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Business Update

Thursday 30 March 2006

NEW APPROACH TO WATER Business NZ advocacy efforts have been rewarded with the news that Monday’s Cabinet meeting will consider tradeable water rights (bravo Jim Anderton and Jim Sutton). Business has long argued tradeable water rights are needed for fair allocation in rivers where there’s competition between hydro generation, irrigation, industry and recreation uses. If the policy gets the go-ahead, it’s likely to have restrictions, but a move towards tradeable rights would be a big improvement on the current ‘first come best served’ system.

PAYROLL TAX? NO THANKS Business rejoicing at the prospect of a bold cut in company tax fizzled somewhat at Michael Cullen’s hint that it might be offset by a payroll tax. A payroll tax would be hard on employers. Unlike company tax, where lower profit means less tax paid, a payroll tax would be levied on numbers employed, regardless of profitability. Hardest hit would be new firms, those with many employees and those on the margin of profitability. Payroll tax is used by Australian states in the same way that rates are used by local bodies in NZ - to fund regional activities; it would be gross over-taxation to also apply it to enterprise here. See BERL’s analysis: Is there a case for payroll tax?

GIVE YOUTH A GO Sit-ins and placards get TV coverage, and one large employer has agreed to union demands. Does this mean youth rates are on their way out? The select committee considering the minimum wage amendment Bill has a majority of Labour and Green MPs who might recommend the end of youth rates - but that wouldn’t be in young people’s interests. All other things being equal, most employers would opt for adult workers instead of teenagers: youth rates give teenagers a chance to get their foot in the workplace door. Without youth rates, we could see youth unemployment higher than the current 12%.

HELPING UNEMPLOYED INTO WORK Wayne Mapp’s ‘probationary periods’ Bill would bring a welcome dose of salts to the grievance industry that’s grown up around dismissals of fairly new employees (e.g. where the employment relationship didn’t work out, work habits weren’t appropriate, or where output was below expectations – things that are hard to predict before employment). Many ‘unjustified dismissal’ claims succeed on a technicality because the ERA is so process-bound - and this makes employers wary of hiring someone without a sparkling work record. The Bill would bring a probationary period of 90 days where the ‘unjustified’ rule would not apply, removing the incentive for opportunist claims. Would this make employers ‘fire at will’? No, that would just waste training investment and lose efficiency from constantly changing personnel. Instead, it would encourage employers to help young people and others unemployed into work.

FRENCH ‘EMPLOYED FOR LIFE’ Worker protections in French law mean permanent employees are practically impossible to fire. They’re virtually employed for life (with large govt pensions thereafter). Not being able to fire under-performing employees makes French employers rather wary of taking on new workers. The result is low job creation and 20% youth unemployment. The French PM’s plan to fix the problem: a law making young people serve a 2-year trial period before they can be offered a permanent job. A reasonable approach to the problem? Non! say thousands of French who’ve taken to the streets to protest, despite the fact that probationary periods work well in the US, UK, Australia and many European countries….

WATCH OUT CREDITORS Proposed changes to insolvency law would give wages and redundancy payments priority over unsecured creditors. That’s a problem, says Business NZ – bumping unsecured creditors further down the queue could mean more expensive credit, and higher transaction costs with creditors using more complex contracts to try and protect their assets. And if
lending agencies perceive that the risk credit has increased, there could be a tendency to call in loans earlier. (It would be much worse if the govt later legislated to make redundancy compensation mandatory...) The effect generally would be to make the position of unsecured creditors more precarious, argues Business NZ’s submission.

COMPETITIVE AUSSIES Last week Australia decided against increasing govt charges on freight vehicles. The plan had been to increase their charges closer to what NZ freight companies have to pay, but it got voted down. Good news for Aussies, bad news for Kiwis - the result is NZ trucks continuing to pay up to $20,000 more each year in road user charges than similar Australian trucks pay in equivalent charges – and it means NZ freight charges continuing to be 30% higher than Australia’s. The Australian decision not to increase their charges was made on the basis of competitiveness – that should be the basis for our decisions too.

HOLIDAY COSTS START THIS WEEK The cost of the change to four weeks holiday starts this Saturday. From 1 April, businesses have to accumulate holiday pay at the rate of 8% so employees who leave after 1 April 2007 can be paid for untaken annual holidays at the 8% instead of the 6% rate. Employees aren’t entitled to the extra leave or payment for it until after April 2007, but once that entitlement begins, the employer has to find the extra money, dating back to April 2006. Another compliance gem from our famous holidays law…

WORKCHOICE DAY One way to help young people with career choices is to host students on Workchoice Day. Help students gain insights into working life and industry and career choices, by hosting a group in your workplace on Workchoice Day, 16 May. More information on or 0800 931 080



- The NZ economy shrank 0.1% in the Dec 2005 quarter, following growth of 0.1% in the previous quarter.

- Annual growth in GDP was 2.2% for the Dec 2005 year, down from 4.3% growth in the Dec 2004 year.

- Declines were recorded in wholesale trade, transport and communication services, and manufacturing.

- Govt administration, defence and construction all recorded growth above 3%.


- Imports during Feb increased 3.8% (+$105m) compared with Feb 2005, inflated by a $207m increase in aircraft imports. Imports for the year ended Feb 2006 reached a record $37,931m, again influenced by aircraft purchases and higher oil prices.

- Exports during Feb dropped 1.8% compared with Feb 2005, with lower values for beef and lamb.

- Exports for the year ended Feb 2006 fell 1.2% compared with the previous Feb year.

- The annual trade balance for the year ended Feb 2006 is a record deficit of $7,223m (23.5% of exports), the largest deficit for a February year since 1976.

- Is there a case for a payroll tax?
- Productivity figures welcomed
- Probationary period would help more into jobs
- Skills Perspectives
- Call for facts in broadband debate


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