COVID-19 Level 2 update
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The government has released a $12.1 billion relief package in an attempt to mitigate the worst economic impacts of COVID-19. This is the largest package released by the present government and as a percentage of GDP is larger than packages introduced in Australia, the United Kingdom and Singapore.
The main component of the relief package is a wage subsidy scheme. Under this scheme, eligible businesses will be provided a lump sum payment of $585 per week per full-time employee and $350 per week per part time employee for 12 weeks up to a cap of $150,000 (note: as of 23 March the $150,000 cap has been removed). Additionally, those who are either self-isolating or contract coronavirus will receive a payment of $585 per week, which can be applied for by their employer. This will not be available to those who can work from home and will only be in place for an initial 8-week period. In order to be eligible for the lump sum payment, a business will need to have suffered a 30% decline in revenue month on month for any month between January and June this year and have spoken to their bank about relief. The government expects this will cost $5.1 billion.
Other key components of the package are:
Further packages for the aviation sector and large employers will be announced in coming weeks. The wage subsidy scheme is available as of right now.
The relief package has also been used as an opportunity to tweak tax settings in a manner consistent with the Tax Working Group’s proposals from last year as well as implementing measures that businesses have been seeking for some time. Key tax components of the package are:
Inland Revenue have announced they will remit use of money interest for payments due on or after 14 February 2020 where payment was not made on time due to COVID-19. This could apply for up to two years.
The full impact of these proposals will not be seen for several months; however, it is hoped this will encourage investment by the commercial sector and also ensure microbusinesses do not face cashflow constraints.
We welcome the relief package and its targeting of those who will be most affected. It means businesses can continue to keep workers employed without putting too much strain on their cash balances and it means workers have some certainty that income will still come in – even if they need to self-isolate and have run out of sick and annual leave.
Beyond the relief package, it is fortunate many of the natural circuit breakers have kicked in. The falling dollar will give exporters a boost once supply chains return to normal. Falling interest rates will give business and households reduced costs of borrowing, freeing up funds.
The Minister of Finance urged everyone to look after themselves, look after their families and look after our elderly. We agree with these sentiments and are doing what is necessary to keep people safe.
New Zealand has been through challenges over the years and we have come through the other side. This is but another one of those challenges.
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