An Auckland cafe owner says the change in wage subsidy criteria has made it unnecessarily hard for struggling firms to access financial support.
The fourth iteration of the Covid-19 wage subsidy requires organisations to have experienced a 40 per cent drop in revenue over a 14-day period between February 28 and March 21, compared to a typical 14-day period between January 4 and February 14 (six weeks before the change in alert levels).
A lump sum payment of $1171.60 per full time staff member and $700 per part time member is paid out in the subsidy, covering a two-week period. This payment is made up of $585.80 per full time staff member and $350 per part time staff member per week.
But one Mt Eden area cafe owner, who wishes to remain anonymous, says he does not understand why the criteria to access the subsidy has been changed this time round.
“They have shifted the goal posts – it is way harder to get,” says the owner-operator.
“The majority of businesses will not qualify for it all, and the only ones that might are those that have shut down completely that whole week, and even then it will be quite hard to get.”
Prior to the latest wage subsidy scheme, eligibility to access funding was based on revenue comparisons recorded in the same year prior.
This time, the comparisons are drawn from the previous six weeks.
The business owner claims the tightening around eligibility for the wage subsidy is unfair and comes at a time when revenues for many industries, including hospitality, are beginning to stall after experiencing some recovery through 2020.
“There are a lot less people coming through the door. The last 12 weeks in the cafe industry has been soft as anything; there is nowhere near the same turnover as we had last year, and that was always going to happen. I don’t get why Kiwis thought that because we’re not seeing Covid much that we’re all back to normal – we’re not, and we’re going to take the big financial hit this year,” he says.
“This year is the year of carnage.”
The business owner says his organisation took on $100,000 in debt last year in order to be able to pay all of its staff 80 per cent of their wages despite being closed.
He believes few hospitality businesses went under last year due to wage subsidies paying staff, debt repayment holidays and the ability to access loans more easily.
Using his own business as an example, the man says it has gone further into debt and now required to repay loan payments
while revenue is down between $3000-4000 each week.
He says not being able to access the wage subsidy due to the change in criteria, despite his revenue falling, came as a kick in the guts, particularly at a time where it was greatly needed.
“Why all of a sudden would they change the criteria now? Why has it been the same the whole way through and all of sudden now, this time, we’re not using the period from the same time year prior, we’re using the six week period beforehand?”
The man says the change in criteria has made it much harder to claim a 40 per cent drop in earnings over what was already a “soft” six-week trading period for many.
He says other clauses in the criteria mean it does not allow for the drop in revenue to be observed during Auckland’s initial three-day lockdown.
“I think it is really shrewd politics.”
Finance Minister Grant Robertson said the wage subsidy resurgence package was set out in December in consultation with the business community.
“We are continuously updating our support for business and workers if the country is required to go into higher alert levels. We have to balance the need to be careful with public money while helping the most vulnerable businesses,” Robertson told the Herald.
“We set out our resurgence package in December in consultation with the business community, which was activated last month when the country moved to higher alert levels.”
He said flexibility in the criteria for eligibility had been retained for firms that have highly seasonal revenue, which could still use a prior year comparison period.
The Restaurant Association has called for the Government to review the eligibility criteria for the last wage subsidy scheme, but says its efforts have fallen on “deaf ears”.
Chief executive Marisa Bidois says the criteria makes it difficult for already struggling businesses to access financial support.
“The previous comparison period was already down due to the compounded effects of the pandemic and border closures so to compare one with the other is quite frankly completely ridiculous and shows how woefully out of touch this government is with our sector,” Bidois said last week.
“We need to fairly compensate businesses for their losses.
“The events sector, beauty therapy, hairdressing, tourism, retail, we are the handful of industries that remain completely hamstrung by the continued approach to Covid-19 management through ongoing lockdowns, and the current alert level system.”
The differences in eligibility criterias
Deloitte tax partner Robyn Walker says the biggest change to the most recent wage subsidy criteria
was that it had a clear focus on impact caused by last level 3 lockdown and targeted reduction in revenue as a result to qualify for support.
“It is fair to say that many businesses won’t be able to qualify, unless they were for example completely unable to operate because of the level 3 settings,” Walker told the Herald.
She said the latest round was “a lot less generous” in the criteria – targeted only towards those that had felt severe financial pressure in recent weeks.
Some of the changes;
• “In the past, with our 2020 wage subsidies, you had to prove you had a decline in revenue because of Covid-19 – a very general statement, meaning it could be quite broad as to what that meant, whereas for this new wage subsidy the decline in revenue has to be due to the alert level 3 on February 28.
• The 40 per cent decline in revenue has to have occurred over a two-week period, starting last week from February 28 until March 21 – one week in level 3 and another week under level 2 settings.
“Hopefully most businesses’ [trade] will be rebounding this week so again, that will make it more challenging as well compared to the previous wage subsidies,” says Walker.
• Revenue decline comparisons look back over six-week period instead of the same period a year earlier.
• Criteria this time round is based on predicted revenue loss – similar to the very first wage subsidy scheme in March 2020.
• The Covid-19 Resurgence Support Payment is also available in conjunction with the wage subsidy this time round, which can be accessed through the IRD, with criteria of 30 per cent decline of revenue over a seven-day period.
The original wage subsidy covered a 12-week period, the wage subsidy extension covered eight weeks, the Resurgence wage subsidy was in August, and the latest wage subsidy for March covers a two-week period.
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