DAVE'S BLOG

  • Dave Ananth

WHAT COVID-19 MEANS FOR LOCAL BUSINESS AND THE NEW ZEALAND ECONOMY



As if there weren’t enough economic problems in the world, the global fear and panic incited from the Covid-19 coronavirus has had detrimental impacts on New Zealand businesses, notably Chinese restaurants and shops. Any companies doing business with China are also severely affected. Partly to blame is the misinformation and fear-mongering from certain media outlets which, for New Zealand, has resulted in panic buying of toilet paper – and for what? Meanwhile, the Ministry of Health appears to be relatively calm and at times lax about containment issues. But they must be more proactive and robust, while giving daily assurances to the public that things are under control.


For instance, the first positive Covid-19 patient arrived back into the country with unchecked symptoms. The MOH contacted 18 flight passengers who sat near the patient, yet the remaining passengers on the flight were not contacted until later

(Refer: https://www.stuff.co.nz/travel/news/119912699/coronavirus-passenger-who-shared-flight-with-nzs-first-coronavirus-patient-closes-business-self-isolates?rm=m)

This is massively concerning as the entire passenger list should have been contacted at the very start. Other than the three confirmed cases of coronavirus (the most recent being confirmed on the 5th March), media reports have told us that there are a further 11 cases still under investigation. These figures have been changing daily.


BUSINESS IMPACT

A. Hospitality Industry


The impact on business has been glaring and at lightning speed. In Australia, reading from news.com.au, “A popular Sydney Chinese restaurant famed for its yum cha has collapsed as the sales slump from the coronavirus outbreak begins to claim its first major victims. Parramatta Phoenix, based in the suburb’s Westfield Shopping Centre, was placed into voluntary administration this morning. A related business, Darlinghurst Asian fusion restaurant Mister Dee’s Kitchen, has gone into liquidation.”


In New Zealand, from speaking to businesses on the ground, there appears to be the same phenomenon. The Chinese especially, have refrained from spending and going out for meals, and this is predominantly in areas such as Botany, Dannemora and Howick.

I would think revenue for the hospitality industry, in some areas could fall more than 50 per cent.


A popular Thai restaurant, Mai Thai, which opened for business in 1989, has been steadily losing customers since the City Rail Link (CRL) works began - but owner Bow Manoonpong says the sharp drop in tourist numbers was "the straw that broke this camel's back". "We are fielding a number of calls from business owners in desperate situations, asking for advice as they face temporary closure. Many of these calls are coming from our ethnic restaurants," said, Restaurant Association chief executive Marisa Bidois. "These restaurants are struggling on two fronts: a lack of international tourists particularly from China where group bookings in Chinese restaurants are common during the summer period and also from local diners staying away for fear of being exposed to the virus." ( See Lincoln Tan’s story at https://www.nzherald.co.nz/nz/news/article.cfmc_id=1&objectid=12314100 )


Our tourism industry has already been adversely affected. Chinese tourism typically has contributed massively to New Zealand’s revenue. Since the outbreak of Covid-19, this has halted. “In February last year, around 50,000 Chinese visitors arrived in New Zealand. This February? Nothing. Contracts to and from China have been cancelled or delayed.Chinese tourists spent around $180 million each month in the travel between January to April, last year”, says Finance Minister Grant Robertson. That’s a huge amount pouring into our economy.


China is also New Zealand’s top trading partner accounting for 27 percent of its total exports last month, and on a per annum basis 2 percent of New Zealand’s total exports were to China. Air New Zealand has warned its earnings could be hit by up to $75m, and the airline has also temporarily suspended its services to Seoul until June

( See: https://www.newshub.co.nz/home/politics/2020/02/coronavirus-the-multimillion-dollar-cost-of-blocking-chinese-tourists-from-new-zealand.html)


Last week Auckland International Airport said coronavirus could hit its full-year profit by as much as $10m, amid a dramatic drop in visitor numbers. Businesses have been caught unaware and unprepared. Transport has been greatly affected due to the cancellation of contracts from mainland China. Truck drivers, teachers who are involved in teaching foreign students, businesses in the tourism sector including hotels, are all massively affected.


The tourism industry has been granted an $11million relief package to attract new travellers from Australia and the US. Why only these two countries? There are other international and domestic tourists we can target. Businesses will need help from the government to look for new markets for their products. In this regard the Ministry of Foreign Affairs and Trade (MFAT) and the New Zealand Trade and Enterprise (NZTE) must up their ante and be proactive. Giving tax reliefs and grants alone will not solve the problem. There should be a hotline provided for businesses caught in this situation.


