Wednesday 29 June 2005

Address to Buller Business Association

Westport Motor Hotel, Palmerston Street, Westport

Over the last five years the West Coast has experienced a remarkable turnaround in economic fortunes. In the year to December 2004, the year-on-year rate of economic growth in the Coast was 5.3 per cent, which was the second fastest across the regions.

The Coast topped the country in terms of the rise in commercial building permits. You also ranked first in terms of growth in tractor registrations, with strong rises in other motor vehicle registrations. In addition, house sales lifted sharply, with an 11 per cent rise in the quarter, and the median time to sell a house reduced.

Employment rose 2.0 per cent, and farm sales rose 6.2 per cent.

As is happening throughout the country, the March figures are showing that the shine is coming off a little. The West Coast recorded falls in commercial building consents, dwelling approvals and accommodation occupancy rates. Indeed, in the year to March 2005 the region recorded its lowest quarterly rise in economic activity for over two years.

However, this still amounted to 4.5 per cent year on year growth, which is second-equal in terms of growth rates across the regions.

This achievement has been hard won. It has required a considerable degree of faith in the capacity of the West Coast to transform its economy in directions that provide sustainable, long term growth potential.

There is still considerable scope to expand tourism, both in terms of visitor numbers and in terms of expansion of the visitor experience.

What has always been apparent to me is that the West Coast will grow as a result of small to medium sized businesses. Small businesses make up the vast majority of New Zealand businesses and created 12,400 full-time equivalent jobs nationwide over the last year. That equates to a third of the total employment growth, although I would expect that on the Coast the contribution of small businesses to employment growth is higher than that.

Helping those businesses grow and reducing the obstacles in their way has been a priority for this government. This is apparent if you consider our track record; although it is something we seldom get credit for, since the large business lobby groups tend to take all advances for granted and merely move on to complain about the next issue on their agenda.

This year's budget has a range of improvements to the business environment that affects small to medium size businesses.
The top three concerns of small business were highlighted in a National Bank survey last year. They were:

the tax burden;

compliance costs; and

the lack of skilled employees.

All of these have been recognised in this year's budget.

Tax changes include the alignment of depreciation rates more closely with the useful life of assets. A double declining balance method has been announced, so for example an asset with a ten year economic life will be written off at a rate of 20 per cent of its diminishing value. For equipment such as laptops the change will result in a 25 per cent increase in the allowable depreciation rate to 60 per cent per year.

In addition, the threshold for low value assets has been increased from $200 to $500, and many small to medium enterprises will no longer need to file returns or pay FBT due to the increased threshold of $5,000 per business tool.
For example, when a business provides laptops to employees it will no longer have to worry about FBT liabilities should the computer occasionally be put to personal use.

The minimum value thresholds applying to unclassified fringe benefits has also been raised, to reduce compliance costs. The employee minimum value threshold will go up from $75 to $200 per quarter, and the employer threshold will rise from $450 a quarter to $15,000 a year. This will reduce compliance costs for businesses by reducing the need to measure and account for FBT for minor benefits.

Payroll agents will be paid an allowance to manage the payroll for the first five employees of all businesses. This will mean a reduction in the compliance overhead for many small businesses.

We are also reducing the number of tax payment dates by aligning GST and Provisional tax payment dates. Businesses will also be allowed to calculate their provisional tax payments based on their GST returns, which will bring into alignment their cashflow, and tax payment requirements. It will also make compliance and calculations easier.

Finally, we are encouraging equity investment in small to medium enterprises by changes to rules governing access to tax deductions for R&D expenditure. These will benefit companies who bring in new equity investors after their initial development stage, and will therefore make investment in growing businesses more attractive to investors.

These tax changes have been carefully designed to stimulate economic growth, making it easier for businesses to become more productive and efficient.

This also goes for our efforts to reduce compliance costs. Over the course of 2004, the government announced 104 reductions in compliance burdens. I will spare you the details of these; but I do acknowledge that compliance costs will always be an issue that impacts more on small businesses, who have limited access to economies of scale to manage them.

International comparisons generally show that regulation in New Zealand is less burdensome than in the rest of the OECD, and certainly less than in Australia and Europe. Nevertheless, this is little comfort to business people, and no excuse for government.

That is why we have established the new Small Business Advisory group with a mandate to keep compliance issues under review and propose improvements wherever they can be found. This will ensure that government’s concern for this issue never flags.

