REVIEW: ACT's SME Policy

SUMMARY

• An A- for ACT. The same SME rating I gave National (after their impressive Tech Policy lifted them up a level), and far superior to the F I gave Labour for making it so much harder and more expensive to employ Kiwis.
• It's not a perfect score, as provisional tax and digital strategies are missing, and some of their SME policies are a bit niche, but a strong quantity and quality of SME policies overall, and a demonstration of great empathy with real SME issues too. In fact, they've demonstrated far greater empathy with SME priorities than the Small Business Advisory Council did.
• ACT arguably have the strongest Covid, tourism, and mental health strategies too. (Links to all of these policies later.)
• I'm also tempted to give them bonus points for avoiding vague political weasel words that ruin Labour policy and media statements.
• Read the full ACT SME Policy here.

Introduction

"Covid-19 has hurt our small businesses. Through no fault of their own, they were forced to shut down."

Great empathy out of the blocks! Covid, and our Government's overly-conservative and biased health response, has been a nightmare for most businesses. The anguish is immense out here in New SMEland. Livelihoods destroyed. Some lives too.

It feels like feast or famine. I have some clients, especially food & bev, and professional services, having record months. My tourism and events clients, however, didn't just have their sales tap turned off overnight, but had to refund future sales too, and incur extra costs processing those refunds. For them, this was a triple blow. We also all know the impact on our (physical) retail and hospo friends - many of whom are now fully financially leveraged in massive debt and barely hanging on to that last roll of the dice. Their relationships hanging on by a thread too. Many of my screen clients have also had projects delayed or canceled. I have grave mental health concerns for all of these sectors and more.

An ATEED survey from way back in June, showed a 5:15:80 rule. Just 5% had increased sales, ~15% the same, and 80% either down, hibernating, or closed. (I have not seen any more recent figures than this).

Our GDP per capita decreased by a record 12.6% for the June quarter. That is far worse than other comparable countries.

We could and should have pursued a dual economic-health approach like Taiwan. As Kiwis, we compare ourselves against the best-performing countries in the world, not the worst, right?

"The crisis also showed how government puts small business to the back of the bus. While supermarket chains who retain lobbyists in Wellington were given a pass, people were forced to drive past their local butcher, baker and greengrocer, which were all shut."

Such a brilliant point! The grocery duopoly was amplified by the Government.

"It’s only right that government now creates policies which supports SMEs to thrive."

Amen! When businesses thrive, the economy thrives, and so too do employees and communities. Most business owners use Profits for good, to look after People around them, the Planet, and keep doing their Passion. If you're not a believer in the trickle-down effect, then surely you can at least acknowledge that no/low profits is no good for anyone?

"Seven out of ACT’s top 10 candidates are business owners. We understand the pressures that business owners are under and how to create sensible, practical policies which support them."

With ACT's meteoric rise in the polls, I have researched who these other candidates are that are joining David in the next Parliament. It is a very impressive and diverse list. My instinct is that they will be among the top-performing MPs in the next three years. (Love him or hate him, David Seymour is also consistently ranked one of our top-performing MPs.)

"Starting a business is incredibly brave and involves taking huge risks. ACT’s SME policies will empower small business owners to take chances, get more people into work, and boost the economy."

More excellent, and real, empathy. It seems like ACT gets it, and gets us, but let's have a deeper look to see if their policies can back this up...

POLICY 1: Depreciation of assets

ACT will:

Permanently increase the threshold to expense new capital investment from $5,000 to $150,000 per asset.

This is also National's policy, and most business owners love this. With my SME owner hat on, I do too, but I'm not such a fan with my SME advisor hat on. I see too many businesses over-capitalising too soon when their cash flow can't afford it, especially buying vehicles when they should have made do, or leased.

Massive depreciation spikes will also mean that P&Ls are a less accurate reflection of true performance by month, e.g. the $150k profit now disappears with a $150k piece of equipment for the month. That will also make it harder to do DD when buying and selling businesses too, and we need a lot more of that going on.

I would have preferred that the threshold is permanently raised from $1,000 to $5,000 (it was $500 pre-Covid). I'd also like to see faster depreciation rates.

"Cashflow is everything to a business. Investment in plant and equipment ties up cash. Leasing is capital efficient but expensive through-life. The majority of small businesses see cashflow as being their biggest issue."

