The state and SMEs - sweethearts no more?

The business sector most closely allied with Labour is falling out of love with the party it once saw as the solution to its woes, writes GRAEME HUNT.

The business sector most courted by the Government - small-to-medium enterprises (SMEs) - is turning on its master.

SMEs' response to the New Zealand Herald CEO Survey is not only similar to that of big business lobbies but in some cases could be substituted for it.

Employment, holidays and health and safety legislation, compliance costs, the Resource Management Act, the Kyoto Protocol, Treaty of Waitangi matters and immigration issues are prominent SME concerns.

Compliance costs are being heaped onto small organisations with apparent "scant regard for those of us struggling to exist let alone comply", one businessman noted.

Another complained the level of regulation and intrusion into business was "stifling entrepreneurship" and increasing the barriers to business growth.

Only on the New Zealand dollar exchange rate is there a significant difference between SMEs and the big-business lobby.

The SMEs formed the backbone of Labour's business support in the past two general elections and were often at odds with a big business lobby, the New Zealand Business Roundtable.

Now they are singing from the same hymn book.

Business NZ chief executive Simon Carlaw said the survey demonstrated that the issues raised by his organisation were relevant to the members.

"It is very hard to convince somebody in business whose principal focus is [on] paying creditors and staff that something called the Kyoto Protocol could mean a problem for their business."

Carlaw said the survey was important in raising awareness of the relationship between successful business, national wealth-creation and state services.

"The search for [national] identity is not a sidepiece of Treaty [of Waitangi] issues," said Carlaw.

"The search for identity relates to who we are and what we make our dollars with."

Typically SME managers complain that the strong dollar is trimming profits and encouraging cheap imports at the expense of domestic producers.

They cite China as being a threat to New Zealand's growth.

But overall their concerns are with the prospects for the New Zealand economy rather than the global outlook.

Fifty-six per cent of business people who filled out the survey consider the global economy to be more optimistic than it was a year ago, yet they are far less optimistic about the future of their own industry.

Two in three business people are planning to hire staff over the next year.

Nearly half of business people expect to increase capital spending in the next year compared with last year, but fewer (44 per cent) expect to spend more on IT. Nearly two in three business people expected fewer mergers and acquisitions in the next year than last year.

However, some respondents pointed to loss of competition through acquisitions in the service sector and further M&A activity in biotechnology.

Most respondents (94 per cent) were convinced New Zealand did not have a growth strategy to sustain business success, with some of them critical of the Government's alleged lack of respect for business' contribution to the economy.

One person said New Zealanders seem to view business in a negative light, overlooking how only business creates the employee's income and the nation's wealth. "The Government must stop trying to pick winners and direct their funds in a more productive manner - such as an improved tax regime."

Another complained at the apparent lack of understanding by the Government of the importance of business to the country's economic success.

"There has been more of a focus on long-term success relying on Knowledge Wave-type approaches."

Not all respondents to the CEO Survey were negative.

The chief executive of the Wellington-based Industry Training Federation, Darel Hall, said recent changes to the immigration rules had made it easier to attract tradespeople, although shortages of skilled labour remained.

Hall said many young people did not consider a trade as a career option, yet good tradespeople who worked hard could earn a good living.

Being self-employed also offered a greater work-life balance.

He said there was still some way to go to having a shared training and qualifications market with Australia.

The survey suggests SMEs are becoming more outward-looking and less swayed by governments offering miracle fixes to their businesses by talking up the economy.

"The economy has less impact on our business than the state of health and mindset of the New Zealand consumer," one business person said.

"Are they [the consumers] employed, are they comfortable with the Government and are they comfortable with issues such as crime, family, ethics? All of these spin back to their level of comfort and hence their optimism."

As for the Government's partnership with business, the general view of SMEs is that it is not working. It was best summed up by the response that there could not be a partnership "where partners failed to listen to each other".

Stephen Kattan of Ludowici Plastics said the Government's real problem was that it did not understand business. An increasing amount of his time was spent on implementing employment policies and anti-smoking legislation.

"It is time I could be spending on developing growth."

Kattan said his company, like others, was struggling to find skilled staff . "I have been trying to recruit people since Christmas - it is difficult."

Other survey respondents complained that immigration bureaucracy made it hard for companies to attract skilled staff and added to costs.

One described the Holidays Act as a potential disaster for his service-based industry.

"It represents a complete lack of understanding of the implications of legislation as it affects those other than employed people in regular daytime hours."

The chief executive of a central North Island-based company said Government bureaucracy and compliance had grown steadily in the past eight years.

"We have two well-qualified women on our staff of 10 just to keep the paperwork straight," he said.

"We have this well-documented Empire Strikes Back stance.

"We closed down many Government agencies in the 1980s only to have the bureaucrats come back."

Ian Macintosh, general manager of Credit Union Auckland, said compliance cut heavily into his time to market the highly competitive retail finance business.

"I don't have a PA so I have to manage OSH, ERA and board papers," he said.

"I am always conscious that I want to be in full compliance with the statutory regulations."

With just 16 full-time equivalent employees to manage a business with $16 million in assets, Macintosh said he was regularly on the phone to an EMA consultant for advice on employment relations and OSH matters.


Barrie Saunders, an ex-president of Wellington Regional Chamber of Commerce, whose public relations firm used to act for the Business Roundtable, said there had been convergence between the economic rationalists and the SMEs on issues facing business.

He said many businesses appreciated the increased contact they had enjoyed with Government agencies under Labour, but were feeling the weight of new legislation and compliance costs.

Business Roundtable executive director Roger Kerr said it was artificial to single out SMEs as being different from big businesses.

"All New Zealand business is small business. Large businesses are often just a collection of small businesses [or] small ones that have grown," he said.

"There is no basic difference in the way bad policies impact on businesses large and small."

Kerr said the focus on compliance costs was misleading because if the prospective regulatory costs facing an enterprise were high, such as the costs of employing staff or making a resource management application, then companies would not make those decisions and there would be no compliance costs.

He welcomed the call by many SMEs for tax cuts but said this would happen only if Government spending was reduced and tax policy was geared to growth rather than social assistance and redistribution.

A Wellington respondent said a large proportion of [national] output came from small business.

New Zealand needed to be extremely careful about the level of compliance costs it imposed because the relative costs were much higher than in other economies.

See the Business Herald's acclaimed series Working to Rules for details of new employment legislation.