Wednesday, May 11, 2022

Bryce Edwards: Massive Wage Subsidy and Covid spending is under scrutinised

In the lead-up to the Budget, the Government has been on an offensive to promote the efficiency and quality of its $74 billion Covid Response and Recovery Fund -especially the Wage Subsidy Scheme component. This comes after criticisms and concerns from across the political spectrum over poor-quality spending, and suggestions that vested interests and business have been the main beneficiary of opaque and poor decision-making.

Good news about the Wage Subsidy Scheme

On Monday, the Ministry of Social Development released their report, “Who received the 2021 Covid-19 wage subsidies”. This highlighted the usefulness of last year’s subsidy, which amounted to $5 billion, selling it as having helped pay the wages of 47 per cent of those in jobs. The unprovable inference attached to this is that these jobs might have otherwise disappeared. The report also detailed the different demographics that benefitted from the scheme.

Then on Monday night, 1News’ leading 6pm story was an exclusive from the Government about prosecutions being made of a small number of businesses MSD had caught out as fraudulently abusing the scheme. According to 1News, seven businesspeople were being charged, with a further eight more businesses expecting to be charged, and ten more being investigated by the Serious Fraud Office.

Although this is being sold as a sign that the government is cracking down on misuse of the wage subsidy scheme, the numbers being charged are actually tiny, given that the allegations of wage subsidy abuse were much more widespread. According to MSD, there had been a total of 5535 allegations from the public of misuse.

The Design problems with the Wage Subsidy Scheme

In the 1News story, Minister of Social Development Carmel Sepuloni commented on the fact that of the $19 billion given to business in wage subsidies over the two years, “Just under $800 million has been returned” from business that came to the realisaation – either voluntarily or from public pressure – that they hadn’t actually needed the money.

The problem is, the scheme was designed to operate on a high-trust model. This meant businesses actually had very low level and loose criteria to meet before they legally qualified to get the subsidies. Regardless of how profitable the business was, and regardless of the funds they had in store, if they faced a temporary loss of revenue during lockdowns, they could get a payout. And in the end, many businesses that made a fortune over the last couple of years of Covid had their profits inflated by millions of dollars of handouts.

In response to this situation, the Minister essentially shrugged her shoulders on 1News, saying it was good that some highly profitable companies have subsequently returned their subsidies to the state, but for “those that haven’t there’s an expectation from the whole public of New Zealand that people would act with integrity”.

Effectively the message is that this is more of a moral issue than one for the Government to take action on, and it was for the community to take the problem up with businesses if they didn’t like it. In contrast, welfare beneficiaries forced into debt by MSD to pay for basic essentials like food and rent may wonder if they live on the same planet, let alone the same country, as these corporate welfare recipients.

Many financial commentators still lament that the Government declined to include a clawback clause in the Wage Subsidy Scheme which meant companies making big profits would have to repay the subsidies. If so, many billions of taxpayer dollars could have been saved.

And of course, last year the Office of the Auditor-General put out a scathing report on how poorly MSD had been monitoring and auditing the Wage Subsidy Scheme. Its report suggested that the scheme may have incorrectly paid out billions of dollars to ineligible businesses, and this was not being audited.

A $74bn “slush fund”?

The Government’s opponents have been trying to paint the $74 billion Covid Response and Recovery Fund as being sloppily managed. And there are certainly examples of very loose spending, and some of it without robust criteria and accountability. For instance, the Auditor General has already told the Government off this year for the way it doled out money to tourism operators, suggesting the process lacked integrity. The process made the Government vulnerable to claims of corruption.

This followed the Auditor-General’s scathing report on MSD’s highly questionable use of private rentals as emergency accommodation. According to this report, MSD generally paid $2000 to $3000 a week for furnished properties – which many clients complained were unliveable.

The Auditor-General has once again intervened on the Covid spending, last week writing to Treasury to ask for Covid spending decisions to be subject to greater rigour and accountability. Here’s the key part of the letter: “I have been concerned about the accountability for spending in response to the Covid-19 pandemic… My position is that greater transparency is warranted because of the scale of the funding set aside (now $74.1 billion), the extraordinary circumstances in which funding decisions are being made, and the potential implications for the Crown’s financial position (and public debt) for years to come.”

At the moment it’s often very difficult for the public, or even politicians, to understand what a lot of the money is being spent on, and whether it is effective in achieving its aims. Because some of the money is being spent on areas where the relevance to Covid issues is not very clear, it’s no surprise that political opponents are calling the overall spend a “slush fund”.

What is clear is that the Government’s Covid spending has been a very mixed bag in terms of value. Many voters will question the inherent value of, say, millions given to highly-profitable businesses to pay wages, versus the money funding lunches in schools.

The one thing these Covid fund projects have in common is the lack of clarity and transparency. Given that all of this expenditure is borrowed money that is going to take decades to repay, it’s vital that the Government heeds the pleas of the Office of the Auditor-General to be more open, accountable, and communicative about this spending. The trust of the public in future government spending may be severely dented by these failings.

Dr Bryce Edwards is a politics lecturer at Victoria University and director of Critical Politics, a project focused on researching New Zealand politics and society.

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