COVID-19: Government Economic Package
The Minister of Finance Grant Robertson has this afternoon announced in Parliament a $12.1 billion support package to support jobs and the domestic economy from the global economic impact of COVID-19.
The New Zealand dollar increased more than half a US cent after the government announced the package this afternoon and overall business has been supportive of the government’s move.
This announcement also follows the Reserve Bank’s decision to drop the OCR to a historic low of 0.25% and delay new capital requirement for NZ banks, which Reserve Bank governor Adrian Orr describes as “additional headroom of around $47 billion extra that can be extended as credit to their customers”.
To support our clients as they navigate their way through the economic impact of COVID-19, and what it might mean for their business, Pead has pulled together this short summary of what has announced today.
Economic Package Highlights
The $12.1 billion package includes:
- Initial $500 million boost for Health
- $5.1 billion in wage subsidies for affected businesses in all sectors and regions, available from today
- $126 million in COVID-19 leave and self-isolation support
- $2.8 billion income support package, including a permanent $25 per week benefit increase and a doubling of the Winter Energy Payment for 2020
- $100 million redeployment package
- $2.8 billion in business tax changes to free up cashflow, including a provisional tax threshold lift, the reinstatement of building depreciation and writing off interest on the late payment of tax
- $600 million initial aviation support package.
Wage Subsidy Package
Wage subsidies will be available from today for all employers that are significantly impacted by COVID-19 and are struggling to retain employees as a result. The scheme is open to sole traders and the self-employed, as well as firms.
The subsidy will provide $585.80 per week for a fulltime employee (20 hours or more) or $350 per week for a part time employee (less than 20 hours). The payment will be made as a lump sum to the employer for a period covering 12 weeks.
To be eligible, employers must have suffered, or are projected to suffer, at least a 30% decline in revenue compared to the last year for any month between January 2020 and the end of the scheme in June 2020.
Employers will need to declare that, on their best endeavours, they will continue to employ the 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.
COVID-19 leave and self-isolation support
The COVID-19 leave payment scheme will provide support (through employers/to sole traders and the self-employed) for those people unable to work who are in self-isolation, are sick with COVID-19, or caring for others with COVID-19. The payments will be $585.50 per week full time and $350 per week for part time workers.
The payment does not affect any paid leave entitlements that are owed and is available even if an employee is on paid leave for part of the period. 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.
Provisional Tax changes
The package increases the threshold for having to pay provisional tax from $2,500 to $5,000 and allows small businesses to have until 7th February following the year they file to pay their tax, instead of
having to pay in instalments throughout the year. This will lower the compliance costs for small taxpayers and will allow them to retain cash for longer.
Business cashflow and tax measures
Depreciation deductions will be reintroduced for new and existing industrial and commercial buildings, including hotels and motels. This is designed to help businesses with cashflow in the nearterm and stimulate business investment in new and existing buildings.
Immediate deductions for low value assets
Taxpayers will be able to deduct the full cost of more low-value assets in the year they purchase them, rather than having to spread the cost over the life of the asset. The threshold allowing the immediate expensing of assets will be increased from $500 to $5,000 for one year (2020-21). The temporary increase is designed to incentivise taxpayers to bring forward investments to encourage spending.
Writing off interest on some late payment of tax
The Commissioner of Inland Revenue will be given the power to waive interest on late tax payments for taxpayers who have had their ability to pay their tax on time significantly adversely affected by the COVID-19 outbreak.
The economic impact of COVID-19 on the economy, both in New Zealand and internationally, is likely to be significant and it is clear from today’s package that the Government is prepared to spend to cushion the impact.
The package announced today is significant and represents 4 percent of GDP and largely aims to keep people in their jobs and support those who are required to self-isolate or care of for others. The tax changes outlined are modest but do provide some support to small businesses.
Depending on how the situation evolves over the coming weeks, we expect to see further announcements over the coming weeks to support the economy. For example, there are indications that the Government is actively discussing working capital support for small and medium businesses and tailor-made support for larger businesses. It can also be expected that responding to the impact of COVID-19 will be the focus of Budget 2020 and will be the dominate feature of the election
While this is a difficult time for many companies, it is critical that businesses engage with Government as it works to develop future policy and economic packages.