Bryce Edwards: Clawing back $7bn of corporate welfare

Bryce Edwards: Clawing back $7bn of corporate welfare

The taxpayer is short of billions of dollars that were overpaid to businesses during Covid according to Christchurch philanthropists Grant and Marilyn Nelson. They are taking legal action against state agencies to push them to recoup up to $7bn that was wrongly paid out to wealthy employers who didn’t need it or use it for its intended purpose.

A Judicial Review is being sought in the Wellington High Court against the Auditor General, who has decided not to force businesses to repay the billions of dollars.

Forcing MSD to recoup the billions that went to ineligible corporate recipients

Auditor-General John Ryan has previously been highly critical of the Ministry of Social Development (MSD), which administered the $18bn scheme for employers, for its inadequate post-payment checks of recipients. But, controversially, the Auditor-General has not insisted that the government agency recover potentially billions that were overpaid.

The Nelsons argue that the Auditor General has the power to force MSD to collect billions in overpayments to businesses that didn’t need the subsidies during Covid. Many businesses took the payments but then went on to make very high profits. The Nelsons believe the government has the legal ability to make these businesses repay the subsidies that they didn’t need.

Grant Nelson points out that $5bn was overpaid simply because the Covid lockdown was shorter than the period of time the payments covered. In addition, he calculates that about $2b was incorrectly obtained or retained by a large number of businesses.

The Judicial Review is therefore aimed at forcing the MSD to go back to every wage subsidy scheme recipient to insist that they prove their eligibility or repay the money, in line with the post-payment obligations that were originally required. Nelson says, “If they can prove that they are entitled to the wage subsidy, they can retain part or all of it. Otherwise, the money should be repaid.”

Nelson makes a useful comparison with the Government’s cost of living payments, in which the Auditor-General took a much stronger stance on the need for IRD to identify ineligible recipients and make them repay the money. He says: “We’re really just wanting him to do something similar with the wage subsidies because vastly more money is involved”.

A huge transfer of wealth to the wealthy

We are currently witnessing much of the impact of the Government’s Covid spending policies – on inflation in general as well as the inflation of the value of assets owned by the wealthy. As financial journalist Bernard Hickey has written, “New Zealand’s economic response to Covid was among the worst in the world in terms of widening wealth inequality and the wasteful use of taxpayer funds”. Hickey calculates that asset owners have had their wealth inflated by about $1 trillion dollars during Covid. In contrast, the poor have got poorer. And in fact, beneficiaries have had to borrow $400 million from MSD.

The $18bn spent on the wage subsidy scheme – as part of the overall $74bn of extra Covid government spending – was borrowed by the Government, and now has to be paid back by taxpayers. As Nelson points, out, “If these billions of dollars are not repaid [by ineligible businesses], taxpayers will each have to contribute thousands of dollars through their taxes to help repay the debt that was incurred in making these wage subsidy payments”.

The $7bn is money that the Government can’t spend on other necessary projects. With growing poverty and a looming recession, the Labour Government will be forced to neglect those with the greatest need. Nelson says: “There are people out there who are doing it really tough and some wage subsidy repayments could be used to help those who are in greatest need.”

In general, New Zealanders are facing all sorts of crises – many of which relate to Government Covid spending – increasing inequality, a housing affordability crisis, poverty, and now a cost of living crisis. Unfortunately, the poor and working class population is having to pay the price for the mistakes of Labour, who were warned of the dangers of the way they were spending money during Covid.

The Government justified the scale and speed of the wage subsidy rollout by pointing to the unprecedented situation during the first lockdown, and the unknown economic impacts at that time. The primary aim was to prevent mass redundancies due to the lockdown and restrictions. That problem is no more, and hence clawing back the billions that were unnecessarily distributed won’t now lead to job losses.

Business rorts not being policed

In October it was reported that the IRD was concerned that foreign multinationals operating in New Zealand had been transferring the wage subsidy scheme payments out of the country in their dividend and profit payments to their owners. The IRD wrote letters to 436 multinationals “setting out the expectation that all of the government’s wage subsidy assistance should remain within the New Zealand economy”.

It was reported at the time that “IR’s move to recover tax from firms related to the wage subsidy highlights the possibility not all wage subsidy money was used how it was intended.”

There is also an ongoing analysis of the role that the wage subsidy scheme played in distorting markets in the New Zealand economy. For example, Auckland University macroeconomic professor Robert MacCulloch points to the negative role it played in the plasterboard market, leading to damaging shortages of gib board. Fletcher Building received $68m in wage subsidy payments, and MacCulloch says this “crushed competition”, since the company had 90 per cent of the plasterboard market, allowing anti-competitive practices to occur.

There have been plenty of other stories of businesses bolstered by the wealth from the wage subsidy scheme and other Covid-related profits being able to buy rival companies and reduce competition. However, neither Treasury nor MBIE have been doing any work in this area to identify these impacts. MacCulloch is reported as complaining that government agencies are “just not doing their job”.

It’s hard not to compare MSD’s light-handed approach with employers and the wage subsidy to the experience of beneficiaries who are overpaid (usually without their knowledge) and often find themselves saddled with debt despite their extremely low income.

There can be little argument that the pandemic in general, and the Government’s largesse in particular, has exacerbated inequality and the wealth gap. Both major parties are making sympathetic noises about the economic pain ordinary people are feeling as a result of the pandemic. Neither Labour nor National seem to have any actual will to force state agencies to materially reduce that pain at the expense of the wealthy who profited unfairly from our collective generosity.

Disclosure: Bryce Edwards is the director of the Democracy Project, which is the recipient of Victoria University of Wellington research funding, which comes from Grant and Marilyn Nelson’s Gama Foundation.


Dr Bryce Edwards is Political Analyst in Residence at Victoria University of Wellington. He is the director of the Democracy Project.

This article can be republished under a Creative Commons CC BY-ND 4.0  license. Attributions should include a link to the Democracy Project.  


Further reading on the Wage Subsidy Scheme

Mark Quinlivan (Newshub): Covid-19 wage subsidy: Auditor-General facing legal action over lack of repayment enforcement
Brianna Mcilraith (Stuff): Court challenge to Auditor-General over billions of taxpayer dollars paid in wage subsidies
RNZ: Legal action taken over government failure to enforce wage subsidy repayments


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