More certainty needed for businesses

Businesses are dealing with so many unknowns. How fast will inflation fall? What’s going to happen with interest rates? When will consumers start spending again? What will our new immigration settings be? Who will win the US election? What’s going to happen in Ukraine, and Israel? 

Some sectors are thriving; others are really struggling.

With all these uncertainties to cope with, businesses should be able to rely on clear rules when it comes to essential parameters like tax, immigration, and lending requirements. Because the Government is in its unwinding phase, it has been contributing to the uncertainty; old policies are gone, but new policies aren’t yet defined. 

If you currently own a business, operating in a volatile world is your new normal. But when it comes to basic economic settings, you should be able to plan with confidence. Kiwi business owners are extremely resilient. They can deal with whatever the Government puts in place – but they need some concrete rules so they can start making informed decisions. Here are five areas where businesses wanted to see the Budget deliver clarity and certainty.

Immigration settings 

Unemployment may have been rising, but even a 5% unemployment rate is far from unusual – and it doesn’t mean every job can be filled. 

Despite having tens of thousands of jobseekers, we still have skills shortages in specific technical areas. In the accounting industry, for instance, the number of students working towards accounting degrees is down 40%. We also know there’s a critical shortage of medical professionals, engineers and IT experts. 

Businesses need certainty on immigration settings so they know where and how to find people with the skills they need, when they are needed. 

Consistent tax policy 

While Inland Revenue publishes its work programme, political influence in the generic tax policy process means planning for tax changes has become a lottery.  For example, the ability to depreciate commercial property has been in, then out, then back in, and then back out again. There’s an ongoing debate about whether commercial buildings retain their economic value, or whether maintenance and refits reasonably reflect a diminution of value in commercial properties which should be recognised through building depreciation. 

Removing depreciation is worth an estimated $2.31 billion in additional tax, according to Inland Revenue. On the other side of the equation, this obviously represents a significant cost to the building owners, so this has been an important issue to settle rather than being kicked around as a political football, or seen as a tax revenue grab. 

It’s impossible for companies to plan and make good decisions while tax policy issues, like building depreciation, keep bouncing around. 

Inland Revenue leniency 

During the pandemic, an urgent bill was passed to allow Inland Revenue to take a more lenient approach to taxation. Since 2022, it has been taking an increasingly firm stance on non-payment of tax, which can feel overly punitive in tough economic times. Certainty in the approach of Inland Revenue to manage more reasonably in times of hardship would assist businesses in managing through tough times, as opposed to the death knell that rigorous enforcement can bring.  I would like to have seen more legislative direction for Inland Revenue to permit greater leniency in times of hardship. 

For example, companies in the construction sector were given some leeway between 2020 and 2022. But in April this year, Inland Revenue targeted the sector with a media release titled ‘Cut your excuses and sort your tax’ – at arguably the toughest time in recent memory for the industry. 

Bank lending and AML/CFT requirements 

Borrowing for residential property is challenging enough – borrowing for a business is even harder. The banks all have money to lend, but they’ll only lend to the very best-performing companies, unless the loan is backed up by property as security. Most loans to New Zealand’s small and medium businesses are tied to family homes. Unsecured business lending is extremely unusual and business owners often use a mortgage top-up to get them through a tricky cashflow period. 

Whether it’s banks, homeowners, or businesses, everyone would appreciate more certainty and ease of lending. More specifically, it would be fantastic to see the Government empower banks to do more to help businesses. Access to funding is the oil that keeps the wheels of our economy turning. 

The Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act has been another barrier to the ease of doing business, particularly when it comes to international transactions. The Associate Minister of Justice says reforming the Act is a priority, so I hope to see some meaningful changes there. 

Research and development funding

New Zealand is underinvesting in research and development (R&D). The average OECD country spent 2.74% of its GDP on R&D in 2022, compared to just 1.46% in Aotearoa. There is a decent chunk of Government funding allocated to supporting R&D, but it’s not all being paid out every year. This is a real missed opportunity and leaves us at risk of falling behind on the global stage – as well as losing our best businesses and brightest minds to better-resourced countries.

If not all the money is being spent, why not widen the scope of how it can be invested? Can we open funding up to areas of R&D that are currently excluded? Can we broaden the definition of R&D to include other ways to boost productivity? It would be fantastic to see 100% of the available funding being spent on kickstarting local innovation. 

We need a clear path on policy for the whole term of government

Kiwi business owners are flexible, adaptable and creative. With concrete regulations in place, businesses can plan ahead and make forward-thinking decisions. It is less important that the details are ‘right’ on these policies and more important that we have certainty.

The world is in a constant state of flux. We need a clear path on policies rather than just ideas bouncing around and hotly debated bills that never become law. And businesses need that clear path to last for the entire term of government, not just for the next 12 months.