for 2021 and how they're planning and forecasting for this; how the government's support measures have been ‘landing’; and the areas in which additional government assistance may be welcomed.
Engagement and provision of up-to-date information is also crucial to maintaining confidence in investing in New Zealand Government Securities and ensuring a diverse investor base. The Treasury’s New Zealand Debt Management team adapted to COVID-19 restrictions by undertaking over 90 ‘virtual’ meetings during 2020 with global and domestic investors.
… to look to the future
In line with its focus on lifting living standards, the Treasury is also taking a longer-term view, providing ongoing advice to the Government about how the evolving global situation might impact New Zealand’s economic resilience and the intergenerational wellbeing of New Zealanders, and the options for recovery.
Alongside its advice, the Treasury publishes discussion papers and other analysis to inform commentary and discussion on significant long-term fiscal challenges, and to help decision makers assess the long-term impacts of policy options that might be considered in these areas.
The COVID‑19 pandemic is having major impacts on our lives in ways that go far beyond health, extending across all dimensions of wellbeing and all population groups. July 2020 saw the Treasury launch He Kāhui Waiora, a rapid evidence review of the potential impacts of COVID‑19, and the associated economic recession, on the wellbeing of New Zealanders.
The discussion paper was informed both by data and collaboration with other Government agencies and sectors, and from a series of engagements including online hui – "zui" –to hear from iwi and Māori leaders. The wellbeing evidence was reviewed through two frames – the Treasury’s Living Standards Framework (LSF) and He Ara Waiora, initially developed for the Tax Working Group by expert Māori thought leaders Ngā Pūkenga – to gain further insights from exploring wellbeing from different cultural perspectives and knowledge systems.
At least every four years the Treasury also produces a statement on the long-term fiscal position of the government, looking at least 40 years into the future. The 2020 Statement on the Long-term Fiscal Position was originally planned for publication in March 2020. However, the rapid emergence of the COVID-19 pandemic in mid-March and the high likelihood that it would have a very large economic and fiscal impact meant that the analysis, including projections and scenarios, for the 2020 Statement had to be substantially revised.
The timeframe for this work has been extended to allow for a better understanding of the likely impacts of COVID-19 and subsequent response and recovery measures on the New Zealand economy and fiscal position. The Treasury now intends to publish the 2020 Statement before the end of September 2021.
Prior to the publication of the 2020 Statement itself, the Treasury will progressively publish a series of background papers and interviews conducted as part of the development of the 2020 Statement. These present valuable insights on long-term economic, fiscal and social issues from the perspective of a range of independent researchers and experts, as well as in-depth Treasury analysis. The background papers and interviews supplement the 2020 Statement and likewise support public discussion and understanding of the long-term fiscal challenges posed by our changing population and climate.
Visit treasury.govt.nz/covid-19 for links to all of the Treasury’s COVID-19 related economic reporting, analysis and data.