The Coalition's mixed bag of policies has sparked uncertainty for some 400 BusinessNZ members.
The Labour-NZ First Coalition Government has introduced many changes affecting the business sector, bringing both uncertainty and excitement, suggests a recent survey conducted by BusinessNZ.
Proposed employment law changes and the general uncertainty regarding the effect of Coalition Government policies are of major concern to many survey respondents who see them as barriers to improving confidence in the business community.
BusinessNZ put 15 questions from the New Zealand Herald's Mood of the Boardroom CEOs survey to its broader membership which includes SMEs.
The survey received 407 responses from NZ companies, ranging in size, region, and sector. There were many common themes recognised, but certain industries appear to be impacted in different ways and thus have different perspectives on a range of policies.
Particularly, there are split opinions regarding the most effective policy to increase R&D spending as a proportion of GDP — a number which is widely accepted to be too low at 1.3 per cent — to 2 per cent. While many would welcome an R&D tax incentive, as proposed by the Government from 1 April 2019, others propose a reduction in the corporate tax rate, applicable to all businesses, would encourage greater R&D and innovation.
The survey results show housing remains an issue, with many businesses finding it hard to retain workers due to affordable housing availability.
BusinessNZ chief executive Kirk Hope suggests some of these concerns and the increased negative sentiment may arise from a lack of knowledge combined with a lack clarity on the part of the Government. "We have had a lot of communication about social policy, but people quite rightly want to understand where economic policy is going," he says.
"The Government has got to clarify the economic component a bit more and the role it plays in the overall policy programme. It's still not clear".
Capital Gains Tax
The proposed capital gains tax, excluding the family home, has been labelled unfair and ineffective by many survey respondents, with 57 per cent reporting they don't support its introduction. Interestingly, this is a slight fall from 59 per cent in the 2017 election survey, but sentiment effectively remains on par with the measure.
"I don't support it. If it happens it needs to apply to all businesses when sold for a profit, not just housing," says Barfoot and Thompson director Kiri Barfoot.
"It won't stop house prices increasing, it hasn't had that impact overseas." Many respondents took a similar view, noting that Australia, the UK, Canada and the US all have capital gains tax regimes policy and have experienced property price booms regardless.
Others believe a capital gains tax is necessary from an equity perspective. Somerset Marketing's Tony Marks says "the current distortions of returns on capital in the housing market versus other investments need to be addressed".
Cutting the corporate tax rate
Of the 36 OECD member nations, New Zealand currently has the 7th highest headline corporate tax rate, standing at 28 per cent.
An overwhelming majority of respondents, 77 per cent, feel the Government should consider a phased reduction of the headline corporate tax rate to 25 per cent by 2027 matching Australia (which will apply this rate to companies with less than A$50m revenue), only 10 per cent oppose this idea.
Of concern is a perception that NZ's current 28 per cent headline corporate tax rate is deterring foreign investment by not being sufficiently internationally competitive — 62 per cent of respondents indicated they believed this was the case.
Kiwi Bus Builders managing director Richard Drummond believes the benefits of reducing the corporate tax rate would be twofold. "Most companies reinvest the greater portion of their profits, so the benefits would be both reinvestment and helping to keep us internationally competitive".
Michel Ladrak, managing director of Transdev, argues that we cannot simply follow Australia without carrying out our own sensitivity analysis. "NZ is so different from Australia considering the size of the market, the availability of resources and the number of projects. Other considerations may be at play."
Current R&D grants regime isn't supported
New Zealand businesses' failure to invest in significant research and development continues to be a talking point for businesses and Government as NZ's business expenditure on R&D remains well below the OECD average of 1.65 per cent of GDP.
Respondents had split opinions regarding the best policy to encourage greater research, development and innovation. Just 43 per cent support an R&D tax credit incentive; 34 per cent favour a reduction in the corporate tax rate, applicable to all businesses, and only 13 per cent feel the existing grants regime is adequate.
Those who oppose the introduction of a tax credit incentive, such as Daniel Reurich from Centurion Computer Technology, are fearful it could be misused: "A tax credit can be easily scammed". Instead, he feels a reduction in the corporate tax rate allows businesses to carry the risks and rewards, "Many businesses don't need a lot of R&D but would benefit from a lower corporate tax rate, allowing more profit to be re-invested in the business".
For Noel Reid of AMS, businesses need to acknowledge the benefits of the current system that won't accrue to some firms if NZ shifts away from a grants system to R&D tax incentives or a reduction in the corporate tax. "There is a huge cash flow advantage with Callaghan growth grants, compared to the other options. This has not been adequately recognised".
