With the new Government's first Budget this Thursday, KPMG's Angela Abernethy, partner in charge of Business Advisory Services offers her view of what the SME market needs for business to grow in these tough times.
Finance Minister Bill English has clearly signalled that the 2009 Budget will focus on addressing the bleak outlook for Government's books, while preparing New Zealand for an economic recovery.
The hope for small and medium business in New Zealand is that the correct balance is struck. Our clients continue to
tell us and we see every day the burden of compliance on small and medium sized businesses.
To date, much of the discussion surrounding the upcoming budget has been about the continued deterioration in the Government's fiscal position, the likelihood of significant deficits for the foreseeable future and the borrowing that will be needed to support current expenditure programmes.
This month's Treasury figures confirmed the worst predictions and further highlight that the Government faces some difficult decisions. Commentators have focused on whether the Government will cancel or defer personal tax cuts or suspend contributions to the Cullen Fund, while predicting that it will be more aggressive in its search for spending cuts in the public sector.
The concern is that there has been a significant lack of comment on the likelihood of further assistance for business or signals about measures being considered to see businesses through the tough times.
The Government's concerns about its balance sheet cannot cloud what needs to be done now to support SMEs through the economic downturn and ensure good businesses are still around when economic conditions being to improve.
SMEs looking to survive in today's difficult climate have simple needs - more cash and less administration. There is some concern that assistance in these areas might be seen as too expensive given the current budget forecasts.
However, the Government must continue to pursue a two pronged approach in dealing with the recession and continue to focus on readying the business environment for better times. The cost of not supporting business further will create an additional drag on the country's recovery as business failures impact on tax revenues and long term unemployment increases the government's welfare obligations.
The new Government's first moves in this area were encouraging. The introduction of a suite of tax changes at the beginning of the year were welcomed by the business community. It was hoped that the Government might have been a bit bolder but the changes targeted the right areas - cash flow and compliance.
At the time, however, it was anticipated that these initiatives would be the first stage in series of proposals designed to assist cash flow and lower compliance burdens. Indeed, the Government provided some hope in this respect by stating that it was open to introducing more initiatives to help business.
However, the Government's "rolling maul" seems to have lost some momentum and SMEs will be hoping that the Budget is seen as an opportunity by the Government to refresh initiatives in this area. We hope the Budget is used as a signal that the momentum has not been lost because of mounting concerns surrounding the continuing deterioration of Treasury's forecasts.
It is positive that the IRD's tax policy work programme includes the second phase of a project to develop further tax implication policies. The concern is that these policies will be a continuation of the first phase, which focused on fixing relatively minor compliance issues.
We think that the times call for a bolder approach. There are, for example, a number of tax simplification measures alone that, while costing something, could be implemented without significantly impacting its revenue.
Rules requiring the add back of certain accrual expenditure could be amended to ensure SMEs were not put to the expense and inconvenience of performing reasonably complicated year ended calculations that have very little impact on the Government's coffers. A case in point is allowing a deduction for holiday pay as it is accrued rather than requiring that it can only be taken if paid within 63 days of balance date
More significant changes could also be looked at. For example, the FBT regime as it applies to SMEs could be simplified. The FBT regime is complex and gives rise to significant compliance costs for SMEs, while not producing significant revenue.
In our view, the rules could be reformed for small business with the focus being on loans and motor vehicles. The inclusion of smaller benefits and gifts under the current rules result in unnecessary complexity and applying a more targeted test for determining whether FBT applies to certain items will achieve the policy objectives.
We also hope that the Budget may signal how the Government intends to the develop some of the ideas taken from the Job Summit earlier in the year. Many of the ideas drawn from the Summit and presented to Cabinet for further consideration addressed SMEs need for funding assistance and lower compliance obligations.
One idea that has been progressed is the Government's review of its funding assistance to New Zealand business, especially companies looking to expand offshore. We welcome this review. Internationally competitive companies are becoming increasingly important to New Zealand's attempts to maintain (or improve) its per capita income relative to other OECD members.
New Zealand has many companies that successfully compete for business offshore but these companies needs to grow significantly to effect the country's relative wealth. Identifying these companies will ensure that the Government funding is assisting the right businesses in the right way.
Detailed guidance on other ideas being developed by the Government would be welcome, especially initiatives to look at improving SME's access to working capital, improve incentives to invest in R&D and equity growth fund for SMEs.
