Not a comfortable Coalition

BusinessNZ chief executive Kirk Hope. Photo / Supplied

Uncertainty is seen by company heads as being the biggest dampener on business confidence.

A Wellbeing Budget which didn't scare the horses - neither did the canning of the capital gains tax - but the New Zealand business community is still not comfortable with the policy changes and policy direction from the Labour-NZ First Coalition Government after its second year in office, according to responses in a survey of BusinessNZ's membership.

BusinessNZ asked 17 questions from the NZ Herald's 2019 Mood of the Boardroom CEOs survey to its membership and collected 150 responses from a wide range of companies including those from the construction, manufacturing, agriculture and tech sectors.

This research found that 46 per cent of companies put the uncertainty caused by the Government's policies as being the biggest dampener on business confidence for the general business community. In their own organisations, it ranked as the biggest concern too (38 per cent).

The level and quality of government spending was another concern for the general business community, according to almost 30 per cent of respondents.

"Businesses need reassurance that the Government's policies won't lead to lower economic and business growth," said BusinessNZ chief executive Kirk Hope.

The overall policy direction and policy surprises like the oil and gas exploration ban are contributing to this lower business confidence, he added.

"Business really wants positive policies that can support a growing economy," he said.

Co-owner of The House & Building Wash company, Mark Ridling, described government policies as "death by a thousand cuts" for his Auckland business which is reliant on an active real estate market.

His business was hit in the last year by compulsory minimum wage increases, the foreign buyers ban, the dropping of the 90 day trial, the threat of a capital gains tax as well as regular changes to LVR, and what he calls the "Auckland real estate sales volume nosedive".

And while Ridling's woes are quite sector-specific, one of the clear messages coming through from a number of respondents in the BusinessNZ survey was that they were readying for a slowdown and tougher times ahead.

The survey found that over a third (36 per cent) of the company heads surveyed were planning to authorise less capital expenditure in the coming year than in the previous year, while 28 per cent were planning to authorise more, and 30 per cent expected to spend about the same.

Investment in IT was still a priority for most, according to the survey's findings. Companies were expecting to spend more or the same on most cases — 36 per cent were expecting to spend more, and 34 per cent the same amount as the previous year.

For many of these companies in the BusinessNZ membership, they were still feeling like they were winning at this point. They said they were growing their export markets, had increased productivity, and were achieving growth thanks to innovation and good R&D. They were succeeding at recruiting key staff, in some cases they had too many customers and they were buying businesses, opening factories, expanding branches, and increasing margins.

Exporters' concerns

The unpredictable international trade environment over the past 12 months was, unsurprisingly, high up on the general business community's list of concerns, the survey found. This was the second biggest concern for the general business community, according to nearly 35 per cent of respondents.

For exporting firms, they have a lot to contend with in the current climate, the study found.

Respondents said their lives would be improved if there were more free trade agreements (FTAs), FTAs with the UK and the EU were seen as especially important.

There was some anxiety about New Zealand's ability to negotiate the advantageous deals exporters needed.

"Market access negotiators from New Zealand routinely give away too much in their negotiations.

Rather than pushing for the importing partner to accept our production standards, they bend over backwards to make NZ exporters meet the standard of the importing country. Rather than do the hard yards of negotiating equivalency they cop-out at market access. This leads to NZ exporters needing to spend to meet these multiple overseas standards," said one respondent.

BusinessNZ's Kirk Hope however, applauded New Zealand trade negotiators for the job they were doing across the many aspects of gaining access to overseas markets for exporters.

Countries with large pre-existing trading blocs weren't likely to meet New Zealand's production standards so New Zealand negotiators often focused on international standards like ISO standards, he said.

"Gaining market access also means overcoming non-tariff barriers that hinder New Zealand exports like apples into Australia or beef into Indonesia, where appealing to WTO rules has been successful," he said.

A stable exchange rate was also on the wish list for a number of exporters in this survey as well as access to capital for expansion and a more level playing ground for New Zealand companies against their competition in overseas markets.

Supply of skilled labour

Supply of skilled labour was another key issue highlighted by the BusinessNZ survey, with 37 per cent of those surveyed saying it was a real concern for their businesses.

One IT company head said: "Supply of skilled labour is a huge issue and our biggest."

Employment law changes and wage increases were also both high on the list of concerns for businesses in their own businesses and for the general business community. Respondents called for better government internal training and skills efficiency.

Over half of those surveyed, (57 per cent) meanwhile said it had been very difficult or difficult (one or two out of five) to fill staff vacancies over the last year.