Unlike Labour, who were badly misled by bad advice telling them access to capital was the #1 SME issue, ACT correctly identifies cash flow as the top issue. It's always cash flow (caused mostly by a lack of profitability), and then people/staff/HR for the 30% of businesses with staff.

"ACT is committed to helping business owners invest in and grow their businesses. Capital investment needs to be returned to the owner as quickly as possible so that they can invest further as the business and revenues grow."

A good statement.

Overall their depreciation policy is good, but could have been better. I'm not sure I would have led with this as my first song on the album either. There are far stronger policies to come...

POLICY 2: Moratorium on minimum wage increases

ACT will:

Place a moratorium on minimum wage increases for three years.

"Labour increased the minimum wage as the economy was going into recession and businesses were in lockdown. Increasing the minimum wage further while the economy is recovering will put a handbrake on business growth and the creation of new jobs.

ACT would place a moratorium on minimum wage increases to enable SME businesses to better manage their way through a post Covid-19 recovery. Business owners will still have the discretion to increase wages in a manner that is realistic and relevant to the sustainability of their business."

I'm a massive fan of the living wage, closing the wealth gap, and generally increasing the happiness of all Kiwis, so would have preferred a one-year freeze, then a review, and then smaller incremental increases that struggling employers can manage.

ACT are bang on the money about the issue here, though. As I highlighted in my review of Labour's SME Policy, the huge % increases per year (6-7% per year for 3 years in a row now) is a) unsustainable and b) terrible timing. It's not just bad news for employers, but the employed, unemployed, and underemployed that Labour says they are trying to look after.

The extra weeks' sick leave, two weeks of domestic violence leave, and another public holiday are making it more difficult and expensive to employ Kiwis. We are facing the very real risk of a jobless business recovery as owners are forced to outsource, often offshore. Why would you take on all of that rapidly increasing employment pain, cost, and risk, when you can source great talent from the Philippines for $10 per hour? ($10/hour is a great income for many of them in their currency.)

POLICY 3: Temporary reduction in GST

ACT will:

Reduce GST from 15 percent to 10 percent for 12 months.

"As we recover from Covid-19, we need to put more money in the pockets of New Zealanders to encourage spending and grow the economy. A 12 month reduction in GST will stimulate consumption and put more cash in the hands of businesses and in the pockets of employees."

This would be good news for most businesses, so I have to give it a good business score.

However, I personally don't like it.

• It would cost millions in Government admin to roll this out, including an education campaign, and then withdraw it again just 12 months later.
• There is a lot of admin for businesses too, with IT systems, price lists, ticketing, and menu boards to update.
• The reality is, many businesses wouldn't pass these 5% savings onto customers. If you've spent years optimising your RRP pricing structure, you're not going to reduce a $24.99 product to $23.74. There are many cunning ways across your product range to make it look like you're passing the savings on but aren't.

POLICY 4: Reinstate 90-day trials for all businesses

ACT will:

Reinstate 90-day trials for all businesses.

"With the impact of Covid-19, a renewed emphasis on job creation is required and regulations that impede hiring must be streamlined.

90-day trials reduce risks for employers, giving firms the opportunity to take a chance on workers they wouldn’t otherwise employ. Young or low-skilled workers, or people who have been out work, have the most to gain from being employed on a trial basis.

It also works to the advantage of the employee who can choose to leave should they find the job is not what they expected.

There are significant risks in hiring new employees. Performance management of employees is cumbersome and time-consuming for SME owners and can be financially catastrophic if they don’t get it right."

Simple and brilliant! It was so gutting to see Labour remove the 90-day trial for businesses with 20 or more staff in 2019. They would have removed it for all had NZ First not stopped them.

This is a great policy for employers and employees alike. There must be a dating process. It must be easier for BOTH SIDES to leave if the fit isn't right. One-way pro-employee legislation simply means that fewer Kiwis will be offered jobs.

POLICY 5: Direct a larger proportion of apprenticeships funding to business owners

ACT will:

Provide a greater proportion of apprenticeship funding to the business owner to reduce the cost to the business and encourage them to take on more apprentices.

"SME owners are not adequately compensated for the costs of engaging, supervising, training and educating apprentices. ACT would create a more efficient funding pathway between the training providers and the business so that more funding ends up with the apprentice. We would make permanent the temporary increase in funding for apprentices, across established and new businesses.

