Businesses sitting on piles of cash

Businesses are hoarding cash, raising questions again about whether they needed the wage subsidy, and whether any more will pay it back.

By October 2020, businesses had $104.5 billion in bank deposits, $16b more than in February, ASB Bank chief economist Nick Tuffley said.

The stockpiling of cash was likely to be a combination of retained earnings and Government stimulus in the form of wage subsidies that had been paid out.

ASB Bank said in a daily commentary recently that businesses’ appetite for borrowing was weak, and they had been stockpiling deposits in banks, waiting for any further impacts on the economy. Businesses were also paying off debt and were wary of taking on any more, Tuffley said.

The bulk of the $16b growth, about $12b, had happened by the end of April, when the wage subsidies were being paid out. The $16b growth in eight months was the equivalent of three years’ growth in normal times, Tuffley said.

With hindsight, perhaps not as many businesses needed the wage subsidy to survive, but it gave businesses the confidence to keep going, he said.

Auckland University professor of financial accounting Jilnaught Wong has been studying the 50 largest companies on the New Zealand sharemarket which took the wage subsidy. ‘‘While they met the drop in revenue criterium, when you look at their total performance over their financial year, they didn’t need it,’’ he said.

The Government did the right thing to support businesses, but the subsidy scheme was rushed and the ramifications not thought through, Wong said. ‘‘I think it should have been a forgivable loan.’’

Companies in strife would not have to repay the money, but big, profitable companies paying dividends like the 50 largest on the NZX should have had to return the subsidies, he said.

There were other conditions to qualify for the subsidy, like businesses using their cash reserves and engaging with their banks. ‘‘If these guys are stockpiling cash, they have not exhausted their cash reserves,’’ Wong said.

About $14 billion in wage subsidies have been paid out, and only $510.4m has been paid back.

The Government has repeatedly defended the wage subsidy as a ‘‘high-trust’’ programme to support businesses and protect jobs and incomes by getting the subsidy in place quickly.

Stuff claimed $6.2m in wage subsidies for 907 staff.