The proposed changes to the Employment Relations Act, currently in front of Parliament, which will impose new requirements on business and change how unions are treated in the workplace, are seen by BusinessNZ's membership as the largest barrier to improving confidence within the general business community and their own businesses.
Two proposed changes which particularly concern survey respondents are the removal of 90-day trials for companies with more than 20 employees, and allowing unions to enter the workplace without notification. Some 70 per cent of respondents identified the removal of 90-day trials as a concern; 68 per cent ticked unions entering the workplace without notification.
Other proposed changes include a compulsory requirement for businesses to take part in collective bargaining and reach agreement with unions on outcomes (62 per cent). If the business fails to reach an agreement, the courts will be empowered to intervene and impose an agreement.
Some 61 per cent were concerned that businesses would not be allowed to opt out of multi-employment collective bargaining; 35 per cent were opposed to a requirement for employers to pass information about unions to prospective employees; 23 per cent were worried they would not be able to impose partial pay in response to partial strikes.
The survey does show that six per cent had no concerns over the legislation.
For Andy Wilkinson of Misha's Vineyard Wines, there has already been a negative impact.
"Casual labour rate rises has made hiring additional vineyard staff unaffordable."
Government's response to strike action
Some 46 per cent of respondents feel the Government is not handling negotiations and strike action by nurses, teachers and government staffers well, with only 15 per cent believing the Government's response has been appropriate.
Malcolm Hendry of Chatsford Management suggests the Government needs to tread cautiously. "By giving in to strike action, this Government is setting up the country to be held to ransom by a range of government-funded sectors."
Others say they understand the Government's predicament recognising higher expectations would always be placed on a Labour Government and that they are now suffering from raising expectations while in Opposition.
Furniture Components NZ managing director Robert Phillips, supports the pay rises which have been awarded by the Government, feeling they are both justified and will benefit the economy at large.
"I think they are all well overdue pay reviews. Once agreed this will return more money for circulation through the market rather than sitting in government coffers, which will help businesses in general".
Housing still an issue
The housing crisis may appear to have been slowed, but the survey results suggest the issue is still impacting on New Zealand businesses negatively, with 23 per cent of respondents reporting difficulties retaining workers due to a lack of affordable housing.
Fulton Hogan is one significant company facing this issue. Mike Brummitt of Community Care Trust says,"we have operations in Central Otago and this is a major issue for us".
Adept founder Murray Fenton is not struggling to retain workers due to unaffordable housing. But he acknowledges that that is "only because we pay well".
When asked what they believe to be the major barriers to improving confidence for both themselves and the general business community, respondents were clear.
The largest three concerns were employment law changes (61 per cent), labour shortages and finding the right staff (48 per cent) and general uncertainty around the impact of Government policies (58 per cent).
Other concerns include the quality of government spending, exchange rates and the level of the NZ dollar, and infrastructure constraints.
RMA needs a review
Business bugbears over the Resource Management Act appear to be an ongoing trend. In 2017, 36 per cent of respondents felt it was "broken", and 58 per cent felt it could work if it was altered.
BusinessNZ's John Carnegie points out that the RMA "has been amended almost as often as the number of years that it has been in existence", suggesting that the patchwork approach currently adopted could perhaps be reconsidered and "we could do better by drafting a completely new resource management framework that is fit for purpose."
A particular concern this year was the council administration of resource consents — just 6 per cent of respondents feel this is generally positive for business; 66 per cent feel it is not.
The reasons vary, with many suggesting that there has been an increase in bureaucracy, councils are unwilling to be proactive in resolving issues, and that the process is too slow.
The result is a severe reduction in New Zealand's competitiveness, with the slow process causing project delays and excessive costs.
Dave Fogarty of DTF Holdings argues that the "whole process is a joke", and says he struggles to justify the cost: "charges of $120 per hour are charged for consents.
"We already pay the council staff through our rates".
A concern for Somerset Marketing's Tony Marks, is that "council competency varies widely across the country, so it depends where you are".
Business versus domestic rates
When asked whether businesses should be required to pay higher rates than domestic ratepayers, the majority of respondents, 57 per cent, were against this proposition, 27 per cent thought they should, and 16 per cent were unsure.
AMS's Noel Reid says the impact of such a policy should be considered. "A primary role of business should be to create employment for its citizens. There should be no impediments, like higher rates".
