Wage subsidies compared

Dr David Law
Insights Newsletter
9 April, 2020

Early in the pandemic crisis, the Government was quick to offer a wage subsidy scheme to help protect both employers and employees. But is this scheme still fit for purpose?

To recap, the level of subsidy is $585.80 per week for a full-time worker and $350.00 for part-time workers. That’s about 60% of the median wage, or 46% of the average wage, for a full-time worker. The subsidy is paid as a lump sum and covers 12 weeks per employee at an estimated cost of between $8-12 billion.

Since its introduction, the scheme has been changed twice significantly increasing its scale: first to go was the cap on the total level of support to companies of $150,000 and then went the requirement that companies must pay at least 80% of an employee’s wage. So far 1,073,129 workers have either received or are due to receive a wage subsidy payment, or 41% of the New Zealand workforce, at a cost of $6.6b.

Nevertheless, New Zealand’s wage subsidies lag those of other countries with similarly designed schemes and potentially don’t do enough to protect Kiwi’s hardest hit by the Covid-19 crisis.

In Canada, wage subsidies for companies of all sizes cover up to 75% of a worker’s wage, or 80% of the average Canadian weekly wage of $C1050 ($1255). The subsidies are backdated to March 15 and will apply for three months, with an expected cost of $C72 billion ($86.06b).

The Canadian Government will also create a verification system to catch anyone trying to take advantage of the scheme. In New Zealand, the Ministry of Social Development has just released its own list of companies that have signed up for the wage subsidy scheme.

The Australian Government has also introduced its own version of the scheme, called “JobKeeper payment,” which equates to about 70% of the median wage with an expected cost to the Australian taxpayer of $A130 billion ($133.5b). An important difference as compared to the New Zealand scheme is that support in the Lucky Country can last for up to six months.

Before this crisis, unemployment hovered near 4%. Many now predict it will rise well into double digits. The stakes are high for getting New Zealand’s wage subsidy scheme right. 

More spending is not necessarily better, however. Policymakers’ and economic commentators’ understanding of the Covid-19 crisis, as well as its severity, has evolved significantly since the policy was first set out. Nevertheless, the scheme’s flexibility and generosity should be constantly reevaluated, as in other countries, to ensure it does what we need it to do. Complementary and alternative measures must also be considered. For example, the Initiative has recommended extending the Student Loans scheme to non-students to provide additional income support. 

More details on the differences between wage subsidy schemes can be found in our recent report Relief measures: comparing Covid-19 wage subsidy schemes.

Stay in the loop: Subscribe to updates