On 16 March 2020 Cabinet decided that a 30% loss of revenue for at least one month should be required.

The following quotes show how officials tried hard several times near the end of March 2020 to have the 30% loss of revenue requirement removed but they wanted a 12-week lump sum payment to be retained. They said that these were their two key recommendations.

Final Cabinet paper and advice on enhanced wage subsidy.

25 March 2020

(Refer to Covid19.govt.nz for Cabinet papers)

“There are two key recommendations from officials:

• Remove the 30% Income loss eligibility test to ensure wide access to the scheme to best reinforce public health and labour market objectives. Your policy objective is to maintain labour force attachment and provide some income to as many workers as possible during this period of disruption.

• Pay the enhanced subsidy to businesses as a 12-week lump sum to ensure income adequacy for households in the short term

There is a risk that some firms may receive a 12-week lump sum payment and then may be forced to close their operations in the subsequent period. If this happens, the full subsidy may not be passed on to households who require financial support.  This fiscal risk could be mitigated by providing the lump sum in 4-week` tranches.’  However, this could add uncertainty for firms, and could provide less immediate support for some households who will face immediate financial stress.

If the Alert Level 4 is still in force when grants start to expire (12 weeks after the first grant), officials will provide advice on how to apply the scheme.

COMMENT:

It is clear from the above and the next two documents that Treasury officials wer  keen to reverse a Cabinet decision and give as much money as possible to businesses regardless of whether or not they had any loss of revenue or were only closed for a few weeks or were able to work from home. The reasons given to justify their recommendations were not convincing. The failure to include in the Declaration the Ministers important requirement that the subsidy was only payable during Level 4 in order to support retaining an attachment to employees, also helped all businesses receive the wage subsidy.

The payments were made as a 12-week lump sum, despite an initial prediction of a 4 week shutdown. Recipients received the subsidy for an extra 5 or 7 weeks after the lockdown when during this time on average they were 28% more profitable than in the same period in 2019 and only a tiny percentage required support to remain connected to employees.

Treasury officials consulted a lot with business interests and were keen to give them what they wanted. As a result they have shown no interest in writing to recipients to get back over $5,000 million in overpayments and have ignored numerous reports of wage subsidy abuse and no business has been prosecuted.

TRANSITIONING TO AN ENHANCED WAGE SUBSIDY SCHEME. PAPER AND MINUTE

26 MARCH 2020

6. There is a need to modify the existing wage subsidy scheme to enable firms that do need to shut down under Alert Level 4 to meet wage costs for an extended period of time. This scheme would support employers and employees to maintain an employment connection and ensure a basic income for affected employees, even if the employee is unable to actually work any hours.

14. We need to shift to an enhanced model, which supports people to reduce their economic activity enough to reduce transmission of the virus. and supports otherwise viable firms survive the shutdown period and remain connected to their employees so that the economy is better able to restart when COVID-19 has been eliminated.

15. The current wage subsidy scheme is not optimal for an Alert Level 4 situation, because it is only open to businesses that have experienced at a minimum a 30% decline in revenue and because the obligations are unclear on the employer to pass on the subsidy to employees who are at home and not working for public health reasons. The requirement to demonstrate a 30% decline in revenue is no longer reasonable given the significance of the shutdown decision.

COMMENT:  See later for comments about not requiring any decline in revenue. The Declaration signed by applicants failed to state that “the employer had to pass on the subsidy to employees who are at home and not working for public health reasons”.

59. Indicative estimates of the costs of the enhanced wage subsidy scheme are between $8 – 12 billion for grants that cover 12 weeks, based on uptake between 50% and 80% of eligible firms and employees (less the $9.3 billion set aside for the current scheme – refer paragraph 63). The highest theoretical impact is $15b for 100% uptake of the scheme, although this is considered implausible, since critical services will continue and some residual activity in other areas will almost certainly continue under Alert Level 4. A scheme that provides grants to cover more or less than 12 weeks will scale the costs accordingly, for example, a scheme that provides 6 week grants will cost approximately $4 – 6 billion.

COMMENT:  The Treasury wanted the wage subsidy to be paid to all businesses, even if there was no decline in revenue or revenue increased. If payments had only been made for 6 weeks, this would have saved about $6 billion.

“Recommendations

3. Note that there is a need to transition to an enhanced wage subsidy scheme under Alert Level 4;
4. Note The intent of this enhanced wage subsidy scheme is to ensure that employers and workers affected to varying degrees by COVID-19 and our decision to move to Alert Level 4, are supported to maintain an employment relationship, meet wage and living costs and maintain a level of production consistent with public health imperatives during this period of disruption;
5. Direct officials to seek guidance from the Ministers of Finance, Social Development and Economic Development when making eligibility and implementation decisions that are likely to have material flow-on fiscal cost or equity implications for this or other government support schemes;

10. agree that employers, including the self-employed must declare that they have been adversely affected by COVID-19 and require support to pay and retain named staff to be eligible for the enhanced scheme

NOTE:  The often stated and important requirement relating to retaining staff was not included in the Declaration to be signed by employers.

UPDATED DESIGN SETTINGS FOR THE WAGE SUBSIDY SCHEME

26 MARCH 2020

(Prepared later in the day after the above Transitioning document had been considered)

• If an employee does no work they would get paid the subsidy rate that applies to them ($585.80 (if usually work full time) or $350 (if part time) per week).

• If an employee can do some work – they would get paid their normal wage for those hours worked (and if the total income for those hours worked is less than the subsidy rate per week, then the minimum the employee would get paid is the subsidy rate ($585.80 per week).

