Section 8: Establishing an Enabling Regulatory Environment for Business
One of the significant challenges faced by SMEs is in finding out about which regulations are relevant to their businesses and then what it is they need to do in order to comply.
From the data collected during the Small Business Day events this year, the burden of regulatory compliance emerged as the single most important perceived barrier to SME growth.
As well as the costs faced in finding the regulations, the disproportionate cost to SMEs of compliance means that the effect of regulation/legislation is greater on SMEs. That is because they don't have the resources to deal with it, and also because many of the existing rules are impractical in the SME environment.
When regulations become too complex or too numerous, SMEs do not have the resources to comply. New Zealand's SMEs are not alone in feeling overwhelmed by regulation. A 2004 survey by the Federation of Small Business in the United Kingdom found that 60% of small business owners were dissatisfied with the complexity of legislation, 59% with the volume of it, 56% with the rate of legislative change and 55% with the costs of compliance.4
We acknowledge the work of the New Zealand Business Compliance Costs Panel established in 2000 and the efforts the government is making to implement their recommendations. We acknowledge, too, the clear and pertinent specification developed by MED of what is required in a Regulatory Impact Statement and Business Compliance Cost Statement. However, we consider that still too few government agencies accurately or rigorously consider the cost of compliance issues relating to the regulation that they recommend.
We believe that the process of developing regulation may be biased against the interests of business, and of SMEs in particular. This arises from a combination of misconception and disinterest on the part of regulators. These two things must be attacked head-on if progress is to be made.
SMEs are not baby enterprises waiting to grow up. They function in precisely the same way as larger businesses. The main differences are the size of the resources available to assist the owner to manage the business and the "family-like" environment that typifies most SMEs.
"Think Small First"
We do not argue that SMEs should be treated differently, or by exception, under the law. Rather we believe that when making regulations, regulators should design the rules with SMEs as the template. Larger companies would then also find compliance easier. Such a change would mean that government agencies would have to get a far clearer understanding of the realities of business activities in an SME.
This "Think Small First" approach has been adopted by regulators in the United Kingdom.
We have a range of recommendations that would assist in creating the changed approach to business regulation in New Zealand that we believe is essential in order to enable SMEs to grow.
That each government department identify a small business advocate who would be responsible for presenting the
SME perspective on any proposals being developed by the department that might impact
SMEs.
That a senior manager in each government department be charged with scrutinising all the regulations designed by the department, to assess the need for them, their quality and the impact they will have on business (and
SMEs).
That the government measure and publish the cumulative effects of the costs of compliance with regulations passed in the previous six months.
Process for Regulations
The "Think Small First" approach should not be limited just to the design of regulations, but should also be applied to the way in which they are created and promulgated.
That all business-related legislation and regulations come into effect on only one or two pre-determined days per annum. Common commencement dates, especially when coupled with advance notice and guidance, would offer a greater degree of certainty, and would help
SMEs to plan, budget and reduce their costs. In addition, businesses would know that they have to deal with regulatory changes only at fixed, predictable points in the year.
That proposals for changes to regulations that affect business be put out for a minimum three months' consultation period and not come into force until three months after the government or Parliament agrees to the changes. This provides adequate time for
SMEs to contribute to the design of the regulations and to prepare for their commencement. Listening to businesses has a number of specific benefits. It allows government to tap the widest source of information possible and thus improve the quality of decisions reached; it alerts policy makers to any concerns and issues not picked up through existing evidence; and it helps to monitor existing policy and to determine whether changes are needed.
Advice from Government Agencies
A number of businesses have commented that they would like to receive more personalised advice from government agencies about their legal obligations. Usually, the only time they see a government agent is when they are being investigated or inspected for failure to comply.
Many of the businesses that attended the Small Business Day events in 2004 welcomed the chance to talk freely with the representatives of government agencies in attendance about what they could, and needed, to do to comply with regulations. The public servants reported that they too learned much about how their regulations practically affected businesses, and that feedback will assist them in redesigning regulations to remove unintended consequences.
That government agencies (particularly
ACC,
OSH and
ERMA) run regular (e.g. every third Wednesday of the month) local information nights. There, businesses could learn what is required of them by way of compliance, hear what is new since last month, and have one-on-one advisory sessions (information from which is not passed on to the enforcement arm of the organisation).
Fringe Benefit Tax
There are two other areas of regulation that affect SMEs adversely and attract heavy criticism. These concern FBT and probation periods in employment.
FBT is a difficult and complex tax to apply to vehicle ownership and use. For example, the present regime does not deal well with situations where cars have little personal use, but are used a lot in the SME owner's day-to-day business. Also, FBT is not calculated on the depreciated value of the vehicle. In these areas the application of the tax is unjust.
That
FBT on business vehicles be simplified by moving it from the
FBT return to an adjustment on depreciation in the employer's income tax return and that this adjustment be based on the depreciated value of the vehicle.
Employment Law: Probation Periods
Employment law can be a minefield for SMEs. Continual changes to the law and the complexity and uncertainties surrounding its interpretation have led to the triumph of process over substance in many employment disputes. SMEs often avoid taking on staff for fear of the potential risk if the employee proves not to be suitable. Many other countries have responded to this problem by putting in place laws to deal with the situation in a fair and equitable manner. For example, in the United Kingdom there is a qualifying period of 12 months before an employee can take personal grievance action for a performance-related dismissal.
That the legal procedures for dismissing non-performing staff be rebalanced and qualifying periods for personal grievances for probationary staff be provided. We believe that these are the single most important changes that could be made to the employment legislation and that they would lead directly and immediately to employment and business growth.
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