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Compliance survey shows small business penalised

Compliance survey shows small business penalised

A national survey shows small businesses face compliance costs six times higher than larger ones.

Business NZ and KPMG last month surveyed hundreds of New Zealand enterprises that were asked to identify compliance costs and trends, and to assess the helpfulness of central and local government agencies.

The Business NZ-KPMG Compliance Cost Survey found that small enterprises, employing five or fewer employees, bear compliance costs of $3,400 per employee per year. This is a significant finding, as firms of this size make up 84% of all enterprises. By contrast, an enterprise with over 100 employees faces compliance costs of $538 per employee per year.

This indicates that small businesses - the vast majority - have a compliance burden at least six times higher than larger ones.

Overall, the survey results show that the compliance burden faced by New Zealand businesses equates to more than half a percent of our GDP, showing it is clearly a drag on growth.

Survey respondents said around 30% of compliance costs are tax-related; another 30% are employment-related and around 25% are environment-related. They viewed the new Health and Safety in Employment Act as the highest priority for improvement and the compliance area with the largest increase in costs over the past year. The Companies Office was perceived as the most helpful agency and the Environmental Risk Management Authority (ERMA) the least helpful.

KPMG National Chairman Alan Isaac said recent Government initiatives have both reduced and increased costs in different areas, and the survey would help government and officials identify priorities for action. "There is some good news in the survey's findings - recent tax simplification initiatives, could, for example, be having a positive influence on perceptions on tax." However, KPMG remain concerned that the Government's current approach to the reduction of taxation compliance costs is really only tinkering at the margins, and that meaningful compliance cost reduction cannot be achieved without some loss of revenue. "The entertainment tax regime is one such example," Mr Isaac said.

Interestingly, tax is normally the greatest reported concern in similar surveys. In this survey, although tax was the top priority for action, it came in second behind the Health and Safety in Employment Act once respondents' top three priorities were combined.

Business NZ Chief Executive Simon Carlaw said the newness of the Health and Safety in Employment Act probably accounted for its high showing. "It is, however, part of a package of employment-related costs, including employment relations and holidays, that are together causing business great concern. ACC has also emerged as a consistently high priority for action across enterprise size, industry and region."

KPMG and Business NZ say the survey, to be run annually, is intended to highlight those compliance issues that are of concern to businesses and track the compliance cost trends over time. "The survey will act as a benchmark against which future Governments' compliance cost reduction initiatives will be measured," Mr Carlaw said.

The survey will assist policy makers in reducing regulatory impediments faced by enterprises that are whicthe drivers of economic growth and higher living standards for New Zealanders.

The Business NZ-KPMG Compliance Cost Survey, undertaken in July 2003, received 760 valid responses from New Zealand enterprises of all sizes, collectively employing over 49,000 people. The survey included a wide representation of industries, with manufacturing being the largest single sector (30% of respondents), while service sectors grouped together provided 57% of respondents. From 25 August the full report can be downloaded on or .

Survey shows compliance costs a drag on growth

Findings from Business NZ- KPMG Compliance Cost Survey (the first in a series of annual compliance surveys) of 760 enterprises during July and August:

small businesses face compliance costs six times higher than larger ones enterprises with 100 or more employees have compliance costs of around $500 per employee per year. small enterprises - those with five or fewer employees - face compliance costs of around $3,400 per employee per year

priorities for change (all respondents) tax was seen as the highest priority for change - more than a third of respondents (35%) said tax was the worst offender, followed by workplace health and safety (23%), employment relations (10.5%), and ACC (8%) but when the respondents’ top three priorities are combined, the order changes: health and safety becomes the top contender (65%), followed by tax (61%), employment relations (48%) and ACC (39%). recent tax simplification initiatives may be helping improve perceptions on tax-related compliance costs the prominence given to workplace health and safety probably reflects the newness of the Health and Safety in Employment Act (the amended Act became law in May), as well as its complexity imminent changes to the Holidays Act and Employment Relations Act and intended moves on pay equity are likely to be responsible for employment relations issues registering high levels of concern

compliance costs are getting worse: almost all respondents said compliance costs had either not changed or (the majority) that they had increased over the past 12 months; the numbers of respondents who said compliance costs had fallen over the previous 12 months was tiny; not one respondent said compliance costs for health and safety had fallen.

helpfulness of central and local government agencies respondents said the most helpful agency is the Companies Office, with the Customs Service coming second; the Companies Office’s high rating may in part be due to what is widely regarded to be a very user-friendly website; it may also be a reflection of the relative ease to register a company in New Zealand. the agency deemed least helpful was the Environmental Risk Management Authority (ERMA), well behind the next least helpful agency, Statistics NZ; ERMA’s relatively poor outcome is not surprising considering the complexity of the HSNO (hazardous substances and new organisms) regime it administers and the issues raised in a recent critical report on the agency’s performance; hopefully, implementation of the report’s recommendations and recently announced changes to the HSNO regime will improve perceptions

Compliance a drag on growth all aspects of the survey considered, the results are serious; the survey shows the compliance burden faced by New Zealand businesses equates to more than half a percent of our GDP; it is clearly a drag on growth. While each compliance imposition by itself may be small, the cumulative effect of many regulations can be crushing

costing, tax: respondents estimated that 30% of compliance costs are related to tax; on average, enterprises spend 316 hours a year on tax-related compliance issues, at an average annual cost of around $6,000; most respondents also use outside advisers, spending on average $12,000 a year costing, employment law: another 30% of compliance costs arise from employment legislation, taking up an average of 550 hours a year and costing $10,500 on average; as well, 55% of respondents use out-of-house advisers on employment-related compliance issues, spending on average $8,600 a year on advice. costing, environmental legislation: 25% of compliance costs arise from environmental legislation. On average, 185 hours a year are devoted to environment-related compliance issues at an average cost of $3,516 a year. 18% of respondents also use outside advisers on environment-related compliance issues, spending an average $40,000 a year on advice.

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