13 February 2004 Speech Notes

Inciting and exciting small business success

Speech at the launch of the Small Business Day Series, Wellington Convention Centre, Friday February 13, 4pm

Welcome

I'd like to start by welcoming you all here tonight, particularly those of you who run small businesses. You are the heart of our economy up and down this country and I want to thank you for your success, not least because the success of small business underpins the success of the economy, and of the nation as a whole, for the benefit of all New Zealanders.

It has been a great experience for me and the team of Government MPs and ministers visiting small businesses over the last couple of weeks, and I hope that the coming programme of Small Business Days that began here today will be just as rewarding in building the relationship and understanding between this Government and small business.

SMEs

SMEs are defined as businesses employing 19 or fewer employees, and they represent 97% of all New Zealand companies, employ 43% of all employees and produce 39% of all the goods and services. The broadest definition of SMEs would also cover what would traditionally be perceived as some of our largest companies. For example, dairy giant Fonterra is in fact made up of 13,000 small businesses ¡V its dairy farmer suppliers.

The SME sector is hugely diverse and cannot be treated as a homogenous group. Nor should we assume that big is beautiful in all cases ¡V not all small businesses want to grow. For some, being compact, fleet-of-foot and focused on their main product is their competitive advantage. Others have clear ambitions for their small businesses to grow, and we want to do whatever we can to help them achieve that.

That¡¦s why the Government is actively trying to understand the special and widely varied characteristics of small business, so that we can deliver initiatives that accurately target and meet their needs. That's why we are here today in the first of a series of 24 Small Business Days that will take the pulse of small businesses around the country.

Connecting with small business

Already, as a mentioned, MPs and ministers have visited small businesses around the country to hear directly from businesspeople about the issues they face, and the Government can best help them. Another very useful experience I had in communicating directly with small business was the online chat I had this week which allowed people to directly put their concerns to me, and get a direct answer back.

Quite frankly, it was a deliberate attempt to fly under the radar of the usual suspects you see and hear quoted on business matters ¡V the Business Roundtable, Business NZ and the like. Those guys are good at doing what they do ¡V which is speak for the big end of town, and, it must be said, for the far-right parties. I'm actually getting a bit tired of hearing their knee-jerk responses and a tendency to view everything by way of victimhood, with the Government to blame.

So if the well-paid lobby groups, and the unions for that matter, could just excuse us for a wee while so we can have a genuine conversation with real small businesses, I'd be grateful.

The people I want to hear from don't come from the big end of town, they are the hardworking small businesspeople who are often simply too busy with their heads down running their businesses to be out there lobbying Government and the media.

I've come from a background in my communities where people understand disadvantage and victimhood perhaps too well, and as a consequence I am hugely solution-driven and focused on getting on with the job. I also have a significant background in zero start-up of small businesses in a variety of industries, so I am well aware of the challenges people in small business face day-to-day.

We're still working on a detailed analysis of issues raised by businesses during the series of small business visits, but the first cut of that work shows that the issues raised by businesspeople were, in order of frequency, the Holidays Act, taxation, employment relations, compliance costs, access to capital, broad band access and business training. Below that was a whole range of about 35 different issues. I'd like to address the first four issues here today.

To start with the Holidays Act: while four weeks leave will be a fact of life, the Small Business Advisory Group suggested that setting a firm future date for the introduction of this provision would allow businesses time to adjust. That's why we decided on a 2007 implementation date.

Next up, taxation. Small businesses told us that taxation removes incentives for business growth. Well, I'll tell you straight up and it should come as no surprise that wholesale cutting of business tax rates is not on this Government's agenda.

But we are working on making the processes surrounding payment of taxes easier for businesses. Last year we released the discussion document Making Tax Easier for Small Business. It includes initiatives such as a subsidy for small businesses to use a payroll agent, standardising GST and provisional tax rates to the 28th of the month, and a 6.7 per cent discount for new businesses as an incentive to pay tax in their first year of business. The Government will make decisions on these proposals in coming months and legislation would be introduced later this year.

In addition, the Inland Revenue¡¦s 5-year e-enablement project is an example of our determination to improve our processes and make dealing with the Government easier. Already SMEs are able to file electronic tax returns, make on-line payments, access tax calculators and receive advisory support. Next steps include enabling all major forms to be completed and submitted electronically and allowing taxpayers to view their account information online.

On the issue of compliance costs: of course, there will always be grumbles from businesses about compliance and demands that the Government does more to reduce red tape.

