Covid-19

$8.7b business package ‘the beginning, not the end’

Praise has been coming in thick and fast from business leaders and economic commentators for a large multibillion dollar Covid-19 stimulus package with jobs at its core, but many are concerned about a significant weakness. Dileepa Fonseka reports. 

Business leaders are pleased with the $8.7 billion package announced by the Government today, but the boost may come too late for some.

New Zealand’s forestry sector was one of the first to be hit by the Covid-19 crisis. 

Prue Younger, chief executive of the Forestry Industry Contractors Association (FICA), said 30 percent of her members had shut up shop since the beginning of February.

“It’s not going to pay for the cost of the business they’ve just lost,” Younger said.

“We were one of the first industries off the block and primarily have suffered for a longer period of time while other industries now have caught up,” she said.

Business NZ chief executive Kirk Hope, who was supportive of the package, said 20 percent of New Zealand’s businesses may not have been able to survive without it.

“This is beginning, not the end,” Hope said. 

Tourism Industry Aotearoa CEO Chris Roberts was also pleased the Government had listened to his suggestions, and those of others in the tourism industry. 

“It’s certainly welcome and it’ll be welcome for smaller businesses,” Roberts said.

‘We’re not going to be able to save every job’ 

Finance Minister Grant Robertson made it clear at a press conference announcing the plan that it would not save every job. 

“We’re in the centre of North Island and the company we worked for, out of 16 crews they’re laying off 11 of them." 

Hope, too, acknowledged the package would “soften the blow”, not deflect it.

“The key thing is it’s not overly complicated ... businesses that have been struggling can access it relatively quickly,” Hope said.

The lack of targeting would push money out into the economy by next week, he said. 

Eight billion of that [$12.1b package] will be virtually instantaneous,” Hope said.

Month of ‘carnage’

A month may not seem like a long time but it has been enough to see "carnage" in the forestry industry.

Younger said in early February, before the travel ban, forestry crews were called in and told they would either lose their contracts altogether or face a cutback in their work due to a collapse in demand from the Chinese market.

“Literally the guys turned up to work on a Monday morning and a significant number of contractors got told they were going to lose their contracts,” Younger said.

Janelle*, a forestry contractor in the Central North Island, had to let nine staff go after business shrank to zero in February.

“Some people out there have got millions of dollars worth of debt from their forestry machinery and I don’t know what they’re going to do,” Janelle said. 

“We’re in the centre of North Island and the company we worked for, out of 16 crews they’re laying off 11 of them,” she said. 

Janelle has sold several assets to pay back her debts and she will continue to try to sell more off in the coming months.

“At the moment we can sell off machines and things like that, but with the economy like it is, and with the forestry industry like it is, nobody is going to buy them anyway,” Janelle said.

“You’re really stuck with what you should actually do to make ends meet,” she said.

“We can try and weather this out ... but how do we do that when we’ve got no income and no support from the Government?”

The wage subsidy scheme would pay out $585.80 per full-time employee, and $350 per part-time employee, each week with businesses able to claim a maximum of $150,000 per business. 

Janelle said that would not have been enough to make a dent in her employee bill even if she hadn’t let her employees go.

“Those people will leave the industry and they won’t come back because of the volatility in there,” Janelle said.

Younger said she had difficulty persuading decision-makers of how serious the situation was after forestry contractors started to feel the hit in February. 

“It really took a lot of effort to prove there were pockets of sustained carnage all over the country,” Younger said. 

“By the time we got a cohesive reporting system going ... with papers going into cabinet, it almost became too late,” she said.

One weakness

Roberts said everything TIA had requested had made it onto the list, including tax changes. There was one weakness with the package: the amount each business could receive. 

A cap of $150,000 for each business effectively subsidised the wages of 21 staff members, but that was much lower than the number employed at some of New Zealand’s most “crucial” tourism businesses, Roberts said. 

“We have businesses right now looking at laying off 50, 100, 300 staff. They have support now to hang on to 20 of those staff but what’s going to happen to the rest?”

Sunny Kaushal, who is the owner of several hospitality businesses, agreed. 

“Hotels with more than 100-200 rooms, the average hotel of that size would have 60-80 employees on average, and that doesn’t fit into that minimum criteria."

Kaushal said the average wage at his hotel was also much higher, roughly $1000 per week, than the amount being subsidised.

Spread out across a large hotel’s workforce, that would cover a small proportion of staff wages at a time when demand had shrunk, he said. 

Roberts said he understood negotiations would happen between the Government and larger tourism businesses on more tailor-made packages. 

“Time is of the greatest urgency now. Those discussions with those businesses need to happen immediately,” Roberts said.

“Otherwise they’ll just be forced to lay off their staff and in some cases close down their businesses."

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