Govt subsidies support 47% of jobs, warning 'zombie businesses' may fail
Monday, 9 May 2022
Government subsidies supported almost half the country’s jobs at some point in 2021, but there is a warning that a wave of closures of “zombie” businesses may be coming.
Social Development and Employment Minister Carmel Sepuloni said 47% of jobs were protected by at least one of the 2021 wage subsidies, which were offered when part or all of the country was in lockdown.
”Wage subsidies served to protect jobs and support businesses that might otherwise have been lost,” Sepuloni said.
She said, while the number of people on the benefit had risen, interventions like wage subsidies and government investment had kept the numbers below what had been forecast.
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Overall, 47% of jobs, excluding people who were sole traders, received at least one of the 2021 wage subsidies. In 2020, 69% of employed men and 54% of employed women had received a subsidy.
Economist Shamubeel Eaqub, of Sense Partners, said it was likely that some “zombie businesses” - those that would otherwise have failed even in normal times – had been supported by wage subsidies.
He said he would expect to see more business “deaths” in the coming months.
”Now that we don’t have any lockdowns, Government should not be bailing out businesses. We need weak businesses to fail so the surviving businesses have more spend each… we need some creative destruction now and we will see more of that.”
Dot Loves Data government director Justin Lester said there had already been a spike in the number of businesses removed from the Companies Office register.
He said 10,930 were removed during March, a 300% increase on the same time a year ago and 600% up on the month prior.
Bolen Ng, national manager at the Companies Office, said this was due to an Inland Revenue six-monthly review of its objections. It no longer objected to those companies being removed from the register.
Anyone has the option to object to a company being removed if they have a reason – accepted objections are valid for six months. After that, the Companies Office checks whether there is still an objection or whether the company can be removed.
The most significant spikes in removals came in rental, hire and real estate services; construction; retail; and accommodation and food services.
Many of the companies that were removed were less than two years old, but “a decent number” had been around for five to 10 years, Lester said.
Sharon Zollner, chief economist at ANZ, was cautious about describing businesses as “zombies”. She said New Zealand firms had behaved differently to their US counterparts, which “binged on debt”, allowing many to carry on when they otherwise should have failed.
Here, debt growth was muted. The number of insolvencies had dropped because of wage subsidies and, anecdotally, because the Inland Revenue had not been liquidating businesses over unpaid taxes as readily as it usually did.
“You’d expect that to be a timing effect… if they are up against it with no way out you would expect a surge at some point.”
She said household confidence was low and pressure would go on businesses in the hospitality sector if consumers were cutting back on spending.
Sepuloni said, in general the patterns of 2021 wage subsidy distribution were similar to those in 2020 with jobs in some industries being more likely to need wage subsidies or multiple wage subsidies, especially the accommodation and food, and arts and recreation industries.