Upper Hutt Cossie Club
17 July 2015
Check against delivery
Tēnā koutou katoa
Can I begin by acknowledging our hosts the Upper Hutt Chamber of Commerce, and the excellent work that your Chief
Executive Mark Futter does as a voice and an advocate for local businesses.
Can I also acknowledge:
Helen Down, President Hutt Valley Chamber of Commerce
Hutt Valley Chamber of Commerce Board members
His Worship Mayor, Ray Wallace of Lower Hutt
His Worship Mayor, Wayne Guppy of Upper Hutt
Councillor Prue Lamason, Greater Wellington Regional Council
It is great to be with you, along with my colleagues Grant Robertson, Jacinda Ardern, Clayton Cosgrove, and your very
own Chris Hipkins.
Thank you to you all for coming along today as well, I know there are many business owners in the audience and I
appreciate you taking time out of a busy day to come along.
1. The future of the New Zealand economy.
Today, I want to talk about the future of the New Zealand economy In the last few weeks, we’ve seen worrying signs about
the health of our economy, as well as threats to our economic stability from events overseas.
There’s been a massive loss of confidence in China, seen in their rapidly falling sharemarkets. There is uncertainty in
the Eurozone. We have worldwide plummeting dairy prices. The economic outlook for New Zealand is not nearly as positive
as it was even two months ago when the Budget was handed down.
There is naturally a concern from New Zealanders who wonder what this will mean for their own financial security, and
the aspirations they have for themselves and their families.
That’s especially true for small business owners, who tend to be very vulnerable to global shocks.
This is not a time to be cavalier or dismissive about our circumstances.
Bill English has said we are better prepared for difficult economic times now than we were for the global financial
crisis in 2008.
But the facts suggest otherwise.
We have 62 billion dollars more in government debt than in 2008. We have 50,000 more people out of work than in 2008.
And, thanks to the partial sales of state-owned assets, the crown balance sheet is thinner than it would otherwise have
been.
We shouldn’t underestimate the risks New Zealand faces at the moment. They come from multiple directions, and they could
all have significant impacts.
But, as real as those risks are, they aren’t reasons to lose hope for our economy.
Instead, it’s time to be realistic about the challenges we face, and the changes we need to make to our economy to
ensure financial security for all New Zealanders.
Security for everyone has always been at the heart of Labour’s approach to our economy.
That means investing in the parts of the economy that will create new wealth for New Zealanders.
It means a diverse and growing economic profile.
It means innovative and flexible businesses under good management doing well.
That’s what gives people a chance to get ahead, and gives them the foundations they need to build a good life for
themselves and their families.
That’s what Labour’s approach to the economy is about.
Growing businesses, good jobs, and better incomes.
We understand that wealth has to be created before it can be shared.
Since I became Leader of the Labour Party last year, I’ve been talking about the need for us to find new ways of
delivering on that promise in a changing world.
We need new approaches that work in the 21st century.
New ways of responding to global challenges and seizing new opportunities as they arise.
As I said in my State of the Nation speech in January, one of the best ways to do this is by backing small business to
become the engine of job growth in New Zealand.
To give Kiwis the security they deserve, we want to do more to build on the substantial contribution small businesses
are already making.
38% of the New Zealand workforce are employed by small businesses.
Our small businesses are also leading the way on innovation.
At the start of the year, I committed Labour and our MPs to working closely with small business this year.
That’s why I have spent the last six months getting around, meeting with businesses and listening more than I’ve been
talking What I’ve seen is that as different and diverse as your businesses are, the goals are similar.
You all want to see your business doing well, adding more revenue and more profit, both to help your own families and to
help the wider community, too.
You all want the opportunity to work hard, and see the results of your efforts.
To be independent, to be your own boss, and to make it off the back of your own ideas and innovation.
When you’re doing well, you want to feel confident enough to take on someone new.
To give someone else an opportunity.
Well, Labour backs those aspirations.
We see your success as a crucial part of delivering the security that every Kiwi family deserves.
That’s why I want to work alongside you to help you get ahead.
Helping to make your aspirations a reality sits at the heart of a new initiative which I want to talk about today.
Early on in the parliamentary cycle, we are taking our time developing policy. We aren’t wanting to rush to answers.
