9th – April 2020
New Zealand has declared a State of National Emergency in response to COVID-19, granting the Government special powers to restrict people’s movement and control the virus from spreading.
With a Level 4 Alert that started at 12:00AM on March 26, 2020, New Zealanders were told they must stay at home and that all non-essential business must close. This drastic measure is one of the best ways to stop the coronavirus and potentially saves tens of thousands of lives across New Zealand.
While a necessary action, this step is a huge hit for businesses across the globe, and New Zealand is no exception.
In what is the “most significant peace-time economic plan in modern New Zealand history”, the Coalition Government is rolling out a $12.1 billion stimulus package meant to soften the economic blow of an impending recession that may rival the Global Financial Crisis.
What does this entail for businesses struggling to stay afloat during the coronavirus pandemic? To support New Zealand businesses and workers, a big part of the stimulus package – $8.7 billion – provides relief for businesses and jobs.
Below are the facts concerning the different subsidies, how to qualify, and employer obligations and undertakings for accepting aid.
Note: “full-time” is defined as employee working 20 hours or more a week. “Part-time” is defined as an employee working less than 20 hours a week.
Wage subsidy scheme
For employers and businesses significantly impacted by COVID-19 that are struggling to keep their employees on, the wage subsidy will be available for 12 weeks starting on the 17 March.
Amount of support breakdown
- $585.80 per week for a full-time employee
- $350 per week for a part-time employee.
This is the same amount under the leave and self-isolation scheme. Payment will be made as a lump sum to employer covering a period of 12 weeks, who will then pass those wages onto their employees.
This means employers will receive:
- $7,029.60 per full-time employee
- $4,200 per part-time employee
Eligibility for support from the scheme
Employers must have suffered at least a 30 percent decline in revenue compared to last year for any month between January 2020 and the end of the scheme in June 2020. Employers can also provide a forecast of revenue loss within the period of the scheme.
Conditions of employer accepting support
Once eligibility has been determined, there are undertakings the employer are obligated to follow.
- During the subsidy period, employers have to declare, “to the best of their endeavours”, they’ll continue to employ the affected employees at a minimum of 80% of their income, or the equivalent of keeping people working four out of five days of a work week
- Employers must take active steps to mitigate COVID-19 and sign a declaration form stating that.
Applications can be made starting 17 March for the next weeks on the Work and Income website, www.workandincome.govt.nz. The MSD aims to make first payments no later than five working days from application received.
Business cashflow and tax measures
These tax measures – some providing higher temporary relief during the COVID-19 crisis and others providing relief on a longer-term, permanent scale – are looking to decrease the impact of the disease as much as possible.
The administering agency of these tax measures is the Inland Revenue, separate from MSD. Some of them are forecasted over the current forecast period until 2023/24 financial period.
Reintroducing depreciation: commercial and industrial buildings
In order to support businesses with cashflow, as well as with business investment in new and existing buildings, depreciation deductions will be introduced for industrial and commercial buildings, including hotels and motels.
The aim of this is to “encourage investment in business premises and decrease the cost of premises over time, improving business confidence, and enabling the capital cost of seismic strengthening of buildings to be depreciated”, according to the ‘Business cashflow and tax factsheet’ released by the Government.
A Bill containing this measure will be introduced shortly to start reducing provisional tax payments for 2020-21 immediately.
This will be available as a part of the normal tax filing process. All sectors and regions of New Zealand are eligible. This is a permanent duration of support; a pre-qualification of the measure is owning a commercial or industrial building.
Immediate deductions: low value assets
In order to reduce compliance costs for businesses, the Government is increasing the threshold for writing off low value assets, an added benefit of that being stimulating business purchases.
According to the tax measure fact sheet, “Taxpayers will be able to deduct the full cost of more low-value assets in the year they purchased them, rather than having to spread the cost over the life of the asset. Taxpayers are currently able to claim an immediate deduction for the purchase of assets that cost less than $500.”
All sectors and regions of New Zealand are eligible. This is a temporary increase of $5,000 and permanent increase of $1,000.
There are no other pre-qualifications are required. This will go into effect for expenditure made on or after 1 April 2020 for most taxpayers.
Provisional tax: increasing threshold for small taxpayers
Targeting smaller businesses to help them retain cash for longer and increase cash flow, which will undoubtedly be strapped tight during this period, this measure increases the threshold for those paying provisional taxes.
The threshold will be increased from $2,500 to $5,000 so “smaller taxpayers” can delay paying their taxes.
Instead of having to pay provisional taxes in instalments throughout the year, small taxpayers can delay paying their taxes until 7 February of the following year.
All sectors and regions of New Zealand are eligible. This is a permanent duration of support, with a pre-qualification of income tax liability for the year of $5,000 or less.
Interest write offs: late tax payments
In order to provide relief to businesses who have been “significantly adversely affected” by COVID-19 and can’t pay their taxes on time, Inland Revenue has the power to waive interest on late tax payments, as well as interest on those late tax payments.
