New Zealand isn’t ready for the next pandemic, so the autopsy on the last must continue
Sunday, 15 March 2026
ANALYSIS: The autopsy on the cold corpse of the Reserve Bank and Treasury’s Covid pandemic response is not yet complete, according to the second report from the Royal Commission on the Covid response.
A deeper probe into how effective the tens of billions of dollars spent on “unconventional monetary policies” were in the Covid responses by the Reserve Bank, and the untold billions spent by central banks around the world, was needed.
Independent non-bank economists backed that call for more work on figuring out which tools in the monetary tool kit worked, and should be deployed next time a pandemic hits.
However, some of the commissioners’ recommendations released on Tuesday had already been anticipated by the Government, the central bank and Treasury.
Read more:
The Covid report arrives long after the country has moved on
Auckland locked down longer than advised, Royal Commission on Covid finds
Commissioners Grant Illingworth, Anthony Hill and Judy Kavanagh used their second report to send a message: Future pandemics would occur, and the country could do more to be prepared, including working out which were the most effective monetary tools to protect workers and the economy.
Pandemic act needed
Some of the necessary preparation work needed to be carried out in Wellington.
A pandemic act should be created using normal Parliamentary processes, and proper public consultation, while memories were fresh.
The act should set out the most significant legal powers government could use in a pandemic response (lockdowns, border closures and quarantine arrangements, and vaccine requirements, etc).
But the commissioners said it should also emphasise and affirm human rights, and transparency.
It called legislation “the guardrail for fundamental rights and freedoms”.
The legislation should clarify “how, why and by whom” powers were to be exercised, including powers to grant exemptions from public health-related measures.
“It should require the government’s use of extraordinary powers to be subject to ongoing review, monitoring and disclosure, but should allow for government to use different response strategies and approaches as the pandemic progresses and circumstances change,” the commissioners said.
Bespoke emergency legislation should only be used as a last resort.
And, they said: “Advice relating to the exercise of powers under pandemic legislation should be publicly released.”
Unfinished economic business
There remains a sense of unfinished business around the monetary policy deployed in the Covid response.
The commissioners recommended: “Treasury and the Reserve Bank should initiate a research programme to subject the unconventional monetary policies used in New Zealand and other countries during the pandemic to further rigorous empirical and policy analysis.”
“This should be done before such policies are used in future,” they said.
Economist Shamubeel Eaqub backed the commissioners’ call for Parliament to set to work on a pandemic act, saying it was “exactly the right thing to do”.
He said their call for more research on unconventional monetary policy was “very sensible”.
He said the response to the Canterbury earthquakes was aided by planning and strategy work done before the quakes hit.
Some steps had been taken in that direction already, including analysis by Treasury and the Reserve Bank, which says its modelling shows its pandemic response “effectively paid for itself” through its support for the economy.
However, a spokesperson for the Reserve Bank told the Sunday Star-Times: “We acknowledge and value the insights and recommendations further outlined in this [the Royal Commission] report and remain committed to continuous improvement.
“We will be considering how these findings can be incorporated into our processes to further strengthen our preparedness, coordination, and response to future crises.”
In 2022, a review by the Reserve Bank had been done which identified nine areas for improvement, and that informed an extensive work programme, the spokesperson said.
Treasury said it welcomed the report, and would work through it.
“We shall take time to carefully consider the findings of the Report and will advise the Government on its response,” a Treasury spokesperson said.
However, the commissioners signalled they felt there was more to be done, and so has the Government.
Last month, in the days before the commissioners handed their report to ministers, Finance Minister Nicola Willis ordered an independent review of monetary policy during the pandemic to be delivered in September on the eve of the general election by overseas former central bankers, signalling the Government was not satisfied with Reserve Bank’s self-analysis of its “least regrets” approach.
Using the lessons learned
The Covid response remains a hot button issue in politics, with the commissioners’ second report being inked after the current Government widened the terms of reference for the commission.
Internal Affairs Minister Brooke van Velden said New Zealanders weren’t satisfied with the “narrow” terms of the first phase of the Royal Commission’s inquiry, terms she said had been “set by the same Government that made the decisions the Commission was investigating”.
“The inquiry is not simply about learning what the previous Government did wrong, it is about working out what we need to do right,” she said.