• If an employee can do all of their work – they would get paid their full wage for those hours (and the employer is being subsidised to pay them).

To address their wage bill while they have restricted operating income, an employer may either reduce hours or reduce wage rates:

• If employees are already on the minimum wage rate, then an employer cannot lower their rate, but can lower their hours.

COMMENT:

If employees are working full or part time they are earning income for an employer and their work is charged out at a far higher rate than they are paid. Examples were given of different employees, including Sam who is a civil engineer who earns $30 per hour and works from home. His work would be charged out at about $250 per hour and his employer would save on office cleaning, heating and part rent and other costs. It is bizarre that professionals who worked full time from home were paid a wage subsidy. Research shows that one third of Christchurch consulting engineers  retained the wage subsidy. Some even obtained the wage subsidy extension for a further 8 weeks and the Auckland resurgence wage subsidy.

5. Note this updated wage subsidy scheme would support employers and employees to maintain an employment connection and ensure a basic income for affected employees but avoid incentivising unnecessary economic activity which may intensify or prolong the COVID-19 pandemic

14. Agree that employers, including the self-employed and sole contractors, must declare that they have been adversely affected by COVID-19 and require support to pay and retain named staff to be eligible for the updated wage subsidy scheme.

COMMENT:  The Declarations signed by applicants for each wage subsidy did not state that the applicant required support to pay and retain named staff.  The stated objectives and other documents state this requirement in 11 places and some said that Ministers thought that this was an important requirement. Ministers agreed twice to require applicants to declare that they had been adversely affected by COVID-19 and required support to pay and retain named staff. There were also other quotes which referred to attachment, connection and shutdown etc

The jobs of most employees were never at risk so if this requirement had been included in the Declaration, the amount paid out would have been substantially lower and repayments would have been substantially higher.

24. agree that applicants will no longer need to demonstrate a 30% decline in revenue.

COMMENT:  Treasury officials had already got Ministers to agree to remove the $150,000 cap and this recommendation would have meant that every business in New Zealand would receive a gift of about $7000 for every person they employed regardless of whether they were working normally or had any decline in revenue. Some businesses were each paid close to $70 million.  The other proposed measures relating to the integrity of the scheme were mere window dressing. Fortunately, Ministers did not agree to removing the 30% decline in revenue requirement because this would have blown out the cost of the scheme.

27. Agree the scheme will be available for applications while we are at Alert Level 4 and will be paid in a lump sum to eligible employers on a 12 -weekly basis.

Administrative-Modifications-to-Wage-Subsidy-Minute.

28 March 2020

1. noted that there is a need to make some administrative modifications to the Wage Subsidy and Leave Scheme to clarify aspects of the operation of the scheme to support employers and employees to maintain a connection and ensure income reaches employees;

COMMENT:  The wage subsidy was implemented to support struggling businesses to retain an attachment to employees during a Level 3 and 4 shutdown.  This was the main wage subsidy objective and the need to retain an attachment or connection to employees was stated about 9 times in the above advice documents. The need to cover this in the Declaration was twice stated but later not followed. Those requirements could not apply when employees were working normally.  The MSD has not required businesses to make repayments for the weeks when they were not shutdown and were working normally or at above normal.

In September 2021 the Minister of Finance falsely stated at a news conference and a few days later the Prime Minister repeated at her 4 p m news conference on 13 September 2021 that after four weeks of the latest lockdowns a business with 10 employees had been able to claim about $35,000 which was more than the $23,000 they received for the first 4 weeks of the original wage subsidy.

This statement was false and misleading because the original wage subsidy was paid as a lump sum for 12 weeks and was $7029.60 per employee or $70,296 for 10 employees. Alert Level 4 ended after 5 weeks and Alert Level 3 after a further two weeks but businesses were never asked to repay the balance of the 12 weeks they received.  Those remaining weeks were a boom period for most businesses.

A business with a 30% drop in revenue for five weeks received $56,236.80 for the first 4 weeks. If the post lockdown boom did not start for a business until after 7 weeks, they received $40,169 for the first 4 weeks.

When a journalist, Hamish Rutherford, asked the Minister of Finance about this, he said that businesses were only paid for 10 weeks. As 10 weeks has never been mentioned in relation to the wage subsidy, this might indicate a lack of knowledge by the Minister and show that Ministers have little idea of what they agree to at Cabinet meetings.

The report by the Auditor-General refers to 12 weeks under 1.27 and 12 weeks is mentioned in other places.

Joint report to Ministers 17 April 2020

18. note that internal and independent audit, assurance and review processes have been developed by the Ministry of Social Development (MSD) in consultation with Treasury to complement the ‘high-trust’ approach for implementing the Schemes

COMMENT: This confirms the involvement of Treasury in preparing a high trust Declaration and audit and review processes and the probable control of MSD officials.

On 4 May 2022 the Auditor-General wrote the following to Treasury regarding concerns about the accountability and transparency of Covid-19 spending of which the wage subsidy is the largest part.

“In my view, the ability of Parliament and the public to see clearly where their taxes are spent and what has been achieved with this public expenditure would strengthen trust and confidence in the public finance management system.

I have, therefore, been concerned about the accountability for spending in response to the Covid-19 pandemic. In my view, the legislative financial reporting requirements (which the Government and its agencies have complied with) are not enough to provide Parliament and the public with sufficient information about CRRF expenditure. My position is that greater transparency is warranted because of the scale of the funding set aside (now $74.1 billion), the extraordinary circumstances in which funding decisions are being made, and the potential implications for the Crown’s financial position (and public debt) for years to come.”