Business charm offensive needed

CORPORATE New Zealand remains very unhappy. The unhappiness flows through into falling confidence, measured by various surveys of intentions.

The reasons could be any one of several things, such as Mycoplasma bovis, government policy, global trade tensions or ongoing skill shortages.

But, as measured by the recent ANZ survey, business confidence is as low as it was in the depths of the global financial crisis.

Prime Minister Jacinda Ardern has returned to work after taking maternity leave. She will be aware, no doubt, how business confidence has slumped since she took office. While business confidence can be fickle, affected by many things, lowering sentiment is not a good look.

The Government is under pressure from all sides of the equation. Public service workers are determined to push the Government into higher wage settle ments than in many years. Rises of 9% to 12% are being called for and nurses, some of the country’s highesttrusted workers, have been leading the action. Teachers are likely to strike later this month, causing anxiety for parents who may have to take a day off work.

Inland Revenue staff are among others likely to strike. And while the police cannot strike, Police Association members are expecting a substantial rise in pay.

All of the industrial action being taken or proposed may have some effect on business confidence but the malaise is likely to be spread by much wider discontent.

The Reserve Bank is unlikely to lift its official cash rate from the current 1.75% until late next year, possibly November — ruling higher funding costs for businesses out of the mix.

Profit expectations have fallen, despite a lift in firms’ intentions to lift selling prices. This strongly suggests costs are rising and backs up anecdotal evidence business input costs are becoming problematic.

Inflation is slowly rising as business sentiment falls and economic growth forecasts are lowered. This provides the Reserve Bank with a difficult path to follow, particularly because of the new Policy Target Agreements with the Government explicitly containing both real (employment) and price objectives.

Unemployment rose slightly in June, along with the underutilisation rate, an important measure of the untapped capacity in New Zealand’s labour market.

Employees working fewer than 30 hours a week want more work, but sentiment is pointing to businesses lowering their hiring expectations for new staff. Businesses are also being circumspect about investment intentions.

There may be a disconnect between the needs of employers and the skills workers have on offer. Whatever the reason, there is a need for employers to take on extra staff members if the economy is to grow.

The Government is spending up large on infrastructure, including the Dunedin Hospital. Also, New Zealand First has a $1 billionayear fund to help regional growth, something encouraging consumer confidence to stay healthy.

However, the Government’s role in all of this is to set the tone in the economy to allow businesses to flourish, rather than drive growth itself.

Business likes stability but at present everything is up for change — from health services, tax and employment law, education, wages and resource management law.

Business sentiment cannot be allowed to drop further Finance Minister Grant Robertson is encouraged to stand by his own Budget Responsibility Rules and to continue paying down debt within specified timetable. Any lapse, and extra spending over and above that announced in Budget 2018, will only serve to dampen confidence further.

Ms Ardern needs to lead a business charm offensive, and soon. She must assure businesses her Government understands why sentiment is falling and what plans she and her ministers have to change the tide.