Wage subsidy scheme ending will make or break many small businesses - economist

A leading economist says the end of the wage subsidy scheme will make or break many small businesses. 

On Sunday Prime Minister Jacinda Ardern announced that the wage subsidy scheme won't be extended again after it was extended back in May. It will now finish just before the election. 

Cameron Bagrie told the AM Show on Tuesday that while it would be tough for some, the Government can't keep propping businesses up forever. 

"The bottom line is that a lot of small businesses have been pretty critically reliant on it [the wage subsidy]."

"They have been pretty critically reliant on the Government's cheque book and the Government doesn't have a bottomless pit of money, so at some stage small businesses are going to have to stand on their own two feet."

Bagrie said certain sectors will be worse hit when the scheme finishes, such as tourism. 

"It's going to be tough. An example is the tourism sector, it has been on that life support but it is going to have to stand on its own two feet at some stage."

He said there was an option for tourism operators to make the most of Kiwis inability to travel, but it hasn't really happened. 

"Unfortunately, what I think has happened is that a fair bit of that foreign money that we would have spent up in Europe or Australia… some of that money has gone into the kitchen, the bathroom, some sort of renovation or buying a new bed."

While the Government has a $400 million tourism support package, Bagrie said unfortunately big businesses have mostly used that. 

"We have seen the big end of town take chunks out of that as opposed to small businesses who actually need that." 

On Sunday, Ardern said she hoped business will utilize the other support available such as the small business loan scheme which will run until December 31. The scheme allows small businesses to borrow up to $100,000 - depending on the number of staff - interest-free if prepaid within a year. 

Ardern said the scheme will keep helping businesses at a time when they can take advantage of operating in one of the most open economies in the world. 

"What we've heard from businesses is they've drawn it down to not necessarily needing it straight away but being concerned that they wouldn't be able to access it down the track," she said. 

"What this does is say if you don't need it you don't have to apply but it will be there and it will be there for several months and it gives that just extra layer of certainty and reassurance in a time that is so uncertain."

As at July 3, 90,485 small businesses had applied for more than $1.51 billion of loans since May 12. The average value of each loan is around $16,700.

The latest Government figures show $12.3 billion has been paid out for the wage subsidy scheme, with more than $200 million paid back in refunds.