Wage Woes

Prime Minister Jacinda Ardern has announced that the COVID-19 wage subsidy scheme that has supported nearly 2 million jobs will end in September.

The $11.9 billion scheme has been in place since March and has helped insulate 1.7 million workers and their employers from some of the economic impacts of the coronavirus pandemic. Ardern said that the government clearly signalled that the wage subsidy could not continue forever.

“It would delay the critical work that businesses may need to do to pivot in the new COVID environment, and businesses themselves have said that they think that continuing for too long, could run the risk of being harmful to the long term resilience of some of those businesses,” Ardern noted.

Should there be a further extension to the wage subsidy? Business Mentors NZ chief executive Sarah Trotman has said the scheme should be kept available for businesses that can make a case for it. There needs to be incentives for business owners to be employing people, as city centres such as  Auckland prepare for a major blow.

“The issue of business failure hasn’t been talked about enough. A lot of businesses will fail, and they are failing,” commented Trotman.

The scheme will end on September 1, three weeks out from the general election. That could mean job losses as the subsidy ends, with businesses deciding they cannot resume paying full wages to their staff.

Viv Beck, chief executive of Heart of the City, a group that represents Auckland city business said that extending the scheme for select business cases could be an option. “For businesses that are very reliant on the subsidy and not able to adapt, there may well be a case for it, though there would need to be a proper analysis done,” she said.

It is clear the government cannot provide one solution to suit everyone. Business owners need incentives to have the confidence to take on staff, it’s not as simple as saying a business needs the wage subsidy or an interest-free loan.

Of course, there are concerns for New Zealand becoming a welfare state, can Kiwi businesses really expect government hand-outs to last forever? Add to that the controversy around some larger businesses not paying back wage subsidies they didn’t end up needing and it could make for some interesting decisions come election time.