Bayly's Business Brief March 2023
Welcome to my March 2023 Business Brief – a roundup of news from my portfolios and Parliament.
The New Zealand economy is facing further setbacks as a result of the Auckland Anniversary floods and Cyclone Gabrielle. The Treasury’s forecasts for 2023 were made prior to these, with its Budget Policy Statement predicting a negative GDP growth rate of 0.8 percent for the 2023 calendar year. In addition, the Reserve Bank hiked its Official Cash Rate by another 50 basis points in February, which is the tenth rate hike in a row since late 2021. It seems clear that Governor Adrian Orr is committed to fulfilling his inflation target mandate; he has not ruled out further rate hikes in the future.
The Government needs to either cut spending, raise taxes, or do something it never talks about – grow the economy by assisting businesses to become more productive. The National Party prefers the latter. Now, more than ever, New Zealand needs careful economic management and fiscal responsibility to get us through this difficult period.
Whilst the Prime Minister has indicated a ‘pause’ in legislative changes and cut some unpopular policies – for now – such as the TVNZ-RNZ merger, others such as the costly income insurance scheme have simply been deferred until after the Election.
According to the latest Centrix Credit Insights Report (28 February 2023), company liquidations are up 15 per cent, mortgage applications are down 26 per cent, and the numbers of consumers behind on their repayments are at a four-year high at 12 per cent. This of course has an impact on small businesses in terms of assessing their customers’ creditworthiness and ability to buy new products and services at a time when interest rates are rising rapidly.
The most important thing for the Government at the moment is providing financial support to those communities that suffered from the Auckland floods and the destruction following Cyclone Gabrielle.
I challenged the Minister of Finance to quickly provide the details of support programmes for business owners and their staff, and there are now two key programmes available for businesses:
A $5 million package of emergency support to help businesses significantly affected by the recent flooding in Auckland. These payments are provided through third parties including the Auckland Business Chamber, the Employers and Manufacturers Association, Whāriki (Auckland’s Māori Business Network) and the Pacific Business Trust.
In a subsequent announcement, the Government also introduced a $25 million package to help businesses access immediate cashflow, with further financial support for clean-ups and other advisory services. The maximum amount available is $40,000 per business, distributed by local organisations.
The levels of stress faced by business owners will be immense and time will tell whether this total package is sufficient.
On another subject, the Government introduced the Business Payment Practices Bill late last year which is currently at the select committee stage. The Bill would require organisations with more than $33 million in revenue to disclose their actual payment terms twice a year, and this information is to be held and monitored by a newly established component of the Ministry of Business, Innovation and Employment (MBIE).
National supported the Bill at first reading on the basis that it would lead to small businesses being paid on time by large market players. However, evidence from other jurisdictions with similar laws, such as Australia and the UK, suggests that only limited improvements in average payment terms have been achieved.
Submissions on the Business Payment Practices Bill from organisations such as Chartered Accountants Australia & New Zealand and the Financial Services Federation indicate that the law will add compliance costs for companies earning more than $33 million in revenue, which will of course be passed down to consumers through raised prices at the till – not something we want during a cost-of-living crisis.
We have concerns about the practicalities of this Bill and how it will be administered by MBIE: for example, where there is a legitimate dispute of an invoice, which may lead to a reporting entity showing a poorer record of payments when this in fact may not be the case.
Commerce & Consumer Affairs
In response to the natural disasters in February, Commerce Minister Dr Duncan Webb announced changes to the Credit Contracts and Consumer Finance Act (CCCFA) to allow temporary exemption for banks and other lenders to provide credit to affected customers for home loan top-ups and bank overdrafts. The CCCFA is the legislation that required banks to ask how much you spend on your coffee, Uber or Netflix.
While the exemptions are well intended, the changes will not help the people that need immediate access to finance to recover from the natural disaster. An overdraft or a home loan does not help many of those householders who come from lower socioeconomic backgrounds.
