3 – Coronavirus in New Zealand: Cost of the world’s tightest lockdown

As New Zealand enters Level 1, it is an opportune time to assess how the country has dealt with the . The current wisdom in most of New Zealand and amongst liberal media admirers across the globe is that New Zealand's supposedly swift and decisive action in closing its borders and strictly locking down its economy has led to elimination of the coronavirus in the country. New Zealand's lockdown was backed by overwhelming majority of the local population and has led Jacinda Ardern and the NZ Labour Party to stratospheric polling leads over , almost unprecedented in modern NZ political history. NZers you speak to or read on social media glow with pride at the country's accomplishment (the ‘team of 5 million' etc.) and look askance at the huge numbers of cases and deaths in and the US.

To counter the damage to the economy, the NZ government has poured tens of billions of dollars into a vast wage subsidy programme backed with loan guarantees for small businesses and various packages designed to assist various industries. Once lauded for its relatively low government spending as a percentage of GDP and budget surpluses, NZ is expected to more than doubling its debt to GDP ratio and rack up massive budget deficits as it pours ever more money into an artificially moribund economy.

Governments the world over have couched their lockdowns in terms of the price necessary to be paid to save lives. Various models have been used to show how many lives would possibly be lost without lockdowns and, had these models been accurate, the death toll looked frightening. In the US, decisions to lockdown are always taken at the state level and so the ideological and political orientation of the states are reflected often in the type of governor they elect, in the progressive enclaves on the West and North East Coasts and Illinois, the governors are more leaning and favoured tighter lockdowns with more restrictions and have been the most reluctant to open up their economies. The more conservative governors in ‘flyover' country enacted less stringent ‘Shelter-in-Place' orders and were quicker to ease restrictions and open back up. This ideological divide has been less pronounced globally – Boris Johnson's Conservative government initiated a very tough lockdown and Sweden's Social Democrat government had Europe's lightest response.

With Jacinda Ardern personally being relatively left wing perhaps even more so than the NZLP as a party, her instincts were to greater control and for the government to assume a much greater role in the economy to give aid where needed. Without the extensive track and trace technologies and procedures waiting in the wings like the South Koreans, the Japanese and the Taiwanese could enact on the backs of their bad experiences with SARS and their long standing suspicion even hostility towards Communist China, once it became clear that complete border closure was the only way to contain after the failure to properly quarantine and to rely on voluntary self-isolation, options for New Zealand were limited and so they followed Australia with a completely sealed border even from Australia against the long standing free movement of people, a pillar of CER.

There are some questions I will try to explore in this essay. What will be the medium term impact of such a severe lockdown in NZ? Queensland, with the same population as NZ, achieved an even better virus containment result with a relatively light lockdown – how much better will states like Queensland fare compared to NZ? And perhaps the most important question, what impact do deep recessions have on death rates and will the extra deaths caused by the devastation to the economy outweigh the lives saved by the tighter than average lockdown?

Just as the US will provide the world with an economic petrie dish to view the efficacy of tight versus light lockdowns, so it is in the Federal system of the Commonwealth of Australia. NSW and Victoria are closest to NZ in terms of lockdown whilst the smaller states and territories far lighter. The best comparison lies with Queensland being almost the same population as New Zealand. More on this later.

Pretty early on into Level 4, it was recognized that New Zealand was an outlier in that the stated policy objective was elimination (even if the precise definition of elimination was parsed somewhat by Ashley Bloomfield the Director General of Health and the PM) and so that imperative guided NZ's government to the world's tightest lockdown. The projected economic impact of the more stringent lockdown was quickly highlighted by the who did a summary of the impact of shutdowns on various economies and the potential impact on NZ is the worst in the OECD as this graph includes developing countries like Estonia and Mexico.

Likewise, the NZ Treasury released some of their modelling on the impact of varying lengths of the lockdown in New Zealand

  • Alert Level 1 reduces output by 5 to 10% from normal
  • Alert Level 2 reduces output by 10 to 15% from normal
  • Alert Level 3 reduces output by 25% from normal
  • Alert Level 4 reduces output by 40% from normal

