Public Servants gave away many billions of dollars to businesses and when it became clear that about $10  billion of Covid 19 assistance  had been overpaid or wrongly obtained or retained, they did nothing about getting this money back. The following pages are a small part of the sworn evidence presented to the High Court in an affidavit.

1. The MSD paid businesses $19.6 billion in wage subsidies but later mostly voluntary repayments reduced this to 18.8 billion. The stated main objective was to provide support to struggling businesses to retain an attachment to employees during Level 3 and 4  shutdowns. The Original Wage Subsidy was paid for 12 weeks but the shutdown was only 5 to 7 weeks. The Extension Wage Subsidy was paid for 8 weeks when almost all businesses were operating normally and few had a drop in revenue of 40%. Businesses were paid for 12 or 20 weeks but were not asked to make a repayment for the overpaid weeks. The original wage subsidy cost just under $1,000 million per week so I have estimated that the overpayment cost taxpayers over $5,000,000,000 [829]. This figure includes overpayment of the 8 week Extension Wage Subsidy.

2. GST data shows that business revenue increased in the weeks when businesses were not locked down and were operating normally. These increases were calculated using data from the same weeks a year earlier.

3.The MSD stated in a report that they allowed businesses to determine their own eligibility for wage subsidies and did not require any documentary evidence to verify claims. 

4. The MSD said in an OIA response that they had not sought or been given any directions by Ministers as to what to do regarding overpayments and fraud [1310, 1372, 1411].

5. The MSD ignored criticisms by 6 accounting and business academics, Government and business data and over 150 news media reports. They instead met with selected stakeholders who had benefited from the wage subsidy and told Ministers about their views and said that stakeholders had to be consulted about any changes. 

6. The MSD failed to request applicants to provide verifying evidence and they ignored several recommendations to write to recipients regarding their obligations. They have only properly investigated a relatively tiny number of individuals so have only been able to initiate about 30 prosecutions.

7. Over 18,000 complaints were made about abuse but only a small number were partly investigated by phoning employers. For over a year the MSD told Ministers and the public that they were carrying out audits but the Auditor-General said that this was misleading. 

8. The MSD affidavit said that approximately $18.8 billion was paid out in wage subsidies (at [12]). It also said: ‘By the end of October 2021, predominantly targeted auditing found repayments required in 15% of cases and in 35% of cases for resolved investigations.’ :p 155, fn 2. The error rate for resolved investigations shows how badly flawed they were. The targeted investigations that had a 15% repayment rate were also flawed but I have calculated that 15% of $18.8 billion means that $2.8 billion should be repaid. The 35%  figure means that $6.68 million should be repaid. Recipients were only asked by phone whether they had complied with two of their six main obligations so the repayment figures should be a lot higher. (Refer to report by Emeritus Accounting Professor Jilnaught Wong of Auckland University)

 If investigations had been carried out properly and both fraud and compliance with at least 6 declaration clauses taken into account, the total abuse repayments required would probably be well over $5 billion.

9. A Stuff article on 7 October 2022 stated [0495]:

MSD spokesperson George Van Ooyen said 15,243 pre-payment and post-payment checks on wage subsidy applications resulted in 6269 allegations of wage subsidy misuse.  Van Ooyen said ‘17 cases had ended up before the courts and the total amount of public money involved had now reached $926,274.  I have calculated that the MSD found 41% of applicants who were checked had misused the wage subsidy.  If this percentage is applied to the $18.8 billion of wage subsidies, the total of abuse is $7.7 billion.

10. The voluntary repayment of $780 million indicates that over 10  times this figure would be repaid if the MSD asked recipients to make repayments.  

11. When a conservative abuse figure of $5 billion is added to the MSD overpayments of over $5 billion, the total that the MSD has failed to do anything about is over $10 billion.

MSD officials ignored a range of Government and business statistics and data that showed  that most businesses were much better off in 2020 than in 2019. This included IRD figures showing  that businesses were 14% more profitable for the first 9 months in 2020 than for the same period in 2019, even without taking into account the wage subsidy they received. Reserve Bank figures showed that businesses had $22,700 million more in the bank in October 2020 than in 2019. This was a 24% increase and economists said that it was mainly due to the wage subsidy. 

The MSD has never written to recipients to remind them of their obligations and to request overpayments and wrongly retained money be repaid.

This was despite reports by Deloitte and by the Auditor-General in 2020 and 2021 which recommended that the MSD write to recipients.  If they had done this to ensure that only those who were genuinely eligible retained the wage subsidy, thousands of millions of dollars would have been repaid.

