Businesses fear late and weak response

Business leaders report retailers face imminent cashflow problems because consumers aren't shopping or eating out as much. They worry the Government's targeted approach will take too long and be too weak, Dileepa Fonseka reports.

As the Government touts a “targeted approach” to a worsening economy, businesses and economists are starting to say the Government just needs to spend. Sometimes, a broad brush approach that slops around plenty of cash is better at helping everyone than targeting and means-testing those with the most obvious and provable problems.

Sunny Kaushal owns several hospitality businesses in central Auckland. 

He, and others, have felt the pinch of Covid-19. When he called his manager in for a chat yesterday he expected to hear the business had suffered because of a downturn in international tourism. 

“I said, well, what is happening? Why this sudden drop in revenue?” Kaushal said.

“We are not seeing the regular local customers, he [the manager] said..whosoever few visitors are in town they are coming, but the manager said he is not seeing the locals coming in,” Kaushal said. 

While the flow-on effects for the tourism sector have been well-documented, Covid-19 has also changed the behaviour of consumers in unpredictable ways. 

“I would start to argue that because we’ve undershot for so long we could probably afford to overshoot for a short period."

Prime Minister Jacinda Ardern announced yesterday the Government was working on a business continuity package that would include a wage subsidy for affected businesses with possible working capital support. 

"What we want to make sure though is that we are directly targeting the businesses that are affected by the global impact of Covid-19, rather than just generally those other businesses that are not," Ardern said.

"That design work is going to take a few days, but we'll be ready to present something next week," she said.

The Reserve Bank of New Zealand announced on Tuesday that it would explore “unconventional” policy instruments but did not think they would be needed.

Do you want an ambulance or a 'supercharger'?

Auckland Business Chamber Chief Executive Michael Barnett said the Government needed to get its hands dirty, not be afraid to make mistakes, and start pushing money into businesses to prevent them from folding up or shedding staff. 

“That’s the difficult decision for the Government, what processes is it going to put in place before it releases any real funds, or is it going to be the ambulance at the bottom of the cliff?” he said.

Infometrics economist Brad Olsen argued there was a growing case for a “supercharged” policy response that overshot the mark. 

“At the moment we’ve been quite a long time without having inflation return to its 2 percent band that we normally target,” Olsen said. 

“I would start to argue that because we’ve undershot for so long we could probably afford to overshoot for a short period,” he said.

Businesses in the retail sector have started to feel the effects of Covid-19. Photo: Lynn Grieveson

A survey of Retail NZ members showed 60 percent of their members have already been negatively affected by Covid-19. It noted an average 15 percent decrease in sales through its members' outlets.

Most of those affected retailers (70 percent) expected to have cashflow difficulties as a result of the Covid-19 situation.

It is already flowing through to employment. Thirty percent of the affected retailers have cut staff hours, and 16 percent said they had laid off staff in response to Covid-19. Twenty percent expected to cut employee numbers further over the coming weeks.

Barnett said correspondence he received in the past week showed the effects of Covid-19 were wide-ranging. 

Hotels were thinking of cutting down the number of days some employees worked, exporters were operating with 30 percent of their usual business, others in the trades were unable to operate because basic parts like plugs weren’t coming in from China, he said.

“If the Government is going to help I think it’s going to need to be on the ground, getting its hands dirty, having a pool of money perhaps through agencies that can assess,” Barnett said.

“The reality is you’re going to make some mistakes but you’re probably going to help sustain some of those businesses that are going to be at risk,” he said. 

‘Leadership needed’

First Retail group managing director Chris Wilkinson said indicators from clients were that Covid-19 had changed retail spending patterns and that there had been a “significant” growth in online spending. 

“This is a New Zealand Inc challenge."

Wilkinson said large companies with overseas parents were also looking at how they could pare back Covid-19 risks. That included cutting down on company-wide meetings with more than 50 people in attendance and seeking options for employees to work from home, he said. 

“This is going to influence how people react in the retail sector as well. In one way there’ll be more time to go shopping but in other ways people are going to say 'am I going to want to be in these environments?'” Wilkinson said.

He said there was a lack of strong leadership around Covid-19 that had left businesses to make their own decisions which, while in their own interests, might not be in the interests of the wider economy. 

“Without that sort of clarity and leadership, it's very challenging,” Wilkinson said.

“The commercial sector is definitely looking for clarity because without clarity, businesses and organisations are trying to make their own decisions, often those are not necessarily what's necessary or right.”

Olsen noted Covid-19 could place limits on the Government’s ability to do what it had traditionally done when faced with an economic shock. 

“You could give every household $800 but if they’re still sitting inside they’re not likely to go ‘oh I’ve got more cash I’ll go out and spend it’,” Olsen said.

“You can generally weather a demand shock a bit easier because you’re just trying to stimulate spending,” Olsen said.

“It’s quite difficult to do that if you have an increase in social distancing…[people are] not going to be out and about as much, that will dampen down spending,” he said.

Targeting business cashflow could be one option, Olsen said. That could include cutting back the business tax rate for the rest of the year, he suggested. 

'Keep people employed'

Business Central chief executive John Milford said the tools used to provide relief during the Christchurch and Kaikoura earthquakes should still be a template for wider Covid-19 relief. 

However, Milford noted that, unlike those challenges, the present one was not self-contained. 

“This is a New Zealand Inc challenge,” Milford said. 

“The key has got to be to keep as many people in employment as possible,” he said.

Milford said a more targeted approach was needed at this time because Covid-19 had affected businesses differently.

Barnett said the response would also have to be borne by other players outside the Government, like banks, too.

“Are they [the banks] ready to make concessions to their clients? Are they prepared to delay interest payments? Are they prepared to be more flexible with overdraft facilities to accommodate these businesses?” Barnett said.

“And, from a Government perspective, are they prepared to top up wages for two or three weeks on some of these enterprises? Because the risk of losing staff to go on to an unemployment benefit, and then later going through the process of re-employment, seems high-risk.”

Covid-19 is transmitted like the flu. The Ministry of Health recommends that all New Zealanders wash their hands frequently and refrain from touching their face in order to protect themselves and others. Call Healthline on 0800 358 5453 if you have any symptoms and have been to any countries or territories of concern or have been in close contact with someone confirmed with Covid-19.

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