Changes to government policy
Why government policy is an external factor
- Government decides the rules and many of the prices a business operates under, and it can change them at any time. No business can prevent that, so policy change is external by definition.
- Policy changes are announced in advance — in the Budget, in legislation, or in election policy — so a well-run business monitors them and responds early rather than being surprised.
The policy changes that reach a business fastest
Minimum wage.
- Set by government and reviewed each year, and it moves the wage bill of every business employing staff at or near it.
- Effects: higher wage costs; pressure to raise prices; pressure to automate; compression of pay relativities, because supervisors expect to stay ahead of the staff they supervise.
Tax.
- Company tax changes the profit a business keeps and so the funds available to reinvest.
- GST changes the retail price customers face, which affects demand for non-essentials.
- Excise and levies — on fuel, alcohol, tobacco — change costs directly for affected industries.
Interest rates and monetary policy.
- The Reserve Bank of New Zealand (RBNZ) sets the Official Cash Rate (OCR) to keep inflation low and stable.
- A higher OCR raises the interest a business pays on borrowing, which makes expansion more expensive, and reduces customers' spending power — a double squeeze on a business selling non-essentials.
Government spending and procurement.
- Government is one of the largest customers in New Zealand. Decisions to fund or cut roading, housing or health projects move whole industries.
Immigration and skills policy.
- Visa settings determine whether businesses can recruit workers they cannot find locally — decisive in horticulture, construction, aged care and hospitality.
Trade policy.
- Tariffs, quotas and free trade agreements change the price and accessibility of export markets and the competitiveness of imports in the domestic market.
Environmental and industry regulation.
- New standards for emissions, water quality, packaging or product safety impose compliance costs and can require capital investment.
How businesses respond
- Plan ahead. Build known changes into the budget before they take effect, so the cost is not a surprise variance.
- Adjust prices, in stages rather than at once.
- Change the cost structure — automate tasks made expensive by wage increases, restructure rosters, renegotiate supply contracts.
- Lobby, usually through an employer association or industry body, rather than alone.
- Relocate or resource differently where a policy makes an input or a location uneconomic.
- Take the opportunity. Policy change creates winners: a subsidy for insulation is a boom for insulation installers; an infrastructure programme is years of work for civil contractors.