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Home / Business / Economy

In a time of free money, how exactly are we all in this together?

Hamish Rutherford
By Hamish Rutherford
Wellington Business Editor·NZ Herald·
26 Apr, 2020 07:39 PM5 mins to read

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Auckland International Airport has been paid more than $4 million through the wage subsidy scheme, a rounding error in the $1.2 billion it raised from investors.

Auckland International Airport has been paid more than $4 million through the wage subsidy scheme, a rounding error in the $1.2 billion it raised from investors.

COMMENT:

As a list began circulating showing which of New Zealand's largest law firms had opted to put their hands out to apply for the Government's wage subsidy programme, there was a mixture of anger and ridicule.

A partner at one of New Zealand's largest law firms - one of the ones which has not applied for help - said he was considering a whip around of his colleagues to ensure that his rivals did not have to forgo their annual skiing holidays in Aspen or Vail "because of course, we're all in this together".

No doubt the legal industry will be hit by a fall in activity; there are already plenty of anecdotes that many major transactions have been put on ice because of uncertainty.

READ MORE:
• Govt keeps 'faith' as concerns mount about wage subsidy honeypot
• Warehouse Group tells staff to take pay cut or face redundancy
• Government eyes legal action as businesses flout wage subsidy rules
• Wage subsidy complaints soar, including employer fraud - Labour Inspectorate

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Law firms may well have to cut back on staff and there is also no suggestion that any of the law firms have acted in any way illegally.

But with New Zealand having experienced a decade of uninterrupted growth and top partners in some cases believed to be earning seven-figure annual incomes, it raises the question of whether it is appropriate for the partners to put out their hand rather than reach into their pockets.

To be fair, it appears New Zealand companies currently fall into two camps. Those that have taken the wage subsidy, and those that have not taken it, yet. (NZME, the owner of the Weekend Herald, has taken the subsidy).

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But while many companies took the subsidy out of need, some took it when they clearly had other ways to pay the bills.

Auckland International Airport faced such a profound drop in revenue that it appeared to be briefly reluctant to describe itself as solvent.

Yet it still managed to convince investors to plough in $1.2 billion of new equity in little over 24 hours. In comparison, the $4.3 million it took in wage subsidies was a rounding error to the airport, but could have made a significant difference to dozens, if not hundreds, of smaller businesses.

Andrew Barnes, the rich lister who founded Perpetual Guardian, said while the circumstances of each business was different, not all should reach out because ultimately the cost would fall on taxpayers.

"As business leaders we do have to think about whether or not we should be taking subsidies. If we are capable of funding our companies then I believe we should try and do that, because ultimately, this is not free money."

Other major corporates have been willing to reach out. Last weekend in these pages professional director Rob Campbell said he hoped that most of the Government assistance would go to those at the bottom.

But retirement care company Summerset, of which he is chairman, had to hastily announce that its board and executive had decided to take a pay cut after it received questions about why it needed nearly $9m in subsidies, when it was still able to operate as an essential service.

The company's shares, while down from the peak of January, are above where they were a year ago. Is a 10 per cent gain in 12 months sufficient pain to justify money for a which our grandchildren will probably still be paying back?

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At least Summerset's executive are cutting their salaries. A spokesman for Metlifecare, which has been given $7.5m in wage subsidies, said while board and management had not yet taken a pay cut, they had forfeited bonus payments this year.

For the executives involved that might mean a reduction in take home pay, but for the many Kiwis who will never get a bonus of any type, it may not feel like sharing the pain.

The board of carpet company Cavalier, which was paid $2.8m in wage subsidies, took the step of being paid 20 per cent of their fees in shares "to better align their interests with those of shareholders". Their interests should already be aligned, but when taking subsidies the question might be if the interests are aligned with taxpayers.

On social media farmers have been calling for dairy companies which took the subsidy at a time when they were still operating to pay it back. Economist Cameron Bagrie urged New Zealand's supermarkets to favour products from the meat companies which had opted not to take the wage subsidies.

A string of small business owners have suggested that at a minimum, executives and boards should demonstrate that they are sharing in the pain by cutting their own salaries.

John Milford, chief executive of the Wellington Chamber of Commerce said the scheme - including how quickly companies were being paid - made it a lifeline for thousands of businesses.

But he suspected that it could backfire on companies which were seen to abuse the scheme. "Does it sit comfortably with your brand value? The public will judge you."

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