Hon Lianne Dalziel
Minister of Commerce, Minister for Small Business,
Minister of Women’s Affairs, MP for Christchurch East

15 May 2007 Speech Notes

"We hear you" – the government response to small business

Speech to the Rotorua Chamber of Commerce
Grand Tiara Hotel,
Fenton St,
Rotorua,
8am

Thank you for asking me here to speak today. Can I begin by acknowledging my colleague and local MP, Steve Chadwick, who is a strong advocate for her community – and when I say community I mean that in the broadest sense from the individual communities that make up Rotorua to the business sector. I am sure you are all aware that she has been championing the case of local retailers caught out by the failure of Parliament to grant an exemption to one of New Zealand’s iconic tourism centres in terms of restrictions to Easter Sunday trading. I am going to come back to that issue at the end because Steve, having been burnt once before, has worked with me to produce a fall-back position should her Bill fail.

You’ve asked me to talk about the work of the Small Business Advisory Group and what the government has been doing in response to their recommendations. The Small Business Advisory Group was set up in 2003 to give small business a greater voice in policy development and to advise officials and ministers on issues facing SMEs.

There were originally nine small business people from around the country – including Lachlan McKenzie from Rotorua. The new team includes another local, Rod Meharry, who many of you will know. I understand that he can’t be here today, but I hope he won't mind my telling those of you who don't know him that he is a straight-shooter and calls it as he sees it.
You may not have heard a lot about the advisory group's work, but that reflects their role. They work on the ‘inside’ – getting departmental briefings and often commenting on proposals before they go to Cabinet. The quid-pro-quo is that they maintain confidentiality.

The Small Business Advisory Group has also published annual reports on what they think are the key business issues that government should be addressing. In both cases, government has given the advisory group a formal response and I'm pleased to report that we have acted on, or are acting on, the vast majority of the recommendations.

Regulatory Impact Analysis
I think one of the most important recommendations that has been made was calling on government to demonstrate the quality of the cost-benefit analysis in regulatory impact statements. Although the Advisory Group wanted this resolved by September last year, it was on 1 April this year that the Regulatory Impact Assessment Unit was given teeth; it can now reject RISs that are not up to scratch or which haven’t been consulted on sufficiently.

Major discussion documents will in future be required to include a draft regulatory impact statement, or at least contain questions about the proposed regulation, focussing explicitly on the cost-benefit analysis. This means that the risks and opportunities of each option will be able to be examined alongside the costs and benefits, in consultation with affected stakeholders.

It is important to acknowledge that regulation is not always the only answer, so the new process will ensure that non-regulatory solutions are also investigated.

Furthermore, existing regulations will be taken into account. We want to ensure that we are not duplicating requirements or adding unnecessary complexity.

The improvement of the RIA process is a key part of the Quality Regulation Review which is looking at the impacts regulatory requirements have on business.
Quality Regulation Review
This review is a task I took on as Minister of Commerce, but until it began I really hadn't appreciated how important it would be to the businesses covered by Small Business portfolio. In particular, the review has reinforced for me the importance of obtaining well-researched information about SMEs. I believe it is vital that we fully understand the needs of this sector if we are to achieve the transformational goals that we have set ourselves as a government.

The Quality Regulation Review sits alongside our current business priorities which include business sustainability, business taxation, faster internet access, boosting science and research funding, strengthening incentives for more commercialisation of our innovations here in New Zealand, as well as refocusing spending programmes and business assistance.

These are all geared towards building globally competitive firms that can take the New Zealand brand to the world, and that is something that we rely on our SME sector to deliver.

Meeting with businesses around the country also enabled me to understand how even small things could make a significant difference to the way business is transacted. And it showed me how easy it was to leave envelopes unopened, because not knowing exactly what IRD wanted from you or how much trouble you were in somehow meant that the problem didn't exist. Even taking into account the lack of scale and scope within SMEs, there is no excuse for that to happen. I accept that most SMEs go out of their way to understand and comply with all of the regulatory frameworks that apply to them, but this does serve to reinforce my belief that the number one priority for the SME sector is business and management capability. There is no excuse, with the wide availability of programmes, for business owners not to know how to run a business.

Personal Grievances
Which leads me to another issue where the Small Business Advisory Group wanted more work done, and that is personal grievances processes for new employees.
The government has been upfront about this – we do not support PG-free periods for new employees, which would essentially take away legal safeguards for hundreds of thousands of new employees each year.

But we do take on board the advisory group's concerns that many small businesses are sometimes reluctant to take on new, unproven staff due to the potential difficulties if it does not work out.

