Claims for second tranche of wage subsidies tailing off with only $1.6b requested

Tuesday, 14 July 2020

The Government has paid out $11 billion in wage subsidies to businesses that have suffered a loss of income as a result of the coronavirus crisis. (File video, first published in August 2020)

The Government may be on course to underspend on another of its Covid-19 business relief schemes.

As of July 3, only $1.6 billion out of the $3.9b that the Government allocated to an extension of its wage subsidy scheme had been claimed by struggling firms.

The wage subsidy extension was the centrepiece of a $4b business support package announced by Finance Minister Grant Robertson in the May Budget, when it was expected to cost up to $3.2b.

It was originally designed to help companies that experienced or expected a 50 per cent drop in revenues during a 30 period prior to applications closing on September 1.

* Air NZ sole recipient of 'bespoke' Covid help as others find alternatives to Treasury bail-outs

The wage subsidy extension was the centrepiece of Finance Minister Grant Robertson’s May Budget, but the next couple of weeks should show whether the Government will spend less than he expected it might have to on the scheme.

* Take-up of government loan scheme billions less than allowed for

The rules were relaxed on June 5 to include firms that experience a higher than 40 per cent revenue drop, at an expected extra cost of up to $700m.

The scheme subsidises employers’ wage bills to the tune of $4686 per full-time worker and $2800 per part-time worker.

Although firms have until September 1 to apply, Ministry of Social Development data indicates that the volume of applications has been tailing off between the earliest application date of June 10, and July 3.

As of July 3, the wages of 372,021 workers were being subsidised through the scheme.

Infometrics economist Brad Olsen noted about 200,000 of those salaries were covered during the first week of applications, with claims then slowing to about 80,000 wages a week after that.

“It may well be that they underspend a touch,” he said.

Businesses have been able to apply for wage subsidy 'extensions' since June 10.

But it would probably be a week or two before there was enough data for that to be clear, he said.

“This week and next week’s data will probably be quite telling.”

Olsen said it was interesting that claims for 48,000 wage subsidies had been lodged in the most recent four weeks to help pay staff who had not previously been covered by the original wage subsidy scheme.

Given that Statistics NZ figures showed June was a “pretty good month” for retail spending, those jobs subject to new claims were likely to be “quite vulnerable”, he said.

$11.1b was paid out under the first tranche of the wage subsidy scheme, which closed on June 9, which was higher than the $9.3b spend Robertson had forecast in March.

But $263m has been repaid by firms which did not in the end qualify for the support.

Spending on the Government’s Business Finance Guarantee Scheme and Small Business Cashflow Scheme, which provide business loan guarantees for bank lenders and low or zero interest loans for small businesses, have undershot forecasts.

The Business Finance Guarantee Scheme was designed to provide $5b of government loan guarantees to underwrite $6.25b of business lending by banks.

But as of June 30, only 664 loans worth $121m had been written with the assistance of the scheme, out of a total of 21,875 bank loans worth $12.7b written since March 26, according to the Bankers Association.

The Government had expected to directly advance loans worth $5.2b to small businesses and sole traders through its Small Business Cashflow Scheme by its original application deadline of June 12.

But only $1.4b of loans had been claimed by late June and the deadline for loan applications has since been extended until the end of the year.