There will always be some compliance demands on business ¡V it goes with the territory. That said, my job is to be a watchdog to guard against any excesses in this area, and we have already introduced or planned a number of initiatives to cut back the compliance burden wherever possible.
- In December 2000 we set up the Ministerial Panel on Business Compliance Costs. The panel submitted 162 recommendations on ways of reducing compliance costs, and the Government has implemented, or is implementing 80 per cent of those recommendations. I will shortly bring you a report updating progress there.
- Since 2001 the Cabinet has required that a business compliance cost statement be completed for any proposals that have red tape implications for business. This provides a robust, transparent process that means we are thinking about the impact on small business before any regulation or legislation is implemented, rather than trying to tidy up afterwards.
- Last year I launched the Biz portal that allows businesses access to a range of information and Government agencies through one Internet site. That means accessing the information you need to comply is much quicker and easier.

Comparisons with other countries show that we are already doing better than most on compliance. For example the red tape survey by the Auckland of Chamber of Commerce conducted concurrently with a study by the New South Wales State Chamber of Commerce found that we were doing better than New South Wales in many areas of compliance.

Many exporters tell me that their experience in dealing with compliance issues in New Zealand is a lot easier than it is in many others countries. For example, to start up a business in France you may need to fill out more than 900 forms.

And lastly of the top four issues, employment relations. No doubt the powerful big business lobby groups will tell you that this Government is in thrall to the unions when it comes to employment relations ¡V and the unions will tell you that big business is calling the shots. The reality ¡V and the way forward ¡V is, as with most things, somewhere in the middle of those two extremes. And on that middle path we are producing some great initiatives to make employment relations easier.

For example, this morning I was pleased to see the Prime Minister launch the Employment Agreement Builder. The Employment Agreement Builder is on online tool that helps businesses build employment agreements that meet legal and regulatory requirements, while providing flexibility to meet individual requirements. Using this template, businesses can add their employees' details, tick the clauses they wish to include, and delete those they don't want. It's a great of example of how we are trying to make employment relations as straightforward for business as we can.

We will shortly add to the site a guide to the use of probation periods for new employees ¡V another issue that businesses have raised with us.

We are doing what we can to address these specific issues an concerns raised by businesses, but perhaps most importantly we have our sights fixed on the big picture.

Lifting productivity

On the positive side of the ledger, there are a lot of good things to report:

- New Zealand has one of the fastest-growing economies in the OECD. From 1992-2002 our economy grew at an average annual rate of 3.6 per cent (defying the recent global downturn). Last year our growth rate topped the OECD rankings.
- The small business sector led growth last year, with 4.9 per cent growth, compared to 3.1 per cent growth for the economy as a whole.
- Unemployment is at its lowest level since the mid-1980s, as the latest figures this week show.
- Government debt, at 27% of GDP, is the lowest it has been since the mid 1970s.
- 30 % of respondents to the recent National Bank business outlook survey expect increased activity in the year ahead.

However if New Zealand is to return to the OECD's top 10 from its current ranking of 20, there are things we must do better. We must have smart businesses that are globally competitive, that are strongly connected with customers, and are founded on good ideas and talented, skilled people. The Government's Growth and Innovation Framework sets out a strategy to build an economy capable of sustaining the higher growth rates needed to return New Zealand to the top half of the OECD.

The Government¡¦s scorecard - the Growth and Innovation Benchmark Indicators Report 2003 ¡V highlighted the areas in which we need to do better: productivity, innovation, global connectedness, and talent and skills.

Productivity
New Zealand has relatively low productivity and labour productivity growth. While our performance has been trending upwards since the mid-1990s, at 1.5% average per year over the last 4 years, we continue to lag behind other OECD countries with 2-3% productivity growth.

Innovation
Innovation, entrepeneurship and technology levels are improving, with New Zealand businesses being at least as innovative as their European counterparts. However, our expenditure on research and development, both public and private, is low by international standards. This is particularly so for the private sector, although there are signs that this is improving.

Global Connectedness
New Zealand is relatively well-connected internationally. However, when measured against high-growth small countries in the OECD, we need to improve our ratio of exports to GDP.

Talent and Skills
Our education and literacy levels are around the OECD average. However if we could improve the education performance of the 20 % of our population who still have no qualifications, it would provide even more people able to contribute to economic growth.

Other commentators agree with our assessment. For example the Institute of Management Development¡¦s World Competitiveness 2003 report ranked New Zealand 14th in the group of nations with less than 20 million population.

The report said both our public and private sector efficiency had increased since 2002 but that a shortage (including loss overseas) of bright and skilled workers, our low overall productivity and the low levels of competence and experience amongst our senior managers, will continue to hinder our competitiveness.

These then are the areas in which the Government has decided to put its efforts in order to stimulate higher rates of economic growth.