Our current focus is on reforming the Resource Management Act. These changes are not about altering its intent. We remain committed to a clean and healthy environment, and ensuring communities have say in environmental decision-making.

Indeed, much of the criticism of the Resource Management Act is outdated and overstated. The RMA has become a whipping boy, with opposition politicians calling for it to be gutted for the sake haphazard development.

The latest survey of RMA performance carried out by the Ministry for the Environment showing that 95 per cent of resource consents were processed without being publicly notified and only 1.2 per cent of decisions were appealed to the Environment Court.

According to a 2004 Business New Zealand-KPMG Compliance Costs Survey, average total environment-related compliance costs have decreased 39.2 per cent between 2003 and 2004 (from $12,928 in 2003 to $7,855 in 2004). KPMG attributed the reduced costs to 'improved implementation of the RMA by local authorities and increased resources for the Environment Court since 2001'.

This was an issue we identified as soon as we became the government. The RMA was good law, but depended heavily upon a level of expertise in local authorities that could not be guaranteed. Both central and local government have been working on improving capability in this area, and we are seeing the fruits of those labours.

The proposed improvements to the RMA in the current Bill give councils more tools to continue improving their game. Inquisitorial-style hearings will make the process more robust. Accredited decision-makers will improve hearings, reduce delays and increase certainty for everyone.

National environmental standards are currently being developed for important network infrastructure. National environmental standards will provide certainty for communities and for companies that currently face a raft of different requirements from district to district.

We will have a menu of options available when councils consider projects to be of national significance. These include joint council hearings; referral to a board of inquiry headed by an Environment Court judge; and referral to the Environment Court itself. We will not be going down the route of "direct referral", however, where any applicant could apply directly to the Environment Court to have their application heard there.

I am confident that the changes in the Bill will make a good law better, and that a well resourced and clear set of planning processes will lead to lower costs and speedier decisions.

Taking a step back, regulatory compliance needs to be seen as part of the larger picture of promoting efficiently managed businesses. This government has worked hard on both sides of the ledger, with initiatives such as Project Collaboration, a public/private initiative, to ensure management and business capability development services meet the needs of New Zealand businesses. This year’s Budget allocated $5.6 million to this project.

The budget also gave an additional $6.62 million to mentoring for Small Business and advisory boards for businesses, as recommended by the Small Business Advisory Group.

In addition, $9.9 million was allocated to develop an improved government portal, biz.org.nz, allowing easier online access to all government services.

Our challenge over the next decades is to increase productivity in the economy. That is not just a matter of increasing workforce skills. It is also about increasing capital investment (and some of the tax changes in the Budget will aid that, as I have mentioned), and about improving the standard of management.

Turning to the question of the skills shortages, this is the flipside of an extraordinarily strong labour market and a growing domestic economy. In a global market for skilled labour, our options will always be limited, especially in the short term. There are things we can do, however, and this government is doing them.

Although our workforce participation rates are very high already, there are some people who would like to work more, provided that good quality child care is available. We started to address that issue in the Working for Families in Budget 2004, which is being progressively implemented over the next few years. An important element is the extension of child care subsidies to give more choice to those on the margins of the workforce, especially women with children.

We continue to invest in education and training. Budget 2005 included $300 million over the next four years to develop quality tertiary education. What we mean by quality is not some sort of ivory-tower definition, but rather a high degree of relevance to the skills needed in the economy. Quality is what is valuable to the end-user.

That is why the package includes higher funding rates for technical and scientific subject areas including science, trades, technical subjects, agriculture and horticulture. It is also why we have given an additional $45 million to expand Modern Apprenticeships and Industry Training.

In the last five years we have been creating the kind of virtuous cycle that will put New Zealand in a position to compete for the skilled labour we need. Our investments in education and training sit alongside our reforms of immigration which are aimed at a more proactive stance towards attracting the skilled people we need and facilitating their settlement here.

These initiatives sit alongside our ongoing investment in public services such as health and education, which make New Zealand a good place to live and work and bring up children. And all of this is supported by strong economic growth, reflected in growth in incomes, that will mean over time that we improve our OECD ranking in terms of per capita income.

It is a long journey; but, as the West Coast has proved, a lot can be achieved in five years. So long as we stay the course on a set of economic policies that is delivering for New Zealand, there is every reason to believe the next five years will be even better.

Thank you.

ENDS

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