Apr 16 2020
The New Zealand Government (Te Kawanatanga o Aotearoa) has implemented a range of economic stimulus measures over the past two months, as a way of supporting businesses and households over the duration of the COVID-19 pandemic. The country’s social distancing measures and quarantine restrictions have been extremely disruptive to the entire New Zealand economy, prompting over NZ$20 billion of fiscal stimulus with further funding expected to be announced in coming weeks. The Reserve Bank of New Zealand (Te Putea Matua) has also cut the cash rate to 0.25%, and pledged to maintain it at that level until at least March 2021. Economic stimulus from both fiscal and monetary policymakers has come at a time when the New Zealand economy is facing significant negative headwinds.
The Central Government and RBNZ have enacted several supportive policies, including…
Help for businesses
- A wage subsidy worth $585 per week for a full-time employee (that works 20 hours or more), or $350 per week for a part-time employee. This payment assistance will allow businesses to continue paying employees. The payment will be made as a lump sum for a period covering 12 weeks. This means employers will receive a payment of $7,029.60 for a full-time employee and $4,200 for a part-time employee. The maximum amount any one employer can receive is $150,000. To be eligible for this subsidy, an employer must suffer or expect to suffer a 30% decline in revenue between January 2020 and June 2020. As of April 7, over a million workers in New Zealand have been supported by this wage subsidy, at a cost of $6.6 billion.
- Immediate depreciation deductions for lower value assets, which should reduce the tax burden for businesses in the short-term and incentivise greater capital investment. The threshold for deductions will increase from $500 to $5,000. Depreciation deductions will also be reintroduced for new and existing industrial and commercial buildings.
- Tax delays for small businesses. The threshold for having to pay provisional tax will rise from $2,500 to $5,000, allowing more small businesses to delay paying taxes until 7 February following the year they file to pay their tax.
- Increased access to short-term funding through the Business Finance Guarantee Scheme. Through this scheme, businesses with annual revenue between $250,000 and $80 million will be able to apply to banks for loans of up to $500,000 for a period of up to three years. The loans will have 80% of the risk guaranteed by the Government, with the banks guaranteeing the remaining 20%. This arrangement will reduce the cost of borrowing for New Zealand businesses.
- Temporary adjustments to the Companies Act, enabling businesses affected by COVID-19 to place existing debts into hibernation until they are able to start trading normally again.
Help for individuals
- A new employment leave provision that will provide $585.80 per week for full-time and $350 per week for part-time workers that need to stay home to self-isolate, are sick with COVID-19, or care for others with COVID-19. This leave provision is only available to those who cannot work from home.
- An expansion of unemployment benefits, including an additional $25 per week and doubling of the Winter Energy Payment in 2020.
- Interest reductions for late tax payments. Taxpayers who have had their ability to pay tax on time hindered by COVID-19 may have their interest repayment obligations waived by the Commissioner of Inland Revenue.
- A freeze on residential rent increases for the next six months. Landlords will also be unable to evict tenants unless extreme circumstances apply, such as substantial property damage.
- The aviation sector will receive $600 million in support, including the waiving of passenger-based government fees for services such as security measures and luggage screening. Fees for air traffic control will also be waived until August 2020. Air New Zealand, New Zealand’s national airline, will receive a $900 million loan facility from the government if it were to run out of cash. The facility will be available for two years.
- National sports organisations have been given certainty of funding to ensure they can remain viable through the COVID-19 pandemic. Sport New Zealand’s new four-year investment plan has been deferred so that current levels of investment remain through to 30 June 2021.
- Forestry workers in the Gisborne region will receive a $100 million redeployment package, which will be used to provide alternative local employment for workers that have lost their jobs due to supply chain disruption.
- Health service providers will receive $500 million in additional funding, to be used to increase COVID-19 contact tracing capacity, the availability of ICU beds, and to improve video conferencing and telehealth capabilities.
Financial system support
- The RBNZ has introduced a quantitative easing regime through the Large Scale Asset Purchase (LSAP) programme. The programme will purchase up to $30 billion of New Zealand government bonds, as well as $3 billion of local government bonds, over the next 12 months. This is intended to control bond yields and free up credit elsewhere in the financial system. This amount represents just under half of all nominal bonds outstanding as at the end of February 2020.
This article will be updated as new announcements are made by the Government.
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