The WAGE SUBSIDY is FLAWED

And it's time someone called it out, rather than us all just having our hands out.

RECAP

• The cost to our generation, and future generations, from just the Wage Subsidies alone, is $13.1 billion + another estimated $1.6 billion. $14.7 billion divided by 1.9m households is ~$8,000 per household, or ~$37,000 per business in New Zealand (assuming there are ~400,000 TRUE businesses once you remove the holding companies and inactive businesses). It's a lot of money.
• "Wage Subsidy" (1) = 30% decline over any "month, or 30 days" from Jan 1st-June 9th.
• "Wage Subsidy Extension" (2) = 40% decline over "30 day period" from May 10th-September 1st .
• "Resurgence Wage Subsidy" (3) = 40% decline over any "14-day period" from August 12th-September 10th

FLAW 1 = short periods, no account for normal distribution curves

Almost every business has lumpy sales day by day, in line with normal distribution curves found in most statistics. This means that, even outside of recessionary periods, it's not that hard for many businesses to shift the ruler and find a 30-day period where sales were down 30-40%. It's even easier if that period is only 14-days.

FLAW 2 = creating a false economy

Even in "boom times" like 2016-2017 when I last did this analysis, ~16% of businesses will experience a decrease in sales of 30% or more. This is not due to any pandemic. This is just normal business failure rates, for a number of reasons.

By giving subsidies/handouts to these underperforming businesses, we've simply delayed the inevitable for many. This means lost wealth, health, relationships, and life.

Labour MP Deborah Russell was vilified at the start of lockdown when she asked the very good question about why so many Kiwi SMEs were so marginal in terms of a) 50% being cash flow negative (Xero data), and only 30% making $50k net profit per year (a custom report from my work with Stats NZ). It was politically unappealing, but she was right! It was a great macro-economic question. It doesn't make any sense to falsely prop the most underperforming businesses up. It's hurting our productivity, hurts the planet, hurting those struggling owners (even when they can't see it), and often hurts staff and unpaid creditors too.

If we truly want to lift productivity (and planet), not just pay lip service to it, then we must transfer resources (cash, people, ideas, positive energy) from inefficient businesses to efficient ones.

FLAW 3 = manipulation

If you use the accrual accounting method, it's not that hard to bring invoices forward or backward to result in a continuous 14 or 30 day period which shows a 30-40% decrease in sales.

If you use a cash accounting method, you can do the same by a) delaying invoices, or b) asking for different payment dates from your debtors. Or, even if you don't ask, payments might just fall this way anyway.

So, where are the checks and balances? You can't just audit everyone.

The main problem here is that the 30-day rule was flawed from the start. The wage subsidy system also failed to even acknowledge these different accounting methods and how they apply.

FLAW 4 = no cash-accounting rules

Furthermore, some businesses with a cash accounting system might be down 40%+, but their cash accounting may not reflect that because invoice payments are coming in for previous work.

Personally, I've had multiple face-to-face workshops canceled due to Lockdown II, but some older invoices have been paid over this fortnight, especially August 20th. So, ethically, I qualify for Wage Subsidy 3. Under common sense, I qualify. Under accrual accounting, I qualify. But under cash accounting, I don't. My cash sales are not down 40% over this fortnight.

I called MSD to make sure I was following the rules and was told "There are no rules for that", "The guidelines are as you see them. We don't have anything more than you do." and "It's a trust-based system." For $15b of taxpayer debt, this is nowhere near good enough.

FLAW 5 = too much trust

Following on from that last point, the application process is too easy. It would not have been hard to ask all of us to upload our workings in Excel or Google Sheets. Or, give us their template to fill out. Even if no-one checked it, this is still a great deterrent for abuse. Such data would also significantly decrease audit costs to the taxpayer.

FLAW 6 = language

Just a minor but who came up with "Resurgence Wage Subsidy"? What's next, "Resurgence Wage Subsidy Extension"? This language is far too confusing. There are better options.

SOLUTIONS

1. Rolling quarterly figures, not 30 days, wherever possible, e.g. March-May results.
2. More thought into the rule detail in general, especially accrual vs cash accounting methods.
3. Make it mandatory to attach your workings.
4. Help already underperforming businesses, and owners, to gracefully exit and find a new role. This is a big challenge in general, for every nation, but a huge opportunity if we can get it right. Solutions could include free "Exit Strategy" programs, retraining, mental health support, job search, and possibly even financial incentives to close your business down (much like Amazon paying employees $5,000 to quit). I look forward to all of your ideas here as it's a big and tricky problem.
5. Use more intuitive languaging, e.g. "Wage Subsidy (1)" > "Wage Subsidy Extension (2)" > "Wage Subsidy 3" which is much simpler, and allows for future versions if needed (fingers crossed they're not!).
6. Plus many more ideas which I'm sure I've missed or got wrong. This isn't a simple equation.

SOME CREDIT

• Our Government was one of the first in the world to roll out a wage-subsidy scheme.
• The approval and payment process was/is very fast.
• Even though it is a very "blunt" economic instrument, it did help delay job losses, keep some consumer spending going, and bought businesses some time to come up with a plan B, C and D.
• Overall, they could also have done much worse.

My grade = B+

The problem is, when you're putting $15b of additional debt on taxpayers, and their current and future children too, a B+ is not good enough.

Your thoughts?