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 advice documents. The need to cover this in the Declaration was twice stated but later not followed. Those requirements would not apply when employees were working normally from home or on essential work or there was no risk of an employee losing their job.

A Treasury Report titled` Detailed settings for the Covid-19 Wage Subsidy’ states the wage subsidy objectives.

(Minister of Finance OIA February 2021)

14.The objectives of the scheme are to:

a. Temporarily support workers’ incomes and employment attachment during elevated public health alert levels;

b.  Provide support for employers to pay wages if they are struggling to do so as a result of elevated alert levels

c.  Share the cost of public health alert levels between the Government, employers and employees, and across economic sectors

d. Balance short term labour market attachment with longer term labour market reallocation and

e.  Encourage the shift to a Covid-19 resilient economy

The following heading and paragraph are in Treasury advice to the Minister of Finance in March 2020:

Expanding the Covid-19 Wage subsidy scheme and introducing support for firms to shutdown

1.2 establish a new scheme to replace wage subsidy and leave payment schemes in the event that there is an increase to Alert Level 4 which supports firms that need to shut down for an extended period of time to meet their wage costs.

(Refer to TREASURY OIA RESPONSE FEBRUARY 2021)

ADVICE TO MINISTER OF FINANCE  21 March 2020 REGARDING REMOVING CAP OF $150,000

8. There is also a need to be ready to provide a third scheme to enable firms that do need to shut down under an alert 4, to meet wage costs through a period of extended economic shutdown. This scheme would support employers and employees to maintain an employment connection but avoid incentivizing unnecessary economic activity which may intensify or prolong the Covid-19  pandemic.
9. A number of European countries including the United Kingdom and Denmark have adopted schemes which follow this logic.

(Refer to Treasury OIA response February 2021)

On the Treasury website there is a Cabinet paper dated 11 December 2020 that has a heading before paragraph 79 which states: “confirming the objectives of the wage subsidy schemes.”

The above wage subsidy objectives are confirmed under this heading.

COMMENT:  The above objectives , advice and quotes make it very clear that the wage subsidy was only payable to struggling businesses for level 3 or 4 shutdowns in order for employees to remain connected to their employer. The costs were to be shared between Government, employers and employees.  While some tourism businesses could suffer a drop in revenue of more than 30% due to a lack of overseas visitors, the only way the vast majority of businesses could suffer such a drop was during a shutdown. According to IRD GST figures, businesses were far  more profitable in March 2020 than in March 2019 so any drop in revenue could only be for a high level shutdown.

It was never intended that the wage subsidy would be paid to businesses when they were operating normally and when the jobs of employees were not at risk. It was not supposed to be an extra bonus for the vast majority of businesses who performed better in 2020 than in 2019, even without taking into account the wage subsidy.

The following two quotes state what had to be declared:

TRANSITIONING TO AN ENHANCED WAGE SUBSIDY SCHEME. PAPER AND MINUTE 26 MARCH 2020

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.

UPDATED DESIGN SETTINGS FOR THE WAGE SUBSIDY SCHEME 26 MARCH 2020

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

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.

The following 9 quotes are in Treasury advice to the Minister of Finance from March 2020 and refer to attachment, connection and shutdown etc.

Expanding the Covid-19 Wage subsidy scheme and introducing support for firms to shutdown.

1.2 establish a new scheme to replace wage subsidy and leave payment schemes in the event that there is an increase to Alert Level 4 which supports firms that need to shut down for an extended period of time to meet their wage costs.

8. There is also a need to be ready to provide a third scheme to enable firms that do need to shut down under an alert 4, to meet wage costs through a period of extended economic shutdown. This scheme would support employers and  employees to maintain an employment connection, but avoid incentivising  unnecessary economic activity which may intensify or prolong the Covid-19  pandemic.

1.Your policy objective is to maintain labour force attachment and provide some income to as many workers as possible during this period of disruption.

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.

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. 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.

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;

(MSD Adecco Personnel OIA response)

The Ministry of Social Development stated the following in an OIA response:

“One of the objectives of the Wage Subsidy schemes has been to ensure that people remain connected to their work through periods of reduced economic activity due to the impacts of Covid-19. There were also other objectives such as to ensure employees had some certainty of income, and to support the country’s public health response to Covid-19 by enabling businesses to continue through reduced periods of economic activity.”

COMMENT: This statement of the objectives is quite different to the objectives stated by Treasury. It does not mention that the wage subsidy was to be paid to struggling businesses for shutdowns at elevated levels.

The following quote confirms that the specified loss of revenue had to be a result of the pandemic ( not fiddling of the books ) and that repayments had to be made when the loss of revenue was below the required 30% or 40%.

(MSD OIA reply October 2020)

“The Ministry informed employers that they could apply for the Covid-19 Wage Subsidy if they thought they would have a financial downturn as a result of the pandemic. If they did not experience a significant downturn, then they were informed that they would need to repay the money. ”

The following quote is from MSD OIA reply 11 December:

“The Covid-19 Wage Subsidy Scheme enabled rapid support for thousands of New Zealand businesses during a time of uncertainty and ensured that employees were able to remain connected with their employers during the Covid-19 lockdowns. The Wage Subsidy Scheme ran on a high-trust model in order to ensure that the money reached businesses and employees as soon as possible’’.

(MSD OIA response 10 March 2021 correspondence letter)

1. Why was it not stated that the wage subsidy was only available to workers who were at home and unable to do any work for an employer?

“It is important to note that the eligibility criteria for the wage subsidy did not include a requirement around the ability of the employees to work. Requirements for the Wage Subsidy scheme were based around the need to meet a relevant drop in revenue in order to apply. The wage subsidy was intended to provide economic support for businesses impacted by the Covid-19 pandemic and support employment attachment by ensuring workers continue to receive income throughout widespread shutdowns.”

COMMENT:  This answer contradicts itself. Employees who were working normally were not affected by a shutdown or risk to employment attachment.

MSD FAILURES

The MSD ignored the above wage subsidy objectives and the advice given to Ministers. It failed to advise applicants that the wage subsidy was only available to businesses who were unable to operate normally during a Level 3 or 4 shutdown.