Finance Minister Grant Robertson is warning we need to buckle in for a long ride, coining the period of social distancing we’re in, an “era”.
While more government support is on the way, he says “there’s a long-term adjustment now required” by sectors like retail, hospitality and tourism.
Businesses will be able to open their premises, but not interact face-to-face with customers at Level 3. Even at Level 2, some social distancing requirements will remain.
“We are going to live in an era of physical or social distancing, I believe, for some time to come as we eliminate the virus and get on top of it completely,” Robertson told interest.co.nz.
“That will help shape the kind of responses that we give. But equally in some of those sectors, there’s a long-term adjustment now required. Therefore, we’re having to have a conversation about both the short, medium and long-term - all at the same time.”
Robertson didn’t indicate what the next wave of support for businesses would be once they’ve exhausted the 12-week wage subsidy - IE whether the government will provide targeted or universal support, or help commercial tenants pay rent as a large portion are now in arrears. Commercial property management company Re-Leased said its clients had received just 50% of rent due to be paid on April 1, by April 13.
Banks defer loan repayments on $15 billion of consumer loans
Because a number of small businesses in particular borrow against their owners’ homes, households’ abilities to meet their mortgage obligations will have a direct impact on business.
As at Friday, the New Zealand Bankers’ Association said that when it comes to consumer lending (home loans, personal lending, credit cards and arranged overdrafts), its members had approved loan repayment deferrals for 40,918 customers. These customers had outstanding balances of $15 billion.
Meanwhile banks had allowed 41,436 borrowers to reduce their loans to interest-only, or made other principal and/or interest repayment reductions. The value of these customers’ outstanding balances was $14.6 billion.
Govt open to buying equity in companies and extending the Business Finance Guarantee Scheme
In terms of larger, “economically significant” businesses, Robertson said consideration was being given to extending the Business Finance Guarantee Scheme to them.
Currently, the government will underwrite 80% of individual bank loans to eligible businesses that had turnovers of between $250,000 and $80 million at the end of the 2019 financial year.
Robertson said government buying stakes in these businesses was also an option, however it would have to be very “judicial” in doing so. This would also only be likely in a small number of cases where all other options had been exhausted.
In Air New Zealand’s case, if it can’t repay the loan of up to $900 million offered to it by the Crown, the Crown can seek repayment by converting the loan into equity or getting the airline to do a capital raise.
Robertson believed there wasn’t a need for New Zealand to follow the Federal Reserve in the US, and for the Reserve Bank (RBNZ) to provide businesses with loans.
Given banks only started accepting applications under the Business Finance Guarantee Scheme at the beginning of April, RBNZ Governor Adrian Orr earlier in the week said it was too early to say how this scheme was going.
He said banks should be “courageous” with their lending, but also said: “The longer an economic slowdown persists, the higher unemployment becomes, the harder and harder it is for the banking system itself to be the provider of credit.”
No need to side-step financial markets when it comes to QE
On the topic of government debt and quantitative easing, Robertson believed it was unnecessary for Treasury to follow its English counterpart and issue bonds directly to the central bank, side-stepping the secondary market.
Former investment banker, Raf Manji, and economist, Shambueel Eaqub, are among those calling for the Robertson to turn up the dial, and issue bonds straight to the RBNZ.
However Robertson said the status quo is working.
“Bond issuances that the Government is doing are still being subscribed and oversubscribed. So the system as it stands now is providing the amount of financing that we need. I’m comfortable with for that to continue to be the way that we work," he said.
“[The system] has an inherent set of disciplines in it around both ourselves as a government, on how much debt we do release... and the Bank itself, in terms of how it works. The market is still functioning in that regard.
“Obviously we keep it under review. If we don’t believe it’s working or if the amounts of money that are required turn out to be such that they can’t be sustained through the secondary market… then of course we would look at that.”
Interested in what Robertson had to say about deposit insurance - or the lack there of? See this video, cut out of the one attached to this story.