NZ's falling business confidence reflects the true price of ministers' potshots

by The Listener / 28 June, 2018
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Business confidence surveys are often Eeyorish when the Labour Party is in office. But the latest plunging New Zealand surveys show them heading into “Beware of the Bear” territory.

The ANZ business outlook survey this week reported a seven-month low with a net 39% of firms surveyed expecting general business conditions to deteriorate in the coming 12 months. That’s 12 points lower than May’s result and the lowest since November 2017.

It comes on the heels of the Auckland Chamber of Commerce’s warning that the spiking price of fuel, slow progress on housing and infrastructure and the threat of rising labour costs have sent business confidence in the nation’s biggest city into “free fall”.

Nearly half (44%) of the 800 Auckland businesses surveyed believe the economy will deteriorate over the rest of this year. By contrast, in June last year, a third of the businesses surveyed thought the economy would improve.

Such surveys are hardly the final verdict on the nation’s mood. Opinion polls show voters are still evenly divided between support for this Government and National. But these business voices nevertheless need to be taken seriously – urgently. If they find reason to hold back on investment and expansion, their pessimism will hurt us all.

Despite what the National Party says, its Government did not leave the economy in such robust shape as to give the new Government an easy ride. Productivity growth weakened under National, even going backwards for a time. ASB Bank economists predict productivity growth will slow further unless the country can both widen and deepen its capital investment base.

The new Government rightly decries these imbalances, vowing to “engage with” business to forge growth. Its first Budget was so fiscally conservative, some labelled it “National lite”. Finance Minister Grant Robertson’s mission is to convince business it does not face wild policy lurches or instability.

Yet fellow ministers have repeatedly undermined Robertson’s message. So far this is more a matter of careless and self-aggrandising rhetoric and poor communications than of actual business-hindering policy. But an understandable sense of enmity has ensued.

The first alarm sounded over the cancellation of further oil and gas exploration. Yes, given climate-change imperatives, this decision was probably inevitable even, in time, under a National-led administration. But the lack of warning and the absence of official and expert advice underpinning the decision gave business a shock.

More serious is the absence of the promised tax-softening that small- and medium-sized enterprises (SMEs) were promised to make up for the cost of wage increases. Rising minimum- and living-wage benchmarks and new public-sector wage-round militancy underlines that staffing costs will rise. But instead of reiterating and giving a time-frame for Labour’s election promise of a lower tax rate for SMEs, Employment Minister Iain Lees-Galloway bluntly told businesses they deserved to fail if they couldn’t pay their staff properly.

This was extraordinarily shoddy politics. SMEs are an economic powerhouse. Even those employing 20 staff or fewer generate more than a quarter of GDP and employ 29% of our workforce. They make up 97% of businesses. We can’t afford to drive them to the wall.

Some firms can expect losses from the curtailment of foreign property investment and it’s obvious the Auckland fuel tax will feed new costs through the economy. The Government needs clear air in which to talk businesses through these arguably necessary new obstacles. But it can hardly expect goodwill while Regional Economic Development Minister Shane Jones makes ad hominem attacks on Air New Zealand and Fonterra. Nor does it help that deputy leader Kelvin Davis called National MP Jacqui Dean “hysterical” when she legitimately queried him over whether tourism jobs would be affected as a result of increasing costs for small businesses.

As threats to businesses go, ministers’ blurts pale beside the Mycoplasma bovis outbreak and potential US-wrought trade wars. And it’s true the Government is doing much that could help businesses longer-term in its efforts to reduce electricity and petrol price margins and improve competitiveness in sectors where too few players dominate.

But when ministers set out to alienate those whose enterprise fuels our economy, confidence is undermined and with it productive growth. Rather than being cheap, such potshots could prove very expensive.

This article was first published in the July 7, 2018 issue of the New Zealand Listener.

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