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Budget 2021: Less borrowing, more business support key to economic prosperity

Businesses are more gloomy about the economy than last year, despite performing better than expected

Time to read: 5 mins

More focus on the economy, but maybe not more loosening of the border, is on businesses' pre-Budget wish list, according to a new business confidence poll by New Zealand accounting and business advisory network Baker Tilly Staples Rodway. With concerns around the business operating environment and economy growing after a slew of new measures affecting employers, the message to the government is to show it's listening on May 20.

In Baker Tilly Staples Rodway's latest poll, which surveyed more than 470 businesses around the country to understand how attitudes in the sector have changed since October's general election, 71 per cent of respondents believed that the government was not doing enough to support a strong economic rebuild. Around the same figure “ 68 per cent “ believed it was performing poorly on managing the economy in general. Whereas 40 per cent of businesses predicted their operating environment would worsen in the wake of the general election in October, more than half now believe it has.

 

Business uncertainty

This pessimism is likely a result of a series of government decisions in recent months that have made the operating environment tougher for employers, from the raising of the minimum wage for the third time in as many years, to the increase from five to 10 days' sick pay and an extra public holiday from 2022.

This month's announcement that fair pay agreements could be triggered by as few as 1,000 workers in any given industry was probably also on employers' minds, said David Searle, national chair of Baker Tilly Staples Rodway.

"Businesses are finding life tough with the fallout from COVID, including ongoing disruption to obtaining shipments of goods and materials and border closures significantly affecting the labour market. Continual changes that add to long-term costs are creating even more pressure, Searle said. "There needs to be greater understanding from policymakers that more support for businesses is more support for workers. Without strong businesses, it will be impossible for the government to meet its commitment of lifting more New Zealanders out of poverty and into employment."

Comparing results with the pre-election poll last September, 40 per cent were comfortable with high borrowing levels and 51 per cent believed debt should be reduced. Those numbers have altered considerably to 28 per cent comfortable with our current government debt and 60 per cent in favour of a much more conservative approach, a position Finance Minister Grant Robertson has vowed to take. This is possibly due to perceptions that we are now through the worst of the pandemic and expectations are moving back to their normal settings.

Half of businesses polled believed it would be three to four years before New Zealand's economy returned to pre-COVID levels. Another 13 per cent believed it could take more than seven. Although half said they weren't basing major business decisions on the success and timeliness of the vaccination rollout, almost a third were taking a wait and see approach.

 

The border and the trans-Tasman bubble

Meanwhile, numbers wanting our borders reopened soon have dropped significantly. While 48 per cent wanted border restrictions loosened to allow tourists, skilled workers and students into the country within the next six months, another 40 per cent were opposed. Contrast that with the sentiment before the election, when 64 per cent of businesses were in favour of opening up within the next year. The worsening virus situation in India, Japan and other countries, and concerns about reaching our vaccination targets in time, may have contributed to this.

It may also be the case that with Australia now in our trans-Tasman bubble, and GDP actually increasing, opening to the rest of the world seems less vital to our economy. Despite that, optimism that the Australian travel bubble would help us much economically was mixed, with 52 per cent saying it would improve the economy to some extent and 35 per cent believing it wouldn't. Just four per cent were strongly positive it would.

Despite the gloom, while 56 per cent of respondents said they'd seen revenues drop due to COVID prior to the election, that figure had fallen to 46 per cent this time around, once more businesses had a full picture of their final financial results.

 

Infrastructure and housing investment welcomed

There were other positives. Businesses overwhelmingly supported infrastructure investment such as the $12 billion Big New Zealand Upgrade investments into rail, road, hospitals and schools, and will be watching closely to ensure these projects progress as promised. Following infrastructure investment, businesses' top priorities for government spending were health and housing.

Agreeing that housing affordability was a priority, businesses suggested more public-private partnerships to accelerate affordable housing developments (57 per cent), changes to rural/urban boundaries and planning rules to enable more development (41 per cent) and incentives to invest in shares or commercial property to take the heat out of the housing market (38 per cent).

"The recent measures targeting residential property investors, such as the removal of interest deductions for residential homeowners and the extension of the bright-line test to 10 years are concerning for investors and property developers who are concerned about unpredictable changes in regulation. These unflagged changes make investment decisions tougher, including decisions about constructing new housing to address the real issue, which is increasing the supply of new housing in the market. As realistic businesspeople, our respondents favoured supply-focussed options, not more restrictions," said Searle.

The final item on wish lists was a fix to bracket creep. More than 60 per cent of people polled supported National MP Simon Bridges' Bill to link income tax brackets to wage inflation, preventing more New Zealanders on lower incomes having their top slice of income edge into a higher tax tier.

"What our poll shows is that while the government built goodwill through its management of the pandemic and wage subsidies, which allowed businesses to continue operating almost as normal, its recent financial policies risk eroding this. Heading into the Budget, the government can best keep up momentum by demonstrating it still supports strong employment, maintaining its previous commitment to infrastructure and rethinking its position on tax to increase fairness across the board," said Searle.