Tax and the impending death of small business

25 Feb 2019

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The saying goes: “In this world nothing can be said to be certain, except death and taxes”. The Tax Working Group report has been made public and it appears to be true: more taxes and the impending death of New Zealand’s small businesses. 

Underpinning the Tax Working Group’s proposals are a number of principles: fairness, equity, and economic theory. But the real test on any tax change is what it will achieve, and the impact it has on business. New Zealand is a country of small businesses, both urban and rural. Small businesses often do not have HR and finance departments.  Compliance and meeting the myriad of government regulations, both national and regional, falls to the person who actually makes the money – the grower, farmer, shop operator. This is done once the day’s work of earning their income is complete, making for long work hours. Needless to say, any compliance and associated costs need to be minimal for the business to survive. 

This year, small businesses are facing increased costs from a significant increase in the minimum wage. This affects businesses not only for workers paid around the minimum wage, but for all their employees, to keep wage relativity. Add to this new taxes that will further costs the business – in both time and money – and the financial viability of that business is further impacted. Then along comes the costs, which are really taxes, of meeting the requirements of the ETS. So we have more taxes, on top of more taxes, on top of increased wage costs. 

The cost of doing business is getting significantly more expensive, and the job of paying all these taxes and costs is becoming much more time consuming. The suggestion we are given is to “put up prices”. 

If it were even possible, it would only drive inflation and cost more for New Zealanders to buy food; in the case of horticulture, healthy food. Healthy eating reduces the demand on the health system, potentially saving money. Conversely, if you make healthy food less affordable and there is less healthy eating, demands on the health system increase. Isn’t it better to save costs, rather than add to them?

It is simply not possible to keep increasing prices for fruit and vegetables.  New Zealand trades in a global market. If we put up our prices, our international competitors will be the beneficiaries, offering lower prices and taking New Zealand’s market share. We would also open up our domestic market for offshore companies to replace New Zealand suppliers.

Many of the overseas companies we compete against are supported by government subsidies. These subsidies meet costs such as, achieving and lifting environmental standards. You need only look to the United States and Europe to see examples of comprehensive investment regimes supporting primary sector businesses. There are no subsidies in New Zealand. This gives our overseas competitors an enormous advantage, and one that costs growers and farmers. So both offshore, and in New Zealand, the costs for our businesses are increasing, with no compensating price increases possible.

One of New Zealand’s significant advantages in our international markets has been our innovation and rapid adoption of new techniques and technologies.  All our resourcefulness will be required to meet the challenges of climate change. But with more compliance and ever increasing taxes, there will be neither time nor money to invest in innovation, and New Zealand will fall behind.

My point is, increased costs, taxes, wages and compliance, add up to making New Zealand small businesses financially unsustainable. As each business goes out of business, not only will tax income be lost, but so too will jobs. The entire economy will slide into decline, which will be very hard to turn around. 

When it comes to imposing new taxes on businesses, great care needs to be taken not to drive them right out of business. 

Don’t kill the our innovative and profitable small businesses.

- Mike Chapman, CEO