Benefit System Update - August 2020

The global COVID-19 pandemic has led to nationwide restrictions (a lockdown, physical distancing and border restrictions) aimed at limiting its spread. In response to the negative economic and community impacts caused by these restrictions, Government has implemented income support policy changes to support people.

We now have a fuller view of the data and analysis relating to the economy and policy changes, and how they have affected demand for benefit payments.

The purpose of this report is to explain what effect COVID-19 has had on New Zealand’s economy, the subsequent income support policy responses, and the insights we have gained about how those factors have affected demand for benefit payments.

This report draws on a number of other analyses to tell a cohesive and comprehensive story on what has happened in the benefit system and why.

This report focuses on the economic, policy and benefit payment effects up to August 2020 and does not cover any effect of the second COVID-19 outbreak in New Zealand that was announced on 11 August 2020. This report uses data that was available up to 7 August 2020.

Key Insights

1. The main effect COVID-19 has had on the economy was a sudden reduction in activity during the lockdown. Moving down alert levels quickly meant that economic activity could resume faster and keep more people employed. However, economic conditions after the lockdown were still weak due to ongoing border restrictions and uncertainty.
2. The Wage Subsidy, COVID-19 Income Relief Payment, $25 increase to main benefits, and the temporary doubling of the Winter Energy Payment were all important policy responses that helped minimise disruptions in the economy.
3. How those factors have affected benefit demand are:
   • Demand for Jobseeker Support rose sharply during the lockdown, but growth eased thereafter as economic activity resumed.
   • However, the overall number of people on Jobseeker Support and the COVID-19 Income Relief Payment continued to grow after the lockdown because economic conditions were still weak.
   • Growth in Jobseeker Support has been driven by young people, in Auckland, and NZ Europeans. This is consistent with past recessions.
   • Māori are also over-represented in benefit statistics and generally stay on benefit for longer than NZ Europeans.
   • Women seem to have been adversely affected in the labour market so far, but there has not been a corresponding increase in women on Jobseeker Support.
   • The regional story has been partly driven by the sectoral story; jobs related to tourism, such as in hospitality and retail have been affected the most.
   • We have not yet seen the full impact of weaker economic conditions to main benefit demand. We expect more demand as the Wage Subsidy Extension ends and the labour market deteriorates further.
   • Hardship grants rose significantly over the lockdown due to heightened food insecurity and increased access to extra support online.
4. Looking forward, the main risks are global uncertainty, when border restrictions are loosened, and how the pandemic plays out:
• As a small, open economy New Zealand is constantly affected by the global macro-economic environment.
• This means that the international economic scene often has implications for New Zealand’s economy because it affects how much we export. Exports make up around 30 percent of our annual Gross Domestic Product (GDP).
• However, border restrictions and judgements about the speed at which international tourism will rebound once borders are re-opened, are also particularly relevant.
• Even before COVID-19 began affecting the economy, in late 2019 and early 2020 the economy was in an uncertain environment with global trends showing subdued economic growth. This was mainly driven by uncertainty surrounding trade and geopolitical factors.
• Uncertainty can lead to businesses being tentative about investment and hiring, potentially creating a significant negative impact on the labour market. There is still a high level of uncertainty regarding how the pandemic will play out domestically and any subsequent policy actions from any potential outbreaks in New Zealand.