NZ Government's Economic Recovery Response to COVID-19

March 17, 2020


The Government today has released its $12.1 billion rescue package in response to the global impact of COVID-19. The package is significant and will account for around 4% of GDP. Finance Minister Grant Robertson has warned that recession is almost certain, and that it will be a greater shock than the 2008 global financial crisis.

The Government’s package has wage subsidies at its core and is aimed at keeping people in paid employment, providing financial assistance to those who need to stay at home, providing tax cuts and boosting benefits.

The package has three components:

  • Providing extra support to our health system
  • A substantial package to cushion the economic shock on businesses, and to support confidence in the near term
  • The first phase of a broader recovery package to support household incomes through the shock and to spur the economic recovery

The Package in a Nutshell

  • An initial $500 million boost for health
  • $5.1 billion in wage subsidies (max $7,026 lump sum per full time employee and $4,200 per part time employee, with a total cap of $150,000)
  • $126 million in COVID-19 leave assistance to support self-isolation and those who become sick with the virus
  • $2.8 billion income support package for our most vulnerable, including a permanent $25 per week increase for beneficiaries and doubling of the Winter Energy Payment for 2020.
  • $100 million redeployment package
  • $2.8 billion business tax changes to free up cash flow
  • $600 million initial aviation support package

We provide further detail regarding the proposals impacting businesses below.

COVID-19 Wage Subsidies and Leave Payments

Wage Subsidy

Who Is Eligible

An employer, contractor, sole trader or self-employed person can qualify for the COVID-19 wage subsidy provided you can satisfy the following:

  • Your business must be registered and operating in New Zealand
  • Your employees must be legally working in New Zealand
  • The business must have experienced at least a 30% decline in actual or predicted revenue over a month (between January 2020 and June 2020) when compared to the same month last year, and that decline is related to COVID-19 - if you have been in business for less than a year, you must compare it to a prior month
  • Your business must have taken steps to mitigate the impact of COVID-19, including activating your business continuity plan and seeking advice and support from your bank, Chamber of Commerce, relevant industry association or a regional business partner program.
  • You must make best efforts to retain employees and pay them a minimum of 80% of their normal income for the subsidised period.

How Much You Will Get and How to Apply

The COVID-19 wage subsidy will be paid at a flat rate of $585.80 for full-time staff and $350 per week for part-time staff. The subsidy is paid as a lump sum and covers 12 weeks per employee. It is to be used to pay wages only and to assist you in keeping your staff employed, while you consider changes that may be needed while disruption continues and to ensure the future viability of your business. The maximum subsidy payable is $150,000 and it can be claimed only once.

Employers will not be asked for verification before the subsidy is approved, however the MSD will have the ability to check applications and verify information at a later date. All employers are required to sign a declaration that they meet the eligibility criteria at the time of applying.

Applications can be made online at https://www.workandincome.govt.nz/products/a-z-benefits/covid-19-support.html#null

The Government has announced that payments will start in five working days.

Leave Payments

The Government considers that self-isolation is an important way to slow the spread of COVID-19, accordingly a leave payment package has been announced.

From 17 March 2020, the COVID-19 leave package is available to support people that are required to self-isolate, cannot work because they are sick with COVID-19, or cannot work because they are caring for dependents who are required to self-isolate or who are sick with the virus.

Leave payments will be available for eight weeks from 17 March 2020, employers will be able to apply for this more than once and the payment must be passed to their employees in full.

Who Is Eligible

An employer, contractor, sole trader or self-employed person is eligible to apply. It is available to full-time, part-time, casual employees and contractors who are legally working in New Zealand and who:

  • Are required to self-isolate in accordance with the Ministry of Health guidelines and have registered as needing to self-isolate with Healthline, who cannot work from home and those whose self-isolation is not because they left New Zealand since the travel restrictions on 16 March 2020 and have since returned or:
  • Cannot work because they have been diagnosed with COVID-19, or
  • Cannot work because they are caring for dependents who are required to self-isolate or who are sick with the virus.

How Much You Will Get and How to Apply

The leave payment will be paid at a flat rate of $585.80 per week for full-time employees, and $350 per week to part-time employees, for the period that the person is absent. The payment is available for the entire period of sickness, but the employer must reapply every 14 days.

You can agree with your employees to use any form of paid leave, such as annual, to cover the period of self-isolation. However, employees are not required to have used any or all of the paid leave entitlements before they can receive this payment.

If you are self-employed, then you need to be able to show that you were earning the minimum wage when you decide to self-isolate, that you were expecting to work during the period of self-isolation and that you now cannot draw an income for that period. If you are self-employed and you don’t earn at least the minimum wage, or you are not legally working in New Zealand then you will not be entitled to the payment.

State sector employees are not eligible to receive the payment, as it is expected that state sector employers will pay normal wages through periods of self-isolation. However, it has been confirmed that employees of the following organisations will be able to access the leave payment:

  • Councils
  • Kindergartens
  • Early Childcare Centres
  • Non-Government Organisations
  • Schools
  • Tertiary Education Institutions

Similar to the wage subsidy, indications can be made online at: https://www.workandincome.govt.nz/products/a-z-benefits/covid-19-support.html#null and the Government is aiming to start making payments five working days after they have all the information required.

Tax Changes

In addition to the wage subsidies and leave payments, the Government has announced a number of tax changes designed to assist businesses struggling due to the effects of COVID-19. These include:

Reinstatement of Depreciation on Commercial Buildings

With effect from the 2021 income year (so from 1 April 2020 for businesses with March balance dates), depreciation deductions (at 2% diminishing value) will be reintroduced for new and existing industrial and commercial buildings, including hotels and motels. This will enable businesses to start reducing their provisional tax payments for the current income year immediately and is estimated cost $2.1 billion over the next three years.  This is a surprising, but welcome move from the Government.

Immediate Deductions for Low Value Assets

The low value asset write-off threshold has been increased to $5,000 for the 2021 income year but will be reduced to $1,000 in the 2022 income year going forward. This means that businesses can immediately deduct the cost of acquiring assets with a cost of $5000 or less. This is a move that is squarely aimed at encouraging businesses to invest and to encourage spending, it is expected to cost $667 million over the next three years.

Increase in the Provisional Tax Threshold

The provisional tax threshold will be increased from $2,500 to $5,000 from the 2021 income year, meaning that fewer individuals and businesses will be required to pay their tax in equal instalments throughout the year. This means that small businesses can delay paying their taxes until next year.  This is a permanent change.

Discretion to Write-Off Use of Money Interest (UOMI) Where Affected by COVID-19

The IRD will be given the power to waive interest on late tax payments who have been significantly impacted by the COVID-19 outbreak. This will apply to all payments, including provisional tax, PAYE and GST due on or after 14 February 2020. The Commissioner will have this discretion for a period of two years.

Removing the Hours Test from the in Work Tax Credit from 1 July 2020

Currently there is a requirement to work at least 30 hours combined for couples, or 20 hours for single parents, to be eligible for the work tax credit as part of the working for families regime. However, this requirement will be removed from 1 July 2020.

 

The Government’s changes are significant and wide ranging.  This is a welcome move from the Government in their attempt to soften the sharp economic impact that the outbreak of COVID-19 is likely to have. 

For clients that are impacted by the economic effects of the COVID-19 outbreak, we encourage you to get in contact with us as soon as possible.  The team at Nexia NZ are committed to assisting you and your business get through the upcoming challenges.

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