Is the NZ economy broken? Rising business liquidations have become one of the clearest signs of the pressure many businesses are facing, with company failures reaching levels not seen in years.
In this episode, James Blair and Michael Vincent unpack the rise in business liquidations, explore what's driving the trend, and discuss whether the problem is failing businesses, a struggling economy, or a combination of both.
Rising Business Liquidations Explained
Business liquidations in New Zealand are at a 15-year high.
According to the discussion, more than 3,000 companies have gone into liquidation over the past 12 months, representing a 20% increase year-on-year.
While it’s easy to look for a single cause, Michael argues that the situation is the result of several years of challenging economic conditions rather than one isolated event.
For many businesses, particularly those that did not benefit from stronger trading conditions in previous years, there has been little relief. Instead, businesses have faced a prolonged period of economic pressure, making survival increasingly difficult.
Rising Business Liquidations Are Hitting Some Sectors Harder Than Others
The increase in business liquidations is not being felt evenly across the economy.
Auckland remains the hardest-hit region, accounting for more than half of all national liquidations. However, James notes that population concentration also plays a role in those numbers.
Some industries are facing particularly severe challenges.
Construction accounts for roughly 30% of all liquidations, while hospitality liquidations have increased by nearly 50% year-on-year.
These sectors continue to appear in the data quarter after quarter.
Hospitality businesses face unique challenges due to tight margins and changing consumer spending patterns. Michael points out that many operators enter the industry because of a passion for food and hospitality, but passion alone does not protect businesses from difficult economic conditions.
Are These Business Failures or Economic Failures?
One of the key questions explored during the discussion is whether these liquidations reflect poor business performance or broader economic conditions.
Michael’s view is that while liquidation technically means a business has failed, many good operators are struggling in the current environment.
Businesses can often absorb one or two setbacks. The challenge arises when difficult conditions continue for years without meaningful improvement.
The conversation compares the current environment to taking repeated punches without any opportunity to recover. Rising costs, weaker consumer spending, and ongoing economic uncertainty create a difficult environment even for well-run businesses.
The Pressure of Rising Costs
Another major theme is the ongoing increase in business costs.
According to Michael, businesses continue to face rising expenses across multiple areas, including fuel and raw materials.
While businesses can absorb some cost increases, there eventually comes a point where those costs must be passed on to consumers.
The challenge is that consumers are also feeling financial pressure and may reduce spending in response to higher prices.
This creates a difficult cycle where businesses face higher costs while customers become increasingly cautious about spending.
Regional Differences Across New Zealand
Not every part of the country is experiencing the same level of economic stress.
While Auckland and Wellington face significant challenges, the discussion highlights that Christchurch and Queenstown appear to have stronger levels of economic activity.
Some smaller regions, including Northland, are experiencing more difficult conditions.
The result is an uneven economic landscape where location can have a significant impact on business performance.
The Role of Government Policy
The episode also explores whether government policy is helping or hindering economic recovery.
Michael argues that reductions in government spending can have broader impacts because much of that spending ultimately flows through private businesses.
When spending is reduced, businesses that rely directly or indirectly on government activity can feel the effects.
The discussion also touches on recent business incentives, with both hosts questioning whether some measures are meaningful enough to support struggling businesses when cash flow remains the primary challenge.
Tax, Investment and Economic Growth
James and Michael discuss several ideas they believe could help stimulate economic activity.
These include:
- Tax incentives for businesses.
- Creating greater disposable income for households.
- Encouraging investment into productive areas of the economy.
- Attracting skilled talent to New Zealand.
- Promoting business growth and entrepreneurship.
A recurring theme throughout the conversation is the need to create more economic activity and increase the flow of money through the economy.
Key Takeaways
- More than 3,000 New Zealand companies entered liquidation over the past 12 months.
- Business liquidations are at their highest level in 15 years.
- Liquidations have increased by approximately 20% year-on-year.
- Construction accounts for roughly 30% of all liquidations.
- Hospitality liquidations have risen by nearly 50% year-on-year.
- Auckland remains the hardest-hit region by total liquidations.
- Many businesses have faced several consecutive years of difficult trading conditions.
- Rising costs and cautious consumer spending continue to create pressure on businesses.
- Economic conditions are affecting even well-run businesses.
- Different regions and industries are experiencing the downturn differently.
- Tax policy, government spending, and business incentives remain key areas of debate.
- Many business owners are still waiting for stronger economic conditions to emerge.
Next Steps
If your business is facing cash flow pressure, tax challenges, or uncertainty about the road ahead, Lighthouse Financial can help you understand your options and build a plan for the future.
If you’d like to watch more, check out these other episodes below.
For a no obligation discussion to see how we can help you on the path to wealth, please contact us.
Disclaimer:
The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.
