Appropriation (2019/20 Supplementary Estimates) Bill

The House is in committee for further consideration of the Appropriation (2019/20 Supplementary Estimates) Bill. I remind members that in the committee stage of an Appropriation (Supplementary Estimates) Bill, only the Minister’s amendments and any amendments to them are considered. I also remind members that the House has agreed to the trial of the removal of the four-call limit in the committee stage. I encourage you to keep your contributions focused—five minutes is not a target—and relevant to promote good interaction with the Minister in the chair. We have the ability then to take short calls and have a series of questions and answers between members and the Minister. You can be confident you will get a number of short calls. When we were last debating the bill, we were considering the question that clauses 4 to 8 and Schedules 1 to 3 stand part.

Thank you, Madam Chair, and very useful that you just reminded us of this quick interaction between the Minister and ourselves. This time I’d just very much like to hear the views of the Minister around the media package that’s—it’s very significant, isn’t it, Minister? From what I can see there are two broad parts of it. There’s the COVID-19 transmission and other fees, on behalf of media organisations—$7.7 million; and then there’s another $11.4 million under the COVID-19 media sector response and recovery.

The first question I wish to ask is: is that it? Is that the full package—$20 million? That’s very significant. I suppose it does raise the issue of why such a large and specific allocation has been made to the media, and it would be useful to have a background on why the Minister has made this special provision, and also the types of organisations that it’s going to be applied to—that would be very useful.

I thank the member Andrew Bayly very much for his drawing the attention of the committee to this package. He may recall that during the midst of the COVID-19 lockdown period, there was a lot of concern about the future of the media sector in New Zealand. Media outlets were finding it extremely difficult to find advertising revenue, and obviously, I believe, to quote myself—briefly—this was a patient with pre-existing conditions as well, in the sense that the media sector did not come into this COVID-19 situation strong, in any way at all. In fact, it is a sector facing significant realignment.

So the Government worked on a package, and, in fact, we covered this material in some depth today in the Social Services Committee Estimates hearings with Minister Faafoi. We worked with the sector on a package; this is the first part of it. It’s a $50 million package—so because of the nature of what we’re doing, I don’t want to go back through what I had to with the member last night; we’re talking about the 2019-20 bit. There is of course more that will be spent in the 2020-21 year, but that was focused on ensuring that broadcasters in particular could have some cash flow. That was done by, in one case, in one part of this, remitting some of the fees that they need to pay both in terms of New Zealand On Air but also in terms of physical broadcasting through Kordia. So those were two parts of it.

The second part of the first part relates to Government advertising and ensuring that Government advertising both continued but also could be brought forward in terms of the payments for that in order to, again, supply cash flow for the media sector. Obviously, during this period of time, we saw some private media outlets not able to operate any more, others reducing staff, and, as we discussed this morning at the select committee, also even Television New Zealand as a public broadcaster having to do that as well. So this is one of the many sectors affected by COVID-19. This was the first portion of the $50 million that was announced for that.

I just want to return, Minister, to the short debate we were having last night around the small business cashflow scheme and, in particular, the ratio between the $5.2 billion capital expenditure, which is the loans—potentially up to $5.2 billion—and then the $3.44 billion initial write-down, which is to say it appears, on the surface of it, that the Government is saying that it’s going to lend out $5.2 billion to small businesses and expect that, ultimately, it will only get $1.5 billion or $1.6 billion back, because most of it will be written down. I just wanted to get a sense of how that’s arrived at. Obviously, there’s the cost of zero interest if people pay it back within one year, but there must be also a very significant expectation that the loans won’t be paid back in a significant set of circumstances. So I just want to get some clarity around that first.

And then I’m also keen to understand why—given the fact that he appears to be preparing to spend $3.4 billion, in effect, on that scheme—he didn’t give consideration to some simpler method of getting cash into the hands of those small businesses during the lockdown period to help with such costs such as rents and other overheads. I note that more than two months after he announced that he was going to do something to help those businesses, today we’ve heard that their final policy that they finally announced has fallen over as well, and so nothing has happened on that front.

Madam Chair, thank you very much. In terms of sort of picking out the middle of those three points, we gave consideration to a number of options for how to provide support for fixed costs beyond wages. Obviously, you know, wages are the largest bill within those businesses, but we were acutely aware that there were other costs in front of us, so we actually did assess a range of options, including grants, alongside the possibility of loans. What we focused on was how we supported the vulnerable but viable businesses. So these are businesses that have a future but have particular issues around cash flow that were holding them back in terms of their fixed costs.

We came to the judgment that the best way of supporting that was through a loan scheme. It’s not any old loan scheme. It’s interest-free for the first 12 months. No repayments are required for the first two years. It has an interest rate at 3 percent for a five-year term, which is more generous than one would find any bank offering. So it is a different loan, which, in part, helps answer the member’s first question—which we covered last night—as to why the fair value write-down would be what it is.

As we have talked about in the student loan scheme, just as with this loan scheme, it actually appears as an asset on our books. It’s capital expenditure, but, of course, you have to have some kind of estimate. As we discussed last night, these are Estimates—it’s in the name.

Obviously, the proof is in the pudding. So far with the Small Business Cashflow (Loan) Scheme, it is tracking at around $1.4 billion. I suspect it will continue to be drawn down upon as businesses understand more about the trading environment they now find themselves in at level 1.

In terms of the last point the member raised, those negotiations around that particular bit of legislation are not ones I am involved in directly. I can obviously, though, say that Cabinet took a decision to deal with those particular aspects of commercial leases that had not already been dealt with by the landlords and the tenants themselves. By and large, those arrangements have been made, but we, obviously, made a Cabinet decision that the final legislative outcomes of that are the responsibility of another Minister.

I suppose the difficulty that I have is that the Minister is saying that the scheme is focused on vulnerable but viable businesses, and yet the scheme is, effectively, set up to write off two-thirds of the money that it loans out. Surely that can’t all be accounted for by one year of interest free? If it’s being lent out at the percentage that the Government’s able to borrow, I can’t see where the loss is coming from. So it must be based on the assumption that they’re expecting a lot of those loans not to be repaid. So how does that square with a scheme that’s supposed to be targeted at vulnerable but viable businesses?

In addition to the question of interest-free and the normal write-off provisions that you would have with any loan scheme, there’s obviously also—and we can get a little bit more information to the member around this, around the use-of-money cost to the Government. So, when Treasury look at this, they always look at what else the money could be used for at a particular time and how that affects the Government’s overall expenditure. So I can get him more detail, but it is the nature of a loan scheme given out this way. We have to put into the books a fair-value write-down. It’s certainly not something that the Minister of Finance does; it’s something that Treasury do. It is their professional judgment, and the Inland Revenue Department—it is their professional judgment—that leads them to do this. I think what we can all say with some confidence now is it is highly unlikely that that will be the amount of money that is written down, because the uptake of the loan does not appear to go towards the levels that were projected. That’s the nature of putting a scheme such as this in place.

The question was put that the amendments set out on Supplementary Order Paper 513 in the name of the Hon Grant Robertson be agreed to.