The Aftermath of COVID-19: Did our Businesses Get Enough Help?
By Tulsi Khanna
Throughout the events of the last few months, we have witnessed a health crisis translate into an economic crisis. We have seen our global economy fall to its knees.[1] While this is important to us here in New Zealand, what happens in our domestic economy is paramount. Businesses pay their taxes and continue to provide their goods and services, but when they are in trouble, we must confront whether the Government did enough to help by way of new policies, or left it to business owners to save themselves. Peter Ozili from the Central Bank of Nigeria and Thankum Arun from the University of Essex examine the spillover impacts of COVID-19 on different sectors of the global economy. To fully understand where we stand as an national economy, we must draw analogies to what is going on globally.
What’s the Damage?
To say there is global economic unrest would be an understatement. Major anxieties started to form in 2019 with the impact of a potential US-China trade war, the US presidential elections, and Brexit. There were already major tensions in parts of the world about how this would impact the global economy.[2] With the introduction of COVID-19, outlooks changed unexpectedly and for the worst. The International Air Transportation Association (IATA) stated that the air travel industry would lose US$113 billion if the virus was not quickly contained.[3] Also, China (the world’s largest manufacturer and exporter) had to close some of their factories which in turn would stop the flow of trade for many countries.[4] But now you may ask, why should New Zealand care? We flattened the curve.
Cases may be low, but our fight back to normal could be far from over, especially for things like employment and consumer confidence. Ozili and Arun examined how the increasing days in lockdown, monetary policy decisions and international travel restrictions had detrimental effects on most economies.[5] This could not run truer for New Zealand. IATA predicted for New Zealand to lose approximately 130,000 jobs linked to the aviation industry with just three months of travel restrictions. This has resulted in Air New Zealand reducing its total network capacity by 95 percent and reducing its employees by 3,750.[6] Travel restrictions then have a flow on impact into the tourism sector, one of the pillars of New Zealand’s economy. With less people coming into the country, tourist attractions like Hobbiton have had to close their doors making more than 200 staff redundant.[7] Flight Centre New Zealand has also had to make plans to make over 200 staff redundant and close 33 branches.[8] This has resulted in the unemployment rate rising to 4.2 percent in the first quarter of the year. However, some economists have predicted that the worst is yet to come. Once the temporary monetary policies expire; the unemployment rate could increase to between 8 and 10 percent by the end of the year.[9] With Government wage subsidies coming to an end this September, we may see an unprecedented transformation of our economy, for the worst.
How has the Government Helped?
Ozili and Arun acknowledge the incredibly difficult situation that all governments around the world were faced with once COVID-19 entered their state: “save the people before saving the economy”, or “save the economy before saving the people”.[10] This choice had to be made quickly and with little precedent for governments to follow. In New Zealand, our harsh lockdown rules showed how our Government chose to save the people before saving the economy. As a result, the economy was allowed to suffer to some extent.[11] However, the Government did go further to provide substantial subsidies to people and businesses who needed them.
New Zealand’s fast policy response helped to calm financial markets but perhaps it cannot stop a recession, according to Ozili and Arun.[12] Finance Minister Grant Robertson stated “we moved early to get money out the door to protect jobs and support New Zealanders through the lockdown. We won’t be able to save every job and every business”.[13] However, there have been several monetary policies put in place for Kiwis. To start with, the wage subsidy paid full time workers $585.00 per week and part time workers $350.00 per week.[14] This subsidy lasted for twelve weeks for businesses who could prove they had lost at least 30 percent of their revenue. It was also then topped up recently with the wage subsidy extension which runs through for another eight weeks until 1 September and applies to businesses who have lost at least 40 percent of their revenue in a 30-day period.[15] These subsidies alone are expected to be worth nearly $25 billion.[16] However, this is not all the support the Government has provided. There is also help for small businesses to get an interest free loan of $10,000, and an additional $1800 per full time employee. Businesses who have less than fifty employees can also get a loan of $100,000 to help them through this time.[17] Hence, we see how there have been several new fiscal policies put in place to lighten the blow to the economy from COVID-19. However, it is important to see how this has truly affected our businesses.
The Government has also just unveiled a new action plan on small businesses rent disputes that have come as a result of COVID-19.[18] This policy is another example of the Government using a broad fiscal expenditure policy, as mentioned by Ozili and Arun, to in a sense “bail-out” businesses in order to mitigate the effect of COVID-19 on the economy. This policy will apply to businesses with 20 or fewer full-time employees that can prove a loss of revenue as a result of COVID-19.[19] The change is a temporary amendment to the Property Law Act. Essentially, this means that smaller businesses like your local café, small restaurant and retail shop can get some relief after weeks of closure. The eligibility of bigger businesses will be determined on a site by site process. This policy aims to help people like dairy owner Harry Luther, whose Pik and Pay Suprette in Te Rapa, Hamilton is in $40,000 debt after the lockdown. Even though he was able to get a loan of $11,800 for his business through the Government, he claimed this was not enough to keep him afloat and that he would “only survive for one and a half months''. His rent was costing him $4,000 a month along with other expenses and a $750,000 house mortgage.[20] With the enactment of this policy, his business may be able to stay afloat in the near future. Ozili and Arun look at how this fast policy making during lockdowns destroyed segments of the hospitality industry very fast through new norms such as working from home, or social distancing.[21] This meant that the hospitality sector was completely frozen. However, now through this policy helping tenants with rent, we see how the Government has recognised that even the wage subsidy was not enough - businesses need more help now getting back on their feet in such an unstable economic climate.
