The first prosecutions have finally been taken over alleged abuse of the wage subsidy scheme. David Williams reports

In March last year, as the country faced the coronavirus-enforced uncertainty of a national lockdown, Finance Minister Grant Robertson announced changes to the wage subsidy scheme.

Changes were aimed at tying employees to their jobs, at least for 80 percent of their pre-Covid income. Businesses not able to operate in Level 4 wouldn’t have to lay off staff, Robertson assured. He noted $2.7 billion had already been paid, covering almost 430,000 workers.

“We are running this scheme on a high-trust model in order to get money out the door and support the workers, families and businesses who are affected by Covid-19. We are also preparing an appropriate audit process that will act as a backstop for this high-trust model.”

The scheme is the Government’s largest single area of Covid-related spending, now running at more than $16 billion, which is roughly the annual spend on education. (Scheme repayments total $757 million – some requested, some voluntary.)

Earlier this year, however – more than a year after the scheme began – there were suspicions the backstop wasn’t doing the job; or couldn’t do its job.

Concern was so great the Gama Foundation, a philanthropic organisation from Christchurch, took MSD to court over its failure to take legal action.

Auditor-General John Ryan’s report, released in May, criticised the supposed “audits” as reviews which, in most cases, “did not involve substantiating the facts”, making it likely not enough cases had been referred for investigation. (By early March, that was 1017 cases.)

Ryan honed in on prosecutions, not least because, remarkably, there had been none by the time his report was released. Effective prosecutions are important to maintain trust and confidence in the scheme, the report said. “This work needs to be adequately resourced and prioritised.”

Now, that work is bearing fruit.

The Ministry of Social Development confirms to Newsroom it filed separate criminal charges against two people “in relation to multiple wage subsidy applications” in the Auckland District Court on September 29.

“We will not be commenting on details of these individual cases while they are before the courts,” says MSD’s group general manager of client service support George Van Ooyen.

“The filing of these charges represents another step in our ongoing programme of work to uphold the scheme’s integrity. We are working through a number of investigations, covering a mix of individuals and businesses, and there will be more prosecutions to come.”

Jilnaught Wong, Professor Emeritus of accounting at the University of Auckland, has previously criticised elements of the scheme – including post-payment checks.

“That’s a start, that’s very pleasing,” he says of the prosecutions.

“It’ll just show that people have to take things very seriously, in the sense that if they do apply they have to be damned sure they meet all the conditions.”

Canterbury tax researcher Dr Michael Gousmett is another critic of the scheme, including the timing of an external review which won’t land until next year.

“Two people is better than no people, and it might send a message to others,” he says. “Maybe a few people should be thinking twice about what they’ve been up to.”

“The numbers aren’t great but they’re obviously going for, I suppose, the worst cases they’ve come across.”
– Michael Gousmett

MSD’s Van Ooyen says the ministry is also considering civil recovery action in eight cases.

“There are five cases where a final written request for repayment has been made. With the other three cases, we are engaging directly with the applicant regarding repayment and/or seeking additional information before further action is taken.”

He explains before civil recovery action is taken a final request for repayment is made “advising of MSD’s intended action”. Businesses have 20 working days to respond.

“If MSD is not satisfied with the responses, proceedings for civil recovery will be filed in court.”

Gousmett, the tax researcher, says: “The numbers aren’t great but they’re obviously going for, I suppose, the worst cases they’ve come across.”

As of October 1, MSD has referred 1061 cases – that’s just three more than mid-August – for investigation. Curiously, the ministry says 521 have been resolved – 20 fewer than mid-August – and 540 are still underway.

The latest wage subsidy scheme has been different from the original.

Fewer large companies have signed on.

First Union’s Jared Abbott told RNZ in August: “Some of these bigger companies have not liked the scrutiny on the massive profits that they made off the back of Covid.”

Massey University Economics and Finance head, Martin Berka, told the national broadcaster many companies had adjusted, including a move to online sales.

“And then people expected this lockdown to last a shorter period of time, so [businesses] might have said we’re not going to bother, because there are certainly costs for applying.”

That’s not to dismiss the obvious pain being felt by some businesses, such as those in the tourism and hospitality sectors.

Wong, of University of Auckland, says: “There are certainly a number of companies out there who are bleeding.”

The Government appears to have learned some of the lessons from the original scheme, which made payments in a 12-week lump sum. In this August iteration of the scheme, applications have to be made every fortnight.

As pointed out in The Detail podcast, the form itself has been more comprehensive. However, the extra scrutiny delayed the processing of tens of thousands of applications.

* This story has been corrected to reflect it’s the Government, not MSD, that sets policy for the wage subsidy scheme.

David Williams is Newsroom's environment editor, South Island correspondent and investigative writer.

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