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Weak business confidence largely driven by SMEs as government policy changes bite

Tuesday 4th September 2018

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The recent round of corporate earnings indicates most listed companies are upbeat, yet business confidence continues to nosedive and analysts argue it’s the smaller end of town that’s fretting the most. 

New Zealand is a “nation of small businesses,” said Tenby Powell, chair of the recently-formed Small Business Council, with SMEs making up 97 percent of all businesses and accounting for about a quarter of economic activity.

“SMEs, in particular, want stability and surety of government policy. SMEs, more than ever before, are sending very clear messages,” he said.  

Business confidence has plunged since the Labour-led government was elected last September and implemented a series of policies that have impacted business. These include lifting the minimum wage, changing immigration settings, implementing fuel taxes and proposing changes to the current employment law.  

The planned changes would increase unions’ access to workplaces, introduce “fair pay” agreements in some industries, and allow multi-employer collective agreements. "Not surprisingly, these changes are not proving popular with employers or business organisations," said Westpac Bank chief economist Dominick Stephens. 

This year's August survey showed a net 50 percent of firms expect general business conditions to deteriorate in the coming 12 months.  

According to ANZ Bank chief economist Sharon Zollner, 60 percent of respondents in the ANZ survey have 20 or fewer employees. "There isn’t a huge gap between the responses by firm size across most of the questions but it is true that little firms are more worried about regulation, for example, than big firms are." 

New Zealand Institute of Economic Research principal economist Christina Leung agreed SMEs may be hurting more. "I think many of the recent policy changes made by the government have a relatively greater impact on smaller businesses, for example the lift in the minimum wage, as they have less buffer to absorb these rising cost pressures."  The latest quarterly NZIER survey also showed business confidence at a seven-year low.

Last week, Prime Minister Jacinda Ardern said the business confidence figure had become "a flashing great neon sign with giant lights and fireworks going off behind it" and announced a new business working group headed by Air New Zealand chief executive Christopher Luxon. The group will complement work being carried out by the Small Business Council and tripartite 'Future of Work' forum, which is looking at overall productivity.

BusinessNZ chief executive Kirk Hope said the Luxon-led group is another channel to lobby the government. 

"By recalibrating pace and priorities, the government could look at policy that will provide sustainable, inclusive growth and high-quality jobs that lead to higher incomes and that make New Zealanders better off. Listening to business more closely will help define that policy and deliver those outcomes."

Powell said small businesses are concerned about access to credit, compliance and red tape, changes to legislation around employment and immigration, and the sharply weaker New Zealand dollar.

On access to credit, he said most small businesses are forced to put up their own homes as collateral for a business loan, something that makes them vulnerable to any downturn in the housing market.

The weaker kiwi - down more than 3 percent on a trade weighted index basis so far this year - is great for exporters but "the vast majority [of SMES] are not exporters and feel like pariahs compared to their export counterparts," he said.

While exporters have been supported, "businesses that are based in New Zealand and are part of the logistics and supply chain are critically important for the distribution of goods and services in the country and they should be treated equally," Powell said. 

He has heard from scores of small businesses, some that are opting to shut up shop, that changes to current immigration settings are having a dire impact, he said.  Under current settings, once someone has spent three years working in New Zealand in lower-skilled employment, they will be required to spend 12 consecutive months outside New Zealand before they can be granted another Essential Skills Work Visa for lower-skilled employment.

That, coupled with low unemployment, is making it tough to find staff, in particular in the agricultural and horticultural sectors.  

"There are some real practical frustrations out there." 


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