At 2pm on Tuesday 17th March, Finance Minister Grant Robertson announced a $12.1b economic response to the Coronavirus, the largest stimulus package of any government at approximately 4% of GDP.
The package has three components:
- A package to cushion the impact of the economic shock on businesses and workers;
- A broader recovery package to support household incomes through the shock and to spur the economic recovery;
- Extra support for the health system
We anticipate that this will be followed up with further announcements in Budget 2020 in May.
COVID-19 Leave Payment
The Government is introducing a COVID-19 leave payment scheme to incentivise self-isolation by employees, the self-employed and contractors. This scheme will provide support through employers (and to sole traders and the self-employed) for those people unable to work who are either in self-isolation, are sick or are caring for dependants who are in either of these situations. Employers will still be expected to meet all of their sick leave and other employment expectations. Key parameters for the scheme include:
- An entitlement period of 14 days for those self-isolating, and for the entire period of sickness for those who contract COVID-19.
- Eligibility is open to all firms, the self-employed, and for contractors, but not for those who can work from home.
Full time workers will receive $585 per week under the scheme.
The scheme will be in place for an initial 8 week period, at which point the Government will reassess based on the health situation at the time. The scheme will be available to all businesses in all sectors nationwide, and includes the self-employed and sole traders.
Eligible firms will be provided a lump sum payment of the equivalent of $585 per week per full-time employee and $350 per week per part time employee for 12 weeks up to a cap of $150,000 per employer.
To qualify businesses must declare they have had a 30% decline in revenue due to COVID-19 month-on-month for any month between January and June this year (compared to last year), and that they have talked to their bank about assistance.
Today’s package also contains an indicative investment in our aviation sector that will be finalised in the coming days.
Key Business Tax Changes
The Government announced a number of tax changes to help increase business cash flows and stimulate investment. The changes include:
- The reinstatement of depreciation deductions for commercial and industrial buildings at a 2% diminishing value applying from the 2020-21 tax year (generally beginning next month);
- Increasing the threshold for provisional tax from $2,500 to $5,000 applying from the 2020-21 tax year (generally beginning next month);
- Increasing the threshold for writing off low value assets to $5,000 for the next tax year, before reverting to $1,000 in the longer term;
- Giving a time-limited discretion to Inland Revenue to remit use of money interest (the interest on tax debt) if a taxpayer is unable to pay on time due to the impacts of COVID-19.
The package had the following additional measures to support NZ’s most vulnerable:
- A $25 across the board permanent increase to main benefits, from 1 April 2020;
- A doubling of the amount paid in 2020 through the Winter Energy Payment; and
- Removing the hours test from the In Work Tax Credit to assist those who may face variable hours.
Government Fact Sheets on the COVID-19 Stimulus Package can be viewed below
Information included in this insight was last updated on 17.03.2020
Please contact your usual BDO adviser if you have any questions about how this will apply to you.