$80 million plus loss to Central Auckland businesses from this lockdown alone – time for a new approach
Treasury asked to consider ‘COVID Loans’ as businesses increasingly desperate for more support
Given the severe impact of Auckland’s ongoing lockdown, Heart of the City wants to see sustainable and targeted financial support for business. It has asked Treasury to consider ‘COVID Loans’ – a model that would get more money into the hands of those who need it and mean less debt for the Government.
Viv Beck, Chief Executive, Heart of the City says that “Auckland’s central city has lost more than $80M in consumer spending since the latest Level 4 lockdown struck. Many businesses are screaming out for help, and whilst another round of the resurgence payment is welcomed, it’s a drop in the bucket for many. It’s also extremely expensive as a one size fits all option across the country.”
Beck says that “We’re keen to see innovative ideas to support businesses and not load the country up with more debt than necessary. Many people have told us they have not had good access to capital and ‘COVID Loans’ could be a solution that could be implemented using existing arrangements. We’d like Treasury to actively consider it.”
‘COVID Loans’ is the brainchild of Dr Richard Meade, Principal Economist at Cognitus Economic Insight and Senior Research Fellow at Auckland University of Technology. The concept is similar to the student loan scheme, which sees businesses being able to access funding that they need but with much more manageable repayment obligations than regular loans. This means businesses are able to cover a wider range of outgoings than just their wage costs and a small fraction of other overheads.
The main headlines from analysis outlined in a recently published article on ‘COVID loans’ saw the scheme being:
• 14% cheaper in terms of impact on government net debt
• Up to 2.5 times more comprehensive in terms of the support they offer
• More equitable, since the bulk of the costs of ‘COVID loans’ ultimately falls on those benefitting from them (rather than imposing all costs on current and future taxpayers), and with repayments only required when borrowers are in a position to make them.
Dr Meade says that “I came up with this model last year, as a way to sustain economic confidence and to avoid widespread business failures and layoffs. It’s still relevant because the pandemic is deeper and longer than many expected, which means existing support measures are proving too expensive to sustain. ‘COVID loans’ offer meaningful support in a much more affordable way. This helps those in need now, and avoids our kids being burdened by the extra government debt being racked up now with less-targeted support measures.”
Richard Hanson, co-owner of Aotea Gifts, a nationwide retail outlet geared towards the tourism market welcomes the idea of the scheme.
“There have been Government loan programs that were unavailable to businesses, due to the fact that there was no clear pathway to reopening borders. Shortly after these schemes closed, we now have an accelerating vaccination program and a reconnection timeframe based on this,” says Hanson.
“‘COVID Loans’ could be a tool by which businesses would have the confidence to focus on getting to the opportunities of 2022. Even if a business does not draw down the additional debt, it would provide the option to take a longer-term view knowing there is a buffer to get to the point where lockdowns can be eased and international reconnections can occur.”