The fact that the CCCFA required a new set of urgent regulatory changes shows how fundamentally flawed it was in the first place. The Government failed to deal with the ‘unintended consequences’ they created in December 2021 through the new Responsible Lending Code which has been overly prescriptive and incentivised financial institutions to lend conservatively.
Prior to becoming a minister, Dr Webb introduced a Member’s Bill, the Companies (Directors Duties) Amendment Bill, which requires directors to have specific regard for issues beyond shareholders’ interests. The Bill proposes that directors take into account matters such as the principles of Te Tiriti, environmental impacts, good corporate ethics, being a good employer, and the interests of the wider community.
We oppose the Bill on the basis that most directors already have a commercial interest in taking these matters into account and because it may open up directors to litigation from lobby groups to challenge decisions of boards. Even the Law Society believes the Bill is an overreach.
The Grocery Industry Competition Bill is now due for its second reading, with the select committee process nearing conclusion. The Bill has positive elements, such as introducing a code of conduct and establishment of a groceries regulator under the auspices of the Commerce Commission.
While we largely support the Bill, we are concerned with two issues: the arrangements relating to the grocery retailer’s obligations with respect to their ‘wholesaling’ operations, and the Government’s proposed ‘regulatory backstop’ which may enable a Minister to impose a mandatory wholesale access regime that would require major grocery retailers to provide wholesale supply at specified terms and conditions.
As noted in the Regulatory Impact Statement, this power could have “disproportionate intervention with highly uncertain consequences, including the risk of disrupting significant efficiencies and introducing costs that could be passed on to the consumer”.
The Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Bill (No2) has just concluded at select committee. It is a revised Income Tax Bill, as the original Bill was immediately withdrawn following the furore over the proposed GST on fund manager fees in respect of KiwiSaver accounts.
The Bill seeks to modernise the current tax settings regarding Inland Revenue’s administration of the goods and services tax (GST) regime and fringe benefit tax exemptions, and to enable those developers who undertake build-to-rent schemes to deduct their interest costs.
The Bill does not amend current tax thresholds at which taxpayers pay a higher rate of tax. Since Labour came into office in 2017, the Crown’s revenue from tax has increased by $43 billion, which has added an extra $17,500 for the average family. On this basis, we oppose the Bill.
Another contentious issue is the proposal to impose a tax on providers who use an online platform to sell their services. This is an ‘App Tax’ and follows closely on the heels of the taxes on your utes, KiwiSaver accounts, petrol and wages. Now your Uber rides and Airbnb accommodation will be more expensive too.
According to the Regulatory Impact Statement, the Bill will impose costs “passed on fully to consumers” relating to accommodation, food and ride-sharing – goods and services that are purchased by many people, including low-income earners. I have received significant correspondence from people highlighting that the cost to hire a bach or get a meal delivered will go up as a result of this tax.
After spending more than $200,000 on the Advanced Manufacturing Industry Transformation Plan (ITP), the Government has finally made the case for change, but now we need to see delivery and action.
The manufacturing sector contributes 10 per cent towards our economy and employs more than 250,000 workers. It is the second largest employer for Māori and the largest for Pasifika. Yet it has taken the Government five years to develop this plan while failing to deliver anything meaningful for the sector.
While National supports the findings of the report highlighting and identifying areas that need key improvements, the country needs policy delivery that actually leads to the outcomes of high productivity and innovation in the sector. The report recommends an accelerated depreciation regime for plant and equipment – which was National’s manufacturing policy for the 2020 election.
However, this isn’t enough. The industry has told me that substantial improvements to our foreign direct investment rules are needed to encourage competition and growth in the sector.
The Government’s $30 million ITP programme is peanuts for such a significant sector when the Australian Government announced a $1 billion advanced manufacturing package.
Immediate action is needed to alleviate the labour shortages in the industry, which are projected by Deloitte to reach around 40,000 by 2028. Better workforce planning will support the industry to grow in a globally competitive market.
I will continue to meet with organisations and associations such as the Manufacturing Alliance Group. Amongst those I have met, I have been impressed by their ingenuity, creativity, and use of intellectual property to develop products that are appealing to a global consumer base.
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