At last, opportunities for the SME sector

AFTER A FAIRLY TUMULTUOUS GENERAL ELECTION, A NEW GOVERNMENT HAS BEEN FORMED AND IT WOULD APPEAR THE BALANCE SHEET SHOULD FAVOUR THE SME SECTOR, SAYS ASHLEY BALLS.

THE MAINSTREAM MEDIA

(MSM) may still be hung up on the ‘loss’ incurred by the party getting the most votes in the general election, but New Zealand, like an increasing number of countries, has a ‘grown-up’ electoral system and recognises that a majority of voters expressed a desire for change.

Furthermore, some in the MSM seem to have taken leave of their senses, forgetting that New Zealand almost never has four-term parliaments and in a few cases forgetting ‘economics 101’.

I was particularly diverted by a commentator’s volubility on the damage that might be done by increasing the minimum wage. Clearly, he is unaware that when low-waged people have discretionary income they will spend it – increasing demand and stimulating the wider economy.

As this is not a political publication I will concentrate on three election pledges, assuming they are implemented, and considering the outcomes: Auckland, minimum wage and regional development.

1. AUCKLAND

Many figures were thrown around during the election suggesting Auckland needed 10, 20 or even 30 thousand new houses every year – if tradespeople could be found. Few ventured to suggest that any further growth would add to the already growing congestion and strain on infrastructure.

Does anyone even remember when the last large new school, hospital or reservoir was constructed, let alone harbour crossing? Yes, there is a city loop railway under construction but still no effective high-speed public transport to the airport.

Surely a moratorium on growth would be a better and cheaper option, yet some bright spark only this weekend was waxing lyrical about a new ‘city’ to be built at Paerata, north-west of Pukekohe.

All fine and dandy but if any of those people want to get to central Auckland for work they have two options: the already overcrowded State Highway One or a rail network (of sorts) that requires a change of trains at Papakura because some cheapskate thought electrification of the track further south was not necessary!

Further investment in Auckland is prohibitively expensive and will result in an even larger proportion of the country’s population living in one large conurbation.

2. MINIMUM WAGE

Minimum wages have been legislated for in many countries as a way of reducing the number of working poor. However, the minimum wage in New Zealand has become a target that has encouraged some employers to consider it a mandated wage for as many employees as possible – the retail, manufacturing, hospitality and elder care sectors being particularly prominent in this.

For too many, minimum wage is automatically built into staff budgeting and only ever lifted when government decrees it. This takes the eye off productivity and investment.

Wages need to be fair and reasonable, not subservient to shareholder returns.

New Zealand, like many economies that have adopted the now redundant and technically wrong ‘austerity’ model, has very low productivity (goods/ services produced per capita). The proposed large increase in minimum wage (to $20 per hour by 2021) should be sufficient to make all employers focus on productivity and not just throw another ‘drone’ onto the production line. Moreover, when minimum wage is paid to large numbers, as in New Zealand, it has the impact of depressing average wages. Higher wages will cause some inflation but any increase has two distinct outcomes; an increase in discretionary spending and more tax (Income and GST). The increase in discretionary goes straight back into the local economy and benefits all.

3. REGIONAL DEVELOPMENT

It is pleasing to see this is now likely to become a mainstream economic agenda item and one that has been tried and tested elsewhere. When access to good telecommunications and other infrastructure is combined with much lower land prices there is no reason to invest further in the core centres of the country.

Whether it is government departments, factories, service centres or any other concentration of human resources there is no longer any need at all to invest further in the three to four main cities. Look overseas for guidance. The UK tax department is in Liverpool, Mercedes Benz make all their four-wheel drives in rural Alabama, the EU HQ is split between Brussels and Strasbourg, and the most efficient car factory in Europe is in Washington – a Newcastle suburb.

All these and hundreds more locations have been selected for sound economic reasons – yet New Zealand persists with assuming Auckland is the only destination for investment.

New Zealand has dozens of socalled ‘zombie-towns’ crying out for investment that can provide cheap housing and a willing workforce.

All the above present the potential for new and exciting business opportunities, especially for the SME sector with its ability for quick reaction and innovation.