New Zealand’s economic climate fosters new hope in the anticipation of relaxed restrictions just around the corner.
Following the cabinet discussion on Monday, the government has decided to move the nation to a less intense Alert
Level-3 from 28 April 2020. The new set of restrictions are expected to primarily kick-start several suspended business
activities amidst COVID-19 medical emergency.
Supporting Government’s fiscal initiatives, the Reserve Bank of New Zealand has been rigorously working towards the
revival of economic conditions and safeguarding businesses during coronavirus crisis. Following the launch of cash rate
reduction and large-scale government bonds purchase, the Central Bank now mulls over the measure to relax the
Loan-to-Value Ratio restrictions for Home Mortgage and Negative Interest Rate Policy. The measure is targeted to provide
impetus to the housing market at the centre of New Zealand that is expected to face deflation due to the domino effect
of record-low unemployment led by virus-induced economic distress.
The crackdown in the country has brought forth various economic challenges which the Arden’s government had been
counteracting through various fiscal and monetary measures. Several businesses have gone along the evolutionary line in
an attempt to demonstrate resilience in the face of restrictions, while others continued to gather resources to thwart
the financial imperils of the crisis.
Let us have a look at the measures adopted by the government and the businesses to keep the ball rolling amidst the
uncertain operating scenario.
1. Tax Alleviation Measure
Among the suit of government efforts directed at stabilising the economic crunch, the reduction of the tax burden stands
at the forefront of the state actions. The New Zealand government introduced ‘tax loss carry-back scheme’ on 15 April 2020, allowing businesses to avail cash refunds through accessing their former tax expenditures.
Finance Minister Grant Robertson indicated the new scheme to be centred at offsetting the current year’s predicted loss
against the previous year’s profit-related tax.2. Business Financing
Ensuring solvency of the businesses amidst the crisis remains on the top of government’s priorities to foster economic
growth. The ‘Business Finance Guarantee’ together with the ‘Wage Subsidy Scheme’ has been directed at ensuring the cash flow and confidence for SMEs during the period of economic downturn. The former
measure eases the 3-year loan approval for firms with government bearing 80% of the loan default risk. Meanwhile, the
wage-subsidy is intended to inject cash for wage payment in order to reduce the rising unemployment rate.3. Tax Relief on Commercial Properties
Cushioning the blow on the commercial real estate sector remains a significant challenge with declining operations of
business tenants and increasing rent default rate. As a component of the emergency stimulus package, the government has
reinstated the depreciation deduction claims wherein investor can now claim depreciation on the building structure as well rather than just on fixtures and
furnitures that were eligible prior to the change in government policy.
Starting in April 2020, the measure would allow the commercial and industrial property owners to access tax relief
claims on their building structures at 2 percent annually.4. Organic Approach to Evolution
Firms are facing extensive risk concerning their cash flows and future sustainability due to their discontinued business
operations in the lockdown. Many of them have accepted technology with open arms to shift their business models and
processes as per the needs of the changing business environment.
The digital adoption using the cloud-based platforms for sustainable business activities during the period of lockdown
has helped organisations and educational institutes to maintain the momentum. Further, the supply chain focus has also
been shifted to e-commerce which in future might amplify the adoption of omni-channel model.5. Strategic Alliances
Many companies are incorporating collaborative style in the digital direction to sail through the market turmoil. For
instance, two tech-based firms Xref Limited and CVCheck Limited have come together to leverage the HR Technology market in Australia and New Zealand. Similarly, eyeing the growing
opportunity for its cloud-based market in New Zealand and other APAC markets, SaaS consolidation and reporting tool
provider Konsolidator has joined hands with the Develop IN Europe.Market Performance
While we see many measures on the charter when it comes to businesses trying their best to demonstrate resilience and
continue with operations without many challenges, equity markets are also trying to have a decent holding that so far
reverberates a level of marginal stability for New Zealand’s economy.
Gearing up for relaxed restrictions to Level-3 next week, NZ equity market witnessed a bounce back, with S/NZX 50 indicating the market return of 6.6% from 1 April to 24 April 2020. The information technology sector remained
at the forefront, demonstrating the growth rate of around 18.8% this month. In the same period, consumer discretionary
and consumer staples sector also showed a substantial gain of over 14%.
Comvita Limited (NZX: CVT), Summerset Group Holdings Limited (NZX: SUM), PGG Wrightson Limited (NZX: PGW) and Blis
Technologies Limited (NZX: BLT) maintained their winning streak by the significant positive return of approximately
68.36%, 20.11%, 53.8% and 31.67% respectively in the past one month to 24 April 2020.