Companies received millions too much wage support in Covid by reporting larger losses
At the start of the coronavirus pandemic, Dutch companies likely received around 740 million euros too much coronavirus support by reporting larger losses than they actually sustained. Employees of the Bureau for Economic Policy Analysis (CPB) reached this conclusion by comparing losses entrepreneurs reported for the NOW-scheme for wage support with their later tax returns and published the results in the economics journal ESB.
The government launched the NOW-scheme to help entrepreneurs pay their employees during the coronavirus pandemic. To qualify, a business needed to have lost at least 20 percent of its turnover due to the pandemic measures. The higher the loss, the higher the support. Business owners reported their turnover loss to the government, and the government paid out the support.
Throughout the pandemic, the government paid out almost 24 billion euros in NOW support. The NOW1 scheme, the first iteration of this subsidy that the CPB researchers studied, cost the government 5.2 billion euros.
According to the CPB researchers, by letting entrepreneurs report their own losses and only checking them afterwards, the government incentivised some business owners to strategically steer how much income they lost in legal and illegal ways.
The researchers compared the reported losses of a select group of companies that received the first round of NOW subsidies with their later VAT returns. They found that, on average, applicants for NOW1 support reported over 6 percent higher losses than their actual turnover loss based on the VAT return. Almost 40 percent of the NOW1 users in the dataset reported higher losses than they sustained.
“The subsidy was on average 8,000 euros too high for these over-reporting companies,” the researchers said. “This means that NOW 1 recipients who reported too much in this restricted dataset together received approximately 5 million euros too much.” For the entire NOW1 scheme, that likely amounts to around 740 million euros.
The researchers stressed that there could be other reasons than fraud for the differences in reported and actual turnover losses, including human error, measurement problems, or differences in accounting definitions. But the fact that this occurred structurally in the NOW1 scheme is a signal that businesses may have abused NOW subsidies more than thought.
That does not mean that the NOW scheme was ineffective, they stressed. The goal was to help companies quickly, and the scheme did just that. “Stricter restrictions to prevent abuse could have made this more difficult and could have led to greater implementation problems.”
