Guest Post: A tale of two companies

A guest post by Lee Short:

I find myself in the rare position of being involved in two almost identical businesses operating on both sides of the Tasman. The companies sell identical products and services throughout New Zealand and Australia. Both employ just over 100 people and have similar turnovers. Currently, the Australian business is going extremely well, whereas the previously profitable New Zealand business is losing, and will continuing to lose substantial money since the imposition of lockdown.

Given the two Nations similarities in many respects, I think we can confidently step back and compare how both countries are tracking through this COVID-19 pandemic.

Fundamentally, this is a story of two governments and their differing response to the crisis. The Australian Government has committed to preserving jobs by keeping the economy going, no doubt aware that creating a job is so much harder than preserving one. On the other hand, the New Zealand Government chose instead to shut down the economy. As a result, I believe thousands of businesses will close or drastically shrink, and unemployment will grow significantly.

The initial focus by Governments in both countries was quite rightly the health and well-being of the citizens. Australia and New Zealand have achieved admirable results compared to many other countries, particularly the comparatively low number and rate of deaths from COVID-19. The number of deaths per 100,000 population in both countries is much the same. However, the big difference is that Australia will emerge with their economy virtually intact, while we have done serious damage to ours. There is significant business failure happening now in New Zealand that could have been avoided, and still can be in my opinion.

The Ardern Government has done many things right, although I believe closing the border was late. However, when I look at many of the Government politicians and public servants who are advising the prime minister, I am not filled with confidence. They pop their heads up regularly, offering their opinions such as “business should have seen this coming”, “these business failures are due to undercapitalization”, “we are world leaders in COVID- 19 control” and “we have done everything we could.”

I see a stark difference between the wealth creators and those untouched and shielded from the impact on the business world. They are not having their pay slashed and are not suffering unemployment or the threat of it. Business owners and employees provide the wealth that funds those in the public service. They take risks, many borrowing substantial sums, some making sacrifices for years. The result is companies that pay tax and employ staff who pay tax. These taxes keep those in public service in employment.

We now face a substantially different future. Numerous businesses will not survive the lockdown, and many of those that do will only be able to continue by adding substantially more debt to the balance sheet. They will be trimming as many costs as they can, seeking to survive the impacts of lost business. Many will also have lost substantial equity and business value that they have worked hard to generate. Their family of employees have also taken substantial reductions in wages and often forfeited annual holidays to maintain incomes and support the business.

Therefore, I believe it is only fair that we in turn demand a clean out in the government, councils, and other public service organisations (essential workers excluded) to substantially reduce their ongoing costs and the burden on the taxpayer. A period on 80% of their salaries, starting with Members of Parliament and senior public servants, would certainly focus their minds on what is happening in the private sector, encouraging them to offer further support to the wealth creators.

Some will say business has the had the benefit of the government wage support package. Yes, we do, and we are grateful for this. However, it only covers around one month’s normal wages, as the balance is topped up to 80% by employers who are also shouldering other costs.

When I see MPs not realising there are substantial fixed costs, such as rent and insurance, not being met by assistance, it reinforces that they have no idea how business operates. Preserving jobs should be the absolute priority for this Government, as widespread unemployment will do considerable damage to the country.

The Ardern Government now needs to move quickly to give substantially more assistance to all businesses that need help to get through this. Business want to preserve jobs while reorganising to survive the disruption and uncertainty. In time, we will reflect on the tale of two neighbouring countries and how they each acted to protect their economies during COVID-19. I believe Australia has followed the better path.

Lee Short is a Director of Hydraulink Fluid Connectors, a long-established New Zealand company also trading in Australia and the Asia Pacific region.