This year the Department of Labour has been talking to employers to clarify the issues, including getting more detail on some of the current practices used by employers to resolve workplace problems. The finding of this research will help shape the way the government addresses the concerns raised by the advisory group.

It is a serious responsibility to employ staff and even more so in an SME where personality and teamwork are vital, so where is the value in introducing a personal grievance-free period that says that it is alright to dismiss staff without cause? Nobody would want it to happen to their own son or daughter. Isn't it better to help SME owners gain the skills to choose the right staff in the first place, then ensure that they have the skills to manage those staff effectively? It is important that open and honest communication occurs that ensures that expectations are well-understood on both sides of the employment relationship, and the government believes that we can give better guidance in that regard.

Compliance Costs
I have been asked on a number of occasions what I am doing to address compliance costs. When we look at our record as against world standards, New Zealand rates well – second only to Singapore in the World Bank survey for Ease of Doing Business.

Interestingly, the Business New Zealand /KPMG 2006 survey of compliance costs found that while business thought that compliance costs were increasing in New Zealand, their estimated time devoted and total compliance costs actually decreased in all areas studied. There seems to be a difference between perception and reality.
A number of potential sources give rise to these perceptions:

- Government departments tend to operate in silos without consideration of the cumulative effect of multiple messages to the same audience.

- A single, isolated case may be portrayed in the media or by interested parties as being more widely representative; and

- People sometimes recount anecdotes about their views or experiences and these can be transmitted more widely without analysis of the substance of the claims.

So, overall, I suggest that the Labour-led government's response to the Small Business Advisory Group has been extremely positive. We have taken on board the group's concerns and are actively addressing them. Although the two scores 5.3 and 5.8 out of ten represent pass marks, there is a degree of work-in-progress that must be taken into account, given that the government has not yet concluded some of the work programmes that will deliver more of the recommendations.

KiwiSaver

I’d like to take this opportunity to briefly update you on KiwiSaver. I know there is a lot of interest out in the business community about the introduction KiwiSaver. This, as you know, is the Labour-led government's flagship policy which is designed to address the failure of Kiwis to develop a savings mentality.

Inland Revenue will soon start a major advertising campaign aimed at both the public and employers. This will make it easy for employers to understand the scheme. IRD is also running seminars through the chambers of commerce so employers will have access to the guidance they need in plenty of time for the scheme's introduction on July 1.

The government has introduced KiwiSaver as a savings mechanism to ensure that people’s retirement income is comparable to their pre-retirement income.
We want to change the savings behaviour of people who are not currently saving enough for retirement. It has been suggested this is neither the top 3 deciles – who arguably may already be saving for their retirement – nor the bottom 3 deciles, whose pre-retirement income is likely to be comparable to their income on New Zealand Super. KiwiSaver is aimed at those middle 4 deciles who are in a position to save but may not be, for whatever reason.

KiwiSaver encourages savings by this demographic through a variety of different mechanisms, including automatic enrolment into KiwiSaver schemes, the provision of a fee subsidy, a crown contribution, and a subsidy for the purchase of a first home.

We have made the scheme opt-out, rather than opt-in so that the inertia that stops people enrolling in superannuation schemes will operate to keep people in. Around 700,000 New Zealanders start a new job over the course of a year, so we are very hopeful that the numbers will grow quickly.

I have been involved in the development of KiwiSaver as Minister of Commerce, with responsibility for the regulatory aspects of the scheme, and I am jointly responsible with the Minister of Finance for appointing the default providers.

But, as Minister for Small Business it has been my priority to ensure that compliance costs for employers are kept to a minimum. There is going to be a cost. But the benefits far outweigh it, not just for the individuals who save more for their retirement but also for the New Zealand business environment, due to the flow-on effect of the greater availability of investment finance.

The most important feature of the scheme is that the employer does not become a financial adviser – they are merely the conduit for the scheme: providing an envelope that contains all the advice an employee needs, passing on the details of new employees to the IRD and then passing on the contributions to IRD with the PAYE payments. That is it.

I know some employers want to have all their staff in one scheme, but have been concerned that they will then be liable for the scheme’s failure, should that occur. That is not the case. The only time that an employer would cross the line would be if he or she was getting a kick-back for enrolling all their staff in one scheme or that the scheme itself was somehow routing the money back into the business.

The bottom line is that employers are not in a position to offer financial advice and ought not do so. However as Minister for Small Business I am acutely aware of the degree of advice employees ask for in a small business so having someone to come in and provide that advice to a group over morning tea is probably something small business will want to do.

Kiwisaver is about defining New Zealand’s future and you are an important part of it. We cannot afford to miss this opportunity again – as we did in 1975.

