Covid-related wage subsidies did their job but weaknesses are identified
“Our response in these times must be to put our people first,” Finance Minister Grant Robertson told Parliament in March 2020, as he announced the Government’s economic response to the Covid-19 pandemic.
A wage subsidy scheme was introduced to keep people tied to their jobs, and to keep businesses afloat during the financial shock of lockdowns. “We want to help boost both cashflow and confidence in the economy through this uncertain period,” Robertson said.
READ MORE: * $1m legal bill for wage subsidy probes * ‘Timely’ wage subsidy review due in 2022
Did the scheme achieve its goals?
Auditor-General John Ryan asked that question in May 2021, in a report that demanded agencies “carry out timely evaluation of the development, operation, and impact of the wage subsidy scheme and use the findings to inform preparation for future crisis-support schemes”.
The scheme’s fifth wave only landed in August of that year.
By the end of 2021, $19 billion had been spent through a scheme developed and delivered by the Ministry of Social Development (MSD), Treasury, Inland Revenue, and the Business Ministry.
It was the Government’s single largest cost in the Covid response, with subsidies finding their way to 1.8 million workers.
Last week, four assessment reports were published on the Ministry of Social Development (MSD) website:
- A process evaluation by consultancy MartinJenkins, originally scheduled for completion in July last year;
- An outcomes evaluation by non-profit research institute Motu;
- A value for money report, also by Motu;
- And a synthesis report prepared by MartinJenkins, Motu, and Te Paetawhiti and Associates.
Overall, the scheme got a pass mark.
“The achievement of designing and delivering the wage subsidy under urgency and in a crisis should not be understated,” the synthesis report said.
“The wage subsidy was set up quickly and effectively. Within just a matter of days the key design parameters were decided and systems were established so that government could begin supporting businesses, and awareness was raised about the wage subsidy.”
The eligibility criteria and rules were “about right” for achieving the scheme objectives, the report said, “given the context and infrastructure available”.
The scheme was deemed a cost-effective way to ensure companies survived, and jobs were retained, in the short and medium terms, during a crisis.
A key weakness was its inability to protect people on the edges.
“It is less effective for targeting support to vulnerable workers or those in precarious employment arrangements, or for maintaining income levels,” the report said, noting a wage subsidy should be part of a wider suite of economic and social measures.
Communication about the scheme was only successful because of proactive support from a wide range of organisations, such as business associations and unions.
Dedicated oversight of the scheme could have introduced a structure with clear roles and responsibilities, and the ability to consider longer-term issues.
Details changed with each wave, but the original parameters of the scheme were businesses that could prove a 30 percent drop in revenue from a year before qualified for a $585.50 payment per full-time worker a week, or $350 for part-timers, paid in a 12-week lump sum. Companies were required to pass subsidies on, and encouraged to pay employees at least 80 percent of their regular pay.
Lowest rating over Treaty
Delving into the process evaluation report, the lowest rating of “fair” was given to the scheme’s consistency with the Te Tiriti o Waitangi/Treaty of Waitangi.
“Dedicated analysis of Treaty implications were not undertaken during the initial design phase, or revisited later,” MartinJenkins found.
“While there is evidence of good Treaty-based engagement, this does not appear to have resulted in changes to policy settings.
“This shortcoming speaks to more systemic questions about the capacity and capability of agencies to deliver on Treaty obligations, especially when they are operating under pressure.”
Te Arawhiti, the Office of Māori Crown relations, was not involved in developing policy advice.
An agency official told MartinJenkins: “Where we probably fell down when we spoke to stakeholders – iwi/Māori engagement – [we heard about] issues of digital divide, mistrust in government, for lower uptake for Māori. But we didn’t come up with any substantive things to address those … not sure that the excuse of ‘one size fits all’ was good enough.”
Agencies didn’t make expected improvements in subsequent iterations of the scheme, as there was a strong bias for the status quo.
“Policy decisions were ultimately driven by operational constraints, reflecting a hesitancy to invest in new or refined systems,” the report said.
“Changes that could have improved targeting or simplified delivery or mitigated risks were seen as too resource-intensive given it wasn’t clear if the scheme would be needed again.”
High take-up, low generosity
Research showed take-up of the New Zealand scheme was the highest of 22 countries in the OECD, but the scheme’s “average generosity” was lower than other countries.
The outcomes evaluation said more firms survived than otherwise would have, had the wage subsidy scheme not been in place, and companies largely complied with obligations to pass subsidy payments to workers.
It didn’t result in “widespread adverse consequences”.
However, because it was a firm-based scheme, payments were less likely to reach people in more precarious jobs – “support was relatively low for female, Māori, Pacific peoples, and young workers”.
Motu found the scheme represented value for money, overall, meaning more workers kept their jobs, and more sole traders survived, than was predicted if the wage subsidy wasn’t there.
“The largest impact was on the number of employing firms as a result of the March 2020 wave of subsidy support. The estimates imply that after three months, there were 674 more subsidised firms surviving that would not have survived without subsidy support.
“After 12 months, the estimated cumulative impact is that there were 7664 more surviving firms than there would have been in the absence of subsidy support.”
However, subsidised firms didn’t take on as many workers as non-subsidised firms, and “earnings growth” for subsidised workers was generally slower.
“The wage subsidy was particularly effective in maintaining job attachment for workers in the hospitality sector (accommodation and food industries) across each wave. While construction workers’ job-retention rates were also somewhat higher following the March 2020 wave, this does not appear to be the case for the other waves.”
“It’s important that the evaluation was done well and the findings accurately represented what the wage subsidy achieved, given the large amount of public money that was spent on the scheme.” – MSD’s Fleur McLaren
John Ryan, the Auditor-General, expected the assessment results to improve policy advice, and enable officials to better prepare for a future crisis.
MSD’s general manager of insights Fleur McLaren says the reports’ findings strike a balance between acknowledging the extraordinary situation in which the scheme was developed and highlighting the lessons to be learnt.
“From MSD’s perspective, it was pleasing to see the reports acknowledge that, overall, the scheme worked as intended without any widespread unintended negative consequences, in the face of unprecedented uncertainty and demand.
“It was also good to see comments in the reports from applicants and business representatives that, for the most part, the application process was easy and payment speeds were better than expected.”
The reports took longer to release because of the extensive nature of the work, McLaren said.
“It’s important that the evaluation was done well and the findings accurately represented what the wage subsidy achieved, given the large amount of public money that was spent on the scheme.”
The final cost of the wage subsidy evaluation reports is unclear, but in 2021 the Ministers of Finance and Social Development and Employment approved a $1 million budget.
MSD’s parliamentary review for 2021/2022 lists a $156,550 contract with MartinJenkins for designing the process evaluation, while a Motu researcher for the outcome component was listed as a $378,560 cost.
In the first quarter of that financial year, the ministry spent $1 million on legal costs for investigations “in relation to wage subsidy reviews”.
MSD has been under pressure over its handling of the wage subsidy scheme.
A public campaign by the so-called Integrity Institute, related to Christchurch philanthropists Grant and Marilyn Nelson, said the ministry overpaid $10 billion – a claim MSD rejects.
Last month, some of the institute’s statements were ruled misleading by the Advertising Standards Authority.
Over the five wage subsidy waves, $820 million has been repaid by firms, according to MSD’s website.
In terms of enforcement, as of July 14:
· 37 people had been before the courts for wage subsidy misuse, involving about $3 million in payments;
· Civil recovery action is underway against 31 businesses;
· 11 cases of significant and complex alleged wage subsidy fraud have been referred to the Serious Fraud Office.
