The Government will pump $280 million into New Zealand Post as it is "no longer commercially viable" for the state-owned enterprise to maintain its current service level.
It will fund the postal service with $130m from Budget 2020 while an equity injection of $150m will come from the Government's Covid Response and Recovery Fund.
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Shane Jones, associate minister for State Owned Enterprises, said Covid-19 had demonstrated how important the postal service was with many people relying on the services during lockdown.
"We have now reached the point where it is no longer commercially viable for New Zealand Post to maintain current [mail] service levels and it needs Government support.
"Despite the move away from mail there are still a number of individuals, businesses and public sector organisations who rely on a timely and comprehensive postal service and this investment will maintain those services," Jones said.
Kris Faafoi, minister of broadcasting, said without the Government support NZ Post would face having to make drastic cuts to its mail business to remain viable.
"Post's revenue has fallen substantially but the costs of delivering the service New Zealanders expect have remained the same. The $150 million equity injection, along with the $130m funding for mail services, means we avoid significant cuts to its service and workforce and big price increases for its customers."
In September last year NZ Post reported a loss of $121m in the 12 months ended June 30, compared to a profit of $13m a year earlier when the bottom line was buoyed from its share of Kiwibank profits.
The latest period included a $51m impairment charge on the mail service assets, $38m being set aside to cover underpaid holiday pay, and a $15m settlement with ACC and the New Zealand Superannuation Fund over their purchase of 47 per cent of Kiwibank parent, Kiwi Group Holdings.
The mail service posted a loss of $49m on revenue of $376m, compared to a loss of $21m on revenue of $372m a year earlier.
NZ Post's parcels division was just in the black with a profit of $1m on revenue of $417m, turning around a loss of $9m on revenue of $392m a year earlier.
Jones said Covid-19 had resulted in a further hit to NZ Post's revenue due to the steep fall in international parcel volumes.