Review criticised for avoiding a detailed comparison between the wage subsidy and overseas schemes. David Williams reports
As the global pandemic gathered pace early last year, the Government was keen to compare our situation to that of other countries.
On March 9, the day Cabinet approved a business continuity package, Finance Minister Grant Robertson said: “We have been running surpluses and our net debt position at 19.5 percent of GDP is well below what we inherited, and well below other countries.”
Just over a week later, as Covid-19 spread across the world, the Government announced a $12.1 billion support package, including a wage subsidy scheme. “This package is one of the largest in the world on a per capita basis,” Robertson said.
This year, the Finance Minister is still looking overseas.
When GDP rose 2.8 percent in the June quarter, he said New Zealand had topped the OECD average of 1.6 percent.
And this month, when the country’s unemployment rate hit a record low, at 3.4 percent, he highlighted the higher jobless rate in other countries – Australia (4.6 percent), the United Kingdom (4.5 percent), the United States (5.1 percent), and Canada (7.2 percent).
Do our leaders reach for international benchmarks to back up claims of our world-leading status? (Like our world-leading Covid response, and the world-leading trans-Tasman bubble.)
If so, it’s somewhat ironic that a review of the wage subsidy scheme – called for by the Auditor-General and overseen by the agency in charge of it, the Ministry of Social Development – will avoid detailed consideration of how it shapes up against other countries’ programmes.
More than $18 billion has now been paid out under the “high-trust” job-saving scheme. Eligibility criteria have tightened over time but the scheme has been criticised for shovelling too much money out the door without proper checks and balances, leading to too few prosecutions.
MSD has released to Newsroom, under the Official Information Act, minutes of the wage subsidy evaluation steering group, comprising officials from MSD, Inland Revenue, the Business Ministry (MBIE), and Treasury.
An “in-confidence” briefing document produced in July by a working group – a subset of steering group members – said the evaluation would explore a “high-level comparison” of our employment support scheme with those offered in other countries.
An OECD report from last year is mentioned. It shows take-up of New Zealand’s job-retention scheme was the highest in the developed world, at 66 percent of dependent employees.
What’s out of scope for the wage subsidy evaluation, however, is “in-depth comparisons” with international schemes.
“That’s a major failing,” says Canterbury tax researcher Dr Michael Gousmett. “The whole value of the project, for me, just disappears because if we’ve got nothing to compare it with because we don’t really know how well we’ve done.”
Query raised
There was pushback. Minutes from the evaluation steering group’s June meeting said questions were raised about excluding international comparisons. But it appears no one dug their heels in.
The minutes noted the evaluation’s recommendations for future schemes “should consider whether overseas models could address any of the limitations of the wage subsidy scheme”.
(The group also weighed up if some of the evaluation work could be done in-house, instead of by external contractors).
Interestingly a July Cabinet paper, asking for $1 million to pay for the evaluation, said: “Officials also plan to discuss the planned evaluation with Government officials in Australia and the United Kingdom, to compare our approach with their equivalent wage subsidy schemes.”
Other out-of-scope activities listed by the working group are: identification of alternative responses to the wage subsidy, effect of the scheme on compliance with public health measures, and evaluation of any other Covid-19-related interventions. Somewhat hopefully, the document says the evaluation will provide a platform for those issues to be explored later.
Stakeholder groups to be consulted about the evaluation include the Council of Trade Unions and BusinessNZ.
BusinessNZ chief executive Kirk Hope hopes the reviews will use “impartial external parties”, and they will provide firm guidance for future business-support schemes.
Elements he wants included in the reviews include analysis of the scheme’s enforcement systems, and of prosecutions, and whether sampling of recipients’ data was of a large-enough sacle.
CTU director of policy Craig Renney confirms it has been contacted by MSD. “They’ve signalled that they want to talk to us in 2022.”
There are many questions worth exploring, he says. Commentators have suggested some companies banked a significant portion of state support. “Is that true?” Renney asks.
If New Zealand was more generous than other developed nations, “has that generosity really helped the recovery from Covid?” Also, who was left behind by the scheme?
“We’re just keen to engage with them and to make sure that the opportunity of this evaluation isn’t lost,” says Renney, who, as it happens, was Finance Minister Robertson’s senior ministerial advisor when the scheme was created.
Out of scope
The working group document from July goes into greater detail about what exactly is out-of-scope for the review regarding comparisons with offshore schemes:
- Investigation of how the NZ response compares to others with respect to policy response (eg types of policy, speed), high-level outcomes, and cost;
- Comparison of NZ with overseas jurisdictions that used similar public health responses to allow a comparison of economic outcomes from a) employment support schemes with different settings and/or b) different forms of employment support, incomes-support, fiscal stimulus, or business support;
- Identification of common patterns of overseas health and economic responses and outcomes, and use of these to inform plausible counterfactual scenarios for the evaluation.
The reason? “For these comparisons to occur, it would be necessary to have an extensive understanding of the public health responses of other countries and how these resulted in different contexts for implementation of employment support schemes,” the document states.
“In addition, an understanding of all the other fiscal supports on offer at the time countries implemented their employment support schemes, and how these compared with supports offered here, would be needed.
“This would require a significant time and resource commitment, taking away from other key components of the evaluation.”
(Key evaluation questions include: to what extent did the scheme reach the intended people and businesses, and how were these outcome distributed across population groups/firms/sectors/industries/regions? Was it value for money? What “if any” were the unintended outcomes, consequences, or risks? Lessons for the policy design and delivery of future schemes should be laid out.)
“A lot of people are going to have a lot of fun playing around with numbers, and coming up with answers, but is it going to be of any benefit to us in the future?” – Michael Gousmett
Let’s remember, the wage subsidy was launched in March last year, and the Auditor-General’s called for an evaluation more than a year later. Right now, the review is yet to really get off the ground.
Of the $1 million of taxpayers’ money has been set aside for the review, on November 12 MSD said it had spent $39,000. Of that, $17,000 had been spent on “project management support”, and the balance on a contract for Deloitte tax partner Robyn Walker, who was added to the steering group in August.
(MSD is providing a part-time project management and oversight, but external suppliers are expected to produce the evaluation reports, and possibly disseminate the findings.)
The wage subsidy evaluation has been split in two, one focusing on the scheme’s implementation and the other to assess if it achieved the intended outcomes. The first report, on process, is expected to be completed by the end of July next year, the latter, on outcomes, five months later.
But wait, there’s more.
A final “synthesising” report, pulling together the separate strands of the review, isn’t expected to be finished until March 2023. That will be three years after the scheme began.
A further curveball comes from a steering group paper penned in September on “data limitations and reporting implications”. It says a lag in data means the “outcome” evaluation has to focus on employees but would “not report on scheme uptake by, or outcomes for firms”.
It suggests a follow-up report in 2024/25 “to explore outcomes for firms and the self-employed (particularly examining firm survival and resilience), and to review the conclusions reached in the 2022 report regarding eligibility criteria and lessons learned”.
Gousmett, the tax researcher, says while human nature meant some people took advantage of the wage subsidy scheme, it was successful in saving jobs and preventing an economic crash.
“Just imagine what would have happened if the wage subsidy scheme hadn’t been introduced.”
However, he worries that by the time the scheme’s review is made public the findings will no longer be meaningful. If new Covid-19 variants arrive on our shores, by 2023 there might have been several new iterations of the wage subsidy.
“A lot of people are going to have a lot of fun playing around with numbers, and coming up with answers [in the evaluation], but is it going to be of any benefit to us in the future?”
