BUDGET PREVIEW: don’t continue to overlook SMEs
Small to Medium Enterprises make up a significant portion of the local New Zealand economy.
Collectively, we are a nation of small business operators.
Research from the SME Research Centre at Massey University suggests that around 350,000 New Zealand SMEs account for up to 99% of all businesses and are responsible for about 60% of employment and up to 50% of the GDP.
The performance of this sector is crucially important if we are to continue building a stronger economy for all New Zealanders, yet it is often overlooked in the Budget.
There are several areas the government could focus on in next month's Budget to assist the sector, none more important than the Small Business Growth scheme.
Nothing kills a new, or small, business faster than a lack of capital or cashflow.
New Zealand stands out as being almost alone in not having some form of a small business government-backed growth scheme.
Our major trading partners like the US, UK, Canada, India, France, Germany, Australia and more recently Hong Kong all have in place such a programme for SMEs.
The scheme we advocate, in an environment similar to many other countries, is that the banks continue to exercise their current prudent lending criteria and administer the funding process.
Business owners should expect to provide personal guarantees for a portion of the funding (eg, 25%), with the government underwriting, in this case, 75% of the loan.
Should the business fail, the bank only claims on this underwriting after all other attempts to recover the debt have been exhausted.
The default rates experienced by other countries have proved to be very low, and a premium built into the lending rate has tended to cover this.
A maximum loan amount for each type of enterprise should be set, so, too, should a maximum guarantee period for each loan facility.
One only has to look across the Tasman for other ideas.
From the 2012-13 income tax year, small businesses in Australia with an annual turnover of less than $2 million will be able to access a range of small business tax concessions.
For example, they have simplified depreciation rules, including increasing the asset write-off threshold from $1000 to $6500.
In New Zealand it still stands at $500.
It is widely accepted that New Zealand businesses need to invest in technology to work smarter and improve efficiencies and productivity.
Just how keen would small businesses be to invest in new computers and technology if they were incentivised to do so?
And what about just getting rid of FBT altogether for SMEs?
How much time and money does it cost an SME on compliance alone?
Over the last decade SMEs have probably had more hurdles put in their way than paths cleared.
There have been attempts, such as the present New Zealand Trade and Enterprise voucher system, to assist. But this has had little overall traction to date.
Compare this to the added compliance requirements - FBT, GST changes, KiwiSaver, superannuation and student loans - and there is a feeling that such an important part of the New Zealand economy is looking for “a bit of tender loving care”.
Budget 2012 is the perfect platform for the government to support Kiwi-owned businesses with a little TLC.
Paul Kane is a Grant Thornton partner. Email: paul.kane@nz.gt.com
Back to home
Back to top
Print
Latest
NBR SERVICES
SUBSCRIPTIONS
Sign up for NBR subscriber content or email alerts
Comments and questions19
TOO BLOODY RIGHT!!!!!!!!!!!!!!
why would they do anything different now to what any other guvmint has done in the last 40 years?
I wondered how SME's in many other countries managed to get substantial non-asset backed funding. Chr**t! NZ SME's are crippled before they start. This leads to VERY slow growth or almost certain failure.
Bring it on. With the opportunities I've got I could turn $30k into $500k within 6 months!
It is difficult. FBT is grossly unfair and leveraged to dissuade people to invest into their business when we have to pay a theft tax. It has been a hard two years with sometimes not paying ourselves in order to pay staff. So come on Govt, some TLC for SME's is in order!
Govt underwrites 75% of small business lending - crazy!! Totally and completely crazy.
FBT is in place to stop tax dodging. My small business never has to do an FBT return because I don't slip myself private benefits like a company car on the business account. If I did would have FBT.
And so on....nothing worthwhile here.
We run a small business and have been investigating the idea of replacing our old vehicle with a new one. Unfortunately the extortionate FBT cost has scuppered that idea. The Government has simply encouraged us to keep an old, gas guzzling vehicle on the road. Meantime some poor car yard has missed out on a new vehicle sale, and a finance company missed out on some business too. Of course there would have been additional insurance to pay for the new vehicle, plus no doubt higher servicing costs, etc - all business that this economy will no longer get the benefit of. Had the Government not had FBT, local businesses would have benefitted from the investment we were going to make in our business. But the Government does have FBT so guess what - the local businesses get nothing and the Government gets nothing because we aren't going to bother investing in our business. Why don't the propellor heads in Wellington get the idea that it's a net sum game. The key difference is that not having FBT would have far greater benefits for the economy - and greater revenue must equal higher corporate taxes, mustn't it? And don't get me started on ACC levies, provisional tax, depreciation and KiwiSaver!
Frustrated Business Owner - Are you getting a personal benefit from the vehicle. If so, then you want a government subsidy (ie tax deduction) for a private expense.
What Wellington doesnt seem to grasp is that if the SME survives the first 5 years it has a very good chance of growing and employing more people. If I go from 2 to 3 staff thats a 50% rise in employment. Do the sums and unemployment (within reason - dumb is dumb regardless of effort) can drop significantly.
In response to Harvey, we SME people work a hell of a lot harder and longer than grey people. We put our a**es on the line to establish and grow a successful business. We do all the Govt work to collect their taxes (which we then see used on useless people) and you complain about the odd day we may get for ourselves when we take a drive to get away to think!
