New Zealand Budget 2020 was promised to be the “jobs budget” by the Prime Minister just yesterday. However, it is difficult to see how this budget saves or creates many jobs in the short term. Of course, it must be noted that there is $20b in COVID19 recovery spending yet to be announced and some of this additional funding could be well-targeted.
There are a few announcements that will certainly save or create jobs in the long-term. These include:
An existing $4b infrastructure fund has been increased by an additional $3b. This $7b will be used to fund soon-to-be-announced infrastructure projects. Some 1,500 projects, totaling $136b, have applied for a share of this funding. This additional $3b will plug the gap that will be inevitably be left by private infrastructure schemes that are deferred or cancelled and this will save or create jobs. However, while changes are being made to the Resource Management Act to fast-track these projects, it is still safe to assume that it will take some time for these projects to commence.
8,000 additional public/transitional homes will be built – undoubtedly this will help save the jobs of builders as private sector projects will likely be delayed. Like with the infrastructure boost, this will not happen overnight.
11,000 “green jobs” will be created in the regions. These will be for the likes of pest and predator control and in upgrading DOC tracks and huts. These initiatives will add real value to the nation, but again these jobs will not be created overnight.
$1.6b towards training – a significant investment will be made in training. Long-term this should benefit New Zealand, but it will do little to solve the immediate problems. It is also questionable whether jobs will exist for these newly upskilled people in a recessionary environment.
Consultants and bureaucrats – while very little funding has been allocated towards assisting the private sector, the Government sector has been sprayed with “helicopter money”. This will certainly support the Wellington job market and economy.
What is in it for small and medium businesses?
Disappointingly, there is very little in this budget in the way of near-term support for businesses. However, Government spending is stimulatory and there is certainly no shortage of new Government spending in Budget 2020! There is no doubt that this additional spending will help support the economy in the long term. However, it will take some time for the stimulatory effect of that spending to filter down into the wider economy and many small businesses are crying out for help now.
In terms of short-term relief, there really isn’t much for businesses (yet). However, here are some of the following measures that were announced:
- An 8-week extension to the Wage Subsidy for businesses that have suffered a 50% decline in revenue. See below for more detail on this. This will be a welcome relief to hospitality and tourism sectors who are really hurting; and
- A $400m tourism recovery fund. This seems to be aimed mainly at accessing advice around adapting tourism businesses towards domestic and Trans-Tasman markets.
- $150m in loans to R&D providers.
- Additional funding for WINZ to place 10,000 primary sector jobs.
- Financial support for businesses to retain apprentices.
Extension to the wage scheme
From 10 June, firms who remain affected by COVID19 will be able to apply for another 8 weeks of Wage Subsidy. Applications will be open for 12 weeks from 10 June.
The qualifying criteria around turnover is substantially toughened. To qualify, we understand that the business must have suffered a 50% turnover reduction for the 30 days before the application is made compared to the same period last year (or a comparable period for a business that is less than 12 months old or experienced high growth before COVID19).
The same full-time rate of $585.80 and part-time rate of $350 will apply. At this stage, we understand that the other criteria will remain broadly the same.
Hospitality and tourism sectors
It goes without saying that two of the worst affected sectors are tourism and hospitality. The shift to Level 2 is only a partial relief in these sectors so the extension to the wage subsidy will be much welcomed news for these sectors. While the wage subsidy scheme is not without its flaws or critics, there is no doubt that so far it has saved jobs and businesses, especially in the hospitality and tourism sectors. However, many employers in these sectors are going to need more than just the wage subsidy to survive long enough to be around for the recovery. Presumably, there will be some more targeted relief in the coming weeks, but what these sectors need the most is some certainty about when restrictions will be loosened so that they can properly plan ahead and take necessary steps to mitigate the losses until they can begin trading again.
No tax changes were announced in the budget. However, New Zealand’s debt is forecast to balloon from $118b to around $317b in next 4 years. This massive increase in Government debt make future tax increases a strong possibility.
Where will the additional $20b in spending go?
As we mentioned earlier, there is still approximately $20b in funding to be allocated. The Finance Minister suggested that there will be further announcements in the residential housing space but hasn’t really signaled where the rest will go.
Perhaps the Government wants to stand back and get a feel for how much of a positive impact shifting to Level 2 has before deciding how to spend this money.