Survey shows steep drop in business confidence

However, despite a significantly higher tax take in 2022, demand for tax reform is mixed – as is businesses’ response to climate change. With most businesses yet to make any changes to address climate change, more incentives or education will be required to reach the government’s 2050 net zero carbon commitments.

Negative outlook for economy and wellbeing

The survey of 441 businesses around the country found that expectations from this year’s Budget are low on a wide range of measures, from delivering economic improvements to personal and national wellbeing, boosting consumer confidence and creating a better business environment. This is undoubtedly a marker of headwinds being encountered in the supply chain, along with greater business and finance costs, the ongoing fallout from Covid-19 and the war in Ukraine, as well as the soaring Consumer Price Index and mortgage rates.

Under these circumstances, it’s unsurprising that businesses have an overwhelmingly negative view on the government’s economic performance. Four out of five businesses (80 per cent) believe this year’s Budget will have an even more negative impact on the economy, with just seven per cent of respondents feeling optimistic. Eighty-four per cent of respondents believe the government is performing poorly or very poorly on managing the economy – a stark contrast to the new government’s first Budget in 2018, when just 48 per cent disapproved.

“It’s the contrast with just a few years ago that’s particularly striking, showing the lack of confidence is more than simply political ideology. Businesses want tangible evidence that the pressures on our economy from inflation, lack of skilled workers and other issues are being adequately addressed,” said David Searle, National Chair of Baker Tilly Staples Rodway.

It isn’t only business confidence that’s fallen. Seventy-one per cent of business respondents believe the coming Budget will have a negative impact on them personally – the same percentage who believe the Budget will have a negative impact on their business. Just three per cent are forecasting a positive result for their financial or overall wellbeing, with most predicting worsening wellbeing across the country.

Respondents agree the top priorities for this Budget should be infrastructure and healthcare spending, with nearly 80 per cent ranking these in the top two. Meanwhile, a third of businesses are calling for a reduction in government spending.

Business impacts both positive and negative

One of the key issues impacting business confidence is labour shortages, with 81 per cent of businesses reporting at least some difficulty in finding suitable workers in their industry and region. An overwhelming 85 per cent would like to see immigration rules loosened to enable them to attract more workers. Time will tell whether last week’s announcement on changes to immigration settings will be enough to assuage concerns, especially as some details are still uncertain and sector agreements have yet to be released.

“I have clients who are looking to outsource roles as a response to acute worker shortages, which can’t be good for the economy. This is something that will urgently need to be addressed by continuing to review immigration settings, delivering on the promise of fast applications for skilled migrants and streamlined employer accreditation and creating policies that support businesses looking to attract talent or investors to New Zealand,” said Searle.

Meanwhile, many businesses are operating largely as they were last year, despite the significant pressure created by inflation. This can be viewed as both positive and negative. The good news is that a relatively low five per cent are having to borrow more to fund cash outflows – but a third of businesses are raising prices to counter inflation. Around a fifth are anticipating staff numbers to increase in the next 12 months, but the same number are looking to defer spending because of increased costs.

Interestingly, despite considerable talk of businesses adopting a “new normal” featuring a mix of office and at-home work, nearly half (48 per cent) of businesses had fully returned to their previous ways of working pre-Covid, with less than a third (29 per cent) adopting the hybrid home/office approach.

No action on climate change

The most concerning finding of the survey was that 42 per cent of businesses reported they’d made no recent changes to help address climate change, with another 35 per cent saying only slight changes had been made.

“My concern is that rising costs will lead more businesses to defer spending on essential decarbonisation strategies, then face greater costs down the line. Many businesses find it challenging to prioritise decarbonisation spending when the benefits may not be seen for years, without recognising that climate change represents a significant risk to their own business’s sustainability,” Searle said.

“This shows us there’s a huge need to help businesses appreciate both the risks and also the opportunity to create new income streams through wise investments or innovation and develop solutions that make New Zealand a much better place to live and work for future generations.”  

Tax neutrality

Despite the increased focus on tax and government spending, support for adjusting income tax bands in line with inflation to avoid rising “bracket creep” remains in line with previous years. Around two-thirds of respondents are in favour of the proposal.

Businesses are more split on whether greater scrutiny into top earners’ wealth would make the tax system fairer, as proposed by Revenue Minister David Parker. While 56 per cent are opposed to greater investigation of top earners’ income sources, more than a third (36 per cent) are in favour of the proposed Tax Principles Act.

“The overall message businesses are sending is that they want to see something in this Budget that proactively addresses inflation and skills shortages, as well as tangible measures to reduce the cost of doing business. Without those measures, rebuilding confidence will be a challenge,” Searle said.