The MSD has failed  to properly comply with Auditor-General  recommendations so the review and evaluation actions they have  taken are likely to be of little value.

Despite a 171% increase in money paid out, no extra investigation staff were employed. The MSD would have known that a few prosecutions would result in an avalanche of repayments but they did not want any extra work and to then have to pay the money they received into the government consolidated fund.  The MSD said in a report that they intended to finish checks on the wage subsidy by the end of December 2020 and told the Auditor-General that they wanted to get back to their core business as soon as possible.  As a result of the investigation by the Auditor-General, they were forced to say that they would continue checks for 12 to 18 months and would start prosecuting some of those who wrongly retained the wage subsidy.  

Stuff articles on 17 June 2023 and earlier reported that the  IRD wrote to 414 businesses who had received Covid support payments and asked them to provide evidence that they had complied with the terms and conditions they had signed up to.     It was found that 99.5% had not fully complied so the IRD is now in the process of getting repayments. It is clear from this that if the MSD had done its job properly, they would have found that most of those who received the wage subsidy did not fully comply with the Declaration they signed up to and that repayments would be required.

 

FAILURE TO DEAL WITH WIDESPREAD WAGE SUBSIDY ABUSE

Statistics show that wage subsidies were paid for more workers in some industries than the number officially recorded.

Tourism and hospitality businesses were far more badly affected than other businesses but many were able to make up their lost revenue after the lockdown and some repaid the wage subsidy.  Inner city cafes and restaurants were badly impacted by people continuing to work from home.  These were the businesses that mainly complained about how they were suffering.

Retailers were closed during the main lockdown but their sales increased by 5% for the year ending 31 December 2020 according to Paymark statistics published on 12 January 2021.

According to the MSD Affidavit, some children under 5 and some adults over 85 claimed and were paid the wage subsidy. School children who delivered circulars for a few dollars a week were paid thousands of dollars.

An employment agency, Adecco Personnel Ltd, with a staff of under 100 was paid $12.2 million for the temporary workers it had on its books. It later received $1.6 million for the August 2021 wage subsidy another employment agency, AWF Ltd was paid $25 million and this included the 8 week extension wage subsidy when there was no lockdown and a heavy demand for temporary workers. They also claimed for the August 2021 wage subsidy.  Another employment agency repaid the wage subsidy they received.

Farmers, orchardists and other businesses doing essential work were able to work during the lockdown but many claimed the wage subsidy for their family and staff. If farm or orchard is entered in the MSD employer search, 5 employers come up with a message that there are more but access is not available.  The MSD could deal with these and other types of essential businesses but it has not bothered to do this.

A farming leader wrote a letter to The Treasury and the MSD in which he said that there was a division in the rural community between those who took the wage subsidy and those who thought that doing this was fraud.  In some areas lists of those who took the wage subsidy had been circulating. He outlined why no farmers should have claimed and retained the wage subsidy.

Team New Zealand was not a trading business so had no genuine drop in revenue.  However, they claimed over $1,500,000 for the first three subsidies. The MSD has failed to take any action.

The MSD has basically ignored over 4,500 wage subsidy ABUSE complaints. These complaints disappear without trace. The MSD has said that it has not replied to those who made complaints.

An Auckland woman worth over $500 million received $45 million for Farmers’, Whitcoulls and Pascoes.  This included two Auckland shutdowns where wage subsidies were claimed for retail staff working normally throughout the rest of the country.  No other retail chains did this.

Australian based retailers do not have to publish their New Zealand accounts so no pressure has come on them to make repayments. Bunnings received $27,200,000 but they would have benefited from the boom in home improvement sales after the lockdown. Harvey Norman received  $12,700,000 and their Australian shareholders were told that profits had increased almost 20% and New Zealand sales revenue had increased 28% and profits in July and August were up 185%.  The New Zealand Companies Office records show that profits for the year ending 30 June 2020 were $53 million and at 30 June 2021 $86.5 million.

Michael Hill Jeweller announced that their first half 2020 profit would be almost double that for the same period in 2019. They received the initial wage subsidy for 12 weeks based on a 30% drop in revenue and then claimed the extension wage subsidy for 8 weeks based on a drop in revenue of 40%.  Retailers experienced a big surge in revenue after the lockdown so most did not apply for the extension wage subsidy.

