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

 

Other items of interest and importance today

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Anna Whyte (Stuff): Oranga Tamariki’s senior leadership and pay packets grew as ministry failed Malachi Subecz
Jayden Holmes (Today FM): Eight children die every year from abuse, neglect
Jenna Lynch (Newshub): How Government is responding to damning report on Malachi Subecz’s death
Cushla Norman (1News): Malachi Subecz, fatally beaten by caregiver, was ‘invisible’ within the system
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Stuf: Findings of review into care of Malachi Subecz
Katie Doyle (Stuff): Hundreds of Oranga Tamariki staff complete weeks-long cultural training

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RNZ: One in four households would struggle to pay expected big bill – survey
Dita De Boni (NBR): ‘Salary standoff’ likely as pay and cost of living diverge (paywalled)
Dita De Boni (NBR): Fair Pay Agreements debut; complexity awaits (paywalled)
Michael Reddell: Reserve Bank staff turnover
Nona Pelletier (RNZ): Significant migration to New Zealand expected in early 2023 – Kiwibank
Mike Hosking (Newstalk ZB): Michael Wood is the biggest danger to our economy
Brianna McIlraith (Stuff): New board job for former PM Sir John Key
RNZ: John Key joins board of forensic and data science firm
Herald: Sir John Key to join CSI firm of the food world’s board of directors

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Thomas Manch (Stuff): Jacinda Ardern attended Labour caucus meeting where controversial Three Waters entrenchment clause was ‘discussed’
Graeme Edgeler: The Entrenchment Angle We All Missed
Brent Edwards (NBR): What the Government needs to do to fix entrenchment row(paywalled)

PARLIAMENT
Jo Moir (Newsroom): Co-governance work set to be put on hold
No Right Turn: Reported back
Rachel Smalley (NBR): Time for National’s Nicola Willis to get into the ring (paywalled)
Jonty Dine (RNZ): National, Labour leaders in Hamilton to endorse by-election candidates
Matthew Scott (Newsroom): How Hamilton West is won
Jonah Franke-Bowell (Stuff): Crime ‘the issue of this by-election’ says Luxon in Hamilton
Shane Jones (Herald): Be wary of hasty judges and patsy politicians (paywalled)
Tim Murphy (Newsroom): Leading Chinese figure’s epic fall from grace
No Right Turn: Open Government: Not achieved

LOCAL GOVERNMENT
Jonathan Milne (Newsroom): Council elections review: ‘Local democracy is too important to just let slide’
Justin Wong (Stuff): Porirua City Council votes to back Make It 16 and extend voting rights
Rachael Kelly (Stuff): Ben Bell’s deputy mayor resigns from his position in Gore
Susan Botting (Local Democracy Reporting): Kaipara mayor stands by decision to ban karakia at council meetings
Todd Niall (Stuff): Top advisors leave Wayne Brown’s mayoral office
David Hill (Local Democracy Reporting): Kaikōura’s Wakatu Quay project suffers major setback

TRANSPORT
Tim Hunter (NBR): Spending on Auckland planning consultants nudges $100m (paywalled)
Sam Hurley (Herald): ‘The environment has changed’: Preferred international candidate to be Auckland Transport’s boss says thanks, but no thanks
Finn Blackwell (RNZ): Transport bosses provide Auckland projects update, Mayor calls report horror story
Garth Falconer (Herald): Auckland harbour bridge – Let public offer its side of debate(paywalled)
Brook Sabin (Stuff): Insane domestic airfares: Main trunk routes near $1000 return
Herald Editorial: Who will cut emissions – inventors or sustainability consultants?(paywalled)

CRIME, JUSTICE, CORRECTIONS
Josie Pagani (Stuff): The Government’s not getting it on our crime fears
Karen Rutherford (Newshub): Fog cannon installer ditches Government contract, saying ‘there’s no plan in place’
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Jamie Ensor and Ashleigh Yates (Newshub): Government unveils new law change targeting drivers who flee from police
Kiri Gillespie (Bay of Plenty Times): Changes to police pursuit policy overdue (paywalled)
Melanie Parkes (Stuff): Inequality driver of gang-related crime, says Pam Corkery in The Gangs… 14 Years Later
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Charlie Mitchell (Stuff): Graham Philip: A true believer who planned in public
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HEALTH
Rachel Thomas (Stuff): Spotlight on doctors referring patients for treatment in clinics they own
Seni Iasona (Newshub): Association of Salaried Medical Specialists calls for dental grants to be extended further
RNZ: Dental special needs grant increases for first time in 25 years
Jonathan Milne (Newsroom): Compromise needed for sick baby, not ‘vaccinated blood’ arguments outside court
Rowan Quinn (RNZ): Parties in dispute over baby’s heart operation fail to resolve issue after hearing
Troels Sommerville (Stuff): Parents wanting unvaccinated blood for baby not the first to fight in court
Kate Hawkesby (Newstalk ZB): It’s not right that we have to stop and think about what healthcare is available to us

COVID
Marc Daalder (Newsroom): Ministry opposed asymptomatic testing because it might find cases
Marc Daalder (Newsroom): Government flying blind on Long Covid
Matthew Scott (RNZ): Are we in for another Covid summer?

HOUSING
Miriam Bell (Stuff): Are we building enough of the right type of houses?
Miriam Bell (Stuff): Adjust your price expectations and negotiate: National asking house price has fallen $10k a month since January

ENVIRONMENT
RNZ: DOC seeks conditions on proposed NZ King Salmon operation in Cook Strait
David Hill (RNZ): Advocates fear for bird safety as 4WD owners eye Crate Day
1News: Coastal waters unusually warm last month – NIWA

PRIMARY INDUSTRIES
Gerhard Uys (Stuff): ‘Everyone looks down their noses at you, asking if you’re one of those polluting farmers’
Felix Walton and Libby Kirkby-McLeod (RNZ): Fieldays 2022: Government launches emission reduction centre
RNZ: Dairy, horticulture tipped to drive record rise in primary exports

MEDIA
Claire Trevett (Herald): TVNZ/RNZ merger: Cabinet committee set to decide whether Simon Bridges will be chairman – will Jacinda Ardern reject it?
Stuff: Blogger David Farrar’s ‘straw poll’ complaint dismissed by Media Council
David Farrar: Media Council says bogus polls are okay

EDUCATION
John Gerritsen (RNZ): Boshier defends office’s record on complaints about schools
RNZ: Otago, Victoria and Canterbury universities have accepted pay deals, union says

OTHER
Herald: Hold the line: Best and worst government agency wait time survey a shocker for some
RNZ: Drug laws ‘certainly not ideal’, admits Health Minister Andrew Little
Thomas Mead (1News): Reasons for Christchurch mosque terrorist’s appeal outlined
Sam Sherwood and Georgina Campbell (Herald): Christchurch terrorist claims he only pleaded guilty ‘under duress through torture’