Stuff: Why the leniency for Covid wage subsidy fraud, but not for welfare fraud
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“Just get your application in, and worry about the details later.” This, in the words of RNZ journalist Nona Pelletier, is how business groups are advising their members to apply for the latest round of the wage subsidy.
It is, I think it’s fair to say, a piece of advice that has never been given to anyone planning to apply for the unemployment benefit, ever. These people face a maze of tests, requirements, and intrusive personal questions, and have to produce piles of documentation that Work and Income not infrequently loses.
Now, I don’t mind that the original, hastily drafted wage subsidy operated on a high-trust model, requiring few details from applicants. The main thing was to get the money out the door – and in that task it succeeded wildly.
The Ministry for Social Development (MSD) also, to its credit, declined 130,000 invalid applications. Even so, as the Auditor-General has argued, the greater the leeway a scheme gives to applicants initially, the more intense must be the post-payment scrutiny.
For the most part, though, MSD simply rang employers and asked for “verbal confirmation” of their details – then had the nerve to call these enquiries “audits”, something the Auditor-General rightly labelled misleading.
Anger over large firms taking the wage subsidy, then posting handsome profits and shareholder dividends, has also been muted. Some were shamed into repayment, but many others – the likes of Hallenstein Bros, Harvey Norman and Fulton Hogan – were not.
The latter may be acting legally: a company can experience a 30 per cent revenue loss during lockdown – the subsidy criterion – then recover to post a full-year profit. But it’s morally dubious. These firms should have come under far more public pressure to return payments clearly intended to help stave off disaster, not fatten ultimately healthy bank accounts.
In total, of the roughly $13 billion paid out, just $744 million has been repaid – and only $23m of that followed a request from MSD. Given how strongly the economy rebounded, that hardly seems sufficient.
Scrutiny is, belatedly, arriving. After the Auditor-General’s rebuke, MSD is going back and checking “a representative sample” of 339 subsidy recipients to see if they have the documentation to corroborate what they told officials over the phone. This will take several months, apparently. One thousand of the biggest recipients, representing one-tenth of the total bill, have also been asked for written proof they were entitled to the subsidy.
So far, though, the ministry has investigated just 1058 cases of suspected fraud, of which 517 are still under review. And so far only eight applicants face civil recovery action. More may follow, but even so: do we really think just eight firms – out of the hundreds of thousands of applicants – ripped off the scheme?
In the current round, MSD says it has already knocked back 42,000 invalid applications. Some firms are being asked to demonstrate revenue losses before receiving payment. That’s excellent.
But given the miniscule number of past prosecutions, how much of the $1.2b-plus bill this time round will be properly investigated? And why don’t the rules specify that, for instance, firms have to repay the subsidy before distributing dividends to shareholders? We’re still not getting tough enough, quickly enough.
This relatively easy ride for businesspeople reflects inbuilt attitudes. A few years back, the Victoria University academic Lisa Marriott exposed the sharp tilt in the supposedly level scales of justice.
Although the average welfare fraudster stole just $70,000, a fraction of the average tax fraudster’s $270,000 take, the former was three times more likely to be jailed than the latter, her research showed. Judges made glowing comments about white-collar criminals – “references to things like their good character and community standing”, Marriott says – while condemning beneficiaries “in very negative, highly judgemntal ways”.
No doubt this reflected judges’ social background: tax fraudsters, after all, are often people from their own circles.
It also reflected a longstanding government policy of pursuing suspected benefit fraud relentlessly, ruthlessly. In one notorious case, MSD spent 15 years, from 2001 onwards – and well over $100,000 – dragging a deeply impoverished Auckland woman, ‘Kathryn’, through the courts because they thought she had been in a relationship while receiving a benefit.
This Government, thankfully, has softened that approach. MSD figures show the number of beneficiaries prosecuted has fallen from 453 in 2016-17 to just 44 in the year to March 2021. More cases are dealt with through discussion, early intervention and adjusting payments quickly.
That’s only a first step, though. The maze-like complexity of the benefit system still torments recipients. And the reluctance to really crack down on wage subsidy fraud parallels the Government’s general timidity when it comes to the elites.
The idea that businesspeople are all battling entrepreneurs, and welfare recipients all scroungers, may be an old, tired stereotype. But it still exerts its power over public debate.