Small businesses in both New Zealand and Australia are the engine rooms of their respective economies. Companies with fewer than 20 employees comprise more than 95 per cent of all businesses in this country and nearly a third of the entire working population.
So when considering prospects for an economic recovery in the most challenging global environment since World War II, it is worthwhile looking under the small business hood to see how the engine is running.
It is still early days but the macro signs in Godzone are good, certainly in comparison to Australia. Unemployment is running at a scarcely believable 4 per cent, which compares well with the 6.8 per cent unemployment rate in August across the ditch (Australia peaked at 7.5 per cent in July).
Our services sector, hard hit by the two lockdowns, recorded a marginal expansion in September according to BNZ's performance of services index, as did its manufacturing index during the same month.
Small business revenue continued to grow in August despite the Auckland lockdown according to accounting software company Xero's monthly small business insights. Although the sector incurred huge losses during the first lockdown, small businesses have recorded positive year-on-year growth from June through to August.
The wage subsidy scheme, which is coming to an end, has plainly had an impact because job losses have largely been subdued, with small business employment only 2.9 per cent below its pre-crisis peak.
Compare that to Australia, where small business employment is down around 12 per cent, according to Xero, which serves around half of New Zealand's small businesses, making its data a reliable indicator of small business health.
In the context of everything that is happening – GDP falling 12.2 per cent in the June quarter, tipping New Zealand into official recession – this is a stellar result. It certainly suggests the economy is faring much better than first feared, given the importance of small business to its overall health and wellbeing.
Quite what has made our small companies so resilient in comparison to their Australian competitors is a moot point. Both countries have taken similar approaches to the crisis, but we seem to have fared much better than our transtasman cousins in economic terms.
Perhaps the reasons are cultural, with Kiwis pulling together better than in the more fractured political and cultural climate across the ditch. CPA Australia recently surveyed members about the Australian Government's response to Covid-19, and accountants overwhelmingly called for greater national unity from their federal and state political leaders.
Whatever the cause of the transtasman differences, our community of business leaders should take a bow because their performance during this crisis is worthy of acknowledgment.
There are more pandemic impacts to come, of course, particularly the downstream impacts from the losses in the important tourism and education sectors. The job subsidy is coming to an end and we are still a long way from being out of the woods.
However, the newly-minted Government, which has proven itself to be up to the pandemic challenge, has announced an extension of the small business cashflow scheme for a further three years, with loans of up to $10,000 (interest-free for one year; 3 per cent interest thereafter) and, importantly, $1800 per FTE employee.
This should help shore up employment across the sector, while the Government is investigating setting up a permanent scheme to finance small business, which often struggles to attract capital or bank financing to support operations.
In 2021, CPA Australia will again conduct New Zealand's longest running longitudinal study of small business performance and sentiment. It will be fascinating to analyse the results of this survey early next year to see how our small business sector has fared in the face of the worst crisis this generation of leaders has ever faced.
- Rick Jones is NZ country manager at CPA Australia, representing more than 2500 accountants in New Zealand and more than 166,000 members working in 100 countries and regions globally.