We dealt with Rainbow Print at the time of the first lockdown. These Christchurch printers were paid the original, extension and Auckland resurgence wage subsidies. Apart from 5 weeks they were working normally but a complaint about them was ignored.

In every industry there were businesses that did not apply for the wage subsidy or who have repaid it because they said that this was the ethical thing to do. Nick Mowbray and the owners of some of these businesses called on those who did not need part or all of the wage subsidy to repay it.

While many Christchurch professional firms did not claim the wage subsidy or have repaid it, an investigation by an independent researcher has revealed that about one third to half have retained what they claimed. The initial wage subsidy was paid to those who predicted a drop in revenue of 30% and confirmed that they had used their cash reserves and tried to get bank and other assistance. Professional firms were paid the wage subsidy for 12 weeks but their employees were able to work from home during the 5 week Level 4 and 2 week Level 3 lockdowns. After that they would have been back in the office busy dealing with any postponed work and a surge in new work during the remaining 5 or 7 weeks of the wage subsidy. Some firms also said that they had later had a 40% drop in revenue and they claimed a wage subsidy extension for a further 8 weeks. Some even claimed for the Auckland lockdown in August 2020.

It is very easy to fiddle a drop in revenue by delaying the processing of invoices. The MSD should have requested copies of GST returns for April, May, June and July 2019 and 2020 and required recipients to certify that these showed the required decline in revenue.

The Ministry has not asked businesses to provide anything to verify what they claimed but has instead just hoped that recipients would act honestly.

 FIRMS OF CONSULTING ENGINEERS

A check of the wage subsidy employer search on the Ministry of Social Development website shows that 34 of Christchurch firms of consulting engineers did not claim or retain the initial wage subsidy.  A total of 13 have retained the wage subsidy and a further 3 have also retained the extension wage subsidy with 2 of them also claiming for the Auckland lockdown in August.

During the lockdown consulting engineers could not have carried out checks of work not being done by contractors but they would have had design and other work they could do at home for 5 or 7 weeks. The wage subsidy was designed to help struggling businesses retain employees during shutdowns when there was a risk of them being dismissed due to lack of work but this was not an issue here.

Two small firms of consulting engineers claimed both the wage subsidy and the extension wage subsidy. The only large firm to claim both was Kirk Roberts Consulting Engineers Ltd and I have personal knowledge of it.  They received $774,537 and $478,808 making a total of $1,253,345.   They stand out because they are only 1 of 3 firms out of 50 to retain the extension wage subsidy. Two thirds of other consulting engineers doing much the same work as them did not claim or repaid the wage subsidy and would not have claimed the extension wage subsidy at a time when consulting engineers were very busy. The MSD failed to investigate a complaint about Kirk Roberts.

Tonkin and Taylor Ltd, consulting engineers repaid $5,253,496 Also Holmes Group, Beca Consolidated Group and other large consulting engineering firms repaid.

Chartered Accountants and lawyers were kept very busy giving advice and were able to work from home but research shows that about half did not repay the original wage subsidy and some claimed the extension wage subsidy.

REAL ESTATE AGENTS

In a stuff article on 14 January 2021 Realestate.co.nz said that ‘There were 109,128 properties listed for sale nationally in 2020 which was a decrease of 2.6 per cent on the 112,007 properties listed in 2019.

The average national asking price rose by 10.7 per cent for the year.’ These figures indicate that overall agents had higher commission income due to higher property prices in 2020 than in 2019. Clearly, they did not suffer a 30% and later 40% drop in revenue over 12, 20 or 22 weeks.

Extract from Business Desk article about repayments published on 5 January 2021:   ‘The rampant real estate sector also has refused to pay back any of its subsidised payments. The top three realtors alone, Harcourts, Bayleys and Barfoot & Thompson claimed a combined $8 million in wage support for the 50-day lockdown during March and April.

Several, including Harcourts and Bayleys, went on to claim the subsidy extension despite the market bounce, which has seen the most frenetic pace of house buying on record in NZ.

And given the number of people employed in the sector – the Real Estate Authority lists more than 15,000 staff across 892 listed firms – that could come close to $100 million in subsidies. None of that is finding its way back yet, according to MSD stats.’

COMMENT:  Most individual real estate agents would earn commissions not regular wages and salaries. From time to time they could go for a month or more without any income and then have a good run.  Most individual agents could have claimed wage subsidies but the names of individuals are not published by the MSD. Pre-payment checks should have rejected duplicate use of the same IRD number.

