Wage subsidy about to run out, businesses ask: Now what?
Friday, 29 May 2020
Charn Tiebtienrat and his family moved from Christchurch to Whangarei in 2012, after losing their restaurant there in the February 22 earthquake.
They have put in long hours building up Suk Jai Thai to become a busy restaurant with loyal clientele who drop in for lunch or dinner.
But Covid-19 has changed all that and brought the business to a halt. Even as the country moved to level 2, it was not a return to normal operations for Suk Jai.
The distancing requirements push dine-in revenue down 50 per cent. Tiebtienrat has installed his signature huge stuffed penguins, which usually guard the door, at seats throughout the restaurant to keep diners a metre apart.
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“Some nights I have had to turn away customers, not because I didn’t have a table but because I couldn’t seat them… we are lucky we are a popular takeaway restaurant. Monday and Tuesday revenue is down 20 per cent on where it would normally be. But my friend in Auckland said his was down 40 per cent.”
He said the business only had a margin of about 13.5 per cent, so it could not withstand such a drop for long.
For now, the wage subsidy allows him to keep staff working their normal hours. But for Suk Jai, the 12 weeks of the subsidy will run out on June 14. If capacity isn’t back to normal by then, it will mean some tough decisions to be made.
Tiebtienrat said the Government should continue to offer the subsidy for restaurants until they were allowed to resume normal trading.
Applications for the first tranche of opened on March 17 and payments were for a 12-week period.
Tiebtienrat is one of a large number of New Zealand businesspeople who will find their wage subsidies run out over the coming weeks – and that while their revenue is still down, it’s not down the 50 per cent required to qualify for the extension.
The Government says the extended subsidy scheme will cost up to $3.2 billion - a fraction of the $11b investment on the first round of the subsidy. Applications open on June 10.
Michael Barnett, head of the Auckland Business Chamber, welcomed the extension of the subsidy but said it was not sufficiently targeted.
He said many businesses with a turnover reduction of 30 per cent would not qualify but could still be facing insolvency.
'Instead of working with bureaucrats, if the Government had talked to business organisations, for restaurants, retail and so on they could have come up with a much better targeted policy and done more good as the economy gets itself going again. They had time but this time they failed.'
Brett O'Riley, chief executive of the Employers and Manufacturers Association, said his organisation had been talking to the Government about ways to introduce more flexibility into the system, so that businesses that were heavily affected - but did not meet the official criteria for the second round of support - could still have help.
More clarity was expected in the coming week, he said. A business might have a number of divisions, and be heavily down in one but not 50 per cent down overall. 'The Government has recognised that… we are working through that with them at the moment.'
He was also concerned about softness in future. Some businesses, such as manufacturers, were busy at present because of pent-up demand but were expecting weakness in coming months.
The end of the wage subsidy - and the requirement to retain staff that came with it - has been predicted to spark a 'second wave' of redundancies. The number of employed New Zealanders fell by 37,500 in April.
On Friday. it was revealed that 212 more people had signed up for JobSeeker Support - down from a peak of 8569 taking up the benefit in the week of April 3.
“The end of the wage subsidy will be a big deal for businesses, with nearly 60 per cent of the labour force supported by Government funding,” said economist Brad Olsen.
“For many businesses, sales will remain soft for a while, and so the lack of government assistance for those that don’t still have a 50 per cent reduction in revenue will struggle.
“It's important to remember that the wage subsidy was paid out as a lump sum when first applied for, so for most businesses, the wage subsidy is already spent. Businesses will have been assessing market conditions over the last week or two, and faced with a lower profile of revenue, many will look to downsize their workforce once the subsidy ends and their obligations to keep workers, as a requirement of the wage subsidy, cease.
“This adjustment to the current levels of economic activity will see the second wave of unemployment come through, and this could well be larger than the initial jump in unemployment, with the wage subsidy acting as a major buffer against immediate job losses.”
But he said the Government could not keep subsidising wages 60 per cent of the workforce indefinitely.
“The Government, and businesses, face some tough calls ahead. In many respects, there are no good options given the scale of economic disruption, but the wage subsidy always needed to have an end date. The shift to a higher threshold (will provide a clearer view of just how hard the wider economy has fared, but the task of rebuilding is only beginning.”
He said the subsidy had meant New Zealand did not have a sharp increase in unemployment all of a sudden but was instead likely to have a spread of job losses over time.
New data from economist Tony Alexander shows the news may be worst for businesses such as Tiebtienrat’s.
He surveyed 4000 people about their spending intentions over the next three to six months. While more than 15 per cent were planning to spend more money in home renovations, almost 20 per cent planned to spend less on travel and motor vehicles and almost 15 per cent less on eating out.
A net 7 per cent said they felt confident enough to spend more, a turnaround from last month’s survey where a net 4 per cent said they did not feel such confidence.
“It is likely that in normal times this outcome will average a lot higher than 7 per cent. But the fact that it has turned up is a positive development. But there is also a warning here to retailers currently enjoying a surge in sales. The turnaround from a month ago is not that large. Consumers are not indicating that they feel any sense of euphoria or happiness, and this is explicitly obvious in other surveys which directly gauge consumer confidence.”
He said the intended drop in eating out spending supported a generally cautious attitude from the hospitality sector.
“Many operators in the sector who got themselves through the lockdown period are still likely to be forced to close down as this year progresses because people will restrict spending on eating out at cafes and restaurants.”
Tiebtienrat said businesses needed to be offered a bit more of a lifeline. 'If the Government would be kind and make the threshold for the subsidy a bit lower, it would ease the pressure.'