For all the rhetoric that small businesses are the engine room of the New Zealand economy, Government policy usually favours the big end of town. Big business can navigate complex tax, health and safety and employment laws without too much impact on the bottom line. They have scale. For smaller businesses, dealing with Government compliance is a significant drag on productivity. We have a policy to power small business growth.
Small & Medium Enterprise Policy
We saw in the Covid crisis how easily Small and Medium Enterprises get swept aside.
After years of railing against the ‘supermarket duopoly’ the Government handed them one while their smaller competitors were sidelined. No matter that smaller stores were actually safer from a public health perspective.
The Covid crisis just showed the way things generally are.
Without an organised lobby in Wellington, smaller businesses are often neglected.
Despite the rhetoric of some, very few people with experience of running a small business are ever around the table in Wellington.
Many who advertise themselves as small business advocates are really part of the Wellington crowd who specialize in small business, instead of small business people who get things done in Wellington. Not only small business but, indirectly, all of New Zealand needs a better voice for small business in Parliament.
ACT presents a small business policy prepared by people with experience in actually running small businesses, and the detail shows it.
ACT’S REAL SOLUTIONS FOR SMALL & MEDIUM ENTERPRISES
Provisional Tax & GST
Problem: Provisional tax payments are mandatory every three months with the final or terminal provision tax payment being a wrap up of tax obligations after full understanding of the actual year end revenue. However, the provisional tax regime is a tax imposed on unearned income and when forecasting is difficult it becomes a burden on small businesses that can significantly impact their cashflow. Timing of quarterly provisional tax payments can cause cashflow issues if they coincide with other payment obligations.
Solution: Make the provisional tax voluntary to improve cashflow flexibility. This will allow SME businesses to opt for a quarterly, half-yearly provisional tax or just a single terminal payment at year end, once their actual revenues are known.
Bring the difference that the Government charges in interest on underpaid tax (Use of Money Interest) more in line with market interest rates and what it pays to businesses for overpayment.
Currently, there is a 7.5% interest difference in the Government’s favour.
- ACT would make the provisional tax voluntary.
- ACT would provide for a more equitable treatment between the interest Government charges on overdue tax payments and the interest it owes for overpayments by businesses.
Business & Start Up Support
Problem: Government support to SME business is provided by the Ministry of Business, Innovation & Employment (MBIE). Funding for business growth and innovation is provided through Callaghan Innovation, which has not been successful. Mentoring and funding for export business development is provided through NZTE which lacks effective international business development capability. Callaghan Innovation has been ineffective in funding real business innovation. Government organisations have proven to be very ineffective at delivering successful business outcomes.
Solution: Redefine the role of Government in business and reduce the level of bureaucratic interventions in business and new business development; both domestic and export. To drive effective SME and export growth there is a need to corporatize MBIE and have innovation and new business funding reviewed and approved under an experienced, knowledgeable and business savvy Private Equity or Venture model with strong international business development capability.
This private organisation would provide capital, training, research and development guidance, business mentoring and support and be accountable to Government against a robust set of professionally developed, key performance indicators.
- ACT would put NZTE under the Ministry of Foreign Affairs so that it can continue its role of providing Government-Government and Government-Business introductions.
- ACT would privatize the business mentoring, funding approvals and export support role of NZTE and Callaghan Innovations, through competitive tender, leaving MBIE to govern the funding and performance through a Strategic Partnership Board.
Cashflow: Accelerated Depreciation
Problem: Cashflow is everything to a business. Investment in plant and equipment ties up cash. Leasing is capital efficient but expensive through-life. (18% of SME owners feel that cashflow is a major issue. Small Business Council Survey 2019).
Solution: ACT is committed to helping business owners invest in and grow their businesses. Capital investment needs to be returned to the owner as quickly as possible so that they can invest further as the business and revenues grow.
Faster depreciation of assets will return money to the business and speed up the cycle of investment and growth.
- ACT would allow faster depreciation of assets at 33% in each of three years, with an asset cap of $100,000 per item.
Employment & Training
Problem: SME businesses take on a significant risk in hiring new employees that large businesses with a team of HR professionals don’t have. It is costly and time-consuming for the SME owner and takes them away from running their business.
