18 July 2007 Speech Notes
Small Business Minister Lianne Dalziel's Speech to the Small Business Expo
TSB Arena
Queen's Wharf
Wellington
1pm
The Small Business Expo is the largest business event in the country. It speaks volumes about the determination and talent of Sarah Trotman and her team that for the first time the Expo is being held not only in Auckland, but also here in Wellington and in Christchurch in August.
I first met Sarah when she was the head of Business in the Community. It was my first introduction to the concept of business mentoring and she sold me on that. I met her again at an awards evening where I listed my top five priorities as Minister for Small Business and she came rushing up to me and said, "Don't say that again!" "What?" I said. Sarah proceeded to tell me that I had my priorities in the wrong order – so I changed them to:
* improving business and management capability;
* making transactions between SMEs and government agencies easier;
* enhancing communication between SMEs and government;
* providing more enterprise education for school students and young entrepreneurs – a culture of creativity, innovation and enterprise, they go hand in hand; and finally
* providing a quality regulatory environment that eliminates unnecessary compliance costs and minimises those that are necessary.
Sarah didn't say the last one wasn't important, but if people didn't look to their own capability first they were missing the best opportunities they would have to grow their business.
I have had this reinforced time after time as I have travelled around the country meeting SME owners and listening to their stories. I am in awe of the tremendous talent, energy and passion that is our SME sector and I am grateful to those who have allowed me to share the secret of turning a good idea into a commercial proposition and then taking on the world.
Today I want to talk about New Zealand's SMEs, which in New Zealand are defined as those businesses that employ less than 20 people. At 96 per cent of New Zealand firms they are obviously important to the New Zealand economy, but it is their potential for growth that makes them critical to the government's economic transformation agenda.
But before I head down that track, I have an exciting announcement to make in terms of hitting the ground running when you first start up a business.
As you may know New Zealand is currently rated second in the world for ease of doing business as judged by the World Bank. Some of you will know that it is my ambition that we return to the top of the table. One of the areas that we knew we could improve was the ease with which you could get a tax number when forming a company. I am pleased to announce that from the beginning of this week, businesses can apply for their business tax number and register for GST when they incorporate their companies, all online at once. This means that setting up a company in New Zealand has become a one-step process which in most instances will take less than an hour to complete.
It was common sense for the Companies office to work with Inland Revenue to streamline and automate the company registration system even further, so that businesses only have to provide one lot of information to the two government departments.
It is all part of the government's drive to ensure that the regulatory environment does not create any unnecessary barriers to business growth and is a small but important step towards my vision of seeing the many arms of government extending a single hand to business, rather than requiring businesses to continually supply information over and over again. As I have said recently, from the business perspective, the government is the government – not the individual departments and agencies that business has to deal with.
So as Minister responsible for the Quality Regulation Review I am very pleased to make this announcement today.
And although the final report of the Quality Regulation Review will be made to Cabinet at the end of next month, what we are maintaining is a way of business communicating with government in a way that suits them. Can I recommend www.businessconsultation.govt.nz to you. The aim of the site is to gather information from business about how business thinks the rules they operate under should that work.
This website is your chance to have a direct say on how regulation affects you and it asks simple questions like:
"Do you have concerns about the way business rules are implemented?" - Then tell us.
"Do you have a solution in mind?" - Then let us know.
"Would you like to become one of a group of businesses that we regularly consult on proposed or existing legislation?" - Then we'd really like to hear from you.
"Do you want to make your views heard on lowering SME Tax Compliance Costs?" - Then tell us.
The message is don't just complain - get involved. No-one knows the problems businesses face quite like businesses themselves.
It's our job to make sure that regulations do what they're designed to do, and by taking part in the process and contributing ideas business can give us invaluable feedback that isn't available from any other source.
When governments make policies it is important that we understand the impact that those policies will have on the affected parties. That is why we undertake rigorous regulatory impact analysis when developing policies. To understand the impact on our SME sector, because if there is one thing I have learned from the QRR it is that there is a difference between the big and the small ends of town, then we need to know how the characteristics of that sector.
Today I am also releasing the 2007 edition of the Ministry of Economic Development's annual SMEs in New Zealand: Structure and Dynamics report. Every year Statistics New Zealand gathers data from our business population and works with the Small Business Directorate at MED to produce this statistical overview of New Zealand firms. The report has been produced since 1999 and all of these are available on MED's website.
Structure and Dynamics is the definitive source of information on the number and size of small and medium enterprises in New Zealand. It also has a wealth of data on our larger firms. I have to say that Statistics New Zealand does a great job providing government, researchers, and businesses with the essential information needed to ensure that we understand this sector.
