The Government has announced the first stage of its economic response package to COVID-19. In announcing this package, the Minister of Finance indicated that the Government is now expecting economic recession as "almost certain", with an economic shock larger than that seen during the GFC.
The specific elements of this package aimed at cushioning the impact of the economic shock on businesses and workers are summarised below.
Wage subsidy scheme
The scheme will support businesses that are significantly impacted by COVID-19 and are struggling to retain employees as a result.
Under the wage subsidy scheme, full-time and part-time workers will receive $585.80 and $350 per week respectively, for a period of 12 weeks and up to a cap of $150,000. Businesses must have suffered a 30% decline in revenue due to COVID-19, and must submit a declaration that they comply with the following eligibility requirements:
- On its best endeavours, the employer will continue to employ affected employees at a minimum of 80% of their income for the duration of the subsidy period. This is the equivalent of keeping people working 4 out of 5 days of the week.
- Employers must also have taken active steps to mitigate the impact of COVID-19, for example by engaging with their bank or financial advisor.
The scheme will be available to all businesses in all sectors nationwide, and includes the self-employed and sole traders. The Ministry of Social Development expects to be able to make payments to eligible businesses starting in five days' time.
Leave and self-isolation scheme
The Government is also proposing a leave and self-isolation scheme to support people unable to work who are either in self-isolation, are sick, or are caring for dependents who are in either of these situations.
This leave support scheme does change the expectation on employers to meet all of their sick leave and other employment obligations. It is not available to those who can work from home during the period of self-isolation, and who can be paid normally by their employer.
Employers will apply for the leave on behalf of their employees self-isolating or sick. Affected full time workers will receive the same amount as under the wage subsidy scheme, being $585.80 per week for full-time workers, and $350 per week for part-time workers.
Payments are made by the Ministry of Social Development to employers, who will then be required to pass it on to the affected employees. The Ministry of Social Development will make payments to employers on a fortnightly basis once it receives an application.
The Government will implement changes to tax rules for the 2020–21 tax year to help stimulate business cash flow and investment, which include:
- the reinstatement of depreciation deductions for commercial and industrial buildings at a 2% diminishing value;
- increasing the threshold for provisional tax from $2,500 to $5,000;
- increasing the threshold for writing off low value assets to $5,000, before reverting to $1,000 in the longer term; and
- giving a time-limited discretion to Inland Revenue to remit use of money interest if a taxpayer is unable to pay on time due to the impacts of COVID-19.
Separate to these measures, the Government is also making an initial injection of $500 million to increase the capacity and capability of New Zealand's health system. This injection will fund increased support for vulnerable populations, and improve testing and treatment in both the community and hospitals.
Details of a specific $600 million aviation support package will be announced soon, and further measures will be announced in the Budget as a "second phase" of a broader recovery package.
The full speech from the Minister of Finance can be accessed here. If you have questions on the implications for your business, contact your usual Russell McVeagh contact.