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What does the new Government mean for business?

Time to read: 10 minutes, 33 seconds (2,111 words). 

We have a new Government. Congratulations to the New Zealand Labour Party, Prime Minister Ardern and the returning Government who ran a successful campaign on the back of their handling of the COVID-19 pandemic.

Speaking to the media yesterday afternoon the Prime Minister expects to have a government formed within two to three weeks, and that, while she will talk to the Greens, the mandate exists for Labour to govern on their own. At the time of writing, if the Greens are involved, we don’t expect them to have positions of significance.

In our opinion, the landslide means the Labour Party find themselves in a completely different position to the one that they were in the first term. And when the Prime Minister says this will be a “Government for all New Zealanders”, she is signalling to the left of the party that the transformation policies may not be the ones that they are expecting or deserve priority.

As this Government works to get re-elected in three years and retain all 64 seats in Government including seats like New Plymouth and Rangitata, this could well be a significantly more centralist Government than expected. The language of transformation will remain, how it is delivered with the Greens on the side-line, and a large swathe of former National voters “inside the tent” is the big question and is what we need to pay attention to.

It’s early days, but what does the new Government mean for New Zealand business and which of the promises made on the campaign trail could become reality? Our Government Relations team takes a look at the key pre-election policy announcements and shares their assessment.

In the workplace, increases to sick leave and minimum wage happen

We believe there will be significant change in the workplace. This statement from Andrew Little gives context and an insight into the new Government’s thinking around the workplace:

"To maintain healthy workplaces and to prevent the spread of Covid-19, all workers must be able to take sick leave while self-isolating. The costs to the economy of going into lockdown far outweigh the costs of employees staying home sick."

During the campaign Labour promised the following initiatives in the workplace:

  • We will implement a major support package to assist businesses in hiring at least 40,000 New Zealanders whose employment is impacted by COVID-19.
  • We will progressively extend Living Wage guarantees to contractors to the public sector – such as our cleaners, caterers, and security guards.
  • We will increase minimum sick leave entitlements from five days to ten days a year.
  • We will increase the minimum wage to $20 an hour in 2021.
  • We will make it easier for women to gain pay equity in their organisation or across their industry, by ensuring there are better records of pay equity across New Zealand, including by ethnicity and age as well as gender.
  • We will make it easier for workers to receive fair wages and conditions, and avoid the 'race to the bottom' that occurs within competitive industries by implementing Fair Pay Agreements.
  • We will strengthen and simplify the Holidays Act, and allow sick leave to be taken when needed.
  • We will protect vulnerable workers by legislating protections for dependent contractors and by recognising security guards as vulnerable workers to ensure their terms and conditions are protected.
  • We will raise the age for workers to be allowed to perform hazardous work, ensure all workers have the right to elect health and safety representatives, and ensure Seafarer Welfare Centres provide better services.

Minimum wage increase

The Government enacted a minimum wage increase this year during the pandemic and we expect them to deliver on this commitment in the next three years. It is fundamental to their whole approach. This will put pressure on businesses who have large numbers of relatively low skilled and low paid workers.

Fair Pay Agreements

This initiative is policy left over from the previous term and the work of the Fair Payment Agreement Working Group, which was held back by New Zealand First. We expect Labour will want to move quickly in this space.

The proposed public holiday for Matariki starting in 2022 from the Te Ao Maori policy is also likely to happen.

All of this will keep our colleagues in HR very busy.

The border trilogy

There is no doubt that more will happen at the border in the near term especially with the community case announced yesterday. Labour made three campaign promises:

  1. Review immigration criteria to enable a broader range of workers to enter New Zealand
  2. Enable a 10 percent quota for critical workers as we further develop the allocation system for managed isolation places
  3. New Investment Attraction Strategy to encourage targeted and high-value international investment into New Zealand

They acknowledge that “some businesses and sectors are unable to access the skills they need to operate and grow.”

This is very important. Businesses across all sectors of the New Zealand economy will be watching with interest what the criteria review recommends, and how soon the 10 percent critical worked quota, some 1,400 places will be implemented. This is one of the big issues! As well as working through industry associations, businesses need to have their own voice with the responsible Ministers and officials.

Infrastructure, Infrastructure, Infrastructure

As a race within a race, the two major parties both made significant infrastructure spending commitments. This image developed by our client Buddle Findlay nicely compares what was promised.

Specifically, the Labour party committed to:

  • Building $6.8 billion dollars’ worth of transport projects across the country as part of the NZ Upgrade Programme. This includes major roads, road safety improvements, and rail. It’s expected to create 800-1000 new jobs in our civil construction industry as the first five projects get underway in the next 12 months, and 7,000 to 9,000 direct opportunities for our wider supply chain
  • Investing over $700 million for shovel ready transport projects such as cycleways, walkways, ports and roads, to help kick-start the post-COVID rebuild. In total the shovel ready projects will create more than 20,000 jobs up and down New Zealand
  • Fast-tracking critical job-rich infrastructure projects through changes to the Resource Management Act so projects can get started and stimulate our economy

Much of this shovel-ready investment was announced before the election and can be expected to happen in some shape or form this term.

