Interest-free loans could total up to ‘$20 billion’

Small businesses could apply for $15 billion to $20b of interest-free and low-interest loans from the Government, according to a ‘‘back of the envelope’’ calculation by the Taxpayers’ Union lobby group.

Small firms struggling with the coronavirus pandemic will be able to get loans of up to $100,000 under a ‘‘small business cashflow scheme’’ announced by the Government.

Finance Minister Grant Robertson said it had become clear that the support banks were providing to small and medium-sized businesses was ‘‘not meeting their needs nor our expectations as a Government’’.

He did not say how much he expected the loans would cost the Government, indicating that would depend on the takeup.

A spokeswoman for Revenue Minister Stuart Nash would not disclose whether any estimates of the likely value of loans or the cost of the scheme had been prepared for Cabinet, repeating only that those figures would be difficult to quantify.

But Taxpayers Union chief executive Jordan Williams forecast the scheme would involve ‘‘big money’’ roughly equivalent to the $16b student loan scheme.

The business loan scheme has received qualified support from business groups. But Williams described it as the ‘‘worst policy seen in our lifetimes’’, saying it would leave taxpayers exposed to ‘‘enormous financial risk’’. ‘‘Any business with any loan – say paying 15 per cent for finance on a vehicle – will be taking this money and shifting the risk onto the taxpayer.’’

The small business cashflow scheme will be administered by Inland Revenue and will be available to firms employing 50 staff or fewer.

Applications open on May 12. The loans will be intended to meet businesses’ ‘‘immediate cashflow needs’’ and to meet their fixed costs.

The most companies can borrow will be $10,000 plus an additional $1800 for each full-time employee. Only firms employing 50 staff could apply for the maximum $100,000.

Loans will be free of interest if they are paid back within a year. Otherwise, interest will be charged at 3 per cent annually up to the maximum of five years. Repayments would not be required during the first two years.

The eligibility criteria will be the same as those for the wage subsidy scheme, meaning the loans will also be available to the selfemployed, including sole traders, who will be able to borrow up to

$11,800.

‘‘Everyone who applies for a loan will have to declare that they are a viable business,’’ Robertson said.

Nash said the Government was targeting the scheme at businesses which had ‘‘a viable business but have been put in a position of not generating any revenue’’.

The intention to establish the small business cashflow loan scheme was revealed in the Covid-19 (Taxation and Other Regulatory Urgent Measures) Bill that passed under urgency on Thursday. Ministers did not reveal details until yesterday.

The tax bill states that the loans must be repaid, but a note in the legislation says that if a portion of a loan is converted into a ‘‘grant’’ that will not have adverse incometax implications for the applicant. That suggests the Government is expecting some amount of money lent by IR under the scheme not to be repaid and to be written off.

Robertson said the law change for the loan scheme was mistakenly included in

‘‘Everyone who applies for a loan will have to declare that they are a viable business.’’ Grant Robertson Finance Minister

the tax bill that was tabled in Parliament, due to an error by the Parliamentary Counsel Office.

National Party finance spokesman Paul Goldsmith said the Government would have some estimate of the value of the loans and it should release that information. Offering more narrowly-targeted grants would have been ‘‘a better direction’’, he said.

The fact the law change paving the way for loan scheme had been mistakenly included in a bill and hence passed unscrutinised by MPs was ‘‘problematic’’, Goldsmith said.

National Party economic development spokesman Todd McClay said all the new scheme would do was ‘‘take the debt that’s been accumulated over the past six weeks and move it sideways’’.