To repay or not repay wage subsidy — corporates’ moral question
There are many words to describe New Zealand’s autumn Covid-19 lockdown and the Government wage subsidy that helped much of the country through it: “Windfall” isn’t one of them. But that hasn’t stopped the calls for cash-rich companies to give the money back.
Perhaps the Government could claw back the funds in a special tax. Or maybe the companies themselves, those that are posting profits in yearend results and paying dividends to shareholders, could take the high road and return it.
Finance Minister Grant Robertson has rejected the idea of a clawback. “I’m not going to go back and rewrite the agreement,” he confirmed.
Which is sensible; he baked the problem into the Government’s response in the first place.
Companies, after all, are not worming through a loophole in hanging on to the subsidy cash. It was offered from March, midwifed by panic and accompanied by an eerily effective halt to economic activity.
All recipients had to meet the threshold of suffering at least a 30 per cent drop in revenue in any month from January to June of this year (down from the same period last year). If they didn’t, they were obliged to return the money. Later versions of the subsidy were more limited.
But those criteria were still so staggeringly broad that the programme’s main iteration paid out some $11 billion. Repayment of $442 million had been made as of September 11, but the Ministry of Social Development was not quickly able to say what portion applied to the first wage subsidy.
That extraordinarily broad subsidy mirrored the Government’s response to the virus itself.
As it was initially conceived, the subsidy had a payout limit of $150,000 per entity — a feature that would have made it vastly cheaper and of consequence only to small and medium-sized firms. But that was in light of the early distancing rules and the gathering and travel restrictions the Government imposed in February and March.
That upper limit was ditched as the Cabinet abandoned mitigation measures to “flatten the curve” of disease and agreed on a plan that would plunge New Zealand into one of the world’s most stringent lockdowns. It is impossible to understand why the Government abandoned its controls on the upper limits of individual payouts without understanding the nature of the lockdown to which it shifted.
The lockdown that was announced in late March drew a line for economic activity that had absolutely no significance for viral spread, and companies outside what was deemed essential had no opportunity to convince authorities they could operate safely. Forestry, construction, heavily automated manufacturing, takeaway food and drink, online retail, nothing outside the designation “essential” was spared the stopwork order, unless it could happen from a kitchen table.
The division of essential and nonessential work had the benefit of simplicity. It was easy to communicate and made it difficult for companies to argue for exceptions. It is what the Prime Minister means when she says “we went hard”. But it also set the country on a path that was uncosted by the Treasury, though clearly colossally expensive. And without a big broad government payment, the Cabinet feared two things.
First, a shuddering halt to trade (Treasury later estimated that level 4 rules reduce normal levels of economic activity by 40 per cent) that would otherwise be expected to generate a huge and immediate wave of unemployment, as companies of all sizes slashed costs.
And that would fuel a second feared consequence: that the population’s compliance with health orders (which overreached the Government’s actual powers at the time, the courts have ruled) would be jeopardised.
So the Government, and hence New Zealand, paid dearly for stringency. But that’s no reason why profitable companies should not face sticky questions from their shareholders and others about retaining wage subsidy cash.
Ebos Group, for example, touts its social values and community work and its “social licence to operate”. But it still accepted $1.8m through the subsidy, even as it continued to pay out dividends to shareholders.
Retailer Animates NZ Holdings received the subsidy; it’s an Ebos joint venture and 50 per cent owned by the group.
Retirement home operators Ryman Healthcare and Summerset Group are in similar situations. Subsidiaries of the former received $13.2m from the subsidy, while the latter received $8.7m. Covid clearly caused some costly adjustments, but dividend payments didn’t miss a beat. Summerset broached the subject head-on in its half-year result, acknowledging the subsidy as well as citing cost-saving measures like a 20 per cent pay cut for the board and executive leadership team.
Perhaps Skellerup Holdings should hand back the $602,000 it took in subsidy; it announced a final dividend for 2020 last month. Customers may take an opinion, so could employees. There is a long list of companies in similar positions, though most of them are private and beyond easy scrutiny.
But whether those corporate consciences should be pricked in retaining the subsidy is not a question for the Government.
The judgment is a moral one to be weighed elsewhere.