$2 billion in wage subsidies paid out to businesses that haven't paid company tax

By Nita Blake-Persen for RNZ

More than $2 billion in wage subsidies has been paid to businesses which have never paid company tax.

So far $13.2 billion has been paid out through the Government's wage subsidy schemes, with another round available from today following the recent COVID-19 outbreak.

As of last Friday, 278,736 jobs were being supported - 15,050 for the original wage subsidy and 263,686 for the extension.

Figures released to Checkpoint show that at the start of June, $2.1 billion had been given to businesses which had never paid company tax.

Just over 13,300 businesses which received $440 million were registered after March and therefore would not have been expected to have paid any tax yet. 

Nearly 39,000 businesses which were registered before 31 March 2019 received $1.7 billion - but CTU economist Andrea Black said there were reasons for that too - including a company not making a profit, a business reinvesting revenue, or distribution of profits as shareholder salaries.

"Often the company tax rate is higher than some levels of the personal tax scale, and so it can make sense that shareholders receive income in the form of salaries at a lower tax rate, than leaving it in the company and paying the 28 cents." 

PricewaterhouseCooper partner and tax expert Geof Nightingale said while the $2.1b figure seemed big, it had to be taken in context.

"New Zealand's got about 500,000 maybe 600,000 businesses and that 10 percent of them might not be paying corporate tax at the moment - either because they're new or their shareholder employer salaries or things, when I think about it that doesn't feel too frightening."

And he noted that tax was still being paid through employees as PAYE.

Infometrics economist Brad Olsen said the figures provided food for thought, especially when considering the 38,000 businesses which were registered after 31 March 2019 made up roughly 10 percent of the total businesses covered by the wage subsidy back in May.

"We do need to realise that that's still 10 percent of businesses and 15 percent of the total wage subsidy bill that's gone to those who were not making a profit beforehand - now that doesn't necessarily dictate that they were in a tough financial position beforehand, but it certainly doesn't tell you that the reverse is true, that they were in a strong financial position. 

"So it's not overly alarming, but it's also not cause for elation," he said.

Nightingale said the wage subsidy schemes had been put in place incredibly quickly - and while they were blunt tools, they were successful.

"The recent unemployment statistics would show that there are still lots of employees connected to their work, and are still able to work."

A new round of the wage subsidy opens today - businesses can apply for a two-week payment for up to $1171 per worker, which is estimated will support 930,000 jobs.

To be eligible, businesses have to have had a 40 percent revenue drop across a two week period between 12 August and 10 September compared to a similar period last year.

The wage subsidy will be available nationwide to reflect the widespread impact the Auckland alert level 3 lockdown has had across the whole country.