Conclusion
I would like to end by coming back to the approach that I have adopted in terms of the response to issues raised in the Quality Regulation Review. Because the retail and hospitality sectors were two specific sectors that we talked with, the issue of Easter weekend came up, particularly the discrepancy between the Shop Trading Hours Act and the Sale of Liquor Act. Frustration was expressed about how every time Parliament addressed Shop Trading Hours, we forgot that the hospitality sector is covered by similar rules but in a different Act.

So Queenstown, which is exempt completely from the Shop Trading Hours Act, faced a problem with its licensed premises having to apply for exemptions to trade on the same days the shops could open. Many outlets these days cross the line between the two types of establishments and the distinction can be somewhat blurred.

I was very aware that two MPs had private members bills before the House, one of which has already been voted down) and I know Steve Chadwick felt very let down when her Bill didn't make it just before the 2005 election.

Cabinet has therefore instructed the Department of Labour and Ministry of Justice to undertake a review of how the Shop Trading Hours Act, the Sale of Liquor Act and the Holidays Act operate over Easter weekend and report back options for resolving the discrepancies.

I will say that I don't support those that have argued for a blanket 'right to trade'. Easter has become a well-established break in the year, where people are able to take a holiday. The festivals that have led to the current debate (Jambalaya here in Rotorua and Warbirds over Wanaka) would not be the success that they are if New Zealanders generally did not have holidays on that weekend.

It is a pleasure to be able to work with members of Parliament like Steve, who adopt a principled and pragmatic stance in representing the interests of their community.

Of course, government can only go part of the way in ensuring that we have the right business environment to grow globally successful firms – we still rely on business to produce the goods. Government can be seen as part coach, part team manager, part investor and part cheerleader. But ultimately it is business that makes the play, and scores for our national brand.

On that note, can I thank you once more for inviting me to speak today and I am happy to respond to any questions you might have.

--

Summary of Small Business Advisory Group recommendations

1st Report
1 Enhance funding to Business in the Community and/or similar providers of mentoring services to upskill their mentors and mentor co-ordinators in order to provide a superior service to clients and to market their services.

Delivered increased funding for mentoring

2 Provide funding to SMEs with growth potential to engage an Advisory Board to assist them in the governance of their business. The Advisory Board would typically comprise 2-4 people capable of bring to the business an impartial eye and expertise that the founder/owner does not possess.

Delivered funding for advisory boards from November 2005 – uptake slow

3 Support the use of existing and new local business awards programmes as a way of providing benchmarking information to firms. The expectation is that a common template would be devised that could be used by local business organisations and trade associations to establish and judge annual business awards. The template should be designed in such a way as to permit key comparisons with companies in already established benchmarking systems. The information from these templates could be fed into a central database that would provide benchmarking data for participating businesses across the country.

Delivered funding to various awards through NZTE

4 Make readily and cheaply available to all SMES a checklist of things they need to do, and the assistance that is available, when starting and growing a business. Any help-sheets that are produced must be in a consistent and user-friendly format and be kept up to date.

Will be delivered with renewed web-site www.business.govt.nz to be launched in August 2007

5 Provide a checklist of issues to be considered when hiring an employee, together with supporting advice and guidance, quickly and cheaply.

Delivered through Department of Labour pamphlet and website

6 Undertake policy development work aimed at making access to fund easier for SMEs with growth potential (e.g. encouraging banks to lend on cashflow/character in addition to assets, loan guarantees).

Delivered Seed Co-Investment Funding 1 July 2006

7 Urgently undertake a review of rates of tax deduction for depreciation with the view of reducing taxation in the first three years of plant installation, and offsetting that with lower allowable tax deductions for depreciation in the following years.

Delivered changes to depreciation rules in Budget 2006

8 Develop a strategy for providing assistance to SMEs to implement sales and marketing strategies and plans.

Delivered Market Development Assistance Scheme (MDAS) with significant increase in available funding in Export Year 2007

9 Ensure basic enterprise education is part of the core curriculum at Year 10 (4th Form) and that provision is made for better support for enterprise education providers and for promoting careers in business to school pupils.

Delivered "Enterprise" as characteristic to be developed as part of school curriculum; delivered funding for Enterprise in Education

10 Identify and remedy the barriers to government agencies purchasing from New Zealand suppliers to ensure that the government makes greater use of its procurement powers as a tool to encourage innovation and growth in New Zealand SMEs.

Plan to deliver government procurement policy through the new Government Procurement Development Group established within the Ministry of Economic Development

11 Make greater efforts to harmonise borders with Australia and make trading with our neighbour easier

Delivered significant outcomes in joint commitment to Single Economic Market agenda with Australia

12 Have each government department identify a small business advocate who would be responsible for presenting the SME perspective on any proposals being developed by the department that might impact SMEs.