The problem with New Zealand is we are generally slow to react. However, the reality is, there must be swift action. No amount of advisory groups and committees will be successful in looking at how to assist affected businesses if they do not act fast enough. Spending $19.2 million on the regional business partner programmes to protect jobs affected by the virus is inadequate. Heck, we give more money to the Pacific for their climate change! “Prime Minister Jacinda Ardern announces $150m Pacific climate funding, she was reported to have said, “ "To help deliver on New Zealand's $300 million global commitment to climate change-related development assistance, $150 million has now been dedicated to a Pacific programme to bolster New Zealand's climate change support in the region," ( see https://www.rnz.co.nz/news/political/396718/prime-minister-jacinda-ardern-announces-150m-pacific-climate-funding)


B. Education Industry

Universities and Colleges relying on international students, especially from China are already impacted. From reports, we are told that NZ would suffer a $300 million-a-year loss within the education industry if the government doesn’t move to lift the travel ban. “Vice-chancellor of the University of Auckland, Stuart McCutcheon, told staff in a message that about 2000 of its Chinese students could not fly to New Zealand because of the ban on travellers who had been in mainland China in the past 14 days.” He also said, “the University of Auckland has frozen all new staff appointments because of the financial cost of the Covid-19 travel ban, with more than $30 million in revenue at risk.”

( See https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12312259)


About 6000 students nationwide have been unable to make it to New Zealand for the start of class, around 2000 from the University of Auckland alone. Victoria University has around 500 international students currently stuck in China.

Travel bans will not resolve everything. The universities affected are already offering online teaching to students affected by the outbreak. One other option is for affected students to obtain a medical clearance from a reputed medical facility in China, after the incubation period of the virus, proving the student is safe to travel to NZ.


Every other sector will be impacted, some more so than others. Those in the logistics and education, imports/exports of goods and services from China would probably be the first causalities, if they do not have adequate capital to hold until this pandemic subsides.


TAX RELIEF


As of 14th February 2020, the Inland Revenue Department (IRD) published tax reliefs for the affected businesses. I must commend IRD for acting swiftly. The impact this has on business has been at lightning speed, taking many by surprise.


Provisional tax estimates, income tax payments, instalment arrangements, can now be negotiated with the IRD. My only hope is that trained staff are put in place for this, a special team who are focused and sensitive to the issues suffered by the affected taxpayers.


Businesses can also apply for write-offs due to serious hardship if they cannot pay or apply for an instalment arrangement. In certain circumstances a delayed tax return can be filed without incurring any penalties.


Alongside IRD, the government should be adopting a more aggressive stance. Special government grants at low interest rates for businesses affected by the epidemic, can help ease the cashflow crunch and assist businesses in staying afloat during financial hardship.


For those considering making submissions to IRD for some form of relief, I strongly encourage that they act with complete honesty and transparency as to their business and financial affairs. Equally, during times like these where businesses are struggling as a result of external factors beyond their control, I urge IRD to be more accommodating and understanding.

Aside from the government needing to take more proactive measures in the short term, the global effects of the coronavirus outbreak should be a wakeup call for New Zealand to resist relying solely on China’s trade and tourism to sustain our own businesses. For too long, the we have put all (or most) of our eggs in one basket. We now have the Deputy Prime Minister and Minister of Trade attempting to do business with India. This should have been done earlier and with other Asian countries with increasingly booming economies such as Indonesia, Thailand, Cambodia and Vietnam.


Auckland bed tax probably also needs to be reviewed. So should the Tourist Tax which came into effect on 1 July 2020. The last thing we need when selling NZ as a tourist destination with the current Covid-19, is to impose more tax on tourists. Tax can always be reinstated when the situation improves.


Another option to be considered is a reduction of the GST rate or specific relief for certain essential items.


There must be a balance between protecting our borders and at the same time, allowing tourists and trade within and outside our country to continue. The health and safety of kiwis cannot be compromised. If there are travel restrictions, so be it. The balance between a healthy economy and allowing business to survive, giving tax incentives, government grants and loans are essential to create business confidence in this hostile environment.


Better late than never as the saying goes but more needs to be done. And done now.


Dave Ananth

Senior Tax Counsel

Stace Hammond Lawyers, Auckland, NZ

March 2020

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