Harcourts and Bayleys have franchise operators around the country who would have made a claim under a different name. For example, Whalan and Partners Ltd operate in Christchurch under the Bayleys name. It is difficult to know how much the total paid out was to those operating under the Harcourts and the Bayleys name.

Barfoot and Thompson were paid for everyone working for them but the company did not claim the extension or Auckland resurgence wage subsidy so this indicates that Harcourts, Bayleys and other real estate agents should not have applied for and be keeping these subsidies. After the 5 week lockdown, delayed transactions were completed and there was a big increase in property sales and prices. Harcourts and Bayleys would not have had a 40% reduction in revenue and should not have claimed the extension wage subsidy. One Bayleys company claimed the Auckland resurgence wage subsidy but other agents did not so this indicates that they were not affected by a short lockdown.

A report by Emeritus Professor, Jilnaught Wong, of Auckland University contains details about how businesses were able to abuse the wage subsidy.

The MSD could have checked its database for business names that indicated that they were an essential service or were able to work from home without  interruption, but it did not do this.

The MSD should have monitored the evidence presented to the Employment Relations Authority that showed wage subsidy abuse in about 70 cases but they did not do this and have not taken action against these employers.

PUBLIC SERVANTS OR BUSINESS SERVANTS?

The Auditor-General sent a letter to the Treasury in May 2022 regarding the lack of accountability and transparency in$ 74 billion of Covid-19 spending.  This followed sever reports by the Auditor-General over the previous year that were highly critical of the ministry of Social Development (MSD and the Ministry for Business, Innovation and Employment. These government departments and the Treasury used the pandemic to give many thousands of millions of dollars to businesses who did not actually need the money.

The MSD paid out $18,800 million in wage subsidies. This was the largest of 36 financial and non financial business support measures introduced by Government Departments. Only two minor measures were loans.

At the beginning of March 2020 Business New Zealand put forward the wage subsidy they wanted and after discussions with Treasury officials, it was approved by Cabinet two weeks later. Treasury officials then got a payment cap of $150,000  removed so individual businesses could be paid up to $100 million or more.  They twice advised Ministers of what they said were their two key recommendations. The first was to pay the wage subsidy to all businesses regardless of any drop in revenue. This was rejected by Ministers but it could have cost the country an extra $10,000 million. The second was to pay businesses for 12 weeks in advance. This was despite a predicted lockdown of 4 weeks.  When they only succeeded in getting the 12 weeks payment approved, it appears that they then arranged with MSD officials to have lax wage subsidy rules and a Declaration that was wide open to abuse and fraud.

The MSD paid businesses the original wage subsidy with the stated objective of providing support to struggling businesses to retain an attachment to employees during Level 3 and 4 shutdowns. When it turned out that many businesses had abused the subsidy and the initial shutdown was 5 weeks for most and not the 12 weeks that payments had been made for, businesses were not asked to make repayments that could have amounted to about $5,000 million.  When businesses realised that they could get away with anything, many applied for the 8 week wage subsidy, even though they were working hard to catch up on deferred work.

The MSD said in Official Information Act documents that they had not sought or been given any directions by Ministers as to what to do regarding overpayments and fraud.

The MSD stated that they allowed businesses to determine their own eligibility for wage subsidies and did not require any documentary evidence to verify claims. What has happened with the wage subsidy is a huge contrast to the way the MSD deals with beneficiary overpayments and fraud. In the 2016/17 year 453 beneficiaries were prosecuted. In contrast to this, there were no wage subsidy prosecutions for 18 months.

The Auditor-General said in a May 2021 report that: “In our view, effective prosecutions where there is evidence of fraud or abuse are critically important to maintaining trust and confidence in the Scheme. This work needs to be adequately resourced and prioritised.”

As a result of the criticisms by the Auditor-General and a Judicial Review being filed, the MSD was finally forced to take a small number of token prosecutions of individuals.

The Auditor-General said that the Declaration signed by applicants required them to have taken active steps to mitigate the impact of Covid-19 on their business including engaging with their bank or drawing on cash reserves but they were not required to make a statement about the active steps they had taken or to provide any evidence. He said that it was important to do this because it would have tested whether or not an applicant needed taxpayer funded assistance.

The MSD often told the news media that they had carried out audits and said that there had been over 10,000 pre-payment and post-payment audits. Documents obtained revealed that these consisted of staff checking information on hand and having a phone conversation with an employer to ask them if they had understood all the requirements.  There were no checks to verify whether revenue drops were genuine or how many weeks they lasted for and no evidence was requested. The MSD contacted less than 0.001% of recipients. The Auditor-General was very critical of this process and said that it was not what Ministers had expected and it was misleading to say that audits had been carried out.

