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'Unethical': Zuru boss calls out companies claiming wage subsidy and posting huge profits

Newshub logoNewshub 15/09/2020 Priscilla Dickinson
a man holding a box posing for the camera: Zuru director Nick Mowbray says companies have a moral obligation to do the right thing. © LinkedIn/Getty. Zuru director Nick Mowbray says companies have a moral obligation to do the right thing. a man holding a box posing for the camera © Provided by Newshub

A toy company founder is calling out corporates who claimed thousands in Government wage subsidies before announcing substantial half-yearly profits, to pay the money back.

His comment comes as the COVID-19 relief package has seen over $13.9 billion dollars paid to help struggling businesses to pay staff and keep them employed.  

Under subsidy rules, businesses claiming them must have experienced a 30 percent decline in actual or projected revenue due the COVID-19 pandemic over 30 days, compared to the same time last year. For the wage subsidy extension and two-week resurgence subsidy, a loss of 40 percent compared to the closest or similar period in 2019.

Zuru co-founder and director Nick Mowbray, said the intent of the subsidy was to help companies who truly needed it - those who survive week-by-week. Although profitable companies could still legally claim the subsidy, he says those with a strong balance sheet who were paying dividends to shareholders now have a moral obligation to pay the subsidy back.

"I think it's unethical - the Government had to rush this through and put money into the economy, but feel a lot of that isn't getting to the right areas - it's going to shareholders' pockets," he said.

"At some point, maybe the shareholder should come second in a crisis like this."

There were examples of multiple companies, from a large homewares retailer, to a wine company and operator of retirement villages who, according to the Ministry of Social Development website, claimed subsidies from $620,000 to $8.7 million. Those same companies went on to announce 2020 half-yearly IFRS net profit after tax from $1 million to $62.6 million. One declared an interim dividend of $13.7 million (6c per share) in August, to be paid in September.

"For the companies that could financially sustain themselves, shouldn't that be an interest-free loan, that they pay back, rather than the hardworking New Zealander paying that back?"

"Capitalism isn't a one-way street: you shouldn't get to privatise profits through all the good times and allocate that to shareholders, then when there's a slightly rough time, you want to socialise potential losses," Mowbray added.

Not-for-profits such as Coastguard, which cost $25 million per year to run, were busy saving lives. At the onset of COVID-19, donations, subscriptions and grant funding dried up. They took the prudent step of applying for the wage subsidy.

Having completed a financial forecast in May, Coastguard New Zealand CEO Callum Gillespie, said it became clear the company would not make a loss, and had reserves if needed.  The subsidy was paid back.

"Our fundraising teams work tirelessly each year to raise the funds we need to save lives so this isn’t something we’ve done lightly.  Based on our analysis we felt it was the right thing to do to return the subsidy," Gillespie said.

"Hopefully others should take their lead: if they can afford to pay it back when they run into profits, they should pay it back," Mowbray added.

A Treasury spokesperson said wage subsidies were set up to be simple to understand and administer. They operated under a "high trust model", which allowed money to flow quickly to businesses during the pandemic.

Revenue is a concept all businesses understand and have figures for, whereas profit calculations required judgement and accounting expertise. There were many explanations for why a business that claimed the wage subsidy may report a strong half-year profit.

"One possible explanation is that a firm’s revenue was only significantly depressed for a short period during alert level 3 or 4, but recovered well, so that the effect on a 6-month profit figure is relatively small," the spokesperson said. 

"Other factors affecting the relative impact of COVID-19 on revenue versus profit for a given firm include profit margin, corporate structure, wage bill as a proportion of revenue, and what actions a business has taken to reorient its business and control costs."

Infometrics senior economist Brad Olsen, said the COVID-19 wage subsidy was set up quickly to help employers retain staff.  It gave them some breathing room while they assessed conditions.

"For those employers who could turn a profit, the wage subsidy still provided vital support to ensure that no rash decisions on employment were needed," Olsen said.

"Many have kept their workers employed and are likely to maintain staff moving forward. This ability to retain workers has helped support the labour market and broader economy."

Those that went on to turn a profit might now want to consider it as an interest-free loan.

"The post-lockdown surge in spending has, for some operators, been even stronger than the hit during lockdown. Businesses who have not (now that there is full data) experienced a 30 percent drop in revenue are expected to pay back the subsidy," Olsen added.

Wage subsidy packages supported 1.78 million jobs, with at least 1.68 million supported by the original 12-week wage subsidy.  As at September 4, there were 14,470 wage subsidy refunds totaling $435.6 million.

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