Hardworking Self Employeed
- You may work harder than me but that is irrelevent.
- I put my a**se on the line to establish a career. If I do well, the company I work for does well, which means it can employ more people.
- Businesses do the tax collection and this should be streamlined as much as possible - agree
- Taxes spent on useless people - agree but that is a whole different debate
- Personal vs Business use - this is the key issue and they could do some tweeking here. The issue is that I had to by my car out of tax paid income and for probably 250 days out of the year, it is only used to get me to and from work (no personal enjoyment I assure you), another 50 it just sits in the garage doing nothing. So on the odd day that I take a drive to get away to think ....
Note: taking the p**s a bit, I do understand your gripe but FBT is there to stop people substituting wages for perks. Self employed have the ability to do this more than most.
Harvey, I understand the argument but the FBT on a $30k vehicle, for example, is over $11k p.a.! There is no way that the benefits outweigh the cost, even if the vehicle was used entirely for business purposes.
So the Government forces me to buy it privately, then run a vehicle log for 3 months to determine the proportion of the time the vehicle is used for business purposes, and then claim back business expenses accordingly (and we all know that the vehicle will be used almost exclusively for business purposes over that 3 month period). More time and hassle to achieve the same outcome that would have been achieved with no, or at least a more realistic, FBT rate.
By the way, revenue does not equate to income either. I have significant expenses related to operating and promoting my business that come directly off my revenue. Yes, we are able to claim some benefits that employees can't, but we also incur a lot more costs to do so (website, advertising, ACC levies, membership fees, sponsorships, ongoing training, etc).
The actual income I draw from the business is less than I would take home from a salaried role, but this is offset by being able to claim exepnses, and having flexibility in terms of where and when I choose to work.
And as a business owner I don't get the benefit of holidays, sick leave, employer KiwiSaver contributions, etc.
I don't expect a free ride, but having an easier tax and compliance structure would improve productivity and make business planning much easier.
FBT on a $30K vehicle is 5% per qtr ie $6000K pa.
Don't forget that offset against this FBT cost is the ability to take a 100% deduction of total costs including depreciation each year. On a 30K vehicle these deductions will always exceed the FBT charge.
Get some tax advice as to how you can claim a GST refund on the purchase price.
Get some other tax advice as to how you can deal with the FBT cost without actually making the quarterly FBT payment.
I think you have your figures a bit off. FBT should be about $3k pa I think.
I help my Brother with his SME and he goes through all the same issues you have. The fact is everytime I tell him that something is subject to FBT, it is because he is thinking of shifting a personal expense to the company.
I clearly need a new accountant - he's been putting me crook! I've been trying to work it out for myself but it's so confusing - the IRD website has been too hard to follow. I've wasted so much time trying to work it out for myself. So I asked my accountant and he gave me the $11k figure, then advised me NOT to put it through the business but to own it privately and run a vehicle log. These are the exact examples of why the current system is simply too hard for SME's - I'm not an accountant but by the same token I'm not stupid either, and yet the entire tax and compliance side of my business gives me the shakes - it terrifies me that I may be stuffing up my 6 monthly GST returns, and as for Provisional Tax......
One more good reason to head across the ditch.
In response to Harvey Specter and anonymous - you both have it right.
If the car is not used for private purposes = no FBT. FBT is there to stop us SMEs offsetting our private expenses against taxable income, so lowering our tax bill (i.e. stop tax dodging).
Yes it's hard running a business. It also hard being a manager in a company. No sympathy card needs to be played for SMEs.
And yet there are some SME owners who simply (illegally) declare their vehicles are not for private use and avoid paying FBT altogether. The difference between being a manager in a company and owning a small business is that managers usually have other experts/managers within their operation to rely on when it comes to specific operational matters. Small business owners deal with everything from sales and marketing, to recruitment, to tax and complaince. I employ accountants, lawyers, etc to provide specific ad hoc advice - in my case it seems that advice has been incorrect. What we need are simple systems and processes (and tax structures) that mean we can devote more time in the day to driving business and generating revenue. I can't afford to hire fulltime internal staff who are experts in specific areas of management (yet), so I wind up chasing my tail rather than generating revenue that would enable my business to grow. I'm not asking for sympathy, I just want a system that is intuitive and supports my efforts, rather than obstructing it. Maybe then productivity would improve and there would be more people willing to have a crack at owning their own business.
Paul Kane raises an important topic that a small group are working to address. Sharon Hunter, myself and Chris Simmons have formed a group on Linked In in an attempt to get Govt to understand the importance of SME's.
Here is the link http://www.linkedin.com/groups?about=&gid=4202444&trk=anet_ug_grppro
Please consider joining and supporting our efforts to lift both the optic and the performance of NZ SME's.
Regards to all
Tenby Powell
Very interesting Tenby and other comment...2012 is the year I decided to give it another shot in the SME after semi retired for 2 years...Energy Effificient Technology I feel NZ is behind and I have invested in a team of highly grad Scientist here in NZ/China/Europe/Canada. ..Technology designed by a Kiwi with Chinese Associates is highly recommended worldwide currently establishing in Auckland...With 2 x 40ft containers I have to pay unfront over 120K gst plus other levies...In which for every container items value up to 500K I have to pay 15% gst in which there is alot of money for newly setup small business..Immediately my cashflow will be drained off by 3 months...where is the support from the government for such a SME.......