The Mad Maestro of Mad Money, Jim Cramer.
The saying "bulls make money, bears make money, pigs get slaughtered" is most associated these days with the Mad Maestro of Mad Money, Jim Cramer. However, it is actually an old Wall Street saying that counsels against excessive greed, impatience and generally not approaching matters thoughtfully.
The same can be applied to business confidence and the tendency to either lay blame with, or give credit to, any government of the day.
Business confidence is essentially an emotional response to uncertainty. Like the seemingly contradictory responses to some of the tax questions in this year's survey — for example, 58 per cent of respondents support the R&D tax credit regime, but less than half, 43 per cent, don't plan to make use of it and 51 per cent don't believe the regime will change behaviour in their organisations — confidence is often paradoxical in nature.
And, though not irrelevant, the role of government in business confidence can easily be overstated.
In the present case, business confidence will be a function of any number of matters, some of which are totally divorced from the current Government. Clear examples from this year's survey include global geopolitical issues, including trade where China and the US take centre stage.
Others include technology-related concerns such as cybersecurity and the worry of increased breaches and attacks. Also related are high asset values, impacted in no small way by generationally low-interest rates following the GFC and the decisions of central bankers to stimulate economies. Sovereign debt (and in places household debt) is also high following the GFC. And of course, we have seen unprecedented levels of political change globally, largely driven by voter dissatisfaction when leaders are not able to bring out their "magic wand" and fix all manner of issues overnight.
Our local confidence lens is also no doubt impacted by the uncertainty of how the new coalition Government will react when presented with various fact patterns. Adding to this uncertainty are the anticipated outputs from the various working groups commissioned by the new Government on fair pay, the future of work and tax. The latter released their interim report a fortnight ago.
In terms of the Tax Working Group's (TWG) interim report, unlikely to help confidence is the fact that 71 per cent of survey respondents want a phased reduction of the headline corporate tax rate, while the interim report has recommended not to drop the rate from the current 28 per cent.
The amalgam of this context, tied into the saying "swings and roundabouts" or the phrase "business cycles", suggests the "smart money" believes the future necessitates a higher degree of caution and thoughtfulness to commercial and other risks. To avoid being viewed as a "pig", in that Wall Street quote.
Business confidence is therefore a function of all of this context. A context considerably wider, with respect, to what the Government can fully influence, albeit that the senior echelons of the Government have sought to project themselves as prudent stewards.
What's also often lost sight of is that the role of government, while important, overstates their influence in setting the regulatory environment or central economic settings. In many respects they are the "backstop" as the vast majority of policy settings are determined and finessed by officials outside the government of the day, and who survive changes in governments. This is particularly the case now given how vast and specialised policy has become; with officials generally driving the agenda.
A case in point is the recently released TWG Interim Report. While nothing is necessarily wrong with the report, it is underwhelming in terms of positive recommendations for change. At one level this is unsurprising, as it's the third such working group since the turn of the century canvassing broadly similar issues. Issues that don't get easier over time from a policy perspective.
In fact, given the makeup of the current Coalition Government, it's arguable that change, from a political perspective, will be even more difficult. And, at least for now, the TWG Interim Report kicks a capital gains tax (CGT) into the long grass and the policy and political suspense around this particular subject continues for another day.
Though not addressed in detail in this year's survey, a CGT has featured in the past.
Readers may recall that in 2016, 72 per cent of respondents believed that politicians had no appetite to engage on a CGT and 49 per cent believed that not introducing one was a lost opportunity in terms of raising revenue and levelling the playing field.
From 2011 to 2017, the broad sentiment had been in favour of a CGT, including that not moving on one was a lost opportunity. This was most pronounced in 2011 when the spread in views was 25 per cent more in favour of a CGT (63 per cent vs 38 per cent).
More recently, until this year, that spread had closed to around 10 per cent with those in favour between 45-50 per cent.
The current sentiment among survey respondents has interestingly changed.
In 2018, the spread between "for" and "against" has crossed and grown, with 51 per cent of survey respondents now against a CGT and only 37 per cent for one; the lowest positive response since 2011.
It's difficult to explain this change, as it could be down to any number of factors. Some could relate to trust and the Government of the day, or simply wanting to be contrary. Or it could be a cyclical response, related to where respondents see current asset values (as already high and unlikely to move much higher). Regardless, neither the TWG Interim Report, nor the survey responses, create much momentum for change in this area.
Another tricky position that the coalition Government will need to navigate that is hardly additive to business confidence.
In many respects, therefore, business confidence is as vague as the tax phrase that looks to define the relevant asset in an R&M context as a "physical thing that satisfies a particular notion". Initially insightful until the vagaries of what the meaning of "a particular notion" is reflected on.
Business confidence is also suitably vague and unsuited to straightforward cause and effect considerations.
Seeking to lay blame at the current Government's door, or in fact any government's door, is simplistic and generally unwarranted, but nevertheless the topic of the day.
●Thomas Pippos is the chief executive of Deloitte New Zealand.