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Govt can save enough for another round of tax cuts

August 16 2009

Media Release

Report shows how Government can save enough to fund another round of tax cuts

A new report being published tomorrow shows how the Government can save enough each year to fund another round of tax cuts by altering the way its buys goods and services.

New nationwide polling also shows New Zealanders overwhelmingly support the idea.

The report, prepared by the New Zealand Business Council for Sustainable Development, says major savings of up to $1.6 billion a year could result if the Government extends its practice of buying goods and service based on their actual whole-of-life cost, not just day-one price which might initially be cheaper.

The report says businesses and governments in other countries which have introduced sustainable procurement report between 8% and 30% efficiency improvements - "which go straight to the bottom line." Public procurement spending on goods and services amounts to as much as 15% of New Zealand's gross domestic product (GDP) - worth between $14 and $20 billion a year. Combined with the $5.6 billion spent every year by 85 local and regional councils the market could be worth more than $25 billion a year. The Police, Ministry for the Environment and North Shore and Waitakere city councils have been among leaders in implementing whole-of-life value buying.

The Business Council says New Zealanders love the sustainable procurement policy: 67% support it, while only 19% say Government agencies should buy on best day one value for money (price at the time of purchase).

A ShapeNZ survey of 3,300 New Zealanders also shows 75% believe whole of life value buying should be extended to regional and local government (8% oppose, 16% don't know).

Senior business decision makers and senior Government officials and National and Act voters strongly support sustainable procurement and extending it to local government. (Please see results report at http://www.nzbcsd.org.nz/project.asp?ProjectID=47).

For example, 88% of Act voters support this extension, along with 79% each of National and Labour voters and 89% of Green voters; 85% of business managers and executives support it and 76% of business proprietors and self employed and professionals and senior Government officials.

Those with the highest purchasing power on behalf of their organisations most support the extension: 87% of those with purchasing authority of $50,000 to $100,000, and 79% of those with authority $100,000+

While support is strong for whole of life value buying, day-one lowest price purchasing is practised by 33% of organisations and whole-of-life cost purchasing by 21%.

The manufacturing sector (22%) is most likely to buy on day one price only.

The transport or storage sector has the greatest number (15%) buying solely on a whole-of-life cost basis.

Among those buying mostly on a whole-of-life cost basis, business managers and executives predominate (30%), followed by business proprietors and self employed (24%) and professionals and senior Government officials (21%).

Business Council Chief Executive Peter Neilson said a decision in June to treat sustainable procurement in Government as "business as usual", following a review of state sector procurement policies by the new National-led Government, meant businesses needed to know how to win sustainable procurement contracts.

"Billions are at stake. There's a major shift happening here and internationally. Companies which can't satisfy requests for information about the whole-of-life costs of their goods and services, and can't report on their environmental and social impacts, are putting themselves seriously at risk," Mr Neilson says.

"The savings are so compelling if this practice were applied to all central government buying the country could afford another round of tax cuts. Extending it to local councils would also produce major savings and obviously delight ratepayers, business people and voters."

The Business Council's 63 members' annual sales of $58 billion equate to about 43% of GDP, are also practising what they preach: They adopted a new rule last year requiring members to procure sustainably from six of their top 10 suppliers within 36 months of joining. A new annual survey of member firms last month shows up to up to 83% will be procuring sustainably from six of their top 10 suppliers by July, 2010.

Nearly three quarters are already including or planning to include social and environmental criteria in supplier terms and conditions. Some 58% have deselected suppliers in the past year because of their environmental or ethical behaviours.

The new report published today, "Sustainable Procurement in Government: New Opportunities for Business", the 19th business guide published by the Business Council, is available online at http://www.nzbcsd.org.nz/project.asp?ProjectID=47

It is officially launched at the Business Council's 10th anniversary dinner at Auckland tomorrow night (August 17) where more than 90 chief executives and others will host the Minister for the Environment and Climate Changes Issues, Nick Smith, and hear from founding chair and vice chair, Mike Andrews (Fletchers) and Sir Stephen Tindall (founder of The Warehouse). The dinner will also farewell its current chair, Nick Main, who is taking up a global climate change leadership role in member company Deloitte.


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