It's results season for many of New Zealand's biggest corporates, which find themselves awkwardly announcing large profits, with the wage subsidy helping them get there.
We're now approaching six months since the dread of late March, when over the course of a few fearsome days New Zealand closed its borders, locked its population inside and issued a multibillion-dollar wage subsidy as the country turned to face a profoundly uncertain future.
Looking back on that period, it's sometimes hard to recall the scale of the unknowns – how bad it was forecast to get from both a health and economic perspective. As many as 14,000 deaths were feared, along with a cataclysmic drop in GDP of 15 per cent. It was for this reason that the government turned on a torrent of Keynesian stimulus, a firehose of cash sent directly to businesses, on the proviso that they essentially hold their collective nerve – keep staff around, and trust the government that it would do the difficult work of ensuring the virus stayed out, so there was an economy left to operate in on the other side of lockdown.
The scale of the support still makes staggering, incomprehensible reading. I'll write it out, so that the coy shorthand of "bn" can't disguise its scale: $13,600,000,000 was paid out in wage subsidies and leave support to around 400,000 firms. Business commentator Josh Hitchcock gave us a breathtaking piece of context at the time: "In its first week, more money was paid out in wage subsidies than the entirety of the 25 years of the Treaty settlements programme."
These were unprecedented times, everyone said, and they were. The government's response, even granted the various border slip-ups and a still-mysterious resurgence, remains so admired that New Zealand was recently ranked the second-safest country in the world for its Covid-19 response. Even the most ardent of government critics tend to point to errors made here, rather than countries with a superior record (Sweden truthers aside) – a telling admission from an often insecure nation that it got most of the big things right.
As a result, the economy opened up in May and June, and despite the recent setback remains in far better shape than most of the rest of the world. ASB economists are now forecasting a 5 per cent contraction in GDP for 2020 – less than half the projected decline in the UK.
Why is that? In part it's the actions of the Reserve Bank, conjuring an enormous $100bn line of credit to allow the government to throw money at any problem that comes along. In part it's because things didn't turn out as badly as we thought. But it's also because that $13.6bn meant businesses were largely shielded from the most battering effects of the lockdown, and the immediate impact of the loss of major earners like overseas tourists and students.
The wage subsidy, which has been pushed along in refined and targeted forms since, has ensured that unemployment has remained very low – shocking commentators by actually dropping in the August figures – and business failure rates are down too.
That's not the only unexpected data to come out of the post-pandemic era. We are currently in the period during which many companies listed on the NZX sharemarket tell their shareholders how much money they've made or lost. Despite some obvious exceptions, like the heavily exposed Air NZ and the already-troubled Fletcher Building, many have handled the crisis surprisingly well.
This includes many that took the wage subsidy, which has had a flow on impact on their profits which is somewhat confronting For example, gambling giant SkyCity reported a 60 per cent drop in normalised profits, but still made $66.3m. This was considerably boosted by $31.1m contributed by various government wage subsidy schemes. The same story is true of retirement village operator Summerset, which took a wage subsidy of $8.7m, before announcing an interim profit to June 30 of $45m, down just 5 per cent on the previous year. Foley Wines, run by Trump mega-donor Bill Foley, nearly doubled its profit to $6.9m, despite claiming a wage subsidy of more than $600,000.
No one is suggesting those firms did anything illegal. The subsidy was available to any business that forecast a decline of at least 30 per cent in revenues, and the initial and largest part of the wage subsidy appeared to have no way of being demanded back, whether the forecast losses were suffered or not. (The Ministry for Social Development, which administered the fund, says it did have to be returned, but multiple tax specialists spoken to by The Spinoff say that is unclear, and would need to be tested in court. In any case, just 2 per cent of the money distributed has been returned). Even a month's worth of decline made a business eligible for the full 12 weeks of the initial period covered, hence the mammoth scale of the subsidy.
This ability to retain the subsidy is why we're starting to see businesses declaring substantial profits, significantly propped up by the wage subsidy. Which means it appears likely that a large percentage of the subsidy will ultimately make its way into the pockets of shareholders. The final figure is impossible to work out, because the vast majority of businesses in New Zealand are privately held, and thus do not have to disclose their earnings. But the low business failure rates, and very low uptake of government loan guarantee schemes, suggests that a good portion of our largest businesses sailed through the lockdown and its aftermath in reasonably good shape.
For some, there is even the prospect of windfall earnings. Here's the scenario: you run a homeware retail business and lock down for six weeks, with the government paying much of your staff's wages for that period. When you reopen, there's a surge in demand for your products, as those locked down want to improve the interiors they've just spent six weeks staring at, and have six weeks of savings ready to deploy. You end up earning back most of what was lost in lockdown, with much of your staff costs still being covered.
This isn't a made-up scenario – this is precisely what Briscoes group managing director Rod Duke, one of New Zealand's wealthiest men, described in a letter to investors earlier this year, describing an "extraordinary and concentrated increase in demand [that] resulted in sales growth of 38.81 per cent for [Briscoes] Group since lockdown was lifted".
Yesterday it announced profit of $27.9m in the first six months of the year – in line with last year – and actually increased its dividend (the money it pays out to its shareholders, of which Duke is by far the largest). This stability of profit was in part the result of the over $11m it received in the first batch of the wage subsidy, money that helps explain how it could keep its profits and dividends high.
Along with record low interest rates, stories like these are partly why shares and property prices – the main store of wealth for New Zealand's wealthiest – are as strong as they've ever been. The sharemarket is within touching distance of an all-time high, thanks to record low interest rates, which have been flagged as likely to turn negative in coming months.
The same is true in housing – with a reported average asking price up 21 per cent in just a year, driven in part by a 13-year low in listings. This is the inevitable byproduct of near-zero interest rates and New Zealand's wealthiest being flush with cash thanks to an inability to travel – and a massive cash injection into the companies they control.
What about those who don't own property or shares? Those who work for the companies that claimed the wage subsidy on their behalf? They are in a far less comfortable position. I know a young Pasifika couple, 19 and 21, both made redundant within days of one another, the week after their employers stopped being able to claim the wage subsidy extension.
This is the reality of post-wage subsidy life – the money was distributed to employers, and control of it stays with them. There is no obligation to retain employees beyond the end of the period covered by the subsidy, simply a strong encouragement to do so.
This was hard to foresee when the wage subsidies were first deployed. We were operating in a terrifying environment. Many businesses, even listed ones, are struggling, and still doing the right thing by their workers. And ultimately we need big businesses to continue to operate, to hire and to help the economy recover. But there is something distasteful about seeing some large, profitable enterprises crowing about their results and management through this period, with profits significantly inflated by government subsidies that will ultimately have to be repaid by working New Zealanders.
Or will they? Right now our major taxes are on income, with a smaller proportion coming on consumption, mainly through GST. A capital gains tax has been ruled out by Ardern and Labour, but many other taxes remain available to whoever governs next – most prominently a land tax, which could also help fund housing, still New Zealand's most open wound, and biggest contributor to inequality. The Greens have proposed a wealth tax, and other more esoteric schemes like universal basic income and modern monetary theory are no longer seen as quite as fringe as they once were (while still being pretty fringe).
The moment feels like it demands some variety of radical change. Having inadvertently given New Zealand's wealthiest a huge shot of money through the wage subsidy and an acceptance of permanently low interest rates, there remains the possibility of asking the same group to make good that debt. Of evolving a tax and benefit system in a way that asks its wealthiest to contribute a larger share.