The messaging from the Government was that Labour and its “big-borrowing prospective coalition partners” had left a debt disaster and cost-of-living crisis with its pandemic response.
But the messaging about the Reserve Bank is not as aggressive.
When Willis announced the independent review of the Reserve Bank’s pandemic response, she acknowledged it had preserved jobs and kept businesses afloat.
But, she said, “decades-high” inflation, losses of about $10.3 billion on the large scale assets purchase programme and a significant spike in asset values with house prices increasing 30% in one year, were among the costs.
Treasury estimates the total fiscal cost of responding to the Covid-19 pandemic was $66b in Government spending, about 20% of GDP, which was well above the OECD average, and which the Government has used to justify its moves to reduce government spending, and boost economic growth.
In addition, the Reserve Bank’s pandemic response was to cut the official cash rate to 0.25%, and commit to hold it there for a year, purchasing $53b in government bonds through the large scale asset purchase programme, and providing $19b to banks via the Funding for Lending Programme.
Labour leader Chris Hipkins thought politics were being played.
Hipkins said lessons had been learned already, and multiple reviews of the pandemic response had repeated the same conclusions.
“What now matters most is how we use the lessons learned,” Hipkins said.
“The focus now must be on what has happened since the pandemic,” he insisted.
“Over the past two years, the Government has cut public health capability while commissioning multiple reviews that repeat the same conclusions,” he said.
Willis used the publication of the commission’s report on Tuesday to call on Hipkins to justify spending about half of the Government’s roughly $60b Covid response money on projects and programmes that had nothing to do with the pandemic.
Criticisms of the Reserve Bank
Independent economist Tony Alexander thought there were more pandemic response lessons to be learned.
“Too many people in positions of control remained wedded to the phrase ‘an abundance of caution’ for too long,” he said. Politicians and central bankers were not able to pivot as new evidence meant their strategies needed altering, he said.
That resulted in unnecessary spending by the Government, unnecessarily protracted lockdown and misaligned monetary stimulus.
Alexander saw a widespread assumption from leaders that the most negative of possible outcomes would eventuate, and too little recognition of costs.
Like Alexander, Eaqub recalls dogmatic insistence from those in control on maintaining policies like trying to eradicate Covid for far too long, when it was plain they were unrealistic.
The commissioners pointed out the country suffered from a dearth of timely economic data, and recommended investing in more frequently published economic indicators for decision-makers, something the Reserve Bank has attempted to remedy in recent quarters with bespoke tools. In early 2027 a monthly Consumers Price Index will begin from Stats NZ.
Eaqub also supported the commissioners’ recommendation that Treasury, in collaboration with the New Zealand Infrastructure Commission, should investigate the feasibility of an infrastructure maintenance priorities programme for publicly owned infrastructure.
Then, instead of seeking new investments in short-time frames to stimulate the economy as happened in the Covid pandemic response, stimulus money could go into things the country really needed, and would boost productivity.
Better co-ordination in times of crisis
For Alexander, some of the commission’s less headline-grabbing recommendations make most sense.
He liked the recommendation for Treasury to publish a report at least every four years on the country’s fiscal resilience, advising on current and expected public debt levels, and whether they provided a sufficient fiscal buffer in the face of one or more adverse events comparable to the Covid-19 pandemic.
He also wanted to see improved co-ordination between fiscal policy (government spending) and monetary policy, which was another recommendation from the commissioners.
“It seems that the Reserve Bank did not sufficiently take into account the strong fiscal stimulus when they formulated their actions during the pandemic,” Alexander said.
“This was perhaps their biggest failing, alongside not paying enough attention to data over 2021-22 showing the strong performance of the New Zealand economy,” he said.
“Requiring them to explicitly report how they will integrate the government of the day's fiscal response to the next pandemic would be a good idea, but may not necessarily drive altered decisions because it seems unrealistic to think they were not aware of the stimulatory nature of the fiscal stimulus applied during the last pandemic.”
The Reserve Bank’s chief economist, Paul Conway, said in October that it and Treasury had clarified and strengthened its arrangements for working together, and the Reserve Bank board now had “enhanced oversight” of financial risk management protocols to reinforce fiscal responsibility in Monetary Policy Committee decision-making.
The Reserve Bank was working on some broad guidelines on how to “enhance monetary-fiscal co-ordination in times of crisis”.