Comment permalink

Save for the latest Covid Alert Level increase, most businesses in Otago that I have talked to are actually quite busy, excluding the obviously devastated industries such as tourism and foreign student education.

This level of economic activity has surprised most pundits and should be enjoyed while it lasts. But is it sustainable? Or is this the "dead cat bounce" part of a W-shaped recovery?

Accepting that I am not an economist with fancy graphs, it strikes me that this current level in activity is primarily fuelled by four drivers: pent-up demand (we couldn’t do stuff during lockdown), brought-forward demand (we are concerned about future supply of foreign goods so are buying what is in the country already), over-confidence (we haven’t all personally been affected by the negative Covid consequences yet), and substitution of discretionary spend (swapping out overseas holidays for TVs, cars and renovations). None of these drivers are perpetual, in my view.

I was a big supporter of the first wage subsidy, albeit a little less excited about the untargeted nature of the second.

These cash hand-outs were correctly designed to buy time, to give NZ Inc a chance to put in place plans to rebuild for the new world, and to create space for businesses to try to interpret their new normal before taking rash actions in the face of uncertainty.

This is a sensible tactic, albeit at its extreme it masks some economic realities, such as a good chunk of the wage subsidy has merely delayed inevitable redundancies and substituted in for unemployment benefits, meaning that some New Zealand businesses have simply taken over the distribution role of MSD, while distorting the statistics.

The question in my mind is whether we have used this valuable time, especially the last 100 days, to put in place the economic "rebuild" strategies required, especially for the regions. Infrastructure spend is a tried and true strategy to drive economic activity, but it is inevitably disproportionately directed to the North Island.

Our reality is that Otago has a greater per capita reliance on foreign tourism and foreign students than any other region in New Zealand, so we are disproportionately vulnerable to the economic fallout arising from closed borders.

Furthermore, even our economic engine room in the form of the primary sector, while enjoying a recovery (on average) of both international prices and demand, is facing a looming human resource crisis (quality in the form of skills, and quantity in the form of bodies willing to "pick fruit"/milk cows) that isn’t likely to be met by Aucklanders temporarily relocating south (not that I have seen any plan to even attempt to drive this aspect).

Finally, the constant feedback I am getting from clients across other industries, especially hard and soft tech companies, is the absolute need to get productive people into New Zealand to fill the skills gap, and to get people out of New Zealand (with an ability to get them back) to drive economic activity.

Accepting that the primary Government focus has been the health risks and that even keeping returning Kiwis in isolation/quarantine has been politically challenging, it is perhaps unsurprising that there is little overt action around opening our borders beyond citizens.

Let’s accept a travel bubble — defined as cross-border travel without quarantine — is unlikely given recent events in New Zealand and Australia, but we should accept that we need to be actively building a travel portal.

That is a systemised and funded way to get foreign nationals, on a very targeted basis, into New Zealand, starting with skilled and even temporary unskilled labour, and students for 2021 into New Zealand safely.

Unfortunately, the spectre of two lots of two-week quarantines means tourism may not be the primary target for this strategy initially.

The key difference between returning Kiwis and these foreign nationals is that we can write the rules; we can charge them, we can have criteria that say if you misbehave in any way you are on a plane tomorrow and will not be allowed back for five years, or that your sponsor (employer/educational institute) will also be on the hook.

These additional levers will drive even greater compliance than we saw from returning Kiwis, decreasing the health risks, assuming that we manage the health risks for those Kiwis engaged in supporting this process via regular testing and PPE.

This inevitably would be a partial cost to Government, but surely this is a better "investment" than untargeted handouts.

It goes without saying that our NZ Inc preference should be to access under-utilised talent within NZ as a priority, but this is unlikely to meet every businesses need for skills/personnel, no matter how quickly we train or seek to relocate people.

Attaching cost/risks to importing skilled labour as above also maintains an economic preference for local labour solutions where it is available.

There are two sides to this of course: the policy and the infrastructure. Given that across New Zealand we had only 1600 quarantine beds available as of Thursday last week, and I reckon we need at least 10 times that, the infrastructure worries me the most.

We just need to get secure the likes of the Scenic Hotel or a couple of University Hostels in Dunedin and build the process to make it as safe as possible.

Even if there is no appetite to start until after the election, my plea to Government is to at least show us the strategy and let us witness some action. Give us comfort that there is a plan beyond cash handouts.

Not wanting to be a doomsayer, but I do believe there are very dark clouds on the Otago economic horizon, and we need to be preparing for this with strategies around rebuilding some resilience into our economic platform in the areas we can make the most headway (or lose the least ground). Now is the time for action.

 - Scott Mason is a tax specialist and managing partner at Findex in Dunedin.