May 26, 2014 9:00am by David Farrar

Labour bad for small business

Small listed companies have performed significantly worse under Labour governments over the past 40 years because of major policy changes, a report says.

The report, produced by Massey University economics and finance senior lecturer Dr Chris Malone and associate professor Hamish Anderson, looked at the results of about 500 NZX listed companies since 1972.

“The smaller firms have done abysmally poor during Labour terms of office,” Malone said.

So why?

“We have attempted to ask the question why that has happened and it does appear to be related to policy reform.”

Companies were classified as large or small by splitting the sample at the median capitalisation.

Small firms had average monthly returns of about 0.7 per cent under Labour and between 1.4 per cent and 1.8 per cent under National.

Monthly returns for large listed firms were only slightly better when National was in power, he said.

So a National Government doesn’t help big business, but small business.

BusinessNZ chief executive Phil O’Reilly said the research made a valuable point.

“It’s policy uncertainty and radical policy change that will tend to destroy business confidence,” O’Reilly said.

Businesses wanted policy that was well-signalled, evidence based and supportive towards business growth.

Businesses tended to hold off investing and employing until the impact of policy changes were known, he said.

Even what may appear to be a minor change such as the KiwiSaver contribution rate can have a significant impact on a small business. Your payroll software needs to change. Your employee records need to change, and you ofte then spend weeks or months correcting errors with the IRD.

Regardless of the merits of a Capital Gains Tax, it would hit small businesses badly. It’s easy for a large business to value all its assets and work out capital gains. A small business will not have internal accountants but instead have to spend tens of thousands of dollars hiring external accountants to do this.

Large businesses have HR divisions to cope with changes in employment laws. Small businesses generally will not, and again be hit hardest with any changes.