Job losses forecast despite multi-billion boost

Economists expect more downsizing to fit in with a new level of economic activity

Economists are warning that job losses will continue to mount, despite the Government’s multi-billion dollar extension of its wage subsidy scheme. The first period of the 12-week policy — announced on March 17 — came to an end yesterday.

Since coming into force, the scheme has seen:

● $11.013 billion paid out to 1,665,724 employees,

● 461,815 applications approved,

● 51,297 applications denied,

● 4036 refunds, valued at $136.4 million.

As part of the Government’s Covid19 recovery budget, the scheme was extended for a further eight weeks.

Starting at 9am today, businesses which have suffered a 40 per cent Covid-19 related loss in revenue will be eligible for a lump-sum payment.

Finance Minister Grant Robertson — who expects 230,000 businesses will be eligible for the extended scheme — has heralded the policy a success so far, saying it has saved thousands of jobs.

“Eighty-nine per cent of businesses said the wage subsidy meant they would be able to keep operating for the foreseeable future, and only 6 per cent said they intended to make staff redundant in the next few months.”

As well as small businesses, bigger international companies have received payments.

Despite Robertson’s optimism over the scheme so far, economists are still forecasting job losses.

Independent economist Cameron Bagrie said the wage subsidy extension would “without a doubt save some jobs”. But he made clear the emphasis was on “some”.

“The reality is if you’re still trading 40 per cent down, you’re in pretty serious trouble.”

Bagrie said it was likely New Zealand would experience another wave of job losses — some are now happening but he expects a lot more after the eight-week extension ends.

Infometrics senior economist Brad Olsen agrees more losses are coming.

According to Treasury data, the scheme’s extension would cover

more than 900,000 workers. But Olsen said he still expected job losses to mount.

“As businesses continue to assess business conditions, the weaker spending and investment outlook will force many businesses to downsize their workforces to fit the new level of economic activity.”

Estimates vary on what the total jobless figure will be. But in May’s Budget, Treasury revealed it expected unemployment would reach almost 10 per cent in September.

It is then expected to recover over the coming months and years, eventually falling back to 4.2 per cent in two years. Some economists say this forecast is far too optimistic.

National’s finance spokesman Paul Goldsmith said now the country was at level 1, a more targeted subsidy scheme was needed.

“The Government needs a better growth plan than simply massive government spending while waiting for a vaccine.”

The wage subsidy scheme has undergone a number of changes since it was announced on March 17, 19 days after New Zealand’s first case of Covid-19.

That first phase of the policy made up the bulk of the Government’s initial $12 billion Covid-19 economic relief package.

Full-time workers received $585 a week and part-time employees $350, with the money paid in a lump sum for a period covering 12 weeks. The same approach applies for the scheme’s extension.

Just over $5 billion was allocated to businesses that had a 30 per cent Covid-19 related drop in revenue, to pay out to their employees.

The scheme was soon expanded and the amount the Government was spending on the programme more than doubled.

Robertson again expanded the programme in May’s Budget, this time for eight weeks and only to businesses which had suffered a 50 per cent drop in revenue.

Last week, that figure was reduced to 40 per cent which, according to Robertson, would mean 40,000 more businesses were eligible.