UPFRONT Seeing red

Getting tangled in regulation red tape is business obstacle that inevitably impacts more on small rather than large businesses. SMEs face much the same compliance issues with fewer resources to manage them.
That reality was confirmed by two recent surveys which sought to measure the extent to which compliance costs affect local business.
Not only do small businesses spend as long dealing with tax and GST issues as larger ones – they pass up growth opportunities because of the impost of added compliance costs. That’s according to recent survey by the Auckland, Wellington and Otago Chambers of Commerce which drew around 1000 responses.
The findings reinforce long-standing concerns that SMEs are, in part, restrained by compliance costs from growing into larger companies.
Once staff numbers reach five or six, the hefty increase in compliance costs prompts business owners to consolidate rather than develop strategy to increase productivity to recover those costs and embrace growth.
An earlier KPMG/Business New Zealand survey highlights the cost differential for small and large enterprises.
The survey estimated the average respondent’s annual compliance burden as costing $43,876 year which includes both internal staff time and the cost of external advisers. That was broadly attributed to tax (34 percent), employment (26 percent), environment (18 percent), and other (22 percent).
For small businesses, the cost per full time employee totted up to $2762 ($3405 in 2003) – the same figure for large businesses was $477 ($538 in 2003).
While the total compliance cost was 16.8 percent down on last year, the perception of survey respondents was that costs had either increased or remained static.
The reasons for this “disjunct”, according to KPMG partner Paul Dunne, include uncertainty and frustration associated with changes to the Holidays Act and the potential financial impact of implementing them.
Tax gathering gobbles up big chunk of compliance time. In 2004, 34 percent of total compliance costs were for tax related issues – up nearly four percent from last year. And 41 percent of 949 respondents rated tax as their top compliance priority.
A key change from 2003 is drop in respondents concerned about health and safety issues (and to lesser extent employment relations) and big increase in those concerned about new extended holiday provisions.
Those who included the Resource Management Act among their top three priorities dropped from 11.3 percent to 6.5 percent. This, says KPMG, is inconsistent with the priority placed on the RMA by the 2001 Ministerial Panel on Business Compliance Costs and the Government.