Billions of dollars have been thrown at the rich since the start of the pandemic in 2020 but those on low incomes have been penalised by facing higher rents, interest rates and inflation. The ministry of Social Development gave businesses $19,600 million in wage subsidies. About half that amount should be repaid but businesses have not been asked to make repayments. When struggling families asked for assistance they were given loans totalling $400 million. There was a great increase in demand for food from food banks.
The wage subsidy was the largest of 36 measures made available to help businesses. The $55 billion borrowed has to be repaid or Government services to those most in need will have to be cut back.
FAILURE TO PROSECUTE COMPARED TO WELFARE BENEFICIARY PROSECUTIONS
In the first 18 months of the wage subsidy, the Ministry of Social Development had not started any prosecutions to recover money which had been overpaid or wrongly obtained or retained by over 750,000 recipients. This contrasts with the 65 prosecutions of welfare beneficiaries to recover overpayments that occurred in the 12 months to 30 June 2020. All staff had been used from late March for processing wage subsidies so this indicates that there would otherwise have been about 100 prosecutions for the year to 30 June 2020.
Max Rashbrooke stated the following in a September 2021 article: “MSD figures show the number of beneficiaries prosecuted has fallen from 453 in 2016-17 to just 44 in the year to March 2021.” This shows that MSD can investigate and prosecute when it wants to and even managed 44 prosecutions in the year to 31 March 2021 when for most of the time staff were dealing with wage subsidy payments and doing a few post payment checks.
If someone had received a Benefit for 12 weeks from late March 2020 but it was later discovered that they had been working for 7 weeks during the post lockdown boom, they would have been made to pay back the 7 week overpayment. In contrast the business they worked for that needed extra labour to cope with increased sales, would not have been asked to pay back the 7 week overpayment they received.
Some citizens who went overseas in 2021 were unable to return to New Zealand due to MIQ places being unavailable. Senior citizens were told in a MSD September 2021 newsletter that: “If you can’t get back and you’re away for longer than you’re allowed under usual Absence from New Zealand rules, you may need to pay some of your payments back to Work and Income.” Those caught in this situation could have had a lot of extra expense and inconvenience so requiring repayments does seem wrong. Over 7,000 people were affected and those who were absent for over 30 weeks were asked to repay 26 weeks.
The MSD always require repayments even if a beneficiary is not at fault. Businesses who predicted that they might have a problem were given large amounts of money and many cut the wages of employees by the allowed 20%. Most of those employees then actually had a major problem but if they approached the MSD, they were only offered a loan.
An OIA request to the Minister of Finance resulted in a July 2020 MSD report being provided. The following was stated in the report:
21 MSD has developed an investigation approach for the scheme, which differs from that used to investigate benefit fraud.
The MSD knows that most recipients were overpaid and that official and business data indicates that there was widespread abuse of what was referred to as a high trust model. There have been over 4500 complaints about wage subsidy fraud made to the MSD and over 100 articles in the news media about those who abused the wage subsidy or should be making repayments. The MSD has not followed up on most complaints but has said that if they did contact a business, a repayment might be requested where ‘an employer did not fully understand the criteria for payment.’
Auditor-General report May 2020
3.36 Although the declaration form was relatively clear, it was lengthy and contained a lot of information. It also changed between the different stages of the Scheme.
3.37 There is a risk that some applicants did not fully read the form or did not fully understand the obligations. Many applicants agreed to the declaration at a time of uncertainty and stress (unrelated to the Ministry of Social Development’s actions). The declaration was read out to some applicants over the phone, who agreed to it verbally.
Generally, not understanding something is not regarded as an acceptable excuse by the MSD and other Government Departments. It has not been given as a reason to not take action against welfare beneficiaries who have been overpaid, many of whom are less well educated than business owners and executives.
In the year to 30 June 2020 the MSD spent over $14 million on 65 prosecutions of beneficiaries and was awarded $3,747,459. It is unknown how much of this money will be recovered and over how many years. The amounts involved ranged from $1,417 to $251,622. In the case of the wage subsidy, far greater amounts are involved and thousands of millions of dollars could be recovered by simply writing to recipients to clarify the rules and ask for repayments if they cannot provide evidence to show that the rules had been followed and that the wage subsidy was only being retained for the weeks when staff were unable to work. Nothing has been done about taking this simple and cost effective action. This could be because extra work would be created for the MSD staff and repayments would go to The Treasury.
Most recipients of the wage subsidy will only make repayments if they think that prosecution is a possibility. The MSD has stated that decisions about prosecution involve a public interest test and it appears that they have decided that it would not be in the public interest for thousands of millions of dollars of wage subsidy money to be repaid. They have a different public interest test for Benefit fraud and, presumably, think that it is in the public interest to spend four times more on prosecutions than the total awarded, which might be partly recovered over many years.
For the financial year 1 July 2020 to 30 June 2021, the Ministry completed 55 prosecutions in relation to welfare benefits with the total amount of overpayment being $3,803,482. (OIA response January 2022)
COMPLETED PROSECUTIONS from Annual Report
2016/17 453
2017/18 291
2018/19 127
2019/20 63
2020/21 60
The 2020 annual Report explains that the reasons for the decline over 5 years were early intervention, enhanced prosecution processes and Covid-19.
Quote from MSD email sent to those receiving New Zealand Superannuation on 7 April 2022:
Winter Energy Payment
Couples and people with dependent children will get $31.82 a week. Single people will get $20.46 a week. If you’re heading away from New Zealand over the winter months you can keep getting your Winter Energy Payment for up to 28 days. It’s really important you let MSD know if you’ll be away for more than 28 days, otherwise they might pay you too much and have to ask for the money back.
COMMENT: The MSD did not think that it was important to ask for repayments by business owners who were overpaid the wage subsidy by sums that were 1,000 or 10,000 or 100,000 per week greater than the winter energy payment. They ignored several recommendations to write to businesses but did not hesitate to tell beneficiaries that overpayments had to be repaid.
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.
