Don't continue to overlook SMEs

Small to Medium Enterprises (SME) make up a significant portion of the local New Zealand economy. Collectively we are a nation of small business operators. Research from the SME Research Centre, at  Massey University, suggest that there are around 350,000 SMEs operating in New Zealand that account for up to 99% of all businesses and are responsible for about 60% of the total employment and up to 50% of the GDP.

The performance of this sector is crucially important if we are going to continue to build a stronger economy for all New Zealanders, yet it is one that is often overlooked in the Budget.

There are several areas that the Government could focus on in Budget 2012 to assist the sector, none more important than the Small Business Growth scheme. Nothing kills a new, or small, business faster than a lack of capital or cash flow.

New Zealand stands out as being almost alone in not having some form of a small business government backed growth scheme. Our major trading partners like the US, UK, Canada, India, France, Germany, Australia and more recently Hong Kong all have in place a government backed growth scheme for SMEs. 

The scheme we advocate, in an environment similar to many other countries, is that the banks continue to exercise their current prudent lending criteria and administer the funding process. Business owners should expect to provide personal guarantees for a portion of the funding (e.g. 25%) with the government underwriting, in this case, 75% of the loan. Should the business fail, the bank only claims on this underwriting after all other attempts by the bank to recover the debt have been exhausted.

The default rates experienced by other countries have proven to be very low and a premium built into the lending rate has tended to cover this.

A maximum loan amount for each type of enterprise should be set, so too, a maximum guarantee period for each loan facility.       

One only has to look across the Tasman for other ideas. From the 2012/13 income tax year, small businesses in Australia with an annual turnover of less than $2 million will be able to access a range of small business tax concessions. For example, they have simplified depreciation rules including increasing the asset write-off threshold from $1,000 to $6,500. In New Zealand it still stands at $500. It is widely accepted that New Zealand businesses need to invest in technology to work smarter and improve efficiencies and productivity. Just how keen would small businesses be to invest in new computers and technology if they were incentivised to do so?

And what about just getting rid of FBT altogether for SMEs? How much time and money does it cost an SME on compliance  alone?

Over the last decade it would be fair to say that SMEs have had more hurdles put in their way than paths cleared. There have been attempts, such as the present New Zealand Trade and Enterprise voucher system, to assist, with little overall traction to date. Compare this with the added compliance requirements (FBT, GST changes, Kiwi Saver, Superannuation, Student Loans) and there is a feeling that such an important part of the New Zealand economy is looking for “a bit of tender loving care.” Budget 2012 is the perfect platform for the government to support Kiwi owned businesses with a little TLC.

Further enquiries, please contact:

Paul Kane          
Partner, Privately Held Business
T +64 (0)9 308 2576