Deafening silence once again likely to greet SMEs

Owners of SME’s in New Zealand must be amongst the most patient people on the planet.

For years they have sat and waited for the Government of the day, be it on Budget or Election day, to throw them one small scrap from the table - anything at all that might help such an important part of the New Zealand economy.

Normally the only things being thrown their way are hoops, in the form of more tax and extra compliance costs, as respective governments try and squeeze every dollar out of the “SME golden goose”. However, to this Government’s credit, they have squashed the intended FBT on carparks, mobile phones and computers.

And for those businesses who employ fewer than 20 people and who make up 97.2% of New Zealand businesses, employ 30.2% of all employees and are responsible for an estimated 27.8% of New Zealand’s Gross Domestic Product, it looks like another year of bread and water with nay a Budget sweetener in sight.

And it shouldn’t be that hard. We are not talking sophisticated, complex, multi-tiered, multi-ownership structures. Of the approximate 470,000 businesses in New Zealand, 420,000 employ five people or less.

So why the malaise? Yes it is true that SMEs are very poor at getting out and ‘beating the drum’ unlike some maniacal small groups that go to unbelievable lengths to get their cases noticed.

But to be honest, they shouldn’t need to. This is a big group of New Zealanders we are talking about – certainly big enough to turn any election if they rallied behind one vote.

The problems SMEs face are well documented. There would not be one member of Parliament worth their salt that couldn’t reel off “onerous layers of tax” and “stiffling compliance costs” as the two things most bugging SMEs.

There are other concerns such as a lack of skilled labour and an ability to raise capital, but these tend to ebb and flow with the cycles. Tax and compliance, on the other hand, are as constant as a South African fast bowling attack.

All SME owners want is for tax to be simplified and compliance to be reduced. So what could be done?

One only has to look across the Tasman for ideas. Small businesses in Australia with an annual turnover of less than $2 million are 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 this still stands at $500. Just how keen would small businesses be to invest in new computers and technology thereby enhancing their productivity if  this threshold was increased?

Australia also has simplified trading stock rules. SMEs can choose not to conduct a stocktake (and account for changes in the value of your trading stock) if there is a difference of $5,000  or less.

The Government could also initiate a Small Business Growth scheme to get SMEs that need cheap, quick and flexible access to finance. Nothing kills a new, or small, business faster than a lack of capital or cash flow.

The UK Chancellor said: “We can help companies grow and succeed by building infrastructure, backing local enterprise and supporting successful sectors. But nothing beats having the most competitive business tax system of any major economy in the world.” Should this be a goal for New Zealand as well?

The UK will soon have one of the lowest corporation tax rates, with plans to cut down to 20% in 2015. The rationale is that the lower taxes will encourage investment and international companies to migrate to the UK. Why not reduce corporate tax rates in New Zealand?

There are moves afoot for SMEs to have a louder and collective voice through organisations such as the New Zealand SME Business Network, and while only a few crumbs, if any, will come the way of SMEs in this year’s Budget, the challenge for the 420,000 New Zealand businesses who employ five people or less is to galvanise their concerns in a united front ahead of next year’s elections. Numbers like these can change  elections.

Further enquiries, please contact:

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