What the Tax Working Group has come back with, however, is unacceptable in its current form.

 

– Dieter Adam, CE The Manufacturers’ Network

These are times of big change for us at The Manufacturers’ Network, and for our relationship with our members. We are in the process of transferring all of our activities to the EMA, and further to the Canterbury Employers’ Chamber of Commerce and the other regional business organisations, Business Central and OSEA.

This will significantly enhance our ability to reach out to and represent the community of New Zealand manufacturers across the country. It will also challenge our ability to deliver our current services – and new ones we are developing, like our new Productivity Benchmarking service, which we are about to launch – to a much wider membership. These are exciting times for us!

These are also challenging times for New Zealand manufacturers. Take, for example, the rapidly escalating ‘battle of the systems’ between the USA and China, which really is a battle for primacy in the world’s economy.

It leaves countries like New Zealand ‘stuck in the middle’, feeling that whatever choice they make may be the wrong one, and preferring not to have to choose, of course. It’s Huawei today, which may not have much impact on our members, but what comes next in terms of companies on either side, which some of our manufacturers may be suppliers to, being hit by punitive measures?

Barriers to free trade come in many guises and compared to other sectors of our economy manufacturers may have had a relatively easy ride until now. Is that about to change?

At home, we see the ‘new’ government bringing in changes in many areas, or at least trying to do so. Three are of particular importance to manufacturers – the reform of our vocational education system, changes to temporary work visa, and changes to our tax system. Not to mention a slew of proposed changes to employment law we’ve already commented on in the past.

We’ve acknowledged the need to address the fundamentally skewed nature of our tax system in the past. Gains from productive activities are taxed, but gains from speculative activities currently aren’t, or only poorly if so.

What the Tax Working Group has come back with, however, is unacceptable in its current form. The issue that needs to be addressed is that far too much capital in this country is tied up in land, be that (dairy) farm land, residential property, or other.

Add to that rapid population growth through immigration, and you’ve created an environment where it is fairly safe to bet on the rising value of a scarce resource, land, even if no improvements are made to the asset.

And the gains on selling the asset are not taxed. Compare that to manufacturers who, through continuous improvement of processes, smart product innovation and successful marketing and sales activities, has grown turn-over and profits, and hence the value of their business. Operational profits are taxed as they arise, as are the wages of workers. And then the owner is taxed again when selling the business?! That is certainly not a tax regime that will encourage investment in a sector of our economy that needs to grow further if we want to grow our collective wealth.

We are currently going out to our members to gather feedback on the proposed changes to the way work visa are granted. Fundamentally, these changes do transfer responsibility and cost from the individual applicant to the prospective employer, pretty much making it mandatory for manufacturers who regularly employ migrant workers to become registered with Immigration New Zealand. As INZ admits, it’s a burden up-front, with the promise of “longer-term ease and certainty” – yeah, right?!

The proposed changes will also give government more say in the geographic distribution of visa allocations, which could be a good thing – or a bad one. On top of that there are comprehensive changes to the ‘job tests’ which manufacturers need to study carefully before responding to the government’s call for feedback.

Last, but not least, the government is reacting to the current deep financial crises in the polytech sector with proposed reforms that would fundamentally shake up vocational education in New Zealand. Essentially, there are three functional areas in vocational education – providing the training & education (courses) itself, determining the content of what should be taught, and to what standards, and the management of and care for apprentices.

Currently these functions are partially shared among employers, group training scheme providers, ITOs and polytechs, with the majority of the delivery of training and education happening through workplace-based learning (apprentices and trainees). The proposed reforms will cut the ITOs from the management and care of apprentices and reduce their role to working with industry to set content and standards through so called Industry Skills Bodies.

The role of the management of and care for apprentices would be transferred to ‘vocational education providers’ (largely polytechs), which are currently not equipped to take on that role and cannot even under the best of circumstances be expected to become equipped to do so in less than a year as proposed, meaning it would almost certainly leave a large cohort of current apprentices completely marooned. Let’s also keep in mind that the current appallingly low completion rates in many types of apprenticeships may be partly due to a strong pull from the labour market, but are also evidence of the poor job we are doing to guide and look after the apprentices in our collective care.

Moreover, without also fixing the fundamentally flawed ‘bums-on seats’ funding scheme, leaving the government totally bereft of any ability to adjust supply to demand when it comes to what is taught, and where, these reforms will do little to improve the supply of suitably trained and educated apprentices to industry, and have the potential to do a lot of damage.