To put the NZ Levels into context, the strictest lockdowns in the US (CA, NJ, Michigan, IL etc.) were the equivalent of NZ Level 3 and the lightest lockdowns (Arkansas, ND)  approximated around NZ Level 2 and the mid-level lockdowns were like NZ 2.5 (most of the Republican run states in the south and mid-west).  Only 5 countries enacted lockdowns early enough to properly contain the virus and they all happen to be countries close to China with prior bad experiences with SARS and China's less than transparent communication over such matters (Mongolia, South Korea, Japan, Hong Kong and Taiwan). Virtually every country in the 1st world has adopted a policy of containment, which is accepting the presence of the virus and trying to ensure medical facilities can cope with the influx of hospitalisations and to better protect vulnerable populations particularly those elderly in long term residential care. Amongst the 1st world (whose statistical reporting one can more accurately rely upon), Germany, Denmark, Austria, Finland, Norway and about half of US states have kept deaths per capita pretty low, the rest of western Europe and the other half of the US states have reported poor containment although cases numbers and deaths are trending down. But even the countries of Europe and the states in the US that have been more dramatically ravaged, are gradually opening their locked down economies up.

By pursuing elimination, NZ has a major problem. When the virus was spreading in NZ, all cases were imported and indeed the inability of NZ to replicate Taiwan's tiny per capita case load was because NZ did not, contrary to the PR spin, properly close its border quick enough. From March 14th when incoming passengers were only asked to self-quarantine, various foreign tourists brought in the virus until the borders were closed to foreigners on March 19th.  From then until the April 8th announcement of compulsory quarantine under government supervision, even when the border was closed to all but NZ citizens and permanent residents, there was still only a 14 day voluntary self-isolation requirement and returning kiwis became the major vectors for the virus to spread. Indeed, the delay in the eventual imposition of the current compulsory 14 day quarantine in my opinion was a major reason for the stricter than average lockdown. But with the very strict lockdown having strangled the virus in NZ, the problem NZ now has is that, because all but a handful of countries have effectively eliminated the virus, in order to maintain the elimination in NZ, the country can only open its borders in the near term to those few countries and must maintain a mostly locked border to the vast majority of countries until such time as a vaccine is widely available.

Whilst the US economy (even with some states still barely emerging from tight lockdowns) is strongly bouncing back even as the virus is still growing (albeit due to higher volumes of testing and with better containment, track and trace and protections for vulnerable populations), the NZ economy has a much more lackluster future ahead as the impact of the ultra-strict lockdown is only just now beginning to trickle though into official statistics.

Impact of a NZ style lockdown

When a country is so reliant on tourism as NZ is, what is the medium term impact likely to be when a country seals its borders to all the world? Yes, trans-Tasman and Pacific Island bubbles are mooted and may yet eventuate but the most populous states of Australia (and thus the ones where the majority of possible Australian tourists originate) may take a few more months to have 14 days of no new cases sufficient to allow trans-Tasman travel to resume. So as NZers celebrate Level 1, pat themselves on the back and look forward to Super Aotearoa and domestic netball to start up with normal crowds ahead of almost all countries in the world, it can only do so behind the fortress of a 100% sealed border.

What is and will be the impact of the border staying sealed to all nations for another 2 months and then opening by September to Australia, the virus free Pacific nations and the five Asian countries mentioned earlier? How much can be offset by NZ domestic tourism? The answer is devastating for the tourism industry for the following reasons:

  1. According to the NZ Tourism Industry Association tourism is responsible for following economic benefits
  • Tourism is New Zealand's biggest export industry, contributing 20.4% of total exports. 
  • Tourism generates a direct annual contribution to GDP of $16.2 billion, or 5.8%, and a further indirect contribution of $11.2 billion, another 4% of New Zealand's total GDP.  
  • 229,566 people are directly and another 163,713 indirectly employed in tourism in New Zealand – 14.4% of the total number of people employed in New Zealand. 
  • The annual GST paid by tourists is $3.8 billion, including $1.8 billion collected from international visitors.  

Whilst the split between domestic and international tourism is approximately 60/40, the daily spend by NZ domestic tourists is significantly less per day. Whilst there will be some NZers who had planned to travel abroad who MAY use some of that intended travel spending to travel inside NZ, given the Treasury estimate of NZ overall economic activity down 5 to 10% during even Level 1 and the looming serious recession, the overall spend of NZers inside NZ will be down from usual highs. The biggest impact is obviously the foreign tourists who, varying from country to country, spend more per day. This graph illustrates the problem

The problem is that by far the highest spending foreign tourists are from countries unlikely to be allowed into NZ until a vaccine is available (US, , and western Europe). Australia does furnish 40% of our foreign tourists but they spend far less and stay for shorter periods of time. The numbers of tourists from the countries likely to be allowed non-quarantined access to NZ like Taiwan and Korea come in low numbers, do not stay as long as the Europeans and spend much less. NZ domestic tourists spend less per day than even the Australians.