But today will be the first in a range of proposals we will be unveiling in the year ahead, signalling Labour’s ongoing
commitment to small business, and the good jobs and wages they deliver.
For the New Zealand economy to do well, small businesses need to be thriving.
That success doesn’t come easy.
You all know just how much work goes into starting a small business, getting it off the ground, taking on staff and
keeping it on track.
Being a business owner means being a ferocious multitasker.
There is always more work to do than time to do it in.
Someone running a small business not only has to plan and set the business strategy, develop products and services, keep
an eye on the books and the cash flow, they also need to be a one person HR department and manage staff and customer
relationships.
It’s a huge job. It’s a difficult job. For a lot of people, it’s their life’s work.
But for all the hard work and long hours that goes into running a small business there is no guarantee of success.
Small business owners take on big personal risk, often raising the capital to start the business by mortgaging their
house and putting their own and their family's financial future at risk.
Many of the business owners I’ve spoken with go years without drawing a salary, let alone making a profit.
They do it to build something new.
That’s something I really admire.
As a lawyer, I got close to setting up my own practice and running my own business, but politics (or more correctly, the
2014 General Election final result), intervened.
Despite all the challenges, the small business sector in New Zealand is doing some really impressive work.
Carac Couplings, owned by John Burling who I met in Eltham recently, is an example of the new kind of wealth creation we
want to see more of.
The company started with just John developing and making products in his shed, but he’s worked hard and now he has an
impressive array of plant and machinery, he employs dozens of people and is exporting overseas.
John makes an enormous contribution.
Not just for the business, but for the community by providing highly skilled jobs in an area where they can often be
hard to come by.
John’s exactly the kind of gutsy Kiwi that we back.
So is Christine Thackwell, who runs a small business called the Casual Foodie in Auckland which sells high quality ready
to eat meals.
Previously, Christine turned her passion for good food into a succession of top-rated cafes.
Christine had an idea for a new business model she hadn’t tried before. It was a big risk but she backed herself, and
now the business is doing well and she’s reaching a whole new customer base.
When people like Christine and John take the risk, get stuck in and start a new business because they’ve got an idea
they believe in, I want Labour to be there to support them.
2. What’s holding you back?
In my very first speech as Leader last year, I said that one of the challenges for Labour is updating our definition of
working people in a world where the nature of work and business is changing rapidly.
To adapt to these changes, New Zealand needs policies better suited to the fluid world of small business, based on a
clear understanding of how you work and what you need to succeed.
That means moving beyond our historic comfort zones and embracing new ways of doing things, to deliver the jobs and
incomes Labour has always fought for.
My message to people who run a small business, or who would like to be their own boss is this: We get it, we back your
aspirations, and we are committed to working with you to help you get ahead.
You’ve told me that there are number of issues that are holding you back, making it harder to manage your business, get
ahead, and provide more opportunities to more New Zealanders.
These range from a lack of workers with the mix of skills for your business, through to a feeling that the government
doesn’t properly understand how you do business, through to issues around compliance and the amount of time it takes
away from working on the business.
We will be raising a number of proposals in the months ahead aimed to help address these issues.
One of these is provisional tax, and that’s what I want to talk about today.
Currently, provisional tax rules require that a business estimates, in advance, its taxable profits for the year and
then pays tax on an interim basis three times in the course of the year. Then there is a final wash up tax paid at the
end of the year.
But here’s where it gets tough:
Businesses pay tax on their annual income.
So to pay their provisional tax, some businesses are forced to guess about what they expect their taxable income to be,
and then hand over money to the taxman based on that guess, while others are forced to pay based on the previous years
income.
If they get it wrong, or if the year doesn’t pan out like they expect it to, they can be left with a huge tax bill at
the end of the year. Plus IRD charges high rates of interest on the tax deemed to be underpaid at each provisional tax
instalment date.
It can amount to a tax bill that can sink a small business with low profit margins or a start up with limited cash
reserves.
This fear means a lot of businesses end up overpaying their provisional tax. That means money that could be invested in
new jobs or new technology ends up just sitting with the IRD.
Provisional tax makes many business owners feel like the deck’s stacked against them.
Provisional tax lacks flexibility, it’s frustrating, it sucks up time and effort that could be going into growing
businesses and creating jobs.
