It’s time for businesses to get on with doing business

Prime Minister Jacinda Ardern has described falling business confidence as “a flashing great neon sign with giant lights and fireworks going off behind it”. She’s certainly right, in so far as this particular economic indicator has mesmerised some of the media and business community.

But I’d argue that this flashing, glowing, smoking spectacle is generating more heat than light.

Yes, there are challenges to the economy — there always will be — and many of them regardless of who occupies the ninth floor of the Beehive. And, yes, economic growth has peaked as it does at the height of any business cycle and we are going through a slower patch before a forecast pick up again next year.

However, I believe the headline business confidence number more accurately reflects business leaders’ surprise at the election result, than their underlying faith in New Zealand as a place to do business. This headline measure of confidence — the one lit up in neon — is derived from a general question about whether businesses think that conditions are going to improve, stay the same, or decline.

Once you get into the specifics, businesses still remain positive about their own prospects, and other economic indicators of business activity remain fairly healthy. Therefore, many economists tend to take the flashing neon confidence headline with a grain of salt. It is useful as one of a number of measures, but unhelpful when viewed in isolation.

But, why is the confidence figure so low, when businesses are more chipper about their own outlook?

I believe there are three other key factors.

The first is international risks — these are real and potentially scary.

In this environment, business want a Government that is committed to trade and willing to fight New Zealand’s corner. And so far so good — after all, one of the first actions of this Government was to sign the Comprehensive and Progressive Agreement for a Trans-Pacific Partnership (CPTPP).

The second is a degree of policy uncertainty, partly because there are many areas of Government policy that are still being developed in working groups. One of these policies is Fair Pay Agreements, so it was good to see the Prime Minister provide some certainty that only one or two of these would be put in place in this term so New Zealand can see how they work.

Businesses hate uncertainty because it makes it hard to plan. However, in the New Zealand system it is unrealistic to expect that any new Government will take office with a fully-formed set of policies ready to implement, as Government formation tends to take place after the election under MMP. In my view, businesses need to accept this as a fact, and should involve themselves with working groups — directly or through their industry associations — to influence good policy outcomes. And there needs to be recognition that a process which produces policy after a thoughtful period of consultation is likely to be much better than the alternative.

Lastly, some businesses just don’t like specific policies or the consultation process around their implementation. It’s important we have constructive debate around these policies, and I am pleased the Government has established an advisory council. There’s been a sense from some people in the business world that they’ve been on the outer — this may help to provide confidence that they have a voice at the table.

In summary, business confidence is important. It has real economic consequences. But in my view it is also time for the business community to get over the election result and just “get on with business”. That means taking up the offer from the Government to constructively engage. It also means not talking ourselves into a self-fulfilling spiral of gloom, which could have adverse consequences for all New Zealanders.

Successful businesses are resilient and cope with change — including change in Government. I believe we’re all committed to helping New Zealand grow in a sustainable way and we want all Kiwis to share in the rewards. That’s consistent with our purpose at Westpac which is to help our customers financially, to grow a better New Zealand.