Air NZ has already shed half its workforce and has become essentially a domestic carrier with a handful of international routes that are being kept alive by freight. International destinations will slowly open up, but it will be many years before Air NZ is backed to its pre-virus size.

The lengthy border closure will be the death knell for tourism businesses that rely on foreign tourists. These will include: backpackers, highly leveraged hotels and motels in tourist hotspots, restaurants in places like Queenstown, Te Anau and Rotorua that rely on foreign tourists for revenue, NZ owned rental car companies that can't draw on a foreign parent company to prop them up for a year, specialty tourism operators that also rely heavily on foreign tourists and cafes in and near tourism hotspots. There just will not be enough domestic tourists to make up the shortfall. Even with the border being opened to the few safer countries, the global recession will see fewer tourists come and even if they can, they will likely have a tighter travel budget to work from.

Hospitality

The impact of NZ's lockdown on the restaurant industry is only just beginning to be felt. The difference between completely closed and able to provide takeaway either via drive through or curbside is huge. A representative of Hospitality NZ Executive Director Julie White told Katherine Ryan that relatively few NZ restaurants were able to gear up for takeout, compared to jurisdictions like Queensland and many US states with lighter quarantines. This meant that when NZ moved to Level 3, outside of the franchised fast food outlets set up with drive throughs, it was much harder for restaurants to gear up for curbside takeout and so for many restaurants, they have had to withstand a full 49 days through Levels 4 and 3 with zero revenue. Then the social distancing requirements for Level 2 imposed a limit of seated patrons equating for most restaurants to maybe 30% capacity. Because the US has many larger restaurants with far higher seating capacity, when states began to allow dining in even with social distancing restrictions, their revenues were not as badly hit as they could get physically more covers through the restaurant each day. In states where restaurants were never closed, almost all were able to offer curbside takeout. The numbers of completely shut restaurants (for the lockdown duration) in the light lockdown states was less than 10%. Two friends of mine own restaurants here in the US and both offered takeaway options even well before the lockdowns and so all they had to do was streamline the menus and make provision for containers for condiments and extras (like for example chips and salsa for Mexican restaurants) and both reported unaltered revenue through the period before lockdowns were lifted to allow dining in. And even after the restaurants were opened to allow dining, the reduced covers due to the phased openings that most US states have implemented, large numbers of people have continued to pick up meals curbside. Thus, in the light lockdown states there have been very few restaurant closures because revenues were able to be maintained. Contrast that with NZ with 33 days all closed, 16 days with maybe 50% offering takeout food and then 26 days of limited covers during Level 2. The cumulative effect even with the wage subsidy is going to see far more restaurants in NZ go under. Established restaurants with a loyal and up market clientele should survive, those with little to no debt with significant family running the operation will hang in there, fast food franchises in high volume locations will survive as will cafes in suburban strip malls with low rent. But for others in this industry, they have taken an enormous hit that for some will be impossible to recover from, a hit not taken by restaurants in light lockdown jurisdictions.

Construction

The construction sector is another where lightly locked down US and Australian states will have far fewer failures as construction projects of all types were allowed to continue through the lockdowns. Not long into the NZ lockdown, some cash strapped smaller construction companies that were marginal going into the lockdown, went under. Fletchers Construction shedding 1,000 NZ jobs is a harbinger of more carnage to come in this sector. That's 10% of Fletcher's entire NZ workforce and more may follow. There are about 250,000 direct construction jobs in NZ and another 250,000 construction related. Let's assume smaller companies aren't able to absorb the loss of revenue during the extended lockdown like Fletchers could and 20% of jobs in this sector are lost, that's possibly up to 90,000 jobs lost (this includes sole traders who are self employed who go out of )

New Zealand v Queensland

NZ and Queensland took quite different approaches to COVID19 and how best to tackle it. NZ enacted one of the world's toughest lockdowns while Queensland imposed a much lighter regime. NZ took the view that all businesses would be closed except for deemed essential services which included: supermarkets, pharmacies, laundromats, public transport (only for essential workers), food production and distribution, shoestring financial services (i.e. banks for 1 day a week mostly), hospitals, labs, care facilities, food export, essential government services like police, courts and prisons, government departments and CRI's but working from home, taxis, couriers, posties, ISPs, media, utilities (providers, wholesalers and retailers) and a couple of essential businesses like Methanex and the Tiwai Point smelter.