Michel Ladrak of Transdev is also concerned about the incentives underpinning the policy, and warns against simply imposing a policy to "create some false sense of equality".
Instead, he suggests, we should implement policies based on "what works best for the economy".
Achievements and regrets
• Best Achievement: Opening two new branches across NZ
Biggest Regret: Not spending more time with my family.
Andrew Berry Superior Personnel
• Best Achievement: To survive a legal battle with a large international company as well as regain customer business that had gone offshore.
Biggest Regret: Not being able to financially reward my staff as much as I feel they deserve to be rewarded. I couldn't cut my salary to do so as that was one of the first things to go!
Jacqui Buckton-Day Goldfields Print & Packaging Ltd
• Best Achievement: Increased footprint into China
Biggest Regret: Casual labour rate rises (minimum wage) making hiring additional vineyard staff unaffordable.
Andy Wilkinson Misha's Vineyard
• Best Achievement: We sold a business line
Biggest Regret: Pay equity settlement has had major ripple effects on parity with other staff groups seeking more
Maggie Owens Bupa New Zealand
• Best Achievement: Unexpected business growth with much better margins than historic work. Biggest Regret: That Labour got into government... otherwise nothing in our business.
Brett Wilson Watchdog Security Group
• Best Achievement: Redevelopment of aging infrastructure Biggest Regret: A change in Government with proposed change in employment law going backwards from the existing laws
Shirley Hiscock Panmure Orchards.
Business confidence —
The three major barriers to improving confidence are employment law changes, general uncertainty around the impact of current Government policies and labour shortages/finding the right staff. The level and quality of government spending was the next greatest cause of concern.
Employment law changes —
Of greatest concern to BusinessNZ survey respondents are: Axing 90-days trials for businesses with more than 20 employees (70%), allowing unions to enter the workplace without notification (68%) and businesses not being allowed to opt-out of multi-employer collective bargaining (61%). Of lesser concern are proposals such as partial pay not being allowed in response to partial strikes.
Capital gains tax —
While 57% do not support a capital gains tax that excludes the family home, currently being considered by the Tax Working Group, 32% are in favour, a shift upwards from 28% in 2017.
57% are against requiring businesses to pay higher rates than domestic ratepayers; 27% feel they should, and 16% were unsure.
Research and Development —
Opinions are split over the best policy to encourage greater R&D and innovation. 43% feel it should be through an R&D tax incentive, 34% believe it would be through a reduction in the corporate tax rate, applicable to all businesses, and just 13% feel the existing grants regime should be maintained.
23% of respondents are finding it hard to retain workers due to housing availability at affordable prices; 68% are not.
Resource Management Act —
Only 6% feel the council administration of resource consents under the Resource Management Act is generally positive for business; 66% feel this system isn't working for businesses. The most common reason for this was the lack of efficiency and time the process takes.
Corporate tax —
An overwhelming majority, 77%, were in favour of the government considering reducing the headline corporate tax rate to 25% by 2027, to match Australia. 62% are concerned New Zealand's corporate tax rate is not sufficiently internationally competitive to attract foreign investment.
Only 15% feel the Government is handling negotiations and strike action by government staffers well, with 46% saying they are not.
A large number of survey respondents listed finding and retaining qualified staff as a priority for the next 12 months. Others noted they'll need to spend time adjusting to the new policies imposed by the Government.
Watchdog Security Group
1. Health and Safety — As a security company, there's been increasing violence towards staff. We need to deal with the health and safety implications of that.
2. Recruitment — Invest time in hiring good staff, and enough of them.
3. Marketing — We're bringing new technical products to the market, and need to spend time marketing those.
GS McLaughlan & Co
1. Labour costs — Unrealistic movements in the minimum wage, impacting relativity and pay equity, has meant we must prioritise reducing labour costs where at all possible.
2. Technology — Investing in technology is a high priority.
3. Shifting offshore — We're focusing on moving as much of our back office activities as possible offshore.
1. Outsourcing to China is a priority as a means of reducing exposure to impending employment relation laws.
2. Reduce capital exposure in New Zealand — Before the New Zealand dollar tanks, we need to reduce capital exposure and reinvest elsewhere.
3. Grow exports — A key business priority for the next 12 months is increasing exports by 100 per cent.
Other business priorities (for the next 12 months) reported by respondents include finding and retaining staff, ensuring their business survives changes brought about by the Coalition Government, and reducing production waste. Many businesses also discussed concerns regarding the "mispricing" of the New Zealand dollar exchange rate and are preparing for possible impacts when the rate adjusts.