BUDGET PREVIEW: don’t continue to overlook SMEs

Small to Medium Enterprises make up a significant portion of the local New Zealand economy.

Collectively, we are a nation of small business operators.

Research from the SME Research Centre at Massey University suggests that around 350,000 New Zealand SMEs account for up to 99% of all businesses and are responsible for about 60% of employment and up to 50% of the GDP.

The performance of this sector is crucially important if we are to continue building a stronger economy for all New Zealanders, yet it is often overlooked in the Budget.

There are several areas the government could focus on in next month's Budget to assist the sector, none more important than the Small Business Growth scheme.

Nothing kills a new, or small, business faster than a lack of capital or cashflow.

New Zealand stands out as being almost alone in not having some form of a small business government-backed growth scheme.

Our major trading partners like the US, UK, Canada, India, France, Germany, Australia and more recently Hong Kong all have in place such a programme for SMEs. 

The scheme we advocate, in an environment similar to many other countries, is that the banks continue to exercise their current prudent lending criteria and administer the funding process.

Business owners should expect to provide personal guarantees for a portion of the funding (eg, 25%), with the government underwriting, in this case, 75% of the loan.

Should the business fail, the bank only claims on this underwriting after all other attempts to recover the debt have been exhausted.

The default rates experienced by other countries have proved to be very low, and a premium built into the lending rate has tended to cover this.

A maximum loan amount for each type of enterprise should be set, so, too, should a maximum guarantee period for each loan facility.       

One only has to look across the Tasman for other ideas.

From the 2012-13 income tax year, small businesses in Australia with an annual turnover of less than $2 million will be able to access a range of small business tax concessions.

For example, they have simplified depreciation rules, including increasing the asset write-off threshold from $1000 to $6500.

In New Zealand it still stands at $500.  

It is widely accepted that New Zealand businesses need to invest in technology to work smarter and improve efficiencies and productivity.

Just how keen would small businesses be to invest in new computers and technology if they were incentivised to do so?

And what about just getting rid of FBT altogether for SMEs?

How much time and money does it cost an SME on compliance alone?

Over the last decade SMEs have probably had more hurdles put in their way than paths cleared.

There have been attempts, such as the present New Zealand Trade and Enterprise voucher system, to assist. But this has had little overall traction to date.

Compare this to the added compliance requirements - FBT, GST changes, KiwiSaver, superannuation and student loans - and there is a feeling that such an important part of the New Zealand economy is looking for “a bit of tender loving care”. 

Budget 2012 is the perfect platform for the government to support Kiwi-owned businesses with a little TLC.

Paul Kane is a Grant Thornton partner. Email: paul.kane@nz.gt.com