Compliance survey confirms business groundswell on tax

27 Sep 2005

The importance tax assumed during the 2005 election campaign has been underlined by the findings of the third annual BusinessNZ-KPMG Compliance Cost Survey. The survey released today shows that tax, as a priority for business, has increased by almost 10 percent over the past year.

BusinessNZ Chief Executive Phil O’Reilly says in the 2005 survey almost 49 percent of respondents selected tax as their top priority for improvement, compared with 41 percent last year and 35.5 percent in 2003.

“This points to a growing preoccupation with tax as a business issue,” he said. “It is further proof, if any is needed, that there is a groundswell of support for reducing tax.

“It has received almost unprecedented media coverage in recent months, generally relating to the issues of tax rates and tax take by the Government. However, the survey shows tax compliance is just as important and needs the attention of policy makers.”

Compliance costs are the administrative and time costs of complying with legislation (e.g. the time and resources involved in working out tax or holiday payments) as opposed to the substantive costs imposed by legislation (e.g. the amount of tax to be paid or the amount of holiday pay to be paid).

This year’s survey found compliance costs have increased in most areas, although differences continue by size of enterprise.

In 2005 the average firm shouldered $53,011 in compliance costs, higher than the $36,075 recorded in 2004 and $45,179 in 2003.

Small enterprises (five or fewer employees) bear compliance costs of around $3,604 per employee per year, higher than both the 2003 and 2004 values.

By contrast, an enterprise with over 100 employees faces compliance costs of around $247 per employee per year

In addition, most firms surveyed perceive their compliance problem either to have continued to worsen or to have remained the same.

While these figures are higher than other recent compliance cost surveys, Mr O’Reilly says the difference is in the survey sample, which includes all business sizes – not just small to medium sized enterprises, which skew the results downward and hide the true compliance cost burden.

“It’s also important to make the point that in measuring the impact of compliance cost on business, what is important is the trends over time, not self-serving ad hoc measurements of compliance costs.”

KPMG Partner Paul Dunne said while successive Governments have been committed to reducing compliance costs, the survey results show that compliance costs, and tax compliance costs in particular, are not decreasing to any discernable extent.

“This is of considerable concern to business and shows there is work still to be done in this area. “

Behind tax, the next highest priorities for change are all related to employment law: the Employment Relations Act, health & safety legislation, accident compensation, and the Holidays Act.

Mr O’Reilly said business had borne the costs of changes to employment law over recent years, shouldering increases in both substantive and compliance costs.

“Although the level of change in employment legislation was not as dramatic as in previous years, the perception remains that employment related compliance costs are a major part of the overall costs of complying.

“Also, the results over the last three years reaffirm the view that the compliance costs associated with changes to legislation and regulation often last well beyond the initial year they are introduced.

“Employers have had to adjust to a raft of changes over recent years, bringing a great deal of disruption to their day-to-day operations. Continued changes that lead to resources being concentrated on compliance rather than growth will not bring the kind of productivity needed to compete in a global setting.”

Mr Dunne said the higher profile of education as an election issue was also mirrored in respondents’ ranking of the helpfulness of central and local government agencies.

As in 2003 and 2004, the agency perceived to be most helpful was the Companies Office. The Ministry of Agriculture & Fisheries was viewed as the second most helpful.

“The big mover down the list to become the least helpful agency was the Ministry of Education, which meant a drop in rating from fair in 2004 to poor in 2005,” he said. “It’s not clear whether this was a reflection of the problems faced by the education sector in the past year or something more deep-seated.”

The Environmental Risk Management Authority (ERMA), which was 2003’s ‘least helpful’ agency, was placed second from the bottom.

About the survey

The KPMG-BusinessNZ Compliance Cost Survey is New Zealand’s most comprehensive and consistent survey undertaken to measure costs and trends in key compliance cost areas. The survey covers all industries and regions and all sized enterprises, from the small two-shareholder companies to large corporates. Almost 1200 companies, collectively employing over 163,000 full time workers, took part in the 2005 survey.

Acknowledgements

KPMG and BusinessNZ gratefully acknowledge the support of the following associations and industry groups that distributed the survey amongst their members:
Employers’ & Manufacturers’ Association Northern
Employers’ & Manufacturers’ Association Central
Canterbury Employers’ Chamber of Commerce
Otago Southland Employers’ Association
New Zealand Institute of Chartered Accountants.
Federated Farmers of New Zealand
Meat Industry Association of New Zealand
New Zealand Retailers’ Association
Road Transport Forum New Zealand
Business in the Community Ltd