The compliance burden is still much higher for small than large businesses, according to this year’s BusinessNZ-KPMG Compliance Cost Survey.

Nearly a thousand firms took part in the survey aimed at identifying compliance costs and trends and assessing the helpfulness of central and local government agencies.

Compliance costs are the administrative and time costs of complying with legislation, as opposed to the substantive costs imposed by legislation (e.g. the amount of tax to be paid, the amount of holiday pay to be paid).

The survey found that small enterprises (five or fewer employees) bear compliance costs of around $2,750 per employee per year, a significant finding, given that firms of this size make up 84.0% of all enterprises. By contrast, an enterprise with over 100 employees faces compliance costs of around $500 per employee per year.

In 2004 the average firm shouldered $43,876 in compliance costs, compared with $52,724 in 2003.

Despite the improvement, nearly all firms surveyed perceived their compliance problem to have either worsened or stayed the same. Respondents’ comments show they consider compliance costs to be still too high, despite being lower than in 2003.

There appears to be a spill-over from respondents’ perceptions of the substantive costs which increased markedly in 2004 (e.g. increased payroll costs from the new Holidays Act and the new border security tax) to perceptions of compliance costs.

As in 2003, tax was the respondents’ highest priority for change and figured even more highly than in 2003: 41.1% of respondents selected tax as their top priority for improvement, compared with 35.5% in 2003.

In relation to tax, KPMG National Chairman Alan Isaac said although respondents felt that compliance costs overall were trending upward, the survey indicates that tax compliance costs were at very similar levels to last year. “A picture may be emerging regarding tax costs suggesting that there is a core cost of complying with PAYE, GST, FBT and provisional tax, and frustration with these costs is mounting.” The strict penalty and use of money interest rules were possibly driving this sentiment. Mr Isaac said some Government simplification initiatives, such as the introduction of PAYE intermediaries and the proposed alignment of GST and provisional tax payment dates may have an impact on compliance costs for smaller organisations. “The effectiveness of these can be judged in future years’ results,” he said.

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

BusinessNZ Chief Executive Simon Carlaw said enterprises had borne the costs of the ERA the Health & Safety in Employment Act and now the Holidays Act, in quick succession, all of which were imposing substantive and compliance costs.

“The ERA and HS&E Acts are figuring high in respondents’ perceptions of the worst compliance areas. The compliance cost effects of the new Holidays Act will not be felt until the 2005 survey, but the substantive costs have been felt this year. The uncertainty and frustration associated with continual changes in legislation have come through strongly in the perceptions area of this year’s survey – it should be remembered that businesses, like people, often base their actions, including investment actions, on perceptions.”

Respondents were asked to rank central and local government agencies’ helpfulness. As in 2003, the agency perceived to be most helpful was the Companies Office. New Zealand Trade & Enterprise was viewed as the second most helpful. The least helpful agency was the New Zealand Immigration Service. The Environmental Risk Management Authority (ERMA), which was 2003’s ‘least helpful’ agency, came in behind the Immigration Service.

KPMG and BusinessNZ say the survey is intended to highlight compliance issues that are of concern to businesses and track the compliance cost trends over time.

The BusinessNZ-KPMG Compliance Cost Survey 2004 received 949 valid responses from New Zealand enterprises across all industries and regions and of all sizes, collectively employing over 63,000 people.

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