Statistics New Zealand is also steadily improving the quality of its data. This year's Structure and Dynamics previews improved statistics on relevant business demographics.
For the first time, this year's report includes unofficial data from a new and improved business dataset, from which more accurate business entry and exit rates can be determined.
This dataset, called the Longitudinal Business Frame, is larger than the dataset currently used, but more importantly it is able to distinguish between genuine enterprise start-ups and failures, and enterprise entries and exits due to administrative changes such as a name change or a takeover. This is something that the present business dataset hasn't been able to do, and why Structure and Dynamics up to now has just published business continuation rates and not entry and exit rates.
So what are these entry and exit rates? If non-employing firms are excluded, the overall survival rate into 2005 for SMEs born in 2001 is 69 percent.
Interestingly, it also shows that overall firm exit rate from the dataset is 10 per cent. I use the term exit because, although some of these firms will have closed involuntarily, not all of them will have done so.
The conclusion that can be drawn is that business 'failure' is not as prevalent as people have suggested.
The report also tells us that the number of SMEs continues to grow.
As I said before these businesses are influential in terms of the economy and as the economy grows, SMEs have maintained their share of output at 38 per cent.
In addition, they continue to provide about 30 per cent of the country's jobs and they are a big contributor to the new jobs we have seen over recent years. It is also interesting that as at March 2007 self-employed people accounted for 11 per cent of people in the labour force.
This year's Structure and Dynamics also includes information from Statistics New Zealand's annual Business Operations Survey, which was introduced in 2005. The survey collects information on a wide range of business practices and behaviours that impact on business performance and is a useful complement to the standard data in Structure and Dynamics.
For example, it shows that 12 per cent of SMEs are exporters and, although the value of their amounts is relatively small, 55 per cent of exporters are in the SME category.
And while the small firms, with only 1-5 employees, are not big exporters they have the highest average real profits per employee.
From my perspective, however, a more important statistic in terms of addressing regulatory barriers to growth is that 92 per cent of businesses with 6-19 employees use computers and 89 per cent of them have an internet connection. This has implications for how these companies operate and communicate and how the government can communicate with them.
I believe that the solution to the government SME interface which is so critical will be an e-solution. During the Quality Regulation Review, business has told us they want clear, accessible, user-friendly information in their language – not government-speak. SMEs have said don't look at this from the perspective of the individual regulatory framework; look at the cumulative effect of the many regulatory frameworks we deal with. SMEs have said don't punish us for a simple case of misunderstanding or misinterpretation and, while you are at it, don't change the rules part way through the exercise. Tell us what to do and we'll do it, but don't tell me that my good track record counts for nothing. Don't think for one minute that one size fits all.
In closing, I would like to mention KiwiSaver because as Minister for Small Business I have felt let down by those who have not seen this as the huge advantage it represents on so many levels. Big businesses have no problems extolling the benefits of the deep capital markets we have only observed jealously across the Tasman, where a compulsory workplace superannuation scheme has turned the 20th largest economy into the 4th largest investor.
When I go around small business, I am told there are two major barriers to growth that exist outside any consideration of the regulatory frameworks I am there to talk to them about – skilled labour or just labour and finance: - people and money. And yet they cannot see a connection between contributing to their employees' workplace savings and both of those.
We have made this as painless as possible for employers. All they need do is give the employee the IRD information pack and pay KiwiSaver contributions to the IRD through the PAYE process so there are no extra forms to deal with. From 1 April next year the employer contributions become compulsory at 1 per cent a year over 4 years and will be fully offset by the Employer Tax Credit from government for salaries of $104,000 gross or less, reducing each year down to $26,000 or less in 2011. Because that's what $20 per week per employee looks like at 4 per cent contributions.
I am saying this because I want the SME sector to be part of what is going to be remembered in 20 years time as the real turning point in New Zealand's economic history.
The SME sector is motivated, innovative, and entrepreneurial. But as I said before it is their unrealised potential for growth that makes them critical to New Zealand's future, not their sheer volume. Capacity building within the SME sector remains my number one priority, which is why I fully endorse these Expos and why I fully support Sarah Trotman's ambitious agenda to improve business capability at every level. If every owner of every firm with high growth potential could be afforded the opportunity to spend time on their business instead of in their business, then imagine what a powerful force that would represent in economic terms.
And that is my ambition for the SME sector as the Minister for Small Business. It is not only that the voice of small business is heard at the Cabinet table; it is that their potential for growth is unleashed for the benefit of the nation as a whole.