Apprenticeship programmes are cumbersome and impose significant costs in time and money on the SME owner, in terms of supervision, on-the-job training and managing trainee skills development. SMEs have not been well compensated for these additional costs and most of the funding has been directed to the ITO or the trainee. The proportion of funding provided to the employer needs to be reviewed for equitable sharing of cost and risks taken."

A good small win for the minority it impacts. Far too niche and detailed to be on a general SME policy, though. If I ran a political party, I'd break my policies into two tiers - BIG HITS for all, and then the specialist policies for specific sectors/industries.

POLICY 6: Prioritise and streamline the immigration process for skilled workers

ACT will:

Consult with employers and training providers to identify skills gaps, establish a coordinated response to domestic training, and prioritise an immigration process that fast-tracks immigrants to fill our skills deficit.

"For any economy to grow and raise the living standards of everyone, it needs a workforce that has the necessary skills.

SMEs are desperately short of skilled workers. While we build a domestic skilled workforce through our tertiary education institutions and apprenticeship programmes, we must attract skilled and semi-skilled workers from overseas to fill the gaps.

New Zealand was built on immigration. With about 300,000 workers due to retire by 2030, we need to encourage people with the right skills to immigrate to New Zealand, help our businesses to grow, and share in that growth.

ACT is committed to attracting immigrants to New Zealand who can provide the skills that businesses need, while we train and enhance the skills base of our current population."

We all know there is something seriously wrong with our immigration process. We all speak to engineers, scientists, teachers, and doctors as they serve our Subway, drive our Uber, or run our purchases through the till. Every society needs people to do those jobs, but not those that have invested many years and a lot of money to develop a specialist skill.

On the other hand, we have big shortages in the tech sector, building industry, and agriculture.

Sadly, immigration is a taboo topic this election, again. Say the very word and you get labeled a racist. The truth is, unsustainable net migration is the #1 cause of our housing crisis, increased traffic congestion, and hospital and education shortages too. I'm deviating here, but these are some of the most critical issues for New Zealand, and are all demand issues, not supply. It's basic economics.

For 20 years from 1993-2013, our net migration was 10-15k per year. Our infrastructure coped. From 2014, the National-led Government rapidly increased it towards 70k per year to artificially inflate the economy. Add 25k net births (a figure that everyone forgets) onto that, and that's 100k more Kiwis per year (105k for the 12 months to June). Which is great... unless your infrastructure can't cope and it worsens the quality of life for all, as has happened with the housing disaster. 100,000 more people need ~40,000 more houses per year. We've never built more than about 25,000 houses per year due to many constraints involved in the process, especially land availability. This makes it a demand issue. Eden Park doesn't sell more tickets than their seating capacity and go "Bugger. We didn't have enough seats."

Ok, let's get back on track. The population strategy discussion for New Zealand, and the overpopulation issue for the world, will have to be solved in another article. Easy, right?

POLICY 7: Reduce the number of government organisations supporting SMEs

There is a lot to unpack here, so bear with me while we dissect it bit by bit.

ACT will:

Privatise business mentoring through competitive tender with MBIE governing the performance of the contract

In principle, I agree that the BEST private-sector suppliers who have lived and breathed (successful) business ownership should be delivering taxpayer-funded business support. However, 1) there are some passionate and talented public sector staff who play a great role here too, especially as navigators in the process, 2) a lot of this business support is already provided by private suppliers, e.g. the RBP scheme, and 3) you have to set very smart and strict rules to ensure that such taxpayer funding is not abused through loopholes.

ACT will:

Place NZTE under the Ministry of Foreign Affairs and Trade.

I don't get this one. There are more details later that might explain in.

"There is a large, complex bureaucracy of government organisations which supports SMEs and funds innovation and export growth. But they have proven ineffective at delivering successful business outcomes"

Governments in general, around the world, have a lot of inefficiency and waste, so I don't think that our business departments are alone here.

"Ineffective" is too harsh. Some taxpayer spending is delivering a satisfactory ROTI (Return On Taxpayer Investment) and some other spending is not. The problem is the lack of measurements so that we can work out which is which. Every business, and every supplier, should have their performance measured if taxpayer funding is involved. As one of those suppliers, I welcome this with open arms. If I'm not up to scratch, I would rather be told than waste our taxpayer money.

