1 Dec 2022

Legal action taken over government failure to enforce wage subsidy repayments

10:00 pm on 1 December 2022
Grant and Marilyn Nelson

Grant and Marilyn Nelson Photo: Supplied

A Christchurch philanthropic organisation has filed a Judicial Review over the Auditor-General's decision not to recommend businesses to repay billions of dollars of wage subsidies.

But the Ministry of Social Development (MSD) says the organisation appears to misunderstand the scheme, and the profit made after getting the subsidy is not relevant to the company's eligibility at the time.

The Gama Foundation is run by former Christchurch businessman Grant Nelson and his wife Marilyn. The pair have donated more than $50 million to charity in the last 25 years.

Nelson said Auditor-General John Ryan has failed to to help retrieve an estimated $5 billion in overpaid subsidies and $2b that was wrongly obtained or retained by businesses.

"If these billions of dollars are not repaid, taxpayers will each have to contribute thousands of dollars through their taxes to help repay the debt that was incurred in making these wage subsidy payments."

The wage subsidies were paid out quickly and built on a high-trust model that was open to abuse, he said.

"There are people out there who are doing it really tough and some wage subsidy repayments could be used to help those who are in greatest need."

All recipients should have to provide evidence of eligibility, as well as compliance with their post-payment obligations to the Ministry of Social Development (MSD), or the money should be repaid, he said.

"The Auditor-General states that he has to act as the watchdog and guardian of taxpayer money, but when it comes to billions of dollars of wage subsidies, he hasn't done enough to ensure that all businesses return to the taxpayer any money they are not entitled to retain."

Nelson said since receiving the wage subsidies in 2020 and 2021, many companies have recorded a significant growth in revenue. Reserve bank data shows that in October 2020 businesses had $22.7 billion more in the bank than in October 2019.

The Auditor-General released a report in 2021 which criticised MSD for its inadequate post payment checks of recipients, but didn't go as far as recommending it write to all recipients of the scheme in an effort to recover the money that's owed.

"The fact that over $750 million has voluntarily been repaid is a good indication that many times more would be repaid if recipients were asked to make repayments."

Nelson said the Auditor-General has taken a much stronger stance over the cost of living payments - within weeks of the first round of payments recommending the IRD "consider what steps it can take to identify how many ineligible people have received payments" and that it be made clear to ineligible people who got the payment that they should repay it immediately.

He wanted to see something similar done with the wage subsidies, which involved higher sums of money.

A spokesperson for the Auditor-General's office said they had not yet received a notice of proceeding from the High Court and had no comment at this stage.

MSD client service support group general manager George Van Ooyen said the annual profit a business might have made after receiving the wage subsidy was not relevant to their eligibility at the time of their application.

"The wage subsidy had controls in place to uphold its integrity," Van Ooyen said.

"This included pre-payment validation of business details with Inland Revenue, pre-payment integrity checks, as well as post-payment reviews and investigations, and communications to ensure businesses were aware of their obligations."

Tens of thousands of applications were declined based on reviews and checks, he said.

"Our work to date has resulted in 20 prosecutions, involving 23 people, brought before the courts for wage subsidy misuse. The total amount of public money involved in these cases has now reached $1,218,241.20.

"In October 2021, MSD also referred 11 cases involving larger sums of money and complex investigations to the Serious Fraud Office. In August, the SFO charged an Auckland man for allegedly submitting 42 false Covid-19 wage subsidy applications totalling $1.88 million."

He said $800m in voluntary and requested repayments have been made.

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