It’s a handbrake on the growth of companies big and small.
3. Labour’s plan
Today, I want to talk about how Labour will give business owners a better alternative.
This is the first stage of a larger programme of work Labour has been doing in this area.
Over the coming months, we’ll be continuing to make other practical, sensible policy proposals aimed at saving New
Zealand businesses time and money, and making it that little bit easier to get ahead.
On provisional tax, there really is a better way.
Today I’m announcing a policy proposal for consultation with the business community that would give people the option to
pay tax through a pay as you earn system, instead of through provisional tax.
We’re calling it Flexible Tax for Business.
This proposal gives business owners the option to pay up to 100% of their tax through regular withholding payments, at a
rate they set themselves.
Alongside this, I’m also announcing that we would be scrapping late penalties for provisional tax and increasing the
threshold for when provisional tax applies, from $2500 to $5000.
Here’s how the system would work:
Just as an employee claims a credit for PAYE against their final tax for the year, regular payments over the year would
count as a credit against a business or sole trader’s tax liability.
The taxpayer can set their own withholding rate and choose how much to pay in regular instalments depending on their
cashflow, outgoings and their level of income.
The more they put away through regular pay as you go instalments, the less their year-end tax burden.
When you combine Flexible Tax for Business with raising the threshold before provisional tax is payable, many small
business owners will be able to be completely free of provisional tax liabilities.
That’s going to mean an end to the worry and frustration that comes with big provisional tax bills.
It’s going to take the handbrake off many of our small businesses and take away the fear factor especially when small
business has variable or seasonal profits.
It will give business people time to focus on getting ahead and employing more New Zealanders, instead of going round in
circles with the IRD.
And here’s the next thing: Flexible Tax for Business is not compulsory.
It is an option to create flexibility for your business.
It’s your choice.
If you don’t think it’s right for you, you can keep using the current model.
We know that business owners are best placed to make decisions about what will work for them and their business.
We believe this is a practical, workable proposal that will help many businesses but that will be especially useful for
small businesses and sole traders who are pressed for time.
We acknowledge every business is different, and if someone prefers the current system that’s fine.
But we think it’s time to give business a new option that puts them in charge, not the IRD.
We don’t want to force people to do things that don’t work for them.
I’m not here telling you how to run your business.
We just want to make more measures available to help our businesses grow and succeed.
Choice and flexibility.
That’s how we can help businesses get ahead in the 21st century.
Working alongside the people who are giving it a go to make sure they see a fair reward for their effort.
We know we don’t have all the answers, so we aren’t just rolling this policy out as a done deal.
We’re releasing the proposal today and will be consulting widely with businesses around the country on how it can be
improved before we enter government in 2017.
A lot of work has gone into this proposal already.
We’ve consulted with a number of businesses.
We’ve had every part of the plan double checked by former Deputy Commissioner for Inland Revenue Robin Oliver, who,
along with Mike Shaw, is now in private practice assisting many small businesses, and they are here today.
Their advice is that this system is close enough to existing regimes that the IRD can implement this proposal without
having to wait for the major upgrade to their IT systems.
That means the approach isn’t costly, and may actually save the government some money as regular payments will be good
for the Crown’s cash flow.
4. Conclusion
In Labour, we stand for jobs. Good jobs that can support families and give people a better life.
We believe in New Zealand’s small business, and we back the business owners who are slogging their guts out to create
jobs.
That’s why we’re making it easier and less time-consuming for you to pay your taxes, so you can get on with what you do
best – having great ideas and making them real.
Labour intends to lead that conversation.
Today, we’ve unveiled the first of our contributions in this area, and we want to work with businesses on getting the
details right, and making sure our plan fits your needs.
From here, the next step is wide consultation with the business community about Flexible Tax for Business.
I want that discussion to continue today, so I’m going to finish by opening the floor up for questions and comments.
That discussion will not end today. In the months ahead we will continue our work of getting around the country,
listening to small business and working up solutions to help them get ahead.
My approach is that we do best as a country when we work together.
I think ‘Let’s do it together’ is a much better idea than ‘everyone out for themselves.’ That’s the path Labour is on
now.
I look forward to working with all of you to help our businesses grow and help everyone in New Zealand get ahead.
Thank you.