Solution: A renewed emphasis and focus on JOB CREATION is required over the next three years and legislation that imposes unnecessary regulation of the process must be recrafted and streamlined. Any legislation that impedes hiring processes in terms of cost, operability and risk must be changed i.e. minimum wage levels, hiring trial periods, collective agreements etc.
The 90-day trial period for new hires reduces this risk to the business and incentives the SME owner to take on more staff. It creates more job openings.
- ACT would freeze the minimum wage at the current level for three years and would re-introduce the 90-day trial period for all new hires.
Problem: Under the Employment Act (1994) personal grievance processes are intended to support fairness, non-discrimination and equity in employment. For small businesses the personal grievance process is cumbersome, costly and can be misused by some employees who start unfounded personal grievances which add significant legal costs to the business.
Solution: Shorten the personal grievance process and ensure that easily understood information on personal grievance responsibilities under the Employment Act is readily available to SME owners.
- ACT would review and simplify the personal grievance process, and ensure information is freely available to SME owners on how to deal with the process and comply under law.
Problem: Apprenticeship programmes are cumbersome and impose significant costs in time and money on the SME owner, in terms of supervision, on-the-job training and managing trainee skills development. SME’s have not been well compensated for these additional costs and most of the funding has been directed to the ITO or the trainee. The proportion of funding provided to the employer needs to be reviewed for equitable sharing of cost and risks taken.
Solution: Increase the funding per apprentice paid to business owners by optimising the funding pathway between the newly created IST (consolidation of polytechnics), ITO’s and business. Review current short term (20 month) funding boost for long term viability so that businesses can have longer term surety on cashflow and reduce business risk ($390m set aside for incentivising apprenticeships, 2020).
- ACT would provide a greater piece of the apprenticeship funding to the business owner to reduce the cost to the business and encourage taking on more apprentices and would review whether the short time boost to apprenticeship funding can be made permanent.
Health & Safety
Problem: The Health & Safety at Work Act (2015) is unfairly weighted against the small business employer. When there is a serious health & safety infringement from an irresponsible or wilful act of an employee there are significant and immediate mandatory fines imposed on the small business owner. The employee cannot be terminated or must be taken through a long, time consuming and costly corrective or termination process, lasting many months.
Solution: Correlate the provisions of the Safety at Work and the Employment Acts, such that major irresponsible employee safety infringements can result in termination, as exist for wilful theft. Assist small business in implementing best practice and non-cumbersome safety programmes with the aid of simple, inexpensive digital applications. (SME owners are unaware of digital tools to help them meet compliance. ACT survey 2020).
- ACT would develop provision within the Health & Safety at Work Act for immediate termination for provable individual irresponsible behaviour when it comes to safety in the workplace and modify the Employment Act accordingly.
Red Tape & Regulation
Problem: Red tape is a complaint in every industry and a handbrake on the economy. It often takes longer to get permission to do things that to do them. (11% of SME’s say compliance regulations are a major issue. Small Business Council Survey 2019).
As economic problems arise new legislation is invariably proposed as the solution – this is wrong-headed. Politicians face few consequences for poor quality regulations, but New Zealanders and small business bear the cost.
Solution: In order to drive growth and job creation we need to re-evaluate the regulatory burden that we place on small business.
ACT’s Regulatory Constitution would require that all new laws comply with basic principles of good law-making: evidence-based problem definition, robust analysis of through-life costs and benefits, assessment respecting basic liberties and rights that would include market compensation should the Government take private property.
- ACT would enact a Regulatory Constitution that is principle-based and would govern the framing of all new laws.
- ACT would review all existing business regulations with a view to simplifying them, making them more realistic and business-friendly and allow easier engagement between small business and the Government. This would apply across all business sectors, including agriculture and farming.
Where We'll Get To
ACT is bringing ideas generated by small business people for small business people to Parliament.
Added together, these policies would tilt the balance of lawmaking away from the big end of town, creating a level playing field for small and medium enterprises.
These policies would allow small businesses to develop skilled workforces, employ people more easily, and invest in capital, all with less overheads from Government compliance.
In short, the policy reality for small businesses would finally match various parties’ rhetoric.