Rod Drury: Tax changes show power of moving to cloud systems

Rod Drury. Photo / Mark Mitchell

It's good that the Government has lowered income tax and raised GST - moving the tax base to be more consumption-based and rewarding those that save.

But the big cost of the change the Government doesn't see is the effort required by our 480,000 small businesses to manage the migration and the complicated transition rules.

The GST change has been a watershed event for cloud-based software in New Zealand. Cloud computing is where your business applications are hosted on the internet and you access them through any standard web browser.

This is instead of managing your own software that's tied to your local PC on the desktop.

The GST change has highlighted a difference between desktop and cloud-based software.

Rather than every one of our busy small business owners having to find the right software update and then work through a complex set of steps, cloud based providers can make the changes on behalf of all their customers.

Cloud based solutions are often called a software-as-a-service model.

Not only is software delivered over the internet, but services such as back-ups, upgrades and security are looked after for you by your own virtual IT department. What's more the cost is spread over tens of thousands of users.

At Xero we were able to have a few of our smart people work out the GST rule changes, develop and test migration tools and then at midnight on September 30, and at a number of key times, customer data is updated automatically so that the GST change just works. Across New Zealand that saves productivity.

The GST change is just the beginning; the IRD's Making Tax Easier initiative to move from paper-based systems to customer-focused online technologies, and other policy work, will result in a number of other accounting changes over the next few years.

As the Government sees that cloud solutions take the pain out of change we hope it will move faster in making things easier for New Zealand business.

So cloud solutions solve some problems, but what are the other exciting opportunities that arise from having large and small business connected electronically?

Already your bank transactions arrive automatically in your accounting system each morning and you can see real time gains and losses on foreign exchange transactions as currency rates are updated automatically each hour.

We see a world not too far away where your invoices just arrive in your accounting system.

No rekeying, no errors, invoices are already loaded ready to be approved.

We also see the ability for a plumbing company in Christchurch to benchmark themselves against an anonymous peer group of similar plumbing firms across the country.

Your accounting system will automatically file your taxes and submit your statistics reports or ACC returns.

One of the next items of work the Government needs to consider for small business productivity is a single business number. In the online world having a unique identifier for each business is a key step in electronically connecting businesses large and small. Australia and most other countries already have a number.

It's likely to be the GST number and it would be great to see NZ continue its lead in small business technology by implementing this.

Small business contributes 38 per cent of New Zealand's GDP. That's $50 billion.

Using cloud technology to improve the productivity and survivability of this vast but invisible sector is important for New Zealand. We can be proud that we already lead the world in small business software.

* Rod Drury is the chief executive of online accounting provider Xero.