15/05/2020

The Budget 2020

The 2020 Budget is, as expected, largely focused on the support the economy and populous will require as a result of the impact of COVID-19. There are some helpful business initiatives announced, discussed below.  This is expected to be only the start of the support and only around 50% of the $50 billion COVID-19 Response and Recovery Fund has actually been allocated.  We will be in touch as details become available.

Wage Subsidy Extensions

1.    50% Revenue Decline (estimated cost an additional $3.2 billion)

An 8 week extension is to be provided to those employers suffering a revenue decline of at least 50% in the 30 days prior to the date of your application as compared to the closest period last year.  The decline must relate to COVID-19 and the same undertakings apply as with the original scheme; that is, you’ll need to agree to:

  • Pass the subsidy to employees;
  • Retain employees for the duration of the subsidy at (best endeavours) 80% of their normal pay;
  • Do your best to mitigate the impact of COVID-19 on your business.

Applications may be made from 10 June 2020 until 1 September 2020 (i.e., after the current subsidy period expires).  Announcement available at https://budget.govt.nz/budget/pdfs/releases/r11-targeted-extension-wage-subsidy-scheme.pdf.  We will be in touch as more details become available, please contact VCFO if you would like to discuss your options.

2.    Pre-Revenue Research and Development Start-Up Businesses

In a positive move, recognising the importance of such businesses and employees to the economic future of the country, the existing wage subsidy scheme has been expanded to include a small number of pre-revenue research and development start-up businesses. These entities may treat a 30% fall in projected capital income (where that fall arises as a result of COVID-19), as a fall in revenue for the purposes of applying for the wage subsidy.

These employers must:

  • Be research and development intensive start-up businesses
  • Be seed or venture backed
  • Be Callaghan Innovation affiliated as of 17 March 2020; and
  • Have no other revenue other than government support and seed or venture capital.

These employers may now apply for the COVID-19 wage subsidy.  The full declaration, including the other conditions to be met is available at the following link.

https://workandincome.govt.nz/online-services/covid-19/declaration-wage-subsidy.html  Please contact VCFO if you would like to discuss your options.

3.    New and High Growth Companies 

Not specifically budget related but remember if you’re a new company or have had a period of high growth (e.g., significant revenue growth) you should still be able to claim the wage subsidy if you have had a 30% decline due to COVID-19 when comparing revenue against a previous month or 30 day period giving the best estimation of the revenue decline related to COVID-19 (example given is to compare March 2020 to January 2020).  Please contact VCFO if you would like to discuss your options.

There are also some interesting business initiatives announced.  These are light on details as yet; the announcement is available at https://budget.govt.nz/budget/pdfs/releases/r1-focus-jobs-kiwi-businesses-supported-respond-recover-rebuild.pdf.  We will be in touch as more details become available.  

R&D 

1.    Loans

$150 million is to be made available for government loans to R&D-intensive businesses, to complement the existing R&D Tax Incentive and encourage R&D-intensive businesses to retain as much of their existing R&D programme as possible.  Loans of up to 50% of a business’ annual R&D expenditure will be available up to a cap of $100,000 to be used to conduct R&D.  Applications are expected to be available by early June.  Further details to come.  We will be in touch as more details become available.

2.    Tax Deductions

Tax deductions will be available for unsuccessful or abandoned assets – $80 million expected cost to the tax base.

Announcement available at https://budget.govt.nz/budget/pdfs/releases/r1-focus-jobs-kiwi-businesses-supported-respond-recover-rebuild.pdf.  We will be in touch as more details become available.  

Exporters Support

1.    $216 million of the COVID response and recovery fund has been set-aside for export driven measures with the following aims.

  • More exporters will be eligible to receive intensive support from New Zealand Trade and Enterprise (NZTE), such as access to tailored NZTE and NZ Inc. resources to connect with overseas markets and global partners.  Expected to assist 1,400 firms, providing over 200,000 jobs across the export sector, of whom approximately 75% are SMEs with 50 or fewer employees – $32 million over four years.
  • NZTE’s reach is to be expanded across New Zealand’s broader export sector via increased delivery of practical digital services and tools., scaling up NZTE’s e-Commerce Centre of Excellence.  A new centre of excellence in logistics will also build firm capability in freight and logistics for the medium term – $8 million.
  • More NZTE business development managers with sector expertise located in international markets while international travel remains restricted, function includes in-country customer meetings, vetting new employees and selecting distributors – $40 million.
  • Strengthen New Zealand’s brand in priority markets – $16 million.
  • Targeted support to help re-connect companies with international markets and supply chain partners, as well as explore new opportunities – $120 million. Announcement available at https://budget.govt.nz/budget/pdfs/releases/r1-focus-jobs-kiwi-businesses-supported-respond-recover-rebuild.pdf.  We will be in touch as more details become available.  

Supporting SMEs to Thrive in the Digital Economy

1.    E-Commerce Support

Based on Small Business Advisory Council advice, $10 million of incentives and grants will be made available to encourage e-commerce, train more digital advisors and provide information and support for SMEs wanting to incorporate e-commerce into their business models.

2.    Trans-Tasman E-invoicing

$12.5 million to progress the trans-Tasman e-invoicing regime between New Zealand and Australia, agreed by Prime Ministers Jacinda Ardern and Scott Morrison.

3.    Other

  • $3 million for the Business Connect platform to provide COVID related support services where businesses need to register for support such as grants, the business hibernation scheme and location tracking.
  • $2.3 million to enable business.govt.nz to work with 200 partners to deliver tailored recovery guidance and advice to 600,000 small businesses (how to forecast and manage cash flow and adapt their businesses, obtain finance to meet needs now and for future growth, market their businesses here (especially tourism) and globally, adopt new digital technology, including e-commerce and productivity enhancing tools, and deal with isolation and mental health issues).
  • $9.7 million investment in the Better for Business programme focussed on making it easier for businesses to deal with Government, particularly as business take-up of e-commerce increases.

Announcement available at https://budget.govt.nz/budget/pdfs/releases/r1-focus-jobs-kiwi-businesses-supported-respond-recover-rebuild.pdf.  We will be in touch as more details become available.  

Commerce Commission

1.    $30.4 million investment in the Commission’s funding over the next three years (and $13.9 million per year thereafter) to enable the Commission to focus on the potential impacts of COVID-19 on competition in markets, consumers and regulated industries.
Announcement available at https://budget.govt.nz/budget/pdfs/releases/r1-focus-jobs-kiwi-businesses-supported-respond-recover-rebuild.pdfWe will be in touch as more details become available.  

Targeted Sector Support

1.    $41.4 million across three years into initiatives in the construction, digital and agritech sectors including:

  • $11.4 million to grow the agritech sector and improve environmental outcomes while boosting productivity in the primary sector (including the development of robotics in horticulture and helping commercialise innovative technologies);

$6.5 million toward helping develop the Māori economy in sectors such as forestry and food where there are already strong iwi businesses. This funding will also help Māori develop opportunities in others sectors such as the digital economy.

Announcement available at https://budget.govt.nz/budget/pdfs/releases/r1-focus-jobs-kiwi-businesses-supported-respond-recover-rebuild.pdf.  We will be in touch as more details become available.  

An additional $3 billion in funding for infrastructure projects across the country is also to be added to the $12 billion already announced (see https://budget.govt.nz/budget/pdfs/releases/r5-major-investment-infrastructure-projects.pdf).