Author Katrina Shanks, CEO Financial Advice NZ. Article originally published in stuff.co.nz.
OPINION: Businesses were underwhelmed with what the Budget offered up.
There was definitely nothing to get excited about, especially from a business point of view. Hospitality New Zealand, which represents around 3000 mostly small businesses, said it was a disappointment with little in it for businesses of any size, and business accounting software giant Xero agreed.
The areas the Budget appeared to be silent on were the challenges businesses are facing. There were no initiatives on removing barriers to business growth, nor were there any investment incentives for small and medium-sized businesses and no innovation incentives. An understanding or clear pathway towards a long-term vision for business as a key driver of the economy would have shone some light at the end of the tunnel for many.
It was pleasing to see moves around the cost-of-living pressures – free medical prescriptions, 20 hours free early childhood education extended to two-year-olds, transport subsidies, new heating and insulation installation subsidies.
One surprise was the increase in the rate of tax trusts pay, to take them in line with the top personal income tax rate of 39 per cent. This followed a 50 per cent jump in income subject to the trustee rate, from $11.4 billion in the 2020 tax year to $17.1b in 2021.
And though most trusts tend to be around family homes, some businesses are run by a trust, so this will cause some businesses to have to reconsider their business model. This will be costly for many as they seek professional advice and undertake the legal changes required.
There were some wins for business in the technology sector.
The 20 per cent rebate for the gaming industry, $26m to help business boost digital skills gaps and increase women’s participation in the sector, and $30m for horticulture technology was welcomed by companies that had lobbied hard for more help. It had been feared if New Zealand did nothing then there would be a tech brain drain to Australia, which had recently introduced a 30-45 per cent rebate.
However, some in the wider business community asked why the only win for business in the Budget was so narrowly focused when small companies across the economy are continuing to do it hard right now – an extension of the Covid years.
In particular, the lack of funding for digitalisation of small and medium businesses was seen as a missed opportunity that will ultimately stunt productivity.
Xero New Zealand country manager Bridget Snelling was forthcoming in this regard.
She said she would have liked to have seen financial support for small businesses’ digitalisation, which is a key driver of increasing economic productivity.
She pointed to NZIER research that showed a 20 per cent uptake in cloud-based tools could add almost $8 billion a year to New Zealand’s GDP.
The solution? Digitalisation grants paired with other investment to remove the barriers of digitalisation to help stop New Zealand’s slide down OECD rankings for digital competitiveness.
Concerningly, research shows for New Zealand to catch up to the OECD average of GDP output per person, each person would have to work an extra eight hours a week! But to catch up to Ireland, the most productive country, we would have to work an extra 10 hours every working day!
“To address our productivity challenge, digitalisation is absolutely crucial, and because small business makes up 97% of the businesses in our economy and contributes a quarter to our GDP, it is imperative that the Government invests in digitalisation,” Snelling said. “Despite a key objective of this Budget being to secure our economy, it suggests that small business is clearly not a priority for this Government which is disappointing.”
But all is not lost, because the Budget did throw up some nuggets of optimism for the economy as a whole, and what’s good for the economy is good for business, and vice-versa.
Though there is a risk with the Budget that the increased government spend could further fuel inflation and so put more pressure on interest rates, all signals now suggest New Zealand will avoid a recession (earlier predicted to hit about now) and all the business pain that comes with it – declining sales and profits and resulting layoffs, cuts in capital spending, marketing, research, as well as reduced access to credit, slow collections, and more businesses in hardship.
Certainly, Treasury is forecasting a recession won’t happen.
There is light at the end of the inflation tunnel as those interest rate rises slowly haul it back, with predictions it will be around 3.3 per cent by the end of next year.
For businesses, that can’t come soon enough.