A number of respondents said that retaining staff and hiring staff with the correct skills was one of their three top priorities in the next year.

Meanwhile half of the survey's respondents found it difficult or very difficult to fill staff vacancies from overseas over the last year.

Rodney Sharp, owner of Hamilton-based engineering business, Progressive Group said not being able to find sufficient competent staff to fulfil the company's export market had been a problem in the last 12 months.

Another business head added: "We operate in export education. Immigration and NZQA handicap us."

Peter Henderson, director of Bay Sandblasting Services in the Bay of Plenty, said that immigration red tape was hampering his ability to bring in skilled people to his business.

Housing still an issue

Being based in an unaffordable housing market can contribute to companies' ability to hire, the survey confirmed, with 32 per cent of respondents saying affordable housing was an issue for them making it harder to retain staff.

One business owner commented: "We have lost a couple of employees based on their desire to live in place where they can afford to buy a house. We pay relatively high wages to assist our staff but it is still very difficult for many and impossible for a lot to buy in Auckland."

The lack of affordable housing in the big cities was a real source of stress for staff, said a number of respondents.

Said one business leader, "Workers invariably cannot simply move to a more affordable housing area. They remain but require increased wages. The shrinking disposable income affects their health, mentally and physically and higher wages become a focus for them."

NZ businesses want parity with Australian corporate tax

BusinessNZ asked respondents about New Zealand's relatively high headline corporate tax rate in the OECD, where it ranks seventh highest which it said made it insufficiently competitive to attract foreign investment.

Half of those surveyed said they were concerned about this.

Peter Brown, managing director of Miscanthus New Zealand said: "It is becoming more attractive for Kiwi investors to invest overseas, thus starving smaller New Zealand businesses of development capital."

Another respondent said: companies look at some key indicators when determining whether to seriously assess investment options in a country. "Unless we are competitive with the key indicators, we don't get a look-in."

Others were more sanguine about it. "High quality foreign investment seeks high quality businesses to invest in. There is no long-term sustainable advantage to NZ to woo foreign investment using a value proposition of a lower corporate tax rate."

When asked if the Government should consider a phased reduction of the headline corporate tax to 25 per cent by 2027 matching Australia's, nearly 70 per cent of respondents said they would like to see this.

Australia may not be the place to aspire to, said one business owner.

"We have a subsidiary in Australia. Although the headline tax rate there is lower, the actual cost of compliance and doing in business in Australia is higher than in NZ."

How to improve RMA

BusinessNZ also checked with its membership how well the Resource Management Act had worked to facilitate growth and development in the last year and it continues to attract heavy criticism.

Nearly half of respondents gave it a "not impressive" one out of five, and a further 24 per cent gave it a low two out of five.

Asked for suggestions to include in the proposed replacement for the RMA, respondents suggested it should allow for denser urban housing and to make infrastructure projects easier "to get across the line", and for there to be more clarity for councils to work with.

One company director who had a current submission which had required 12 sets of consultant reports, a submission of over 2000 pages and an estimated timeline for a decision of over six months, saw plenty of room for improvement.

"The time and substantial cost are a drag on progress.

"There should be a recognition that business needs confidence in regulator plans in order to invest/streamline process," they commented. And there should be a balance of environmental impact with economic benefit.

Local councils were meanwhile being blamed by businesses for projects not being done.

The survey found 100 out of 148 respondents said their council was not impressive, or not very impressive (1 and 2 out of five) at facilitating growth and development.

A question from BusinessNZ on whether businesses should pay higher rates than domestic rate payers was declined, with 52 per cent giving a firm no and a further 21 respondents unsure.

"Higher payment for higher services is fine, but this should be transparent and ideally voted on in some method and paid for by targeted rates," said one.

Achievements and regrets

Leaders share their best achievement and biggest regret over the past 12 months

Best achievement: Coping with and adjusting to new EU medical regulation, harder than you'd think and essential to our market.
Biggest Regret: I should have bought a small block of factories in close proximity while they were available.

Murray Fenton, Adept
Best achievement: Built world first flat bed powder coating line for pre-finishing heat sensitive building materials.
Biggest regret: Not investing sooner in flat bed technology.

Jeff Stewart, Climate Coating
Best achievement: bringing six new immigrants to New Zealand and having their skills produce the workflow we needed.
Biggest regret: Not being able to bring the immigrants in earlier due to immigration constraints from the Christchurch issue.

