18/03/2020

Government stimulus package announced

As foreshadowed, the Government has announced a range of measures to help support New Zealanders in the wake of the COVID-19 crisis.

At an estimated cost of $12.1 billion, these measures include a range of direct business employer and employee subsidies as well as taxation measures and relief (some surprising):-

Financial Subsidies and Aid

1. Leave support is being made available for unpaid leave for those employees unable to work during self-isolation, sickness or caring for those suffering from COVID-19 at $585.80 per week ($350 for part-timers working more than 20 hours a week).  Applications are made by the employer to MSD; the process is open now and the Government is aiming for payments to be made within 5 working days.

2. The same amounts up to a total of $150,000 per employer are available to disrupted employers who retain staff despite suffering a significant decline in revenue (>30%).  Applies for leave taken, or declines in revenue from 17 March.  As with the employee leave or the employer wage subsidy, the employer will apply to MSD for relief.  Applications are open now for the next 12 weeks and the Government is aiming for payments to be made within  5 working days.

To claim the subsidy employers will need to show a 30% decline against revenue for any month between January and June 2020 as compared to the same month in 2019 year.  The claim can be based on forecast revenue loss and the Government is seeking some key undertakings from those employers:

i. they will continue to employ affected employees at a minimum wage of 80% of their income for the duration of the subsidy period; and

ii. they have taken active steps to mitigate the impact of COVID-19 (e.g., engaged with their bank or financial adviser), and sign a declaration to that effect.

From details available, it is not clear what will be sufficient to demonstrate the loss in revenue is COVID-19. Although, in a factsheet provided it appears to be a purely objective measure against the prior year.  The first question you must therefore ask, is whether your business is running at less than 70% revenue when compared to the prior year?

Neither is it absolutely clear what steps will be considered as satisfactory ‘active mitigation’. This is a stimulus support package however, and given the examples provided, we anticipate reasonable steps have or are being taken to limit losses. To this end the Government has signalled expectations that business owners have met with or involved their funding providers and business advisers, such as VCFO Group.

3. In addition, there are three main changes to welfare settings:

i. main benefits will rise by $25 per week from 1 April 2020;

ii. the winter energy payment will double in 2020 only; and

iii. those families with children not receiving a main benefit will no longer be required to satisfy the hours test from 1 July 2020.

Watch this space for more details as they become available.

Taxation Relief and Further Measures

The following measures provide tax relief deductions will assist in reducing business tax bills, but will be of limited use if business downturns result in losses.  Of more interest will be the genuine cash subsidies on offer to employers and employees alike.

4. Building depreciation:  The Government has reintroduced tax depreciation allowances on commercial buildings at the old rate of 2% diminishing value (DV) per annum.  This will apply to both new and existing buildings.  It’s a little unclear from the factsheet as to whether this will be effective for the 2021 (conceptual analysis and expected) or 2022 (example given) income year, but it’s a permanent and welcome return for this old favourite (after it was denied back in 2011).

5. Low value assets write-off:  The low value asset threshold (allowing for immediate write-off deduction rather than depreciation over time) will rise from $500 to $5,000 per asset for a year (2020/21) before dropping down to $1,000 per asset on a permanent basis.

6. Provisional tax relief:  The provisional taxpayer threshold will rise from $2,500 to $5,000 and allow more taxpayers to defer tax payments.  This applies to the current 2021 income year.

7. Late tax payment interest waiver:  Interest on late tax payments that occur due to COVID-19 effects can be waived by the Commissioner.  This is a helpful change given interest is automatically applied in every other case and is rarely remitted.  A late Valentines, this applies to payments due after 14 February 2020.

Watch this space for more details as they become available.

Although time will tell whether this package is enough, and directed in the right sectors, this Stimulus Package is a very significant financial life-line to businesses across New Zealand that are suffering the downturn affects from the economic fallout from COVID-19.

There is no doubt whatsoever the commercial supply-chain and consumer demand disruption following the COVID–19 enforced measures in New Zealand and abroad will materially suppress this country’s business performance and productivity.  Compounding and adverse flow-on consequences will continue to evolve as government agencies and many businesses move to remote / self-isolated work practices, and other such work contracting health measures.

The big question is for how long this health crisis will represent a financial crisis?

As always, do not hesitate to call us should you wish to know anything further about these measures.