24 Sep 2020

Hospitality sector braces for end of wage subsidy

10:48 am on 24 September 2020

Uncertainty, job losses, and business closures are being anticipated for restaurants, bars and cafes with the wage subsidy winding down.

Drink bar (generic photo)

File photo. Photo: 123RF

More than 400,000 jobs were being supported by the government's support scheme at the beginning of July.

Now, a month and a half on, that figure has nearly halved, and for one of the most vulnerable sectors - hospitality - there are questions over what's going to happen next.

One hospitality operator, Richard Bagnall, said the impact of a second Auckland lockdown has been particularly devastating.

"We are reduced on a Friday and Saturday night, when we would normally have in between 450 and 500 [customers].

"That also represents between 60 percent of our turnover for the week. So that's gone, and we're operating under 40 percent and we've got a high wage cost to operate at alert level 2."

He's the co-owner of Longroom & Longshot - a Ponsonby-based bar and grill. The business has used every dollar available from the wage subsidy, starting with the initial 12-week instalment, then the eight-week extension, and ending with the two-week resurgence.

Wage subsidy graph

Photo: RNZ / Vinay Ranchhod

Despite Auckland remaining at level 2, and the reduced income that means, he won't be able to access any more subsidy.

While his business should be alright, he said, he is concerned about others in similar positions.

"I don't think a lot of businesses will be able to survive without some form of support, whether that comes from another wage subsidy, whether that comes in some form of legislation that says to landlords, 'we would like you to take a fair and reasonable approach to your tenant.'"

Data from the Ministry of Social Development shows in late-July - during the peak of the subsidy extension - accommodation and food services had the highest number of jobs being propped up by the scheme compared with any other sector.

It was 69,000 jobs in total, representing 48 percent of the entire sector.

The subsidy is winding down - the number of jobs being supported by the scheme down half since the beginning of August.

Over the same period, the number of people receiving the Jobseekers Support benefit rose by more than 8,000. Similarly, just under 11,000 people applied for the Covid-19 Income Relief Payment - that's the 12-week long government handout for anyone who has recently lost their job.

Wage subsidy graph

Photo: RNZ / Vinay Ranchhod

Forecaster at Infometrics, Gareth Kiernan, said it was sectors like hospitality which, so far, have bore the brunt of the pandemic.

Moving forwards, he said it's not looking easier.

"In terms of the broader economic downturn, or recession, and the job losses flowing through into other industries, it does take time.

"So initially, the tourism, hospitality and some of the retail areas, I'd expect to be under most pressure."

Whether another round of wage subsidy is the solution, however, he said he wasn't sure.

"It's always a fine line, and the government, if it keeps pumping money into those areas, does risk just propping up businesses for longer and longer, without necessarily there being a clear exit strategy, or a clear way that those businesses are able to survive.

"I don't think any amount of government money, are necessarily going to change those outcomes."

Wage subsidy graph - it's the number of people being granted the CIRP per week

The number of people being granted the CIRP per week. Photo: RNZ / Vinay Ranchhod

General Manager for the Restaurant Association, Nicola Waldren, said it's not necessarily another subsidy they want.

They're calling for a hospitality-targeted support package, and have been giving their own suggestions:

  • A "Dine Out to Help Out" scheme, similar to the UK, where the government pitches in 50 percent of the customer's cost for a meal
  • The removal of GST on fruit and veg
  • Commercial lease assistance

So far, not much has been forthcoming from the government.

"We did meet with Treasury a couple of weeks ago, and have been able to put forward our proposals to them, so they are ongoing discussions, but up to now, the government hasn't really come to the party with assistance for our sector."

She said with no more subsidy available, action now is vital.

"A lot of businesses are really concerned for their future, that's the message coming through very strongly from our discussions with members, is that they are highly in survival mode.

"That industry employs over 130,000 workers so it's a significant number of workers that we're concerned for."

Finance Minister Grant Robertson said the government had supported the hospitality sector.

"Businesses in the accommodation and food services industry received just over $1 billion from the initial wage subsidy, which ran for 12 weeks, covering 164,000 jobs - that's 93 percent of the industry's jobs.

"There has also been support through the Small Business Cashflow Loan Scheme, tax changes and business advice support," he said.

Complacency 'would absolutely ruin us' - economist

Infometrics senior economist Brad Olsen said further out in the suburbs, Auckland businesses were likely doing alright, but in the CBD things were still tough.

"Today's change will mean we will see more people getting out and about and we're hopefully going to see that spending activity ... but I don't think we are going to see that post lockdown surge we had the first time around.

"People have spent the money they have saved up so this time there is that natural caution that's creeping back in."

He told Morning Report the housing market was still seeing an uptick in buyers.

"Those interest rates don't look like they are going anywhere but down any time soon."

The rental market, however, was showing signs of softening, he said.

"We're seeing the rental growth has slowed a bit. I don't know if we'll see falling rents per se, we're seeing landlords who are keen to make sure they are covering any adjustments ... they are having to make with standard changes, but we haven't seen them grow at the same rapid rate as in previous years."

He said that was encouraging for renters, but meant things were still tough for many.

Olsen said it would not be wise to rely on the housing market to help the economy bounce back.

"I don't think we should ever try to rely on the housing market to get us through. I don't think we can rely on that as an economic strategy."

He said New Zealand could not afford to become complacent again.

"That would absolutely ruin us from an economic and a social and health point of view. We did this once before where we got into lower alert levels, we thought we got rid of Covid and then we got a resurgence. We can't afford to do that. Already we're seeing those Covid Tracer numbers start to fall."

It was imperative for businesses to have the confidence to operate in current alert levels instead of the risk and fear of having to yo-yo up and down.

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