No Minister

A TRANS-TASMAN BUBBLE

A guest post from Wayne Mapp …..

There is a lot of speculation about how Australia and New Zealand can form their own global bubble. Now that both countries have virtually eliminated the covid virus, it seems logical that both nations will be open for business to each other, not just for goods and services, but also for travel.
Both countries are each other’s largest source of travel, though this obviously has rather more impact for New Zealand. Tourism makes a direct contribution of 5.6 % of New Zealand’s GDP, with another 4% being contributed indirectly, a total of nearly 10%. This lines up with the total number employed, being 8.4% of the workforce. In terms of foreign exchange, tourism contributes is $20 billion, or about 20% of overseas trade.
The key point from these statistics is that over 40% of the tourists come from Australia. So opening up the border to Australia could literally save over 100,000 jobs. Of course, in the post covid era, people may be reluctant to travel, in the first instance there will simply not be as much money in people’s pockets as there was pre covid. On the other hand, if the only travel that is readily allowed is trans-Tasman, then there may well be an increase in such travel.
Tourism is only the most obvious benefit of a trans-Tasman bubble. There could be many more depending on how willing the two governments are prepared to change the way they do business. Both countries are going to have huge challenges around unemployment and the velocity of business activity. While trade in services and goods will be able to continue internationally, the post covid recession will require governments to be more active. They will need to set the conditions to boost business and employment.
Everyone talks about shovel ready projects, or if you are Green, about environment focused projects. Undoubtedly this will happen, but it is unlikely to make much of a dent in unemployment. There will need to be more activity across the broad swath of the economy. Covid has shown the risks of being too dependent on international supply chains for everything. The next pandemic could be more severe than covid.
There will be a premium for nations to be more self sufficient, not just for covid, but as a general principle. While this is difficult for New Zealand with only 5 million people, it is easier for Australia with 25 million people. Combining the two is 30 million. An economy of that size can do many of things required for modern 21 century life. Not everything, that requires an economy the size of North America or Europe.
So what could be done in the trans-Tasman bubble? The easiest thing for the two governments to do is buy as much as possible locally. This might seem self evident, but for a whole range of things, it might require incentives for things to be made locally. Purists will decry this, since it will increase the real price, even if not the sticker price. However, the alternative might be double digit unemployment for years to come.
It would mean hospitals, schools, government departments and local authorities would be required to source locally, unless it was simply not possible. Australia has traditionally supported the car industry. The last Holden rolled out of the factory in October 2017. Would it be surprising if the Australian government provided incentives to get Ford and Holden back into local production? Would the New Zealand government play a part to get some part of the manufacturing here? Part of the incentive would be a mandatory requirement that all local and central government vehicle purchases be locally sourced.
Governments can also incentivize local processing of exports of raw materials. A huge percentage of New Zealand’s timber exports is in the form of raw logs. Serious questions need to be asked if this is something we have no choice but to accept. Can local processing, at least of a set percentage of the raw material, be made mandatory? 
All this supposes a much more active role for government in industry policy. Covid has shown the danger of all supply chains being fully globalised. When everything is fine, globalisation has been able to produce unimaginable wealth for billions of people. But the downside has been vulnerability, not just to supply lines, but also to stability of employment. This would seem to be the time for some rebalancing. It will take imagination, both from government and from people.

Written by The Veteran

April 28, 2020 at 2:54 am

Posted in New Zealand

Tagged with ,

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