Do I Need To Repay The Wage Subsidy?

A few weeks ago I wrote an article about the economic future of NZ, in which I praised the government’s reaction to COVID19 and the associated financial policies arising from it. Specifically I said that I liked the wage subsidy as an implementation of Helicopter Money.

Why I liked it so much, is because it directed money straight to all businesses (small and large), and forced those businesses to ensure their staff were looked after. Trickle- Down Economics, anybody? I think this is better than Quantitative Easing because the money goes straight where it’s needed (though arguably there are better ways to implement Helicopter Money).

Every business owner I talked to, had applied for and got the wage subsidy. Comments on the no-questions-asked ease of acquiring the subsidy, along with the soft eligibility requirements of “…a 30% decline in predicted revenue…” and soft wording on repaying it, stating that you can repay it if you become no longer eligible, all suggested that the wage subsidy was actually Helicopter Money.

Now it seems that numerous large law firms are repaying the wage subsidy and the wage subsidy page on the Work and Income website is dominated by large red text talking about repayments.

So the question for employers is do i need to repay the wage subsidy? I don’t have the answer to this, but I suspect that the fact that the law firms are repaying it might be a clue.

In some ways it’s no surprise that the government is asking for the money back. In fact, I stated that there would be a need to replenish the coffers in the very same article in which I praised the wage subsidy policy. I’m just a little disappointed in the way the Work and Income website phrased the repayment, because for me, to say that you are eligible if you predict a 30% drop, then say that it has to be paid back if you are no longer eligible, I would have thought that having had predicted the 30% drop made you eligible.

Additionally I think that in the case of a growing company (especially those who have recently done capital raises or increased investment to fund growth), it’s quite possible that revenue could be up from last year, but 30% less than predicted. This could validly cause an increase in staffing costs that is not sustainable as returns didn’t fit the anticipated financial modeling, and such a company could be in need of the wage subsidy.

I think there’s scope for arguing a position here, but I suspect that increased need to replenish the coffers in the coming year may result in the IRD comparing past and present returns for those who kept the subsidy, and correspondingly auditing those who didn’t report at least a 30% drop. I expect that this will result in a lot of unpleasant words like “fraud” being thrown around.

It is my understanding that in cases where tax law is based on your opinion (such as whether you’re a share trader or share investor), the opinion of the taxman overrides any thoughts the business owner may have had on their intentions.

To leave on a positive note, while we may not have got any Helicopter Money, the alternative methods of replenishing the coffers are less attractive.

If you are wondering whether you need to repay the wage subsidy, you may wish to talk to your lawyer, accountant or ring the number on the Work and Income wage subsidy page that offers advice on whether you need to repay (though I expect in the case of any ambiguity, a ruling would not be in favor of these business).