"Government support to SMEs is provided through three different government departments: MBIE, NZTE and a voucher system administered through regional business networks."

They've missed out Callaghan Innovation which has been the most criticised business department of all, inside and outside of the Beehive.

"ACT will redefine the role of government organisations and reduce the level of bureaucratic interventions in new business development support, both domestic and export."

I'm confused by this statement. Bureaucratic interventions are needed when taxpayer money is spent, and can be quite helpful, especially to ensure a high ROTI.

"Mentoring and funding for export business development is provided through NZTE which lacks effective international business development capability and guidance. It primarily serves as an ‘introductions’ and large event management agency."

As someone who has exported millions, and utilised NZTE in several countries, I can speak to this from experience. NZTE was helpful, but it was also a bit mediocre in places to be fair. There is a strong argument here that the best export advice comes from those who have done it themselves, or for many clients previously. Everything in life is harder to teach if you can't speak from direct experience.

"NZTE should be placed under the Ministry of Foreign Affairs and Trade so that it can continue in its role of providing ‘government to government’ and ‘government to business’ introductions."

I'm still confused by this one. Export is primarily a business function, therefore, should sit under MBIE. Only the biggest, or most hyped, Kiwi companies can get those foreign government introductions, e.g. Xero, Rocket Lab, Zespri, Lanzatech, Halter.

"To drive effective export growth there is a need to channel government funding for new business development and export mentorship through a single, experienced, knowledgeable and business-savvy organisation with strong domestic and international business development capability. This private organisation would be accountable to the government against a robust set of professionally developed and agreed key performance indicators (KPIs)."

A great statement of intent, and I would love to see more KPIs for all taxpayer spending, but how do you pick a "single" winner from the private-sector to deliver this service?

The big challenge here is that the private sector is the best placed to help the private sector succeed, but public servants have to become involved when public spending is involved.

I think two big questions, and opportunities, for our economic recovery are:

1. How do we get more top private-sector talent working and effective in the public sector?
2. Why hasn't the private sector created scaled SME solutions for all of these problems? (I haven't succeeded here myself, yet)

POLICY 8: Streamline performance management and personal grievance processes

ACT will:

Streamline performance management and personal grievance processes while maintaining the principle of fairness for both parties and invoke the principles of the Disputes Tribunal in the determination of cases.

This is brilliant as well. It's a nightmare trying to get rid of nightmare staff, as anyone with who's ever had nightmare staff knows.

"For small businesses, the personal grievance process is cumbersome and open to abuse by some employees. It can impose significant legal costs on businesses and impact their reputation, for which there is no redress. Rather than the employer bearing all responsibility, ACT would make the personal grievance process fairer and more equitable by shortening the consultation and corrective action timeframes."

Couldn't have said it better. The predatory legal market to win $10k PGs is disgusting. Just search "no win, no fee" in Google to see what I mean.

"Personal grievance processes are intended to support fairness, non-discrimination and equity in employment. For small businesses, the personal grievance process is cumbersome, costly and can be misused by some employees who start unfounded personal grievances which add significant legal costs to the business."

There are some bad employers, but in my 20 years of helping SMEs, the baddies are very much in the minority. The PG was designed to help employees against this minority but has been twisted into a bribery tool against good employers too.

"ACT will shorten and simplify performance management and personal grievance processes, while retaining the principle of fairness. Information on personal grievance responsibilities needs to be readily available to SME owners at minimal cost so they don’t have to resort to expensive legal advice."

Great! There is no need for this to take several months. Performance management should be 1 week's notice + 1 month to correct underperformance.

“Tick-the-box” adherence to process should not be the primary reason upon which decisions are made by the courts."

Brilliant! SME owners can't be expected to be legal experts on 100% of clauses.

This is quite possibly their best SME policy of the lot. If you can get rid of underperformers with ease, then you're far more likely to give more people a crack at a job. That's great for everyone, no matter your job, or where you are on the political spectrum.

POLICY 9: Reform the Health and Safety at Work Act

ACT will:

Amend the Health and Safety at Work so that employees who are found to have acted in a wilfully irresponsible manner with respect to workplace health and safety bear some personal responsibility and can be immediately terminated.

This is a good finish. Employment is a two-way arrangement, so responsibilities, and liabilities, should be shared too - especially if cannabis smoking increases.

