He said the retail, hospitality, agriculture and construction sectors were having the toughest time in the current high-interest rate, low-growth environment, as were businesses with a lot of debt.
He recognised the uptick in company closures came from a relatively low base.
Indeed, the Government cushioned the blow of Covid-19 through various schemes, while Inland Revenue gave businesses some leeway when it came to paying tax on time.
Fisk believed Inland Revenue’s approach had saved many legitimate businesses. However, others took advantage of the support, and kept their businesses going when they weren’t viable.
He believed this created a “commercial hazard”, where unviable businesses took work off viable ones.
“When they do collapse, the damage is very real,” Fisk said.
According to Inland Revenue, 44,000 more of its “customers” were in debt in the year to June 2023, compared to the previous year.
Put another way, overdue general tax debt as a portion of tax revenue sat at 5.3 per cent - a jump from 4.6 per cent in 2022 and 4.5 per cent in 2021.
The value of the overdue tax debt in 2023 was $5.5 billion. The Government’s income tax cuts will likely cost less than half of this a year.
John Cuthbertson, tax lead for the industry group Chartered Accountants Australia New Zealand, said he wouldn’t be surprised if overdue tax debt continued to rise this year.
“New Zealand businesses had sizeable Covid support, relatively low interest rates and high consumer demand throughout 2022, and we’re now just seeing the other side of that, with higher interest rates, and a significant drop in consumer demand and confidence,” he said.
On the topic of Covid support, Inland Revenue told the Herald 11 per cent of the $1.3b of outstanding debt it directly issued businesses via its small business cashflow loan scheme, was overdue.
Cuthbertson said Inland Revenue had turned its attention from Covid support to resuming business as usual, which included it refocusing on debt recovery.
“There has been an increasing trend for Inland Revenue to request more data and information from taxpayers and industry groups, including payment service providers, to refine and better target its review and audit processes. We expect this trend to continue with increased use of data analytics,” he said.
The strain businesses are under is also visible when looking at bank debt.
In February, 1.2 per cent of the $77b of loans banks had on issue to small and medium-sized enterprises (SMEs) was deemed non-performing, meaning the loans were either 90 days past due, or the bank had reason to believe the borrower wouldn’t meet their repayment obligations.
The non-performing loans ratio for SMEs hadn’t reached this level since at least 2018, when the Reserve Bank started publishing this data. Indeed, in February 2023, only 0.6 per cent of bank loans to SMEs were non-performing.
Commercial property owners similarly struggled to meet their repayment obligations, with the non-performing bank loan ratio in this sector also hitting 1.2 per cent in February.
Large businesses were better placed, with only 0.4 per cent of the $49b of bank loans on issue to them deemed non-performing.
This ratio was akin to the non-performance ratio for housing loans (0.5 per cent), which were admittedly worth a lot more than business loans ($351b).
Fisk noted the non-performing loans figures don’t capture the negotiations under way between banks and customers wanting the conditions of their loan terms loosened to give them some breathing space while the times are tough.
Cuthbertson concluded: “Businesses need to think about how to scale their operations to the current market. Some business owners will also need to consider whether it is appropriate for their business to continue.”
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in Government and Reserve Bank policymaking, economics and banking.
