This article is an opinion piece by Breccan McLeod-Lundy, Co-Chair of NZRise and CEO of Ackama Limited. 

While the article is Breccan’s opinion he endeavours to reflect the discussions of NZRise members during COVID lockdown in Aotearoa and as we navigate through this ever changing economic climate of the global COVID economy. One area of contention within the NZRise community is that of taxation. 

The ideas proposed in this article are not necessarily the position of NZRise – instead are designed to stimulate discussion. This article has been released as a 4 part series or is available for download as a single PDF.   You can read part 2 here.

If you would like to join this kōrero please reply to this post or email [email protected] .

After the initial shock of Covid-19, New Zealand can now focus on how we want our industries to develop and what the future holds. We can be purposeful in shaping the work and industries we want to have as a country, or we can just keep reacting to crises as they emerge. If we wait until the crisis has finished to think about changing our economy we will have lost the momentum to make changes and the opportunity to benefit from being ahead of the rest of the world on the recovery.

In any discussion like this, the first step is to discuss what a successful New Zealand economy looks like. I suggest the following basic outcomes:

• Food Security – Separately to any discussions of the productivity of our agricultural industry it is important that in situations like Covid-19 we can react quickly to produce enough food to keep the country running. Being at the end of supply chains makes this more important for us than many other countries.

• Productivity – That for every hour worked we should produce as much value as possible. We can achieve this by making work we’re already doing more efficient or by favouring getting people involved in areas that are more productive. The exact measurement of productivity has some complex edge cases around the potential measurement of work that isn’t captured within industry measures, but the historic case has been that higher measured productivity leads to additional capacity for non-billable activities.

• Poverty Alleviation – A high performing economy can ease poverty both by employing more people and having more funds available for social welfare. I think we should assume that as New Zealand grows, we will continue to tax top earners and look towards more company tax from NZ businesses, and then spend a portion of that tax on welfare in line with that growth. 

• Inclusiveness – As we review industries, paths to employment, and paths to wealth, we should make sure we keep helping people up. We could meet the conditions of food security, productivity, and poverty alleviation by having a wealthy upper class that funded a generous welfare scheme for everyone else but that isn’t an acceptable outcome in terms of the long-term social consequences as work like Michael Marmot’s research into the ongoing health effects of high social inequality shows.

• Environment – Environmental outcomes and protection are a key consideration in any policy we create. It makes sense to create and grow industries now that are better prepared for a future where environmental concerns have become even more important than they are today.

• Long Term Planning – Economic and social changes happen over decades. Many of the most impactful social programs (schooling, healthcare etc) take upwards of twenty years for New Zealand to fully benefit from improvements.  China has a 100 year plan; Grant Robertson said that Covid-19 was a once in a 100 year shock – on a ten year plan we might say it’s only a 10% risk and not think too hard about preparing, but on a hundred year plan we’d assume there’d be at least one and that might change our preparation.

• Maintain and grow our international status – New Zealand is well respected internationally and our strongest growth opportunities rely both on export and having uninterrupted access to offshore markets. This means signing healthy trade agreements that support all of our industries (both current and future) while maintaining our ability to take principled stances on social and political issues that matter to us.

With these goals in mind, there are plenty of changes we could make now to improve our position in the future. For now I’ll focus on those around business in New Zealand but there is potential in every area. 

What Does a Good Business Look Like?

Having outlined a general picture of what good looks like for New Zealand at a large scale I think it helps to also be clear on what good means in the case of business. By doing this we start to dig into a little more detail which can then lead to a conversation about the direct actions and approaches that the government should take with business. 

There’s been a lot of good thought in recent years about the future of business when it comes to concepts like the triple bottom line or corporate social responsibility. The focus for a country in setting policy around business is, however,  a more complex puzzle as minor changes can dramatically change which industries grow and which shrink. There can be sudden pressures to favour certain industries whether that be roading under certain governments or a fixation on a shiny new technology as we see occasionally when ideas like blockchain or AI are at the peak of hype cycles. What is needed is a stronger theory of the kind of business the government should encourage based on the long term outcomes for New Zealand.

I suggest the following criteria for judging whether a business is good for New Zealand (Or any country):

• The creation of new high wage jobs – This covers both that new jobs increase the productivity of New Zealand and also that they don’t just hire people who are already earning well in the industry. To quantify, in 2018 (*1) the median salary in Aotearoa was $49,868 vs the median salary in the digital technology sector of $82,000. 

• There is a strategy to bring a diverse group of people into that business or industry – This is a joint responsibility with the government but even if an industry currently has a poor record on diversity there should be a plan to improve that situation.

• That the  business and industry around it will grow – Many of our most successful growth stories are important not just because of the particular businesses that lead the way but because entire industry areas have sprung up around them. For example, Xero has directly lead to dozens of businesses being created and become a key channel for many New Zealand software businesses to sell internationally without having to grow to that scale. On the flipside of this Stretchsense and Rakon have both shown the risks of having some cutting edge tech but being in industries that have not achieved critical mass in New Zealand as sudden changes in other markets are both more difficult to react to and more likely to catch participants off guard.

• That taxes are paid by the business appropriately and in the countries where the business trading – There are some challenges here but the future of taxation must be cooperation with our key trading partners to divide taxes appropriately and jointly favour businesses that are good tax citizens of all the countries in which they trade.

• Economic Sustainability – We should encourage businesses that will exist for the long term if they succeed. This isn’t to limit ourselves to sure bets but that businesses should have an intention to exist for the long term. While there are totally valid short term businesses such as entertainment joint ventures the focus of “business” policy should be on growing businesses that aim to exist for the long term.

• Environmental Sustainability – We should favour businesses with better environmental outcomes than not.

• The broader community will see the benefits of success – It is much better in the long run for New Zealand to grow businesses that continue to operate, create jobs, and pay taxes than for a single founder to see a sudden windfall and the business to disappear – some people suggest that big paydays still benefit the local community through investment, but I’ve yet to meet the wealth manager that recommends a locally focussed investment strategy over an internationally diversified one so while there can be a benefit I would argue it’s not as big as some people would like to believe. This is particularly challenging as NZ entrepreneurs tend to sell or stop growing their business at a smaller size than some of our other trading partners.

~Breccan.

*1: Source “Digital Skills for a Digital Nation Report”, Digital Skills Forum.

This article is an opinion piece by Breccan McLeod-Lundy, Co-Chair of NZRise and CEO of Ackama Limited. 

While the article is Breccan’s opinion he endeavours to reflect the discussions of NZRise members during COVID lockdown in Aotearoa and as we navigate through this ever changing economic climate of the global COVID economy. One area of contention within the NZRise community is that of taxation. 

The ideas proposed in this article are not necessarily the position of NZRise – instead are designed to stimulate discussion. This article has been released as a 4 part series or is available for download as a single PDF. You can read part 2 here.

If you would like to join this kōrero please reply to this post or email [email protected] .