Parmjeet Parmar looks at why the Government needs to revise the wage subsidy scheme to account for businesses other than those at the “extreme end” of demise
As soon as Level 4 was announced a couple of weeks ago, giving the country six hours to prepare for a full-blown lockdown, many restaurants my household is on mailing lists for were offering some unbeatable deals. Buy one, get one free – even 50c fresh samosas until 11pm that night.
Businesses like restaurants, takeaways and cafes definitely suffer the most during Level 4. But lockdown has no restrictions on the type of businesses it negatively impacts, even those that can stay operational.
The wage subsidy scheme was introduced when our country first went into Level 4, and doing the same thing this time around, in principle, is the right thing to do. But what is not right is that the scheme is less helpful than it was initially.
In the past, the wage subsidy helped many employees keep their jobs. Many businesses were able to absorb the lockdown impact to some extent and continued operating. Despite this, businesses suffered and many were still working to get back on their feet before being hit by Auckland’s second lockdown, and now this current one.
When the wage subsidy was first announced, it required businesses to demonstrate a minimum of a 30 percent drop in their actual or predicted revenue over the lockdown period when compared with the same month the previous year. The second scheme, for Auckland businesses earlier this year, required a 40 percent drop – equal to the 40 percent required under our current lockdown.
For a café or restaurant, this is easy to qualify for as they are totally closed, with a set time in sight for when revenue would bounce back. But for many other types of businesses, the effects of the lockdown may not be apparent after days or weeks. In some cases it may take a couple of months.
In addition, the impact of lockdowns has been amplified by the Government this year increasing minimum wage straight from $18.90 to $20 per hour. Minimum wage increase is not just the cost of hours for employers, but comes with many other increased overheads like the contribution towards KiwiSaver and ACC.
New Zealand is a small nation and most of our businesses are small to medium. They are doing their best to earn enough to continue to support themselves, their staff and pay taxes.
It is important the Government considers that we have businesses of varying sizes and varying needs. The policy design that worked initially may not be the right fit this time.
We in New Zealand have been lucky until now that Covid-19 has not caused the devastation to human health seen in other parts of the world. But the impact on businesses cannot be underestimated.
The wage subsidy scheme as currently designed is based on the assumption that all businesses go back to whatever their ‘100 percent’ was before each lockdown. It is not just the local factors that are not allowing many businesses to get back to the 100 percent they had before the first Level 4 lockdown, but many international factors matter too. This includes the global shipping crisis due to Covid-19, which is making it difficult for many businesses that rely on supplies from overseas.
The Government needs to apply long-term thinking and ensure the wage subsidy scheme applies to small- and medium-scale businesses outside of the hospitality industry that are suffering just as much but won’t be able to satisfy the “extreme criteria” of showing a sudden drop of revenue. Moreover, to expect businesses still in recovery phase to return to their pre-lockdown ‘100 percent base’ is unrealistic. To again survive while fulfilling the criteria of a 40 percent revenue drop after experiencing a 30 percent drop in the first lockdown phase and then 40 percent a second time – all within a 17-month period – is quite an extreme ask.
It is time the Government genuinely supported businesses to allow them to survive another lockdown by reviewing the wage subsidy scheme and making it accessible to businesses not just in that “extreme end” of demise, but which are trying their best to remain afloat too.