Kerre Woodham: The Covid loans are proof high trust models don't work

Chris Small from ABC Business Sales summed up the business loan scheme beautifully on the Mike Hosking Breakfast this morning: it was a balls up that was going to, has indeed, and will continue to cost the country hundreds of millions of dollars.  

Let me take you back to March 2020. Business loans were made available in May – the announcement was made in March for small businesses affected by Covid-19. Businesses were offered up to $20,000, plus $1800 per full time employee. More than 129,000 businesses took out loans worth $2.4 billion. Borrowers had five years to repay the loan, and many would reach that limit from June.  

It was never going to work. And the worst thing was everybody could see that it was not going to be a boon for the businesses that they thought it was, that it was not going to be a temporary stopgap, that the audits that Grant Robertson said would be put in place to protect the scheme were not going to work. Everybody could see that, everybody that is, but the previous government.  

“In hindsight if the previous regime could look back, I'm sure they would wind it back and put a few more bells and braces in there because what they're now finding is people basically took the money thinking it was unlikely they were going to pay it back. And sure enough, they haven't paid it back, with little consequences. No security was taken in the way of PG's (personal guarantees) or any GSAs over their businesses, so it was a real free hit for the business owner at the time.  

“Because there was no security taken, so the houses aren't at risk, no personal guarantee, so they can't get personally bankrupted, all the IRD, from what I've seen or read, can do is put in this default interest rate. Yes, that will keep mounting up and capitalising, and certainly a sole traders position, may just walk away and set up new entity or just ignore it. But I don't think it's realistic for the IRD to go around and just from an administration perspective, there's 120-odd thousand people to chase. It's just not going to happen. So it's just it was a balls up that’s going to cost us hundreds of millions of dollars, unfortunately.” 

Yep, another one. That was Chris Small from ABC Business Sales on the Mike Hosking Breakfast this morning. Utter madness. And at the risk of triggering those of us who did not have a good time under the previous administration, we do have to discuss it as the mistakes made then must never be made again. They have to be acknowledged – that it was a balls up. He put it beautifully. There were many of them and we mustn't do them again.  

I think we can take it as read that high trust models don't work, we tried that experiment, didn’t work. Didn't work for the business loans, didn’t work for MIQ stays. BusinessDesk wrote back in 2023 that hotels that provided rooms for the government's controversial quarantine system received more than $1 billion. Just $187 million has been recovered by the government from people who had to pay for their MIQ stay, another $26 million is outstanding. So it didn't work there. High trust didn't work when it came to policing. It didn't work when it came to allowing troublesome tenants to stay on in Kainga Ora accommodation. I can't think of a single sector where it actually worked.  

I remember my accountant saying to me, she had businesses who were taking the loan and saying, oh, we're not going to pay it back. Why should we? There is absolutely no need to – if they're stupid enough to give us the money, we're not going to pay it back. Surely there is a moral authority that if you can, you should. And if you can and you won't, then you must never, ever talk about beneficiaries bludging off the system ever again. Same with student loan defaulters, you have no moral high ground at all.  

We can't move on. It'd be wonderful to be able to move on, but we can't move on when we are paying and paying and paying for stupid, ill-considered poorly advised decisions. And we're all going to be paying for a very, very long time to come. 

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