Queensland approached the lockdown from the opposite direction and only defined non-essential businesses that had to close and all other businesses were open which is a massive difference compared to the very restricted list of essential businesses in NZ. Queensland's non-essential business included: clubs, pubs, gyms, cinemas, casinos, theme parks, play centres, indoor sports facilities, public pools and parks, playgrounds, campgrounds, zoos, libraries, community centres and churches. The two initial lockdowns were identical in length, but this table illustrates the differences:

And what were the results? Despite the significantly lighter lockdown, Queensland managed 33% fewer cases per capita and almost 75% fewer deaths per capita. Whilst both jurisdictions were at the very lowest end of global results, it is significant that Queensland achieved better results than NZ with a very much less damaging and restrictive lockdown.

Other deaths arising from a deeper than average recession

There are few who dispute that NZ is heading for a pretty tough recession as are many countries in the world. But we have already seen from the OECD projection that NZ is going to be hit harder than most because it shut down so much more of its economy than pretty much any other country. Most NZers will point to the exceptionally low case and death count to justify the economic damage. But what does not show up on the government's COVID19 dashboard that proclaims this impressive result are the extra deaths caused by serious and deep recession. These deaths include:

  • Suicides committed by people depressed because they have lost a job, business, or their home to mortgagee sale.
  • Lives shortened by stress related to job/business loss, marital strife, and depressed market conditions.
  • Increase in strokes, heart attacks and other stress related illnesses for the reasons above.
  • Negative health outcomes due to deferred specialist appointments, preventative tests, and delayed treatment due to re-prioritising of the health system to treat Covid patients. This includes: colonoscopies, bowel and breast cancer screenings delayed, cancers picked up too late that were treatable but end up being fatal and other potentially life threatening ailments like cardiovascular or pulmonary diseases, diabetes and renal conditions that get picked up too late for life saving treatments or surgeries to be effective.

These deaths are not easily tracked, and it is difficult to glean from reported statistics as to whether or not a person's death is attributable to negative health and morbidity outcomes arising from a severe downturn in the economy.

There have been a number of studies on these impacts that have relevance to this situation. The largest increase in the overall suicide rate occurred in the Great Depression (1929-1933) – it surged from 18.0 in 1928 to 22.1 (all-time high) in 1932 (the last full year in the Great Depression)—a record increase of 22.8% in any four-year period in history. The overall suicide rate generally rose in recessions like the Great Depression (1929-1933), the end of the New Deal (1937-1938), the Oil Crisis (1973-1975), and the Double-Dip Recession (1980-1982) and fell in expansions like the WWII period (1939-1945) and the longest expansion period (1991-2001) in which the economy experienced fast growth and low unemployment.

“Economic problems can impact how people feel about themselves and their futures as well as their relationships with family and friends. Economic downturns can also disrupt entire communities,” said Feijun Luo, Ph.D., an economist in CDC's Division of Violence Prevention and the study's lead author.

During and after the 2008 Global Financial Crisis, there were an estimated 4,884 excess suicides in 2009 compared with the number expected based on previous trends (2000-07). The increases in suicide mainly occurred in men in the 27 European and 18 American countries; the suicide rates were 4.2% and 6.4% higher, respectively, in 2009 than expected if earlier trends had continued. For women, there was no change in European countries and the increase in the Americas was smaller than in men (2.3%). Rises in European men were highest in those aged 15-24 (11.7%), while in American countries men aged 45-64 showed the largest increase (5.2%). Rises in national suicide rates in men seemed to be associated with the magnitude of increases in unemployment, particularly in countries with low levels of unemployment before the crisis.

Death due to cardiovascular disease after the GFC, those with the highest amount of distress saw the largest jump in mortality, from 122 to 127.6 deaths per 100,000 people.

When examining cancer deaths post GFC, this study examined cancer mortality data from more than 70 countries. The researchers found that a 1 percent rise in unemployment was associated with 0.37 additional cancer deaths per 100,000 people.

In looking at the health mortality risks posed the current coronavirus situation In the UK, researchers at University College London say concerning the current lockdown that “up to 18,000 people could die because they are too worried to attend key medical services if they believe they might have cancer. Usage of Accident and Emergency has fallen by 50% compared to this point last year, showing people are either concerned about being a burden on the NHS or of contracting coronavirus. Research from the NHS also shows over 50% of the public who are ill will think twice before using medical resources, and one in ten wouldn't even see a GP if a new mole or lump appeared because they are so worried about COVID-19. The government and the NHS are now urging people to use services as normal if they are worried about cancer symptoms or any other illness. Professor Peter Johnson, the NHS clinical director for cancer, said: “My message is clear: people should seek help as they always would.” The UCL research looked at data from 3.5million patients and the impact of the outbreak on cancer survival. It estimates that at least 6,270 extra deaths in newly diagnosed patients will occur over the next year due to late pick-up, delayed treatment, and coronavirus infections.”

