Treasury Warns Against Repeat of Costly COVID Spending in New Fiscal Briefing

According to Treasury, many programmes funded through the CRRF were “not tied to the shock” and became entrenched, with delayed economic impacts and ongoing fiscal obligations.

New Zealand's Finance Minister Nicola Willis has pointed to the Treasury's newly released Long-Term Insights Briefing as a sobering reminder of the dangers of unchecked government spending, particularly in response to short-term crises like the COVID-19 pandemic.

The report, which reviews how fiscal policy has been used to manage economic shocks over recent decades, emphasizes the need for more disciplined, targeted, and time-bound interventions in the future. It compares the scale and economic impact of the COVID-19 response with other national events, highlighting that the $66 billion pandemic response was double the cost of the Canterbury earthquakes in GDP terms.

"This briefing is polite in tone but clear in its critique," said Finance Minister Nicola Willis. "The errors made during the COVID-19 fiscal response were significant, and Treasury is urging policymakers not to repeat those mistakes. Our Government will not."

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COVID Response: Large-Scale Aid, Lasting Effects

The COVID-19 Response and Recovery Fund (CRRF) was established in May 2020 with the goal of providing rapid financial support to households and businesses, shoring up public confidence during one of the most disruptive global events in recent history. However, as Treasury outlines in its report, early economic recovery outpaced expectations, and by late 2020 and into 2021, Treasury was advising the Government to pull back on general stimulus measures and pivot to more targeted support.

According to Treasury, many programmes funded through the CRRF were "not tied to the shock" and became entrenched, with delayed economic impacts and ongoing fiscal obligations. These programmes were difficult to unwind and contributed to broader macroeconomic distortions, including inflationary pressures and growing public debt.

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Political Fallout: Current Govt Points to Labour Overspending

Minister Willis directly criticized the previous Labour government, accusing it of ignoring Treasury's advice and extending pandemic-level spending even after the immediate health and economic threats had eased.

"The consequence was undisciplined spending that pushed up inflation, eroded New Zealand's previously low public debt position, and fuelled a cost-of-living crisis," Willis stated. "New Zealanders are still paying the price for a spending pattern that outlasted its justification."

She added that the Treasury report's references to lagged impacts and hard-to-unwind programmes are a "very diplomatic way" of describing the fiscal drag caused by prolonged, untargeted stimulus.

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Learning the Right Lessons from Crisis Management

While acknowledging that crises like COVID-19 demand rapid action, the Treasury briefing emphasizes the importance of planning fiscal exit strategies as recovery sets in. It stresses that governments must restore fiscal guardrails as quickly as practical to preserve long-term economic resilience.

The briefing also notes that public trust in government responses can suffer when emergency measures appear to become permanent or are perceived to be misused.

Minister Willis said this aligns with the current Government's position on fiscal policy: "The lesson from Labour's mishandling of the Covid response is that while there are times when governments have to increase spending in response to major events, the fiscal guardrails should be restored as soon as possible."

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Willis Promises Responsible Fiscal Stewardship

Looking ahead, Nicola Willis reaffirmed the Government's commitment to strong and responsible fiscal management, pledging to follow Treasury's recommendations for evidence-based, time-bound, and clearly justified public spending.

"Our economic plan prioritizes restoring fiscal balance, controlling inflation, and protecting New Zealand's economic credibility. Kiwis can take confidence in that approach," she said.

The Treasury's report comes at a time when many countries are reviewing their pandemic responses and fiscal frameworks, with a view to building better institutional safeguards for future crises.

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Background: What Is the Long-Term Insights Briefing?

The Long-Term Insights Briefing (LTIB) is a Treasury-led initiative required under the Public Service Act 2020. It aims to promote informed public debate by providing non-partisan, evidence-based insights into long-term policy issues and risks.

This edition focused on fiscal policy responses to economic shocks, including natural disasters, financial crises, and pandemics. It provides historical analysis, policy lessons, and recommendations for future resilience.