Economic growth

Economic growth leads to jobs and higher standards of living for all New Zealanders. For example if we¡¦d had just 1 percent more growth each year since 1970, by now:
- the number of people in work would be considerably higher
- there would $175 more in the average weekly pay packet
- we¡¦d have $3.7 billion more to spend on health each year
- we¡¦d have $4.2 billion more to spend on education ( $3500 more per student)
- we¡¦d have twice as much per capita to spend on roads

The Government's role and vision

We need to clearly articulate how business can contribute to sustained economic growth in New Zealand. Our vision for what we want SMEs to be is:

Well-run, innovative and world-class businesses.

Well-run businesses are those that work closely with customers and suppliers, for example when developing new products and services, dealing with customer complaints and assessing customer satisfaction.
They have good and productive relationships with stakeholders and employees, reward staff for good performance and protect them as a critical asset through good employment and health and safety practices. They are active in creating and developing business networks or linkages with other firms. Their management, human resources and financial systems support day-to-day management, and good leadership provides them with a clear view of where they want to take the business in the future.

Innovative businesses seek to compete on innovation, for example on new and improved products, services and processes, rather than simply on cost and quality. These businesses are one step ahead of the competition not just because they have good ideas but also because they have the ability to transform their ideas into marketable products or services.

They recognise that what is in demand today may not be the same in the future and therefore are scanning the environment looking for opportunities to improve and grow. Most importantly, they are prepared to learn from others and invest in innovative activities, for example, in-house and external R&D, training, marketing related to new products, and new technologies.

World-class businesses have a global mindset. Many world-class firms export a product or service. But we also need to acknowledge and honour the significant contribution that our non-exporting SMEs make, in terms of providing world-class intermediate goods and services, to our world-class export companies.

The Government's commitment

My message to the small businesses that have committed themselves to becoming well-run, innovative and world-class, is that they can be certain that the Government will be there for them.

- We¡¦ll be there as a partner who will back you, and help make it possible for you to achieve your objectives. We will make sure you have the information you need and help you acquire the skills and capabilities needed for your business success.

- We¡¦ll be there to help you over hurdles, removing or changing unnecessary regulation, and making engagement with the government and government agencies as useful and easy as possible.

- We¡¦ll be responsive to your changing needs. While the government recognises that it can often be the small things that are important for small business, we are also keeping our eye on the big picture for small business and ensuring that the things that are important to you are amongst the government¡¦s key economic and social development priorities.

Government priorities

In October last year I appointed the Small Business Advisory Group and already this group has advised us on what it thinks should be priorities for the Government in helping small business in the areas of tax, employment law and worklife balance.

Before Christmas the group told us that we needed to address the issues of:
„« model employment contracts available on-line
„« one-month probation periods for new employees
„« accelerated depreciation on assets
„« the FBT system for motor vehicles
„« availability of better mentoring for SMEs.

The Government agreed to include these in its own priorities and I¡¦m pleased to say that I¡¦ll be making announcements about some of those issues a bit later.

So we are listening and will continue to listen and to act on your advice. As the Small Business Days continue over the next few months, we¡¦d like your ideas on what we can do to enhance small business growth and opportunity.

And it won¡¦t stop with this series of events. For example, I¡¦d like to set up a website where you can contact me directly about issues such as barriers to your growth. I¡¦d see it as an information exchange website, where we could email, chat, or, potentially, have video webcasts.

One of the things to come out of the Small Business Days series will a publication that sets out the government¡¦s vision for SMEs, summarises the issues expressed by SMEs, and presents recommendations on how concerns can be addressed.

Despite what we have achieved to date, I know there is still a lot of work to be done in this area of our partnership with SMEs. I¡¦m asking you now for your opinions on what you¡¦d like to see us tackle next.

Conclusion

SMEs are a big priority for the government, and their success is crucial for the wellbeing of every New Zealander - that¡¦s why this government is making every effort in supporting small business and will continue to do so. Today I have outlined many of the initiatives we believe will support small business.
If there is more that you think we should, and realistically can, be doing to support small business, I¡¦d welcome hearing your thoughts.

But I need to hear more than a repeat of the policy differences. I need to hear that businesses and business groups have realised that labour productivity is as much a business management issue, as it is a Government issue.

Unless the SME sector is stimulated, unless we lift our export capabilities, and the capacity and capability of our business leadership, we'll have some major problems. We must be focused on how we lift productivity, how we market and package and add value to our goods and services, rather than looking for answers solely from the Government. We have to move forward as a partnership between small business and the Government in which we both bear a leadership responsibility. That's a relationship and a challenge I very much look forward to being a part of.

Thank you again for your participation here today, and I¡¦m now happy to take any questions.

ENDS

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