New Zealand is a country of small and medium-sized businesses (SMEs) with 97% companies employing less than 20 persons.
SMEs also account for 30% of all employees and contribute 27.8% to GDP.
Budget 2014 contains $20 million for an additional 6000 trade apprenticeships under the Apprenticeship Reboot Subsidy Programme introduced last year, providing subsidies of $1000 to $2000 per trainee, with employers eligible for an equal payment.
SMEs, particularly those supporting the Christchurch Rebuild, and the housing construction sector would welcome the move. However, there will be a lag between the right skills coming online from apprenticeships, and the immediate need for businesses struggling to find qualified trade employees.
Supporting Innovation
Similarly, supporting the innovation focus, the Government has provided an additional $199 million for lifting tuition subsidies in Science, Agriculture, ICT, and two Health Sciences (Pharmacy and Physiotherapy).
There is also additional funding for more Centres of Research Excellence (CORE).
Increasing skills over time is essential to foster the growth in capability of businesses, particularly SMEs.
Another initiative in the Budget is a $3000 (tax-free) grant to encourage job seekers to take up work in Christchurch, which may assist Canterbury businesses in the interim.
With a much lower unemployment rate than the rest of New Zealand, the Government is looking to match demand in Christchurch with supply. However, again, the issue for Canterbury SMEs will be getting the right skills to fill vacancies.
Lower ACC levies
Last year’s Budget contained some tax sweeteners for SMEs undertaking R&D, with a proposal allowing their initial R&D tax losses to be cashed-up. Businesses and employees were also given a tax cut through reduction in ACC levies.
Budget 2014 signals further reductions in ACC levies. The Government has budgeted for $480 million in 2015-2016, with the actual amounts to be confirmed after public consultation by ACC. The Budget also confirmed that R&D tax proposals announced last year would proceed, returning about $60 million to businesses over the next four years.
Disappointing omission
There are no game-changers for SMEs from a tax perspective, however.
Disappointingly, tax simplification for small business seems to have dropped off the Government’s agenda.
SMEs generally have to follow the same tax rules as their larger counterparts with their inherent complexities. For example, New Zealand’s financial arrangements tax rules must be applied if a New Zealand business has foreign sales, hedged to the New Zealand Dollar (not uncommon given the volatility of our dollar).
The financial arrangements rules require complex calculations to work out the gain/loss on the hedge.
Other countries allow their SMEs to operate under simplified tax principles and rules, reflecting the additional time and costs of requiring a higher degree of accuracy.
Scene overseas
Our Government should also consider a similar structure, given the disproportionate compliance costs faced by SMEs.
Some countries have different tax rates for small business, and offer a variety of tax concessions, to reflect the unique contribution of SMEs to their economies.
New Zealand has largely eschewed this approach in favour of treating all businesses the same, under a ‘broad-based low rate approach’ to tax policy.
It may be timely to review a different regime for SMEs.
Another area that needs further attention is the way in which SMEs interact with the Government, particularly with agencies such as Inland Revenue and ACC.
While the Government’s small business ID number is a step in the right direction, there should be focus on improving the quality and reducing the frequency of interactions.
While not a Budget change, one area where there has been the much-needed simplification is to the financial reporting requirements for ‘non-large’ namely SMEs.
The one-size-fits-all approach to financial reporting was dropped last year.
The changes, which are effective for reporting years commencing on or after April 1, 2014, mean that businesses with turnover of less than $30 million or assets of less than $60 million are no longer required to prepare general-purpose audited accounts.
However, these businesses must still prepare special purpose (albeit simplified) accounts, for tax purposes.
SMEs involved in sectors such as health, wine, agribusiness, information and communications technology, food and beverage, marine, and aviation (which are already part of NZTE’s priority trade sectors), are likely to be the primary beneficiaries of the Government’s focus on Asia and beyond.
Chandan Ohri and Dinesh Naik are respectively Consultancy Partner and Tax Partner at KPMG New Zealand, the Sponsor of the ‘Business Excellence in ICT’ Category of the Indian Newslink Indian Business Awards 2014.