Infrastructure can be transformational if implemented effectively. Tactically, the anti-road rhetoric was dialled back during the campaign and, without the Greens, we expect it to continue.

While in principle change to the Resource Management Act has cross-party support, this will not be quick or simple. They are going to have to work overtime to significantly change a 300+ page Act that was introduced to Parliament in 1989 by Geoffrey Palmer, came into being under the National Government in 1991, and replaced 59 other Acts. It is no small task.

Skills and training roll on

Labour remains committed to targeting funding in areas such as trades training and apprenticeships in the post-COVID environment supported by the Reform of Vocational Education (RoVE). This Government will ensure RoVE moves to completion.

This includes the ongoing establishment of Te Pūkenga. We expect this agency to play more of a role and have a greater interaction with industry going forward specifically, look for the Workforce Development Committees to be quickly established.

None of this addresses the seemingly intractable problem of the viability of universities and the loss of funding access for international students.

If there is a new Education Minister this whole area will be a space to watch.

Reduced waste and plastics

Even without the Green Party being involved in the Environment portfolio we expect significant movement in the drive to reduce waste and single use plastics.

Of these three headline commitments:

  • Phase out single use and hard to recycle plastics by 2025
  • Create a $50m Plastics Innovation Fund to develop alternatives
  • Standardise kerbside recycling
  • Addressing kerbside recycling is one of the most important and probably the most difficult. The other two are imminently doable.

Alongside these headline policies you can expect progress on the six priority ‘product stewardship schemes’ where a producer or seller of a product takes responsibility for reducing the environmental impact of their products. The six areas are plastic packaging, tyres, eWaste, agrichemicals and their containers, refrigerants, and farm plastics.

We also expect the deposit return scheme for drink containers, (Container Return Scheme, CRS) to be enacted in the next term. The sticking point will remain the amount refunded.

Groceries and building supplies under the microscope

“Labour will initiate two new market studies to ensure New Zealanders are paying a fair price for groceries and building supplies as the economy recovers from Covid-19.”

The aim is to “answer questions and concerns raised that Kiwis are paying more than they should.”

The announcement of this policy included a commitment to have the terms of reference for each market study to be developed by the Minister for Commerce and Consumer Affairs and the market study into supermarkets to be initiated before the end of the year.

In parallel the Food & Grocery Council are advocating for a Grocery Code for New Zealand similar to the one that exists in Australia.

Last term the Government initiated a market study into fuel that it believes helped lower prices for consumers. It’s an approach that the Government likes, and we fully expect that these two studies will happen as promised.

Primary industry

In the primary sector while the policy was high level, the policy statement to watch is their commitment to:

Supporting farmer-led solutions through our Productive and Sustainable Land Use package, with a focus on promoting farm land-use practices that deliver more value and improve environmental outcomes.

This will be especially pertinent with all those rural, farming electorate seats that switched. Could we see a rethink?  

This could be one of the most telling areas as they balance the needs of rural towns, the wellbeing of the farming community and how to address climate change. As we said at the top, the language will stay the same but the actions may be very different.

Tax, digital services and multinationals

Along with personal income tax, the new Government made a number of commitments around tax for businesses.

Minister of Finance, Grant Robertson made a very clear statement on the potential Digital Services Tax.

“We will be prepared to implement a Digital Services Tax (DST). Current projections from IRD estimate a DST will raise between $30 million and $80 million of revenue a year.

“A DST would be very narrowly targeted and would not apply to sales of goods or services, but rather to digital platforms which depend on a base of users for income from advertising or data.”

He also reinforced the Labour Party’s commitment to continue closing tax loopholes.

“Labour will continue to work to get an international agreement that will see a comprehensive regime for multinational corporations to pay their fair share. But we also need to be prepared to put in place our own rules to ensure fairness, if that agreement is not possible,”

This space definitely needs to be monitored early in the term specifically we recommend watching the progress of the bilateral agreement with OECD countries on the Digital Services Tax.

Other taxes: 39% over $180,000

At the time it was announced Labour were roundly criticised for not taking the “tax bull by the horns” as the new top tax rate only impacted 2% of earners. While this may be true, it is our expectation that the new top tax will come into effect early in the new Government’s term.

As to the fate of the other elements of the tax policy, no new taxes or further increases to income tax next term and no increase in fuel taxes. These, in our opinion, are very much in the lap of the pandemic gods and could well reappear in the next three years should budget stresses due slow economic growth require increased revenue. Unlike a capital gains tax which will not be seen in this term, as promised, and probably not the one after either.

But first…

The formation of the government and the assignment of portfolios and Cabinet positions is the key next step. While who gets what role and where they stand in the hierarchy will have a big impact on all of the above, the Ardern-Roberston-Hipkins-Woods-Parker collective of the previous term will remain at the heart of everything this new administration decides and delivers. This will be the topic of our next update.

It is clear in the next three years Labour has a fine line to walk as they show themselves to be a transformational Government. On Twitter you can already see the hashtag #noexcuses appearing in election-related tweets; #nopressure.

We’re in no doubt that there is going to be a lot of change. For business to constructively contribute to the debate you must walk through the front door. Your relationship with your industry association, ensuring they are effective, and having your own voice in conversations with Government has never been more important.