Is self-belief the missing link in solving the economic puzzle? ANZ’s Chief economist breaks down the current state of the economy.
Small and medium-sized enterprises (SMEs) are showing increased confidence, with 46% expecting economic improvement in the next year.
Revenue improvements were reported by 28% of SMEs, with strong performances in agribusiness, transport, and manufacturing.
Key SME policy desires include reduced compliance, a lower company tax rate, and increased investment in skills and training.
Beneath the global market turmoil of the past few weeks, green shoots have been quietly growing in the engine room of the New Zealand economy – its small and medium business sector.
A new MYOB Business Monitor Confidence shows that small and medium-sized enterprises (SMEs) haveentered into positive territory for the first time in five years, backed by revenue improvements across a range of industries.
The proportion of SMEs expecting the economy to improve over the next 12 months is now at its highest level since 2016.
“It’s significantly more positive than we’re seeing in the Australian market,” said MYOB’s Sydney-based chief executive, Paul Robson.
“This is the first time in five years that we’ve had a positive swing on sentiment in the New Zealand market.”
New Zealand’s felt like it was about 18 months ahead of the Australian market, he said.
“We put that down to the OCR having moved in the right direction for businesses and that they’ve got confidence in the Government at the moment.
“These factors have injected some confidence into the local businesses. We see that in the health of those businesses, we see that in the cash balances, we’re seeing it through the number of employees, and we’re seeing it through the data.”
Robson, who was visiting businesses around the country last week, said he was picking up a renewed confidence.
“Qualitatively, as I move around New Zealand and talk to businesses, there’s a good sense of optimism in the air.”
MYOB’s annual survey of more than 1000 SME owners and operators from across the country has been running since 2009.
It showed that 46% of SMEs expected the economy to improve over the next 12 months, while 32% were forecasting a decline, and 21% believed economic conditions would remain the same.
That was a significant turnaround from the same period last year, when 40% expected the economy to decline and 37% believed conditions would improve.
This lift in confidence was being reinforced by steady improvements in business performance over the last year, Robson said.
Some 28% of local SMEs reported seeing revenue increase over the past 12 months – a slight rise from 2024 (25%) - and 43% said revenue had stayed the same.
The proportion of those reporting a decline in revenue had also fallen slightly from a third (33%) in 2024 to 29% in this year’s Business Monitor.
The strongest sector is agribusiness, with 41% seeing an increase in year-on-year revenue. That was followed by transport and logistics businesses (35%) and the manufacturing and wholesale sector (31%).
The survey was done between the end of January and the start of March... “in the window after the US Government had made noises about tariffs but prior to Liberation Day”, Robson said.
“So it will be interesting to see whether or not the extent of that global tariff impact will now impact sentiment or revenue,” he said.
“I don’t think anybody knows. I think we’re in uncharted territory.
“Small businesses are super resilient and quite nimble,” he said.
What business wants
SMEs found the policy direction of the Government in New Zealand encouraging, Robson said.
But they were very clear on the policies they still hoped to see.
Topping the wish list for Budget 2025 was reduced compliance and red tape (45%), followed by reducing the company tax rate to 25% (44%), and increased investment in skills and training programmes (29%).
When it came to which policies specific to business tax and compliance would be the most beneficial for SMEs, a reduction in ACC levies for small business was the top response, selected by more than half (54%) of those surveyed.
That was followed by a reduction in the company tax rate (41%) and a permanent increase to the provisional tax threshold (29%).
MYOB has talked to the Government and was advocating some policy lines that would help supercharge the recovery for SMEs, Robson said.
MYOB CEO Paul Robson.
Upbeat Aussies
Robson’s upbeat view of the New Zealand economy reflects similar enthusiasm from other Australian economists.
HSBC’s Australia and New Zealand chief economist Paul Bloxham – who famously dubbed us the rock star economy in 2014 – says New Zealand has successfully put the basic pieces of the economy back into place.
“Now it’s all about getting the economy to grow,” he said.
“We can talk about lower interest rates playing a role, but that’s just a demand side story. What we really need is a focus on the supply side.”
That meant looking closely at how we can boost our productivity, which has fallen away since the start of the pandemic.
Both the Treasury and the Reserve Bank have warned that without improvements to economic productivity, New Zealand’s economy can’t grow by more than 2% a year without generating excess inflation.
So the Government had to be looking at finding ways to make the economy more efficient and supporting the next growth engines for the economy, said Bloxham, who visited New Zealand last month.