Peter Henderson, Bay Sandblasting Services
Best achievement: Exporting 22 SharpGrades in a month.
Biggest regret: Not being able to find sufficient competent staff to fulfil our export market.

Rodney Sharp, Progressive Group
Biggest achievement: $16 million turnaround in EBIT to go from $10 million loss to $6m profit
Biggest regret: having to raise more debt, couldn't quite squeak through despite our team working hard on this.

Hartley Atkinson, AFT Pharmaceuticals
Biggest achievement: Starting prototype phase on a project for US customer which has been 2.5 years in the making.
Biggest regret: Not buying more USD at 0.7 at the beginning of the year

Craig Wilson, Kilwell Group of Companies
Best achievement: Surviving death by a thousand cuts from government policy which is business unfriendly including but not limited to compulsory minimum wage increases, foreign buyers ban, dropping of the 90 day trial, union reps entering the workplace without consent, capital gains tax threats, regular changes to LVR, the Auckland real estate sales volume nosedive.
Biggest regret: Renting a new larger premises.
Mark Ridling, The House & Building Wash Company

The top priorities

Complete Landscape Supplies
Staffing
Managing likely downturn in the NZ market
Attempting to grow in this environment
Shaun Newman, TrailLite

Increase productivity
Increase market share
Develop and retain our people

Mark Douglas, Martin Personnel
Strict control in costs operationally
More sales activity
Reducing debt

Peter Brown, Managing Director, Miscanthus New Zealand
Finalise contract to establish major Miscanthus stand for carbon negative renewable diesel production.
Set up New Zealand's first graphene production plant.
Get the carbon benefits from both of these officially recognised.

Other business priorities for the next 12 months:
A number of companies talked about getting ready for turbulent times or a downturn ahead, keeping a close eye on staff costs and achieving stability in a local and globally unstable environment. Improving productivity, finding more "forward work" is top of mind for these BusinessNZ companies, and they are valuing the importance of innovation, ICT development, wellness, and retaining good staff. Seeking more export markets remains a priority for a number of respondents, as well as diversifying and capital-raising.

Key findings

Business confidence — nearly half (46 percent) of BusinessNZ companies surveyed said that the general uncertainty around the impact and direction of government policies were having the biggest effect on the confidence of the general business community. This was also the biggest concern in their own businesses too (38 per cent).

Some businesses preparing for downturn — A number of businesses said they were preparing for a downturn in the next year and talked of taking steps of preparing for a new environment although for most, their businesses were still doing well. However 36 per cent of the companies surveyed said they were going to authorise less capital expenditure in the coming year while 28 per cent said they would be investing more and 30 per cent said they would do invest the same amount.

International trade concerns — the ructions in the international trade environment were the second biggest concern affecting confidence (34 per cent) for the general business community. Respondents also expressed a concern about the international trade environment (20 per cent) for their own businesses and wanted to see more consistency with foreign exchange.

Skills shortages and immigration — skills shortages from New Zealand and recruiting from overseas are a mounting concern for the business community with 57 per cent saying it was either difficult or very difficult to fill staff vacancies over the past year. And it was very difficult or difficult to fill staff vacancies from overseas over the last year for close to half (49 per cent) of the companies surveyed.

Resource Management Act (RMA) — nearly half of the respondents (49 per cent) gave the RMA the thumbs down, giving it a one out of five. A further 24 per cent gave it a two out of five. There were too many councils and other stakeholders getting in the way of projects getting greenlit, said respondents.

Corporate tax — A resounding 69 per cent of businesses would like to see a phased reduction of the headline corporate tax in New Zealand come down to 25 per cent by 2027, to match Australia. The current rate is not sufficiently competitive to attract foreign investment, thought half (51 per cent) of those in the survey.

Housing
32% of respondents said affordable housing was an issue for
them making it harder to
retain staff

Corporate tax
Nearly 70% of respondents would like a phased reduction of the headline corporate tax to 25 per cent by 2027, matching Australia's

RMA
Nearly 50% of respondents rated the Resource Management Act a "not impressive" one out of five.

Uncertainty
46% of companies put the uncertainty caused by the Government's policies as being the biggest dampener on business confidence in the general business community
38% said it was the biggest concern for their own organisation

Expenditure
36% of company heads were planning to authorise less capital expenditure in the coming year
28% were planning to authorise more

Skilled labour
37% said skilled labour supply it was a real concern for their businesses
57% said it had been very difficult or difficult to fill staff vacancies.