$3.2 billion business support package welcome, but more will be needed

Wednesday, 15 April 2020

The lockdown has seen many businesses stop trading entirely.

The Government's latest $3.2 billion package to help businesses survive the fight against the coronavirus will save businesses.

Dominick Stephens, Westpac chief economist, gave the package a score of 'eight out of 10'.

'It's certainly going to help with business cashflow. Businesses will be able to clawback tax paid in the past, if they are strongly expecting to make a loss right now,' he said.

Stephens said most Government Covid-19 financial support measures had been temporary, but the tax loss carry-back scheme, which was the central plank of the latest package, looked like it would be permanent.

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Finance Minister Grant Robertson says: 'We have approved a tax loss carry-back scheme that will allow a large number of businesses to access their previous tax payments as cash refunds.'

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The tax loss carry-back scheme would allow businesses to access their previous tax payments as cash refunds, Finance Minister Grant Robertson said.

'Essentially this means a forecast loss in the current financial year can be offset against the tax paid on a profit from last year,' Robertson said.

This would generate cash for businesses, enabling more of those that were vulnerable but viable, to survive, said Business New Zealand chief executive Kirk Hope.

While Hope expected the tax loss carry-back scheme to be needed for at least two years, others hoped it would become a permanent.

The Government needs to keep a close eye on business support packages overseas, says Wellington Chamber of Commerce chief executive John Milford.

'One would hope so,' said John Milford, president of the Wellington Employers' Chamber of Commerce.

MYOB New Zealand country manager Ingrid Cronin-Knight said many smaller local businesses were staring down the barrel of a loss this year, and the scheme could make a vital difference.

'As we saw in our latest research, the majority of small New Zealand businesses expect to have a fall in revenue this year,' she said.

'So the ability to offset a forecast loss in the current year against the previous year's tax will give them more options to reduce cost and free up cash.'

According to the latest MYOB Business Monitor, a survey of over 1000 small and medium-sized businesses in March, indicated many businesses saw an immediate hit in annual revenue from the coronavirus crisis, with 31 per cent of the businesses reporting their annual revenue was down.

How many more additional Government business support packages would be needed would depend on the speed at which New Zealand came out of lockdown, and then moved down through the alert levels.

The opposition was pushing for a quick exit from lockdown, noting how Australia was fighting Covid-19, while keeping more of its businesses open.

The latest $3.2b package went some way to assist small and medium businesses, Milford said.

But he said the Government should look at overseas business support packages, like interest-free loans or one-off grants to help businesses with the working capital some would need to open up again.

Milford said many business people would be happy to repay survival loans once they got back on their feet, provided they were not on onerous terms.

Such loans may become necessary, if it turned out fewer businesses than expected could secure partially taxpayer-backed loans from banks.

Stephens said the impact of the fight against Covid-19 had generated economic falls that were unprecedented even in the Great Depression of the 1930s.

'I expect a much deeper down turn than we have ever seen before, but a much faster recovery.'

But, he said: 'This is likely to be something that will eventually pass.'

'Once the virus has passed, there's no reason the economy won't drift back to what it was before.'

Tax expert Don MacKenzie from Grant Thornton said the tax loss carry-back scheme had been suggested to Government over a week ago by Chartered Accounts Australia and New Zealand.

Tax advisers were busy helping clients during the lockdown, but the 'Devil will be in the detail' when it came to advising them on how to access the scheme, he said.

The tax loss carry-back scheme made up $3.1b of the $3.2b support package, which added to the $20b already tagged to support business and their employees.

Robertson said: 'We need our businesses to stay solvent to help with the economic recovery as we emerge from this health crisis.

'We have approved a tax loss carry-back scheme that will allow a large number of businesses to access their previous tax payments as cash refunds. Essentially this means a forecast loss in the current financial year can be offset against the tax paid on a profit from last year.'