Wage subsidy criticism of big employers is misguided
Wednesday, 29 April 2020
OPINION: I’ve been extremely disappointed by the misguided claims that some employers shouldn’t get the wage subsidy.
It’s suggested that some businesses - large profitable ones, or certain kinds of employers, like golf clubs, hotels or casinos - should be excluded from the taxpayer-funded package which supports the wages paid by businesses affected by the Covid-19 emergency.
The argument being made is that large employers don’t need the subsidy, and many employers don’t deserve it.
I believe that argument is wrong. I think all employers meeting the terms of the subsidy merit the support.
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Large employers with many staff have an acute need for the wage subsidy - simply because they have more staff. Those large employers that have been forced to close their doors because of Covid-19 are now faced with huge ongoing wage bills and no revenue.
And this is the key thing – this is not a normal economic downturn, it’s not even a global financial crisis. It’s an economic crisis the likes of which many of us will not have seen in our lifetime.
Many businesses will have no income for around 10 per cent of the year, and reduced income for a considerable part of the year.
Employers in tourism, hospitality and retail had already seen significant drop off in demand as early as late January, well before the lockdown.
Wage subsidies for all employers meeting the terms is a proven policy. The wage subsidy scheme is based on the Earthquake Support Subsidy (ESS), which provided relief for Christchurch businesses after the 2010 and 2011 earthquakes,
The ESS was paid to businesses to alleviate immediate financial pressures on firms, enable them to make more measured decisions regarding their future, and most importantly maintain employment.
Research conducted on the ESS found that it had been successful in achieving those aims.
The wage subsidy is designed to achieve the same purpose - keeping people attached to employment, irrespective of who or what their employer is or how big they are.
Canterbury University research shows the fast implementation of the subsidy was widely credited as essential for the recovery, as it helped many businesses to avoid closure and retain jobs.
The success of the wage subsidy led the current Government to adopt it for the Covid-19 emergency, virtually unchanged from the way it was implemented in Christchurch.
Similarly, after the global financial crisis, 22 countries implemented wage subsidies as a way of keeping people attached to employers.
The policy view was that the fiscal costs of losing that connection - and reaping massive unemployment - were much higher than the cost of wage subsidies to retain it
The other reason why wage subsidies for all eligible employers is a good policy is because it’s not really about employers at all.
The subsidy goes to workers. At $585 per full-time employee and $350 per part-time employee, it is a modest but significant amount of emergency help during a time of massive economic upheaval.
Employers receive the funding but must pay it to their employees.
After the crisis is over, employers will be audited and any who might have misused or misappropriated the subsidy will be prosecuted.
That’s because it’s fundamentally not employers or businesses that are receiving the subsidy - it’s employees.
We all know the value of employment and jobs. They are essential for life and health and the future of our communities.
But sometimes we forget that it’s business that provides those jobs.
Businesses committed to retaining jobs and staff through the Coviod-19 crisis, without revenue coming in, are providing enormous value for communities.
Those businesses don’t deserve prejudice.
* Kirk Hope is Chief Executive BusinessNZ.