One of those engines was already starting to fire,” he said.
“The terms of trade have lifted, agricultural commodity prices have lifted, there are strong production volumes coming through. So that’s good. The key is to look across the next drivers.”
The Government needed to be looking at tax reform and further moves to deregulate the economy and make it easier to do business.
A third area of focus - one that has recently been picked up by Finance Minister Nicola Willis - was looking at the level of competition in our markets.
“These are three that ring true, [that] you can make the economy as efficient as possible and attract investment from local and foreign capital to get these things going.”
With inflation having come down, there was finally an opportunity to focus on those things, he said.
Another visiting Australian, UBS Australia New Zealand economist Nic Guesnon, agrees that businesses have seemed more confident in the past few months.
Things have “bounced”, he said.
“Business has seemed more confident, but that could just be because we’re leaving a recession.”
Sectors like construction remained very weak, he said.
“We saw a lot of confidence indexes bounce after the election, but the reality was monetary policy was tight and fiscal policy was about to become significantly more contractionary.
“Now monetary policy is loosening, but it’s not loose. And fiscal policy is still contracting.
“The fiscal contribution to nominal GDP has gone from adding 3.5% - which I would describe as overheated - to one where it is adding as low as 0.5 to 1 percentage point in 2025.”
The Government may need to “shift gears” on its fiscal stance, he said.
“The Government may have to move from reducing the public sector as a share of the economy to supporting demand modestly,” he said.
So, effectively, it could move to its own “neutral policy” stance in a similar way to monetary policy.
New Zealand was going to have to address its infrastructure deficit if it wanted to boost productivity, he said.
Infrastructure businesses needed more confidence to invest.
“Providing a longer-term plan with bipartisan support for projects would really help for business and help with expansion and growth.”
Debt has been a dirty word so far for this Government, but Guesnon said borrowing more to address structural issues shouldn’t be off the table.
“I just came back from Europe speaking with international investors.
“There is still a lot of appetite for New Zealand Government Bonds. The New Zealand Government has a lower cost of capital than the business sector. It can also fund for very long periods of time.”
Meanwhile, the RBNZ was restricted in how far it could cut interest rates before there is a risk inflation picks up, he says.
“But the Government can lower the cost of capital.
“The other thing the Government can do, which I’ve talked to Nicola Willis about, is they could consider lifting the debt limits for councils to allow them to raise debt finance,” Guesnon said.
“Council rates are adding a significant amount to inflation. They’re a double-digit share of the CPI basket as a contributor to the CPI inflation, rising at 11%.”
Policy push
MYOB has also been lobbying the New Zealand Government to move more aggressively with policy to help business growth get a roll on.
Robson said there had been a positive reception for the three recommendations MYOB was making.
“Businesses are at the limit of their ability to pass on costs,” Robson said.
Many were still facing inflationary pressure in areas like power, rates and insurance.
“They’re at the point now that they’re having to compress their margin rather than pass on the cost increase,” he said.
The second policy MYOB was advocating was a progressive corporate tax system.
“New Zealand does have one of the highest SME tax rates in the OECD,” he said.
MYOB wants to see some differentiation between small businesses and large enterprises.
“So, if you were a small business starting up, turning a profit, you’d be taxed at a lower rate than a large business. It gives you the opportunity to reinvest.
The third policy push was to bring in a depreciation or asset write-off like they have in the Australian market.
“In Australia, the Government has legislated that small businesses can spend up to $20,000 and instantly write off that asset. It’s a depreciation stimulus for small businesses,” he said.
“That has a very significant and instant effect for SMEs. It helps them lift their productivity by buying newer equipment.”
The other issue Robson thinks should be looked at by the government is some sort of education and training support around implementing AI.
“Large businesses have appointed an AI person or team. They’ve got the resources and the time to invest in understanding how AI work for them.”
Small businesses were time-poor and didn’t have the luxury of employing someone specifically to look at the potential of AI," he said.
“What you don’t want to have is a widening divergence of knowledge and use of AI in large businesses versus small businesses.”
Turned a corner
The good news was that the confidence and performance of local SMEs had turned a corner, Robson said.
“Looking ahead over the next couple of years, increasing revenue and growing their business are the top goals for local business owners.
“To help them realise those growth ambitions, we need an economy that is firing and an environment where Kiwi businesses can innovate, leverage a skilled workforce, and remain competitive without the burden and additional cost of unnecessary red tape.”
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist and also presents and produces videos and podcasts. He joined the Herald in 2003.
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