Helping You Achieve the Freedoms of Time, Money and Peace of Mind
The 'Rebuilding Together' 2020 Budget
May 15th, 2020
Chris Lynch, CA, Managing Director
Finance Minister Grant Robertson is also Sports Minister and I have noticed he likes using rugby analogies in his finance and budgeting strategies.
The rolling maul remains one of the most devastating weapons that can be used on a rugby field, a coordinated collective of players which rolls forward while for the most part protecting the ball carrier at the back, requiring players to be bound, collective and coordinated through-out.
Treasury is forecasting the Government’s ongoing “rolling maul” of Covid-19 response spending will increase net debt to $200.8b or 53.6 percent of GDP by the end of June 2024. That’s up from 19 percent of GDP or $57.7b just 11 months ago. At least $20b of that extra borrowing is not yet allocated.
In my other favourite sport of Cricket, a hat-trick occurs when a bowler dismisses three batsmen with consecutive deliveries. The deliveries may be interrupted by an over bowled by another bowler from the other end of the pitch or the other team's innings, but must be three consecutive deliveries by the individual bowler. A double hat-trick is four wickets in four consecutive deliveries and a triple hat-trick is five wickets in five consecutive deliveries. Does Grant have a triple hat-trick up his sleeve?
The debt explosion reminds me of the time when I was young and not that interested in government or the economy or politics. In those days, Sir Robert Muldoon GCMG CH PC, apparently took the nation to the brink of economic collapse under massive foreign debts. That was 36 years ago.
So my message is – don’t worry – work hard, increase your productivity, efficiency and together we, young and old will win this struggle.
Be kind to one another!
So, what’s in the budget?
Wage subsidy extended but targeted - $3.2 billion dollars to support a targeted extension of the Wage Subsidy scheme. From June 1 businesses that suffered a 50% drop in revenue over a 30 day period will be able to apply for a further eight week period. (The initial 12 week scheme was available for businesses that could show a 30% revenue reduction).
Research and Development - $150 million short-term temporary loan scheme to incentivise businesses to continue R&D programmes. The loans will provide one-off finance and will be administered by Callaghan Innovation.
Trade - $216 million boost to New Zealand Trade and Enterprise to expand the scope and intensity of support provided to exporting firms.
Ecommerce support for small businesses - $10 million in funding to support small businesses to improve their e-commerce service offerings, and incentives/grants to encourage ecommerce adoption.
Infrastructure and housing - $3 billion more for infrastructure, including building 8000 state and social houses over the next 4 to 5 years.
Training - $1.6 billion in a Trades and Apprentices Package including financial support for businesses to retain their apprentices, free apprenticeships and training in targeted critical industries. There is a specific $50 million fund for Maori Apprentices and Trades Training.
Environment jobs - 1.1 billion to create 11,000 green jobs including regional environmental projects, biosecurity and pest control roles, and DOC's "job for nature" fund.
Tourism Recovery Fund – $400 million - including a transition programme to support businesses to plan for the next steps, a fund to ensure key tourism assets survive and a domestic tourism campaign.
New support measures for businesses affected by the COVID-19 crisis include:
A targeted extension of the wage subsidy scheme. The extension is available for a further eight-week period (ie further to the 12-week period of the existing scheme) for those who have suffered a 50% reduction in turnover in the 30 days prior to application as compared to 2019.
- Loan scheme for R & D programmes. A $150 million short-term temporary loan scheme will be launched to incentivise businesses to continue R & D programmes that may be at risk due to COVID-19. The loans will provide one-off finance and will be administered by Callaghan Innovation.
- Further business support by way of a $216 million boost to New Zealand Trade and Enterprise to assist exporting firms, and $10 million earmarked for mall businesses to improve their e-commerce capability.
COVID-19 Economic Response Package
On 17 March 2020, the Government announced an initial $12.1 billion COVID-19 Economic Response Package to protect the health and well-being of New Zealanders. As the situation changed, the package has been expanded.
Some of the measures taken include the following:
further support for small and medium-sized businesses, including a $3.1 billion tax loss carry-back scheme, changes to the tax loss continuity rules and further business consultancy support
- greater flexibility for affected businesses to meet their tax obligations
- an interest-free loan scheme for small businesses, providing assistance of up to $100,000 to firms employing 50 or fewer full-time-equivalent employees
- business tax changes to reduce cashflow pressure, including a provisional tax threshold lift, the reinstatement of building depreciation and writing off interest on the late payment of tax
- a six-month mortgage principal and interest payment deferral for the affected individuals and small to medium enterprises agreed to by the Government, the Reserve Bank and retail banks
- all rent increases frozen for six months, prohibition on no-cause terminations for an initial period of three months and no evictions to occur for unpaid rent for up to 60 days
- measures to support commercial tenants and landlords
- the announcement of a law change that will fast track eligible development and infrastructure projects under the Resource Management Act
- the freezing of charges at the border to help export and import businesses and protect jobs from the impacts of COVID-19, and
- the signing, alongside other APEC countries, to a commitment to promote a more stable trading environment for New Zealand’s food exporters and help provide reliable access to the critical medical supplies needed.
Through Budget 2020, the Government is establishing the $50 billion COVID-19 Response and Recovery Fund. This fund builds on top of the initial $12.1 billion package and the $12 billion New Zealand Upgrade Programme announced in January 2020.
Chris Lynch, CA