Dileepa Fonseka is a political reporter based in Wellington who covers housing, infrastructure, immigration, transport, local government and the Provincial Growth Fund.

Covid-19

Bigger wages bailout needed as firms ‘hibernate’

Many thousands more people could be out of work if the Government doesn't move quickly to put an even bigger wage subsidy scheme in place, according to business leaders. Dileepa Fonseka reports

A UK-style bailout is needed to prevent tens of thousands of people losing their jobs over the next three months, business advocates say.

New Zealand's hospitality and tourism sectors have faced a massive downturn in business after border closures and social distancing measures were put in place to manage the disease's spread here.

Economies around the world are suffering. UK Chancellor Rishi Sunak has announced plans for the British government to pay 80 percent of employees' wages if businesses agreed to keep them employed.

Now, Prime Minister Jacinda Ardern has encouraged people to limit all non-essential travel. She also outlined a series of alert levels that could see further restrictions imposed at short notice if the pandemic worsened here.

Hibernation

Tourism Industry Association Chief Executive Chris Roberts said tourism businesses across the country had "no customers, no revenue, and no choice". He warned mass lay-offs would soon become necessary if a UK-style bailout package wasn't considered.

"With the Government advice today to avoid all non-essential domestic travel, the last few customers are disappearing for many tourism businesses, and they have no work for their staff,” Roberts said.

"Every business I have spoken to wants to survive this crisis, but they need to go into ‘hibernation’ – cutting costs to a minimum while protecting their key assets, which includes their staff," he said.

The cover of this week's Economist magazine. Photo: Screenshot

Roberts believed tourism businesses would need those staff when the economy bounced back, but couldn't afford to pay them with so little money coming in.

“The UK Government has made some questionable health decisions but has come up with a sensible and well-structured support package to save businesses and jobs, and our Government needs to at least match it," Roberts said.

Sunak, said their Government would pay companies grants that covered 80 percent of worker salaries if those companies agreed to keep paying their employees. The package would cost £78bn according to The Guardian.

Last week New Zealand put in place a wage subsidy scheme to support the wages of all businesses for 12 weeks. The scheme had a limit of $585.50 per full-time employee and was capped at $150,000 per business.

As Newsroom has reported those numbers would exclude medium-to-large sized businesses like hotels that employ thousands of people at wage rates higher than the minimum wage.

Millennium and Copthorne Hotels' Managing Director BK Chiu warned investors last week that staff would be laid off and some sections of the group's hotels would need to be shutdown.

"We now face an existential crisis for all of our hotels, all of our staff and our shareholders”, Chiu said.

Other hotels have started exploring other ways to keep rooms occupied during the Covid-19 crisis.

Park Hotel, a four-star hotel in Wellington, announced it would convert 95 of its hotel rooms into rental accommodation to be rented out at a starting rate of $250 per week. That per-week rental rate is nearly 30 percent lower than the lowest quartile median rent ($357) for one-bedroom properties in the Lambton area.

'Either the delays are withdrawn or they're out of work'

Auckland Business Chamber Chief Executive Michael Barnett said the wage subsidies had been rolled out quickly, but the wide-ranging effects Covid-19 could have on the economy were now clearer.

"We probably need to have different measures in place at the moment," Barnett said.

"We're seeing it entering into manufacturing and areas of construction where projects are being delayed," he said.

"Significant workforces know that either the delays are withdrawn or they're out of work."

Barnett said a bigger hit to the economy would follow if unemployment benefits were used to cushion the blow rather than wage subsidies. Unemployed workers who experienced a large cut to their income wouldn't be able to afford mortgage payments or the other debts they had taken on.

The alternative was for the government to meet 60 percent of current wage costs and see that as the price of holding the economy together for the next three months, Barnett said.

An expanded wage subsidy scheme might be needed to pay 60 percent of an employee's wages directly to them rather than their employer.

The government could use regional business sector organisations to determine if those businesses selected for the subsidy had a reliable track record.

"It’s going to be a very different business environment when we restart," Barnett said

Read more of Newsroom's Covid-19 coverage here.

Covid-19 is transmitted like the flu. The Ministry of Health recommends that all New Zealanders wash their hands frequently and refrain from touching their face in order to protect themselves and others. Call Healthline on 0800 358 5453 if you have any symptoms and have been to any countries or territories of concern or have been in close contact with someone confirmed with Covid-19.