All sectors and regions of New Zealand are eligible. The duration of this scheme is two years from date of enactment of announcement, unless extended by Order in Council. Other pre-qualifications include that businesses and individuals will have to show an ability to pay tax by the due date as a result of being “significantly adversely impacted by COVID-19”. Other pre-qualifications to follow soon.
To read more in depth about the measures and how they might affect your business, including possible scenarios, go to www.beehive.govt.nz/feature/covid-19-economic-response-package.
Response from the business community
A warm reception
The business community’s response to the economic stimulus package has been mostly favourable.
Canterbury Employers’ Chamber of Commerce Chief Executive Leeann Watson says the Government’s Economic Response Package will provide some comfort and assurance for both employers and employees.
The $12.1 billion package, which is 4 percent of Aotearoa New Zealand’s GDP, is aimed at cushioning the impact of COVID-19, building business resilience, and maintaining connections between employers and employees. It includes wage subsidies, a fund for training and redeployment, and tax measures.
Leanne says this “will support cashflow and confidence” but cautions that there also needs to be ongoing targeted business advice and support available to help businesses remain sustainable long-term, “this is a marathon, not a sprint”.
Chief Executive Brett O’Riley says as a first stage the package is impressive and will significantly help with business confidence and cohesion in the short term.
“We’ve been engaged with officials providing input into this over the last few weeks and it looks like they’ve really been listening,” Brett says.
In particular, $5.1 billion in wage subsidies and the leave payment scheme for all kinds of workers will be most valuable for the EMA’s 7,000-member businesses from Taupo north.
In addition to its AdviceLine on 0800 300 362, the EMA is also happy to be helping support the Government’s package by funnelling employers through to the MSD where they can apply for this help.
MYOB NZ Country Manager Ingrid Cronin-Knight says SMEs will welcome the Government’s decisive action and the speed at which it has been able to respond to the unprecedented crisis.
“Today’s announcement sends a strong signal that small and medium sized businesses and the Kiwis they employ will be supported and that the Government will continue to invest in the local economy,” Ingrid says.
“This is great news for the country’s half a million SMEs, which sit at the heart of our local economy.”
However, Ingrid says how the package will be delivered is crucial, with clarity on how businesses can demonstrate eligibility.
“Rapid, targeted delivery of this package is key,” Ingrid says. “This investment must be put into the hands of small businesses as quickly as possible, to help them pay staff and suppliers, and maintain cashflow.”
Left in the gutter
Some industries in New Zealand, however, feel blindsided and left behind.
“By just blindly soldiering on with their existing parliamentary programme, it forces many businesses to worry about future regulation instead of just keeping their doors open,” says Ben Pryor, co-owner of Alt New Zealand – the largest Kiwi-owned vape company.
Ben says at the very least the Government should abandon their initial plans to regulate the entire vape industry within three months and return to the usual parliamentary process of six months to pass good legislation, stretching out the submission period as well.
“We’re just one sector hugely affected by the Government’s legislative timetable, and despite everything nothing’s actually changed for any of us in that regard. We’ve now got to spend the next two weeks writing submissions, fly down to Wellington to present, and so it goes on. We’d rather be fighting for our staff’s jobs and our retail stores.”
A fighting chance
One of the biggest industries most affected by COVID-19 is the tourism sector, or New Zealand’s biggest export industry, contributing 21 percent of foreign exchange earnings last financial year, according to Statistics New Zealand. Last year, it generated a direct contribution of $16.2 billion GDP to the New Zealand economy, or 5.8 percent of New Zealand’s GDP.
Indirectly, it generated an additional $11.2 billion, or 4 percent of GDP.
With this sector taking a huge hit, what does this mean for the tourism industry and New Zealand at large?
The Government’s Business Continuity Package will come as immediate relief to tourism operators facing a devastating downturn, Tourism Industry Aotearoa says.
“It’s a substantial package that demonstrates the scale of the challenge facing New Zealand. Some jobs will be saved but we believe that many will still be lost,” TIA Chief Executive, Chris Roberts says.
“We are pleased the Government has responded to our call for the funding to be accessible, available to businesses in every region and with no delays. The Government has indicated that payments may be possible within five days and we commend that speed of response.”
TIA expects hundreds of tourism businesses to apply for the wage subsidy.
“This will be a huge relief to small tourism business owners across New Zealand who were facing having to make their people redundant or close their businesses within days,” Chris says.
TIA is disappointed that there appears to be no mental health support included in the package.
“We know tourism operators and their staff are under enormous stress and need access to counselling and other mental health services.
“The tourism industry will not recover within this 12-week period but this Government support does buy our smaller operators some breathing space while they adjust to this unprecedented situation.
“We are pleased that Finance Minister Grant Robertson has indicated this is not a one-off package. TIA will continue to work closely with the Government and advocate for the interests of New Zealand’s thousands of tourism businesses and nearly 400,000 workers,” Chris says.
For information on how to apply for these programs and other support for businesses affected by coronavirus, go to www.govt.nz/coronavirus and www.business.govt.nz.