Brian Fallow: Falling costs at odds with companies' perceptions

COMMENT

Businesses' compliance costs have fallen compared with last year, despite firms' perceptions to the contrary.

The second Business New Zealand-KPMG survey of 949 firms found their average compliance costs had fallen to $43,900, a drop of a sixth, or $8800, compared with last year's survey.

This was good news, Business New Zealand chief executive Simon Carlaw admitted, but at odds with the strong sense of frustration evident among respondents, who considered compliances costs to have increased over the preceding 12 months.

The figure for compliance costs only includes time spent within the enterprise complying with tax, employment-related, environment-related and other requirements, plus the cost of external advice.

It does not include the cost of any extra annual leave paid as a result of an increase in the statutory minimum requirement enacted this year.

Part of the explanation may lie in the fact that this year's survey includes a higher proportion of small firms. Firms with fewer than 10 employees made up 40 per cent this year's sample compared with 33 per cent last year.

But this is unlikely to explain a 16.8 per cent fall in average costs. The reason compliance costs are proportionately more onerous for smaller firms - about $2700 per employee for firms with up to five staff, but only $500 per employee for those with more than 100 - is that many of them are the same regardless of how many staff an enterprise has.

Carlaw said last year probably represented a spike in compliance costs; changes to occupational health and safety legislation required significant one-off changes to workplace practices. By contrast this year's amendments to the Holidays Act would have imposed less in the way of compliance costs, as narrowly defined in the survey.

He said compliance costs were still too high.

Respondents reported that 34 per cent of their compliance costs were tax-related, 26 per cent employment-related, 18 per cent environment-related and 22 per cent related to other obligations, such as filing statistical returns.

The report acknowledges some Government initiatives to reduce compliance costs by way of tax simplification, and more resources to the Environment Court and guidance to councils on best practice and interpretation of the Resource Management Act.

The Department of Labour has developed an on-line "employment agreement builder".

"However, many other initiatives have increased compliance costs or at the very least have added to frustrations about compliance costs. Virtually any change to legislation or regulation will require businesses to make themselves familiar with changed obligations."