Extra two weeks of wage subsidies expected to protect 470,000 jobs at cost of $510m

Monday, 17 August 2020

Finance Minister Grant Robertson says the scheme extension should subsidise 470,000 jobs.

Businesses will need to show they have suffered a 40 per cent drop in revenues due to Covid-19 in order to benefit from a new round of wage subsidies that were first heralded by the Government on Friday.

Announcing details of the new scheme, Finance Minister Grant Robertson said the third round of subsidies was expected to cost about $510 million and would cover 470,000 jobs.

The subsidies will help employers pay wages for a period of two weeks, but that could be extended “if that was needed”, Robertson said.

The previous rounds of wage subsidies had covered wages for a total period of up to 20 weeks.

* Budget 2020: Government throws $3.2b lifeline in Budget to 'worst hit' firms

The mortgage deferral scheme will be extended until March 31, with other details still to be released by the Reserve Bank and retail banks

Wage subsidies are intended to help struggling businesses trade through the coronavirus pandemic and limit an expected rise in unemployment.

Firms would need to show a 40 per cent revenue drop during a period of at least 14 days between August 12 and September 10, when compared to last year, Robertson said.

The cost of the new extension should be covered by an underspend on the previous, second round of wage subsidies, Robertson said.

Auckland Business Chamber boss Michael Barnett believes the bar for the new wage subsidies has been set too high.

As previously flagged by the Government, businesses around the country will be able to claim the subsidies if they qualify, not just those in Auckland that have been subject to the return to alert level 3 restrictions.

Robertson said the Government also expected more firms would qualify for wage subsidies under the previous round of subsidies, which are still open to applications until September 1.

The cost of providing subsidies to businesses that hadn’t been covered by that round but which were now expected to qualify was expected to be about $1.1 billion, he said.

That changed expectation, plus the new subsidies, meant the total extra cost of wage subsidies as a result of the return of Covid-19 in New Zealand is expected to be $1.6b.

Businesses will be able to apply for the new round of subsidies from Friday.

Auckland Business Chamber chief executive Michael Barnet said businesses would be grateful for the two week extension “as a band aid to get them through”.

But the bar for the assistance was set too high for businesses that were “only just inching to recovery before this lockdown knocked their confidence and balance sheets again”, he said.

“The initial subsidy scheme was set at 30 per cent which was really a lifeline.

“This two-week extension at the higher 40 per cent bar is a stretch too far, complicated to operate and not in sync with businesses who have had the rug pulled from under them,” he said.

Businesses could not face “on and off” lockdowns, he said.

National Party finance spokesman Paul Goldsmith supported the wage subsidy extension but blamed the Government for “border failures”.

“There has to be a better, long term plan to build economic momentum. There is no vaccine as yet.

“We have to learn to live with this virus and become experts at minimising damage to commerce and the community harnessing smart technology, rigorous testing, track and trace systems and demonstrating a high level of personal responsibility.”

Tourism Export Council chief executive Lynda Keene said it was “underwhelmed” that the wage subsidies would be for a further two weeks.

Hospitality New Zealand chief executive Julie White also said the Government needed to do more.

“In our sector, level 3 is the equivalent of closing down for many operators and sadly, we will lose several of our small businesses,” she said.

Robertson said he recognised some businesses would have wanted the new subsidies to be for a longer period, but that needed to be balanced against government debt.

National Party finance spokesman Paul Goldsmith said it supported extending wage subsidies.

But he said the ongoing subsidies couldn’t hide the heavy price Kiwis were paying for what he described as “the Government’s border failures”.

Effective border management was the foundation on which the economy could recover, he said.

“Borrowing $1.6b more to pay wage subsidies is necessary now, to help businesses that can’t trade for public health reasons, but we have to give ourselves the best shot to rebuild by competently managing the border.”

Infometrics economist Brad Olsen supported the decision to offer just two weeks of extra subsidy and the requirement for firms to have experienced a 40 per cent revenue drop.

The support needed to be “broadly tied to the event we are seeing”, he said.

The Government has also removed the need for businesses to show a revenue drop in order to qualify for the Covid-19 Leave Support Scheme, Robertson said.

“This means businesses with workers who have been told by health officials or their medical practitioner to self-isolate will receive the equivalent of the wage subsidy to help cover that person’s wages for the time they cannot be at work,” he said.

“Our focus is on doing everything we can to support our strong public health response.

“That means removing barriers to a person getting tested, including fears that a positive result would put their employment at risk or that they wouldn’t receive income while they couldn’t work because they had used up their sick leave,” he said.

The mortgage deferral scheme would be extended until March 31, with other details made available by the Reserve Bank and the retail banks, he said.

The Reserve Bank agreed in March to make it easier for banks to offer the deferrals to customers for a period of up to six months by not treating the suspended loans as impaired loans that require banks to hold more capital.

Previously, that scheme had been due to lapse on September 27.

Deferring mortgage repayments is not an attractive option for homeowners unless they are in hardship, as interest will continue to accrue on loans while repayments are suspended – meaning they can expect to pay more in interest over the lifetime of their loan.