"The Health and Safety at Work Act is unfairly weighted against employers. Punitive penalties exist for Persons Conducting a Business or Undertaking (PCBU), but workers, who may choose to ignore rules and safety practices or behave in a manner that endangers themselves and co-workers, do not face similar responsibilities."

Great point and policy. Even though H&S penalties are rarely needed, this sends an important signal that employees have a duty of care too.

"Currently, employees cannot be terminated for wilful acts and must be taken through a time-consuming and costly termination process, sometimes lasting many months. There is a need for a provision within the Workplace Health and Safety Act for immediate termination for acting in a wilfully irresponsible manner with respect to workplace health and safety."

Again, all good stuff. If it's easier to fire, then it's easier to hire too. Good workers are treasured by good employers.

"ACT would rebalance the responsibilities for health and safety between employers and employees to make them fairer."

In summary, two-way policies make common cents. One-way anti-employment rules don't help create the "JOBS, JOBS, JOBS" that all the politicians keep talking about.

What they forgot to tell you...

Beyond business, I read a lot of general policies from all parties, and I'm really surprised that ACT didn't finish their SME Policy page by stating some of their other policies which are brilliant for SME owners:

• Arguably the best Covid Strategy (the #1 risk to businesses are further lockdowns)
• Easily the best Mental Health Policy I've seen. An area I know reasonably well and am deeply passionate about for SMEs too.
• Probably the best Tourism Strategy too.
• Cutting the top tax rate from 30% to 17.5% to make tax fairer. Remember, someone on $150k already contributes five times more income tax for society than someone on $50k (and that’s before Working for Families tax credits, which results in many Kiwis paying $0 income tax). 5x! How is that fair? (I'd like to see company tax reduced too, to help cash flow, since profits stay in a business until shareholders take them out are are taxed accordingly.)

They missed a big cross-selling trick by not mentioning these. So too did other parties who also failed to do this on their policy statements. This is Marketing 101.

What they missed

• Addressing the core issues of provisional tax and IRD penalty interest rates. I was really hoping ACT would address this. TOP and National win these points. TOP wants to get rid of it. National wants to increase the qualification threshold.
• Digital strategy. National's impressive NZ Tech 2030 policy leads the way here. I've also been told that TOP has a good digital policy but I can't find it on their website.

What everyone missed

• Environmental business strategy. Most business owners care deeply for the planet, and profits and planet are inextricably linked for better or worse, so I'd have liked to see this mentioned somewhere. To be fair, National and Labour didn't mention the environment in their SME Policy either. I'm sure the Greens do, but they are so anti-business and anti-employers that you can't seriously consider them if you are one.
• The broken credit payments system. Again, no party seems to have mentioned this. A real shame as it's right up there in the complaints list.

Overall

ACT's impressive rise, in large part from focusing on policy and performance, not personality and perception, has carried over to their SME Policy. I place it on an A- par with  National's SME Policy  + Tech Policy, and far superior to Labour's SME Policies which I just had to give a BIG F.

When you help risk-takers and job-makers succeed, you help all people, and often the planet too.

I don't vote on SME policies alone, and I don't like everything about the ACT Party, though. I believe in free-market economics but sometimes the free market fails and state intervention is needed, e.g. the broken credit payments system, bottled water, unsustainable net-migration, foreign housing ownership.

To counter that, however, David Seymour and Brooke van Velden have delivered us an amazing End of Life Choice. We all have our voting hot buttons, and mine is euthanasia after seeing the horrific palliative care process first-hand with my mother.

And that's just politics and voting, really. You'll never like any party 100%. You have to compromise (and you SHOULD read policies) before you go out to vote for the one that best aligns to your beliefs. Personally, I'm still undecided two days out.

What do you think?

Disclaimer

• I have helped Labour, National, NZ First, ACT, TOP, and Sustainable NZ with SME policy ideas (The Greens do not take policy ideas from those outside their policy group).
• In 2018, I delivered a report of 30 SME recommendations to Labour.
• In 2020, I've probably helped ACT more than any other party. Mostly because they seem the most open-minded and most willing to get their policies right for New Zealand.
• I am party agnostic, and my tribe is the SME tribe. If you ever think I'm playing the personality, not the policy or performance, please do challenge me.