There is data from New Zealand that is relevant in looking at the possible impact on total death rates from the high risk diseases after the last big recession in New Zealand in the early 1990's. Unemployment in NZ peaked in late 1992 at 10.9% dropping to 6.4% in 1996 so the following Ministry of Health death statistics looks at the increase in total deaths from the big 5: Cancer, Heart disease, Respiratory illnesses, Stroke and Suicide (male and female rates totaled)

1990      19,188

1993       19,927

1997       19,687

Thus, it would appear that the recession of the early 1990's resulted in 739 more deaths from the big 5 or a 3.8% increase. These began to drop back and by 1997 as the economy was picking up, the total number of deaths from these 5 issues dropped by 240 or 1.2%.

The recession arising from the COVID19 lockdown is going to result in an unemployment rate of 13.5% versus the peak of 11.9% in 1992 so a 13% worse figure. Given that New Zealand's population has increased 40% since late 1992, the increase in deaths of 739 at the peak of the 1990's recession from 3 years previous would equate to 1,034 in 2020's larger population and then if we apply the fact that the coming recession is estimated to be 13% worse, this would give us an approximate recession related increase in deaths of around 1,169.

Now some will argue that the total Covid deaths of only 22 could have been substantially worse without the strict lockdown. Undoubtedly there is some truth in that but there are two important caveats to understanding exactly how many lives would have been lost without the lockdown.

FIRST – we already know that Queensland achieved a much better mortality result than NZ with a significantly lighter lockdown.

SECOND – the two major global models use by many jurisdictions to justify various harsh lockdowns (the Imperial College London model by Dr Neil Ferguson and the IHME model from the University of Washington's School of Medicine promoted by Dr Anthony Fauci, the Director of the US National Institutes of Health's National Institute of Allergy and Infectious Diseases), both these models massively overstated the numbers of projected coronavirus deaths in the UK and the US even as they factored in the lockdowns. The same was true of the extent to which hospitals would be overcrowded (except for a few days in New York City, they were not) and ventilators needed. All of these projections were wrong.

Conclusion

Spooked by the models predicting 10,000's of deaths in NZ and the mushrooming imported cases of returning New Zealanders, I believe Jacinda Ardern and her government somewhat panicked and enacted a harsher than necessary lockdown. The economic cost was known to be high but when your Cabinet ranks are filled with people who have never owned a business, had to meet a payroll or had to try and keep a business afloat in tough economic times (except perhaps farmer Damien O'Connor), the negative and far reaching impact of such a harsh lockdown was lost on Labour's front bench and almost all its caucus. Reveling in the ability to show how beneficent a Labour government could be by way of numerous handouts to wage/salary earners and businesses, they assumed that such handouts could plug the gap long enough to weather the strict lockdown and then NZ would roar back into life as parts of the US are now doing. The nationwide sense of unified purpose and shared sacrifice, the ‘team of 5 million' meme and the progressively low and falling numbers compared to so many other countries, has lulled many NZers into a false sense of security as to how well the country has coped. In my own family all, barring my 17 year old nephew who works after school in a supermarket, are paid by the State in government or quasi government jobs. One of my sister's jobs is in the private sector and she was 100% protected by the wage subsidy and was working in a business unaffected by the lockdown so all, in my family have escaped anything more than putting on a few lockdown kilos from home baking! Many of the kiwis I know who are vocal on social media about how well NZ (and Jacinda) have done are similarly sheltered from the tsunami of coming business failures via government jobs. All of the government advisors who put together the lockdown strategy, all the media commentators and the vast majority of the commentariat who have loudly cheered on this severe lockdown and have derided any naysayers, they too have been cushioned from the economic blows of this policy. Sadly, the increased deaths that can be pinned directly on this man made recession will trickle in only gradually over time hidden from view and will never factor into the electorate's decision making process during the coming election campaign. As time goes on and the economic statistics emerge enabling us to compare GDP growth (or lack thereof), unemployment and business failure rates in the different US states and various countries and their varying severity of lockdown, I feel that whilst NZ will still be lauded by the liberal press globally for its low death rate and the left's picture child of the moment (Jacinda Ardern) will bath in enough of the reflected low death rate glory to easily win re-election, I fear NZ is in for a very tough 2021, tough economic times that I believe Queensland will not have to suffer nearly so much for despite having achieving the same conquering of the virus.

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