“Exceptional income” but only 4% of the wage subsidy returned

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Despite strong growth in business revenue over the past two years, New Zealand businesses have only repaid $801.8 million of the nearly $20 billion in government grants made during the pandemic.

As of March 2020, a range of wage subsidies, furlough support payments and short-term absence pay are available to help businesses retain jobs during shutdowns.

Data from the Department of Social Development shows that, up to July 15, $19.5 billion had been disbursed.

Companies were encouraged to repay the grants if they were found not to meet the payment criteria – a 30% drop in revenue initially, rising to 40% for later grants.

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Many large companies faced pressure to repay when they later reported large profits. The Warehouse Group repaid $68 million of the grant and the Briscoe Group also repaid what it received.

Treasury accounts are expected to show corporate tax revenue has jumped 60% over the past two years, reflecting rising corporate profits.

But so far, only $801 million has been repaid.

Robyn Walker, tax partner at Deloitte, said more grants would need to be repaid was something companies could potentially wonder if they were in a positive financial position.

“While the eligibility criteria for the wage subsidy are met, there is no requirement for repayment of a wage subsidy, we have seen a few public examples of large companies that have made voluntary repayments of the wage subsidy. Businesses will potentially have a range of reasons for doing so, and we saw larger refunds in the early days of the pandemic, when many businesses were experiencing a post-lockdown rebound.

“However, for many companies, they may experience higher profitability, but this will not necessarily translate into additional cash flow that will then be available to make voluntary wage subsidy repayments; for example, they may invest in new fixed assets or have more cash from stock trading.

She said another factor related to the lack of significant increases in the level of wage subsidy repayment could be related to who actually applied for the wage subsidy.

Social Development Minister Carmel Sepuloni said the government had no clear expectations of how much grant to repay.

ROBERT KITCHIN/Stuff

Social Development Minister Carmel Sepuloni said the government had no clear expectations of how much grant to repay.

“While the initial wage subsidy was requested by many businesses of all sizes, subsequent wage subsidies were primarily requested by small businesses.”

She said fewer large companies applied for grants in 2021 compared to 2020.

“Companies that only claimed in 2020 may have simply ‘dropped’ the wage subsidy and given it no further thought.”

Economist and policy director for the Council of Trade Unions, Craig Renney, said the total reimbursed was around 4% of the amount paid.

“Given that we were working in very exceptional circumstances and in a very high trust model, it is very difficult to establish an ‘acceptable level’ of grant that should be repaid.

“For many companies, this funding was necessary and they used it appropriately to support their employees during a really difficult time. But other companies appear to have done well despite Covid, with profit levels up significantly from a year ago.

“We encourage all businesses to verify that they really need any funding provided to them during Covid, and to repay it when changing circumstances mean they no longer need this support. This will help maintain the social license for future support for businesses and workers. »

Social Development Minister Carmel Sepuloni said the government had not set expectations for the amount to be repaid. She said the department had changed its approach over time and carried out more targeted integrity checks with the tax authorities, which resulted in more refunds.

“Through other integrity work to date, they believe the vast majority of companies that have received wage subsidies have done so honestly. The vast majority of cases where wage subsidies were wrongly applied for were an honest misunderstanding about eligibility rather than a deliberate attempt at deception. MSD has been encouraged by the number of companies voluntarily repaying their wage subsidy because their circumstances have changed.

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