Delivered a number of small business units within particular departments, most importantly, IRD and Dept of Labour

13 Charge a senior manager in each department with scrutinising all the regulations designed by the department, to assess the need for them, their quality and the impact they will have on businesses (and SMEs).

Delivered enhanced responsibility on departments for the quality of regulatory impact and business compliance cost analysis

14 Measure and publish the cumulative effects of the costs of compliance with regulations passed in the previous six months.

Currently considering a proposal for an independent group to do this function.

15 Ensure all business-related legislation and regulations come into effect on only one or two pre-determined days per annum. Common commencement dates, especially when coupled with advance notice and guidance, would help SMEs to plan and budget, and reduce their costs. In addition, businesses would know that they have to deal with regulatory changes only at fixed predictable points in the year.

Delivered a commitment to meet this objective where practicable.

16 Ensure proposals for changes to regulations that affect business are put out for a minimum three months' consultation period and do not come into force until three months after the government or Parliament agrees to the changes. This provides adequate time for SMEs to contribute to the design of the regulations and prepare for their commencement. Listening to businesses has a number of specific benefits. It allows government to tap the widest source of information possible and thus improve the quality of decisions reached; it alerts policy makers to any concerns and issues not picked up through existing evidence; and it helps to monitor existing policy and to determine whether changes are needed.

Delivered a commitment to meet this objective where practicable

17 Have government agencies (particularly ACC, OSH and ERMA) run regular (e.g. every third Wednesday of the month) local information nights. There, businesses could learn what is required of them by way of compliance, hear what is new since last month, and have one-on-one advisory sessions (information from which is not passed on to the enforcement arm of the organisation).
Delivered through local business networks (e.g. Chambers of Commerce, Industry Associations)

18 Simplify FBT on business vehicles by moving it from the FBT return to an adjustment on depreciation in the employer's income tax return and base this adjustment on the depreciated value of the vehicle.

Being considered in next tax discussion document on which decisions will be made by the end of 2007

19 Rebalance the legal procedures for dismissing non-performing staff and provide qualifying periods for personal grievances for probationary staff. We believe that these are the single most important changes that could be made to employment legislation and that they would lead directly and immediately to employment and business growth.

There is already a probationary period provided for in existing legislation. Updated information on the use of probation periods provided in the Employer’s Guide.

2nd Report

1. That the Government demonstrate that the quality of cost/benefit analyses contained in Regulatory Impact Statements has improved by 30 September 2006

Delivered improvements in the Regulatory Impact Assessment process on 1 April 2007

2. That IRD and ACC develop, implement and communicate a strategy for dealing compassionately with minor misdemeanours or unintentional mistakes

Delivered

3. That HSNO controls be made less complex and simpler to implement

Improvements made from July 2006

4. That the Holidays Act 2003 be re-visited, particularly the relevant daily pay clause, to reduce the costs of complying with it

Delivered Holiday Pay Calculator on Dept of Labour website – deferred consideration of relevant daily pay for another year as the calculator should address the compliance issues

5. That the employment law be amended to provide for a performance-based personal grievance-free probationary period of 12 months for new employees

Acknowledged SBAG’s concerns about the risks for employers in taking on new, unproven, employees. Research is underway to get a better understanding of these issues.

6. That all government business forms contain a time box in which the person filling out the form indicates how long it took to complete (including research/ understanding time) and that the results and trends from the information in these boxes are published.

Delivered by ACC. . There is a commitment to looking at the compliance obligations in terms of time for providing information.

7. That FBT on business vehicles be simplified by moving it from the FBT return to an adjustment in the employer’s income tax return

Being considered in next tax discussion document on which decisions will be made by the end of 2007

8. That improvements to the presentation and information on ACC invoices, and their timeliness, be urgently implemented

Being delivered this year

9. That the government run a Small Business Day Series in 2006

Will consider at end of 2007 for 2008. The Quality Regulation Review meetings with business in 2006/07 have enabled a good spread of SMEs to raise concerns about government regulations.

10. That the government implement a programme that will help it better understand SMEs. That programme should include appointing SME champions in government departments, requiring a senior manager scrutinise all departmental regulations, and a public/private sector secondment programme

Work in progress

11. That every year the Ombudsman target business audiences, as well as individuals, during his regional visits, in order to allow SMEs to communicate specific concerns about regulatory enforcement actions by government agencies and local authorities

Accepted

12. That the government ensure basic enterprise education is part of the core curriculum.

Included in the Draft Education Curriculum

ENDS

© Scoop Media