7.2 Approaches to supporting businesses and workers Ngā aronga tautoko a te kāwanatanga mō ngā pakihi me ngā kaimahi
7.2. Approaches to supporting businesses and workers | Ngā aronga tautoko a te kāwanatanga mō ngā pakihi me ngā kaimahi
Governments across the world delivered financial assistance in different ways. Some it in the form of direct spending or foregone revenue (such as tax breaks). Such measures, which we refer to as 'direct support', have a direct impact on government accounts, either reducing operating surpluses or increasing operating deficits.
Others – particularly governments in Europe – tended to provide assistance in the form of loans, guarantees or equity (for example, taking an ownership stake in a business). We refer to such measures as 'indirect support'. Although they do have an impact on the government accounts, their fiscal cost can be smaller than for direct support. Equity stakes can be sold, many loans will be repaid, and some guarantees may not be called upon – meaning that the final cost of these approaches will typically be lower than the headline numbers.
New Zealand's fiscal response to COVID-19 was largely made up of direct support measures, including programmes such as the Wage Subsidy Scheme (see section 7.3), COVID-19 Support Payments (see section 7.4.3), and Resurgence Support Payments (see section 7.4.2). A counter example – the Small Business Cashflow Scheme (see section 7.4.1) – involved loans to businesses, which made it an indirect support. New Zealand had the second largest direct-support fiscal response as a share of GDP, after the United States (Figure 104).
Figure 104: Fiscal response to COVID-19 pandemic, direct vs. indirect support
Fiscal cost a percentage of GDP, selected advanced economies
Source: International Monetary Fund, Database of Country Fiscal Measures in Response to the COVID-19 Pandemic; and IMF staff estimates
Notes:
1. Estimates as of September 27, 2021. Numbers in U.S. dollar and percentage of GDP are based on October 2021 World Economic Outlook unless otherwise stated. It includes COVID-19 related measures since January 2020 and covers measures for implementation in 2020, 2021, and beyond. It focuses on government discretionary measures that supplement existing automatic stabilizers. These existing stabilizers differ across countries depending on existing budget size and structure and the scale of automatic stabilizers as governments are taking additional measures or finalizing the details of individual measures.
2. The IMF use the terms 'above the line' and 'below the line' measures, whereas we have used the terms 'direct support' and 'indirect support'.
Many countries assumed that some level of unemployment would occur and relied on unemployment benefits or active labour market policies (ALMPs)41 to help displaced workers adjust and find alternative work (Figure 105).
Figure 105: Financial assistance to workers across the OECD, 2019-2021
Labour market social expenditure as a percentage of GDP, by category of assistance
Source: OECD Social Expenditure Database (SOCX), https://www.oecd.org/en/data/datasets/social-expendituredatabase-socx.html
Notes: ALMPs include all social expenditure (other than education) which is aimed at the improvement of the beneficiaries’ prospect of finding gainful employment or to otherwise increase their earnings capacity. This category includes spending on public employment services and administration, labour market training, special programmes for youth in the transition from school to work, special labour market and rehabilitation programmes for persons with disabilities, and labour market programmes to provide or promote employment for all other groups of unemployed and inactive persons
41 Active labour market policies are government programmes designed to help unemployed or underemployed people find work by improving skills, job matching, and work incentives.