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Anti-virus accounting?

11 March 2020

As the economic effects of the COVID-19 virus hit, the government is talking about strategies to protect jobs and incomes.

There's been talk of providing wage subsidies for workers in industries such as tourism, forestry and the like. The goal here obviously being to keep workers on the payroll, even when there's not enough actual income to cover that costs.

Who's going to pick up that bill?

Taxpayers I guess.

I can see the possibility of some large employers getting some form of handout in order to avoid laying off staff and one school of thought is that this is good for the country as a whole because it keeps cash-registers ringing around the nation -- which also keeps everyone else in a job.

This RNZ report states that "The package will include a targeted wage subsidy scheme for businesses struggling due to Covid-19".

However, as usual, I think it's the little guy who would be forgotten.

It's all very well for huge corporations and publicly listed companies to dip into taxpayers' pockets but more often than not, when it comes to the generosity of the public purse, the sole-trader or self-employed are right down there at the end of the queue.

And that sucks.

Now since I'm neither reliant on the export of physical products to China, nor am I dependent on an influx of visitors to pay my bills, this virus thing probably won't impact my bottom-line nearly as much as it will other businesses.

However, there will be an effect, even if only because most companies will cut back on their advertising budget and, thanks to YouTube, that's were I earn my living. If advertisers trim their spend then the price for YT ads drops dramatically and this means no matter how many videos I make and no matter how popular they are, my income takes a dive.

As if it's not bad enough already -- thanks to regular demonetizations of videos and the usual post-Christmas dip in ad-spend.

I do spare a thought though, for the very small entrepreneur or self-employed people that run tiny tourism ventures or who export product to China. They may well be very badly hit by this and I strongly doubt the government will give a damn. Jacinda and crew will be far more focused on looking after bigger businesses than worrying about the guy who's already working 14 hours a day to keep a roof over his head and the kids fed.

It's kind of like when a self-employed person becomes unemployed, it's a whole lot harder (apparently) for them to move from employment to a benefit than if you just get fired from your wage-paid position by the boss.

Banks also tend to be a lot less forgiving and accomodating of sole traders. Unless you're putting the house up as colateral, probably the best you'll get is a very small overdraft on which extortionate rates of interest will be charged.

Another big hurdle for the self-employed will be the payment of provisional tax. This is one of those areas where you can't afford to get things wrong or you pay a stiff penalty either in interest or opportunity cost. One thing's for sure, demanding that small businesses use a crystal ball to predict their income in the next qualifying period seems wholely unreasonable, given the uncertainties that abound at the moment. Perhaps the government's best way of supporting these businesses is to ease-up on the penalty interest associated with under-paying provisional tax. Unless this is done I can see many small businesses over-paying their provisional tax and that money being used to subsidise much larger businesses (often the small guy's competitors).

Totally unfair, don't you think?

Interestingly enough, the PM has nixed the possibility of postponing planned increases to the minimum wage as a method of staving off the effects of the downturn that the virus has already begun to create. It seems that it may be better to have people laid off than being paid a few cents an hour less than they might otherwise have been.

The bottom line is that we're headed for a recession, according to the "experts". I can't recall any other time that a government has proposed subsidising businesses in times of recession, in the manner being proposed of late.

The worrying thing is that the money which will be handed over to businesses has to come from somewhere. Those who have been prudent (or lucky) enough to build in backstops and contingency mechanisms into their business plans will doubtless be the ones who pay for those who haven't.

I have no idea where this will all end up or whether such subsidies are going to be a net benefit or burden to society. Perhaps readers know?

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