The $66 billion Covid spend up: Treasury asks if the Government went too far

Thursday, 7 August 2025

Imogen Wells looks back at those first days since our first case, 5 years ago today.

It was the largest spend up in the history of New Zealand.

Treasury now estimates the Government spent $66 billion responding to the Covid-19 pandemic.

And while the spending initially saved the New Zealand economy from a severe downturn (as had been predicted), Treasury says it went on for too long.

The Treasury has released its long-term insights briefing, which is heavily focused on learning from the Covid-19 pandemic and preparing for future emergencies.

It looks at how New Zealand’s pandemic response differed from other countries, and estimates how much the Government needs to save for upcoming severe weather events.

The briefing also notes that officials had urged the previous Government to pull the brakes on Covid-related spending once it became clear the economy had not been hit as a hard as was originally expected.

That big spending

By Budget 2022, the Tresuary says it was urging the Government to spend less.

In 2020, the Labour-led coalition - with NZ First and the Green Party - allocated a massive $50 billion fund for the Covid-19 response.

Over the coming years, the budget for the pandemic grew.

On Thursday, in its long-term briefing titled Te Ara Mokopuna, Treasury said the final bill sat around $66 billion.

Earlier estimates, from the Auditor General and Royal Commission of Inquiry into the Covid-19 Pandemic, had estimated spending of between $62 and $71 billion.

Report finds we likely overspent on Covid response

The Treasury said this spending was likely too high, especially when compared to other countries.

“It was the largest fiscal response to a shock in New Zealand in recent decades, with an estimated discretionary fiscal response of approximately 20% of GDP,” the briefing said.

Internationally, Treasury said New Zealand likely topped the chart of big spenders with that 20% of GDP figure. It noted that the International Monetary Fund (IMF) and OECD “estimated it to be among the largest Covid-19 responses globally”.

Most of that spending occurred at the start of the pandemic response.

“About half of the response interventions were tied directly to the shock such as the health response and the Wage Subsidy Scheme,” Treasury said.

But not all of it was focused on the immediate response.

Treasury Secretary Iain Rennie says governments need to start saving for future emergencies.

“A significant component of the response had broader objectives such as stimulating the economy or achieving distributional goals,” the report said.

Did it go too far?

Treasury said that, as the pandemic progressed and New Zealand’s economy was in relatively good shape, it advised the Government to rein in spending.

“The New Zealand economy recovered faster from Covid-19 than anticipated,” Treasury explained.

The report continued, “In subsequent months, it became increasingly apparent that there had been a persistent rise in inflationary pressures. Rising inflation in part reflected excess demand, which was driven by stimulatory monetary and fiscal policy.”

Finance Minister Nicola Willis says the report shows the previous Government went too far.

From Budget 2022, Treasury said it urged the Government to spend less and instead provide targeted support in a bid to limit inflationary pressure.

“As the economy recovered in the second half of 2020 and into 2021, the Treasury advised shifting towards more targeted fiscal support and recommended against further stimulus,” the briefing said.

The politics of this report

Labour’s Barbara Edmonds says high spending was needed to save jobs and lives.

Finance Minister Nicola Willis was quick to draw attention to the Tresuary’s conclusions. She has long blamed current economic challenges on the previous Labour Government.

She said this report proved that, as she has said previously, the Labour Government was fuelling inflation.

“Unfortunately, the Labour government ignored [officials’] advice. 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,” she said.

“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,” she added.

Previously, Labour finance spokesperson Barbara Edmonds defended that spending. She said they the Government was operating in difficult times, with constantly changing forecasts and advice.

“Basically, the whole world stopped because of a pandemic that happened. Our Government at the time had to make decisions to save people’s lives and people’s jobs,” she said.

Banking for future emergencies

The general theme of the report is Treasury urging governments to get better at saving money for emergencies. Treasury secretary Iain Rennie started the 118-page report with a foreword pointing out that everyone knows that “change” and “disruption” will become more common.

He said it would be unfair to continue borrowing to pay to get through that disruption, as it would drive up debt for future taxpayers.

Comparatively, the report noted that Covid-19 was an unusually expensive emergency.

It listed recent shocks, including the 2023 severe weather events. They costed about $6.65 billion for the Government, and caused about $15 billion in damage as well.

Covid-19 had been the most expensive event to hit the Government, with the 20% of GDP being spent on its response. The second most expensive event had been the Canterbury earthquakes, making up 11% of GDP.