One thing the New Zealand government has been clear about, both in our original Mar 2020 covid-19 outbreak and the latest Aug 2021 outbreak, is that support would be made available to businesses.
In both cases, the Ministry of Social Development (MSD) and Inland Revenue worked hard to quickly introduce and roll out systems to take and verify applications.
A total of 339,405 businesses applied for the first round of the Aug 2021 wage subsidy, receiving $1,064,343,000 worth of payments. It will be interesting to see how many businesses apply for the second round. Applications closed off on Sept 16.
As the current lockdown extends out in Auckland, the government continues to make support available to businesses throughout New Zealand. But the lockdown is being felt differently across the country, so this affects eligibility for business support and, in particular, the wage subsidy.
The wage subsidy includes a well publicised need for a business to have suffered a 40% reduction in revenue as a consequence of the lockdown, but with businesses outside of Auckland sitting at alert level 2, it may become very difficult for businesses to claim the wage subsidy, despite having big drops in revenue.
The key point to be aware of is the requirement in the wage subsidy declaration that “your business has had, or you are predicting will have, a [40%] decline in revenue that is attributable to the effect the continuation of alert levels 3 or 4 from Aug 17 2021 has had on your business”.
This requirement is generally easy to satisfy when your business is in alert level 3 or 4, but when you’re not there, it's a different story.
For the second round of the wage subsidy, MSD has taken the approach of allowing businesses to factor in the effects of alert level 2 on the basis that the revenue loss period (of Aug 31 to Sept 13) actually features one week at alert level 3 and one week at alert level 2 (with a slight variation for Northland businesses), so it would be more difficult for businesses to assess when and why a revenue loss occurred.
However, when wage subsidy round 3 opens for applications today, this alert level 2 concession will not exist, and it will be necessary for a 40% revenue loss to be attributable to alert level 3 or 4.
The general view is that the wage subsidy is the government’s primary covid-19 support for levels 3 and 4 only, and it doesn’t exist to support businesses in alert level delta 2.
A key issue for businesses outside Auckland that are continuing to have a 40% or greater revenue drop is to establish why the revenue drop has occurred. Some things businesses may wish to consider include:
- Who is your normal customer base?
- Is there any evidence to support what proportion of customers are ordinarily from Auckland? If evidence doesn’t exist, are there any reasonable assumptions that can be made?
- If a business spans different parts of New Zealand, can revenue be isolated between locations to determine what proportion of the revenue decline relates to the Auckland branch or division?
- Is part of your supply chain contingent on goods moving to or from Auckland?
- Have your sales been reduced because of an inability to obtain non-essential goods out of Auckland?
- Is there evidence that customers are not purchasing goods online because of (real or perceived) issues with delivery times?
- Is your business affected by an inability of customers or employees to move across the Auckland border?
- Do businesses you supply have any particular rules connected to alert levels that have an impact on your businesses. For example, some businesses require all employees to work from home while there is any community transmission or any part of New Zealand is at an elevated alert level. Does that have a flow on impact to goods or services ordinarily supplied to an office by your business?
- What proportion of your revenue loss relates to the specific restrictions of alert level delta 2 or non-covid-19 reasons?
It will be critical to offer evidence to support your view that the wage subsidy claim is connected to Auckland’s alert level status.
The approach to take will differ by business, because there may be many reasons why revenue is down, and it may be difficult to work out a direct connection between revenue impact and alert level 3 or 4.
Businesses outside of Auckland who may now struggle to meet the wage subsidy criteria can still apply for resurgence support payments and can still apply for the leave support scheme and short-term absence payment if they meet the eligibility criteria.