Owner and director of the Number 8 Retail Group, Nic Paterson says he believes the Government has provided enough help for his businesses. He recalls “they moved quickly in getting money into the hands of businesses so we could continue to pay our teams”.[22] This is unlike other economies like the UK and the US which have allocated their funds into certain sectors, sparking a lot of political debate about how much the economy valued sectors like entertainment and hospitality.[23] New Zealand seems to have allocated their money into the hands of individuals who needed it on a case by case basis, rather than the sectors they most expect to flourish. Paterson also states that while businesses losing money is a massive detrimental impact of lockdown on businesses, “bigger than this is that people are scared of the unknown.” Accordingly, he adds that “people’s confidence has taken a hit. For some people this will not last long, but for others it will scar them for a lifetime.”[24] Thus, we see that while New Zealand’s quick and aggressive response to policy making during the state of emergency was effective in helping lighten the blow in the economy, it will ultimately be up to those businesses to get through the future, especially once subsidies stop.
What Does the Future Hold?
Although now we speak from having our freedoms back, a lucky spot indeed, we still do not know what the future holds for our businesses. As Ozili and Arun stated in their work, “policy makers in many countries were under pressure to respond to the coronavirus outbreak. As a result, many governments made fast policy decisions that had far reaching positive and negative effects on their respective economy- many countries plunged into a recession.”[25] Although it may be too early to tell whether we will plunge into a recession, it is a time to note that our Government has identified many weaknesses of businesses during this time and has used their law making powers to lighten the blow. By cross referencing the global impact of the virus with what has happened in New Zealand, we are able to identify that this virus has had similar impacts all over the world, yet we may have the time and the power to overcome it.
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Featured image source: Anja on Flickr.com
[1] Peterson K Ozili and Thankom Arun "Spillover of COVID-19: Impact on the Global Economy" (2020) SSRN at 2.
[2] Ozili and Arun, above n 1, at 2.
[3] Ozili and Arun, above n 1, at 2.
[4] Alexandra Stevenson “China Stopped its Economy for Coronavirus. Now the World Suffers” (March 2, 2020) <https://www.nytimes.com/>
[5] Ozili and Arun, above n 1, at 2.
[6] John Anthony “Coronavirus: 128,000 job losses and $13 billion to hit GDP after three months of travel restrictions, Iata says” (April 12, 2020) < https://www.stuff.co.nz/>
[7] Anthony, above n 6.
[8] Anthony, above n 6.
[9] Liam Dann “Covid 19 coronavirus: Unemployment rate raises to 4.2%, worst still to come” (6 May, 2020) < https://www.nzherald.co.nz/>
[10] Ozili and Arun, above n 1.
[11] Martin Berka “Protecting lives and livelihoods: the data on why New Zealand should relax its coronavirus lockdown from Thursday” (April 17, 2020) <https://theconversation.com/>
[12] Ozili and Arun, above n 1, at 20.
[13] Jenee Tibshraeny “Numbers of workers being supported by wage subsidies surpasses a million, as payments totalling $6.6 billion are made” (7 April, 2020) < www.interest.co.nz> .
[14] “Wage Subsidy Scheme and Wage Subsidy Extension” (11 June, 2020) < www.employment.govt.nz>
[15] Above n 14.
[16] Jenee Tibshraeny “Numbers of workers being supported by wage subsidies surpasses a million, as payments totalling $6.6 billion are made” (7 April, 2020) < www.interest.co.nz> .
[17] Chloe Blommerde “Coronavirus: Small Businesses drowning in Covid-19 lockdown debt” (6 May, 2020) < www.stuff.co.nz> .
[18] Jo Moir “Govt unveils action plan on small business rent disputes” RNZ (online ed, 4 June 2020) < https://www.rnz.co.nz/news/political/418207/govt-unveils-action-plan-on-small-business-rent-disputes>.
[19] Blommerde, above n 17.
[20] Bloomerde, above n 17.
[21] Ozili and Arun, above n 1.
[22] Interview with Nic Patterson, Owner of No. 8 Retail Group (Tulsi Khanna, 12 June 2020).
[23] Ozili and Arun, above n 1.
[24] Interview with Nic Patterson, Owner of No. 8 Retail Group (Tulsi Khanna, 12 June 2020).
[25] Ozili and Arun, above n 1, at 24.