If Fletcher is teetering, who won’t be?
Distress signals from such a big employer should focus Govt’s minds on strategy for when lockdown ends, writes Hamish Rutherford
Perhaps it was too much to expect the penny to drop in New Zealand’s consciousness on April Fool’s Day, when the Government hiked the minimum wage in the face of a likely tsunami of unemployment.
April 2 brought news that Bauer, owner of New Zealand’s best-known media brands, was shutting down permanently.
Prime Minister Jacinda Ardern said she was “gutted” for the media company and pointed to the fact that the Government had tried to help but the company was not interested in its wage subsidies.
Whoever is right in that situation (the company’s magazines were not classed as essential services, so could not be printed), the Prime Minister should be careful about making such forceful public statements.
In the coming days and weeks, thousands of businesses are likely to decide to close. Will each one deserve a public airing of sympathy from the Beehive Theatrette? Will she give everyone a telling off for taking steps which directors are effectively required by law to take?
The Prime Minister pointed to preexisting problems as the likely cause of the media company’s closure, but that will be cold comfort for its employees.
Nor will it help the employees of tourism companies; those companies had what looked like perfectly good business models. Before Covid-19, at least.
For those who have never turned their minds to subjects like cashflow, darkening clouds for employers seem to have come as a shock.
It shouldn’t have. Air New Zealand was arguably New Zealand’s strongest brand a few months ago, but it has had to be rescued. Without loan guarantees, the directors may have pulled the pin already.
Finance Minister Grant Robertson has acknowledged the Government is in talks with New Zealand’s commercial airports, operations which at the end of 2019 were planning big capital projects but now are in very uncomfortable positions.
The Reserve Bank has ordered New Zealand-registered banks not to pay dividends, a sign the central bank sees problems ahead. Tens of billions of dollars are owed to New Zealand’s banking sector by commercial properties which are, in many cases, empty.
No one knows quite how bad things will get, because no one has ever stopped the economy in the way we are currently trying to.
Uncertainty of any kind is the enemy of confidence, and the fact that the Government is yet to articulate what it will take before it decides to ease restrictions means uncertainty is extreme. In Wellington, the Government is facing pressure to give economists access to how many people are applying for benefits. Overseas, the news is so bad as to be overwhelming. In the US, close to 1 million a day are submitting jobless claims.
The impact Covid-19 will have on New Zealand is profound. But is the message filtering down?
A strong response to Fletcher Building’s warning to staff, that if the lockdown lasts for several months they will face severe pay cuts, suggests perhaps not.
Already thousands of Fletcher Building staff are earning 80 per cent of their normal base pay, just as many workers across New Zealand are.
If the lockdown is extended beyond four weeks, this will drop to 50 per cent for weeks five to eight. If it is extended beyond eight weeks, this will drop to 30 per cent.
Such a drop would cause significant pain for those employed by the construction giant. Accordingly, it prompted unions to attack.
“We expect companies to . . . pay all workers 100 per cent of their average weekly earnings, especially companies like Fletchers who can easily afford it,” E tu spokesman Joe Gallagher said.
First Union described the move as “completely reprehensible in every sense”. Council of Trade Unions president Richard Wagstaff went further, lobbying Workplace Relations Minister Iain Lees-Galloway to get employers “to improve their behaviour”.
The Government’s response to Wagstaff, who sat on key working groups this term, will be interesting.
Make no mistake, a company as large and structurally significant as Fletchers would surely not have made an announcement like this without running the idea past the Beehive first. Robertson has been open about the Government being in talks with large New Zealand companies.
Whatever corporate world we are in as we emerge from Covid-19, it is likely to be one where companies are required to hold more capital, hopefully putting them in a better position to withstand shocks.
Business models will inevitably change; the Government will likely play a larger role in the future.
But in the here and now, Fletcher Building is effectively warning that if the lockdown goes on for three months, it will almost certainly be close to going broke.
This news should underline how important it is that we all observe the restrictions in order to try to stamp out Covid-19 as soon as possible. It should also focus the minds of the Government on a strategy for when the lockdown is over.
Because if Fletcher Building is in this much trouble if the lockdown drags on, just about everyone else in this country will be, too.