The MSD has never written to recipients to remind them of their obligations and to request overpayments be repaid. This was despite reports by Deloitte and by the Auditor-General in 2020 and 2021 which recommended that the MSD write to recipients.  If they had done this to ensure that only those who were genuinely eligible retained the wage subsidy, thousands of millions of dollars would have been repaid.

Despite a 171% increase in money paid out, no extra investigation staff were employed. The MSD would have known that a few prosecutions would result in an avalanche of repayments but they did not want any extra work and to then have to pay the money they received into the government consolidated fund.  The MSD said in a report that they intended to finish checks on the wage subsidy by the end of December 2020 and told the Auditor-General that they wanted to get back to their core business as soon as possible.  As a result of the investigation by the Auditor-General, they were forced to say that they would continue checks for 12 to 18 months and would start prosecuting some of those who wrongly retained the wage subsidy.

The MSD has failed to properly comply with Auditor-General recommendations so the review and evaluation actions they have taken are likely to be of little value.

There have been over 200 articles and news items raising questions about those who received the wage subsidy. These included a story about one Auckland woman who was paid $45,000,000  and at the other end of the scale, children under 5 and primary school children who made a big profit by claiming the wage subsidy. A few employment agencies received tens of millions of dollars for the temporary workers they had on their books. One agency also claimed an extension wage subsidy for 8 weeks when they had a big increase in business activity and in total they received $33 million.   Many businesses were able to work from home during the lockdowns but still claimed and retained one or more wage subsidies.

The Treasury and MSD officials ignored the numerous news media articles about wage subsidy abuse and criticism by 6 accounting and business academics. They also ignored a range of Government and business statistics and data that showed  that most businesses were much better off in 2020 than in 2019. This included IRD figures showing  that businesses were 14% more profitable for the first 9 months in 2020 than for the same period in 2019, even without taking into account the wage subsidy they received. Reserve Bank figures showed that businesses had $22,700 million more in the bank in October 2020 than in 2019. This was a 24% increase and economists said that it was mainly due to the wage subsidy.

Another report by the Auditor-General was about how MSD staff had been happy to pay property investors up to $3000 per week for sleepouts and garages to be used for emergency housing. A Stuff editorial writer described the report as a stinging humiliation of the MSD for its woeful performance.

The Auditor-General also reported on huge amounts of money given to tourism businesses without justification. MBIE officials got a $290 million Strategic Assets Protection Programme approved and announced within a few days in May 2020. It was a fancy name for made up concerns that sounded plausible but had no basis in reality. When applications came in, Ministers asked officials to justify the programme. They could not do so but by then it was too late to turn back.

A well known economist and financial journalist, Bernard Hickey, has written that “New Zealand’s economic response to Covid was among the worst in the world in terms of widening wealth inequality and the wasteful use of taxpayer funds. He said that asset owners had increased their wealth by $1,000,000,000,000 over two years while those on low incomes went backwards and ended up borrowing $400 million from the MSD.  He estimated that $20,000 million was given away in handouts to businesses.

Bryce Edwards, who is a political analyst at Victoria University,  has also written articles about the wasteful pandemic spending on wage subsidies and other handouts to businesses. He said that questions of corruption have arisen.

If a Public Servant arranged for large sums of their employer’s money to be transferred to themselves or relatives or friends, this would be regarded as unlawful. Treasury and MSD officials did something similar by arranging a wage subsidy that Deloitte described as having ‘loose rules’. It was open to abuse by everyone and then MSD deliberately fail to carry out proper post payment checks of businesses and self employed people who claimed the wage subsidy under a high trust model.  Treasury and MSD officials had partners, children relatives and friends who could have received payments and no-one would ever know because payments to individuals have been kept secret. The excessive funds given away drove up asset prices so that the value of their home and any other residential properties they owned increased by up to 43%. The New Zealand sharemarket increased in value between 1  February (pre covid-19) and 31 December  2020 by 14% so the value of their savings increased. They probably also would have relatives and friends who owned businesses who received substantial payments and got the other benefits.  Vastly more money has been lost than if a few individuals were  involved in a fraud.

The failure of public servants to act in the public interest and the lack of accountability and transparency has highlighted the need for the Public Service to have greatly improved objectives and standards.