The 2020 budget is the next step in the Government’s fight against, and recovery from, COVID-19. It is also arguably the biggest budget we've seen in New Zealand's history. So what money has the Government set aside to go where?
- $50 billion to deliver the COVID-19 response and economic recovery plan - jobs being at the centre of this
- $4 billion business support package, including a targeted $3.2 billion Wage Subsidy Scheme extension
- $3 billion infrastructure investment and 8,000 public housing build programme, to boost productivity and create jobs
- $1.6 billion for the trades and apprenticeships training package
- $1 billion environmental jobs package
- $3.3 billion funding to strengthen core services, including health and education.
That's a lot of money! And you could argue that it's a somewhat short-sighted plan. But this is a budget that wouldn't have existed three or four months ago - it needed to be targeted to what New Zealand needs now that we're living through the COVID-19 pandemic. This budget does deliver in a lot of ways to business owners and employees, which will no doubt relieve some pressure.
So what does it all mean?
Jobs, Jobs, Jobs
This is the definite theme of the budget, and given our current situation, rightly so! The Government is investing $50 billion in 'Rebuilding together' - this is for protecting existing jobs, creating new ones, and providing support for workers to retrain. It will also look to tackle supporting businesses to survive, and targeted support to sectors most affected by the virus. The Government said it best with, “New Zealanders have made incredible sacrifices and suffered incredible loss in our collective battle against COVID-19. It is vital that Budget 2020 builds on restoring independence in every sense, to every day New Zealanders by creating jobs for those who have had them stripped away by this viral invasion”.
Trade and apprenticeship package
The budget included a big investment in trades and apprenticeships, with a significant chunk of money going to employers retaining and hiring apprentices. For example, there will be a $320 million investment for free trades training in critical industries, and $412 million for employers to retain and keep training their apprentices. There are some big numbers in there, and it should have a noticeable positive impact on employment rates in entry-level roles. That investment will also help to sustain big infrastructure projects moving forward, which will help steer New Zealand through a recession.
We don't know what the long-term plan is for this however, having more people trained and qualified is great, but where will they get the jobs from out the other side? We would hope to see more detail on this from the Government in the coming months.
Primary sector investment
The primary sector is likely to continue being a top contributor to the New Zealand economy, and may be more important than ever. There's no shortage of international demand for our high quality food and fibre, so to support that demand the Government is investing in providing a skilled workforce to this sector. That includes initiatives and funding going towards retraining people to work within various primary sector roles. Again, there's not a lot of detail on how exactly that will work, and who gets what, but this could provide some great career opportunities for those unsure about their own next steps.
There's no doubt that the tourism industry in New Zealand will be feeling the impact of COVID-19, and will likely to continue feeling that impact for some time. The Government has put aside a $400 million tourism recovery fund, to work alongside the extended wage subsidy scheme (more information on that below). So what does $400 million look like? Funding to support tourism businesses transitioning to a different market, some asset protection funds, a ministers group to oversee the package, and a taskforce to lead the future of tourism. We would expect more details on the package to be released soon, but we know the industry (among others!) will be relieved at the immediate relief with an extension on the wage subsidy.
The initial wage subsidy scheme was very successful in delivering much needed wage support to businesses when the lockdown first hit, and that was set to finish from the end of May. Within the budget announcement, the Government has extended the scheme to run beyond June, but there are a few changes to the criteria. To access the extended scheme, you will need to show your business has had a drop in revenue by 50% compared to the same time last year. You will need to be prepared to provide evidence of your revenue drop to IRD, as audits will be likely.
If you're a new business (less then a year), or are high-growth, you will still be able to access the scheme by showing a 50% decline in revenue, compared to a previous month of operating that gives the best estimation of the revenue decline due to COVID-19. Getting a detailed forecast put together for your business could be essential for this, and for your planning in general.
The extension on the wage subsidy gives an opportunity to businesses to repurpose or pivot staff, while they're planning for what business looks like moving forward. The Government is also not ruling out a third extension as well.
Small business cash flow loan scheme
The small business cash flow loan scheme is open and accepting applications as of May 12 2020, and the closing date for applications is June 12 2020. Keeping in mind if you take this loan, you are making a statement that your business is viable, as you will need to pay this money back. If you are looking at getting this loan, please have a conversation with your accountant or business advisor to address the fundamentals of your business and its future first. As scary as it might be, it could be necessary to ask if trying to stay afloat in the long term is the best decision.
And there could be other options before looking at taking on debt as well, for example you can arrange with IRD to do instalments and have tax payments deferred without penalty. That could free-up some much needed cash flow now.
Although not technically within the 2020 budget, there have been some big tax changes that we've seen come in during the COVID-19 lockdown. It's worth revisiting these, as there is potential for immediate cash flow relief for business owners. The biggest tax change is the loss carry back scheme, which means if your business is looking to be in a loss situation for the 2021 year, you can use that loss and carry it back to a previous profitable tax year. This then releases, or refunds, cash back into the business. You can also arrange with IRD to have no penalties and interest added to any late payments with them. Again, more cash for the business now, and less stress as you're not being charged interest. Having a conversation with your accountant or business advisor on what could work for your business right now is essential.
There is a lot more to this budget than what we've outlined above, to see the full report go to the Government's website here. You can also listen to our podcast episode below where we catch up with some RightWay business advisors, and dissect some of the important bits in the budget.