One in five businesses reported a current loss in the 2023 tax year. Photo: RNZ/Nick Monro
A growing number of businesses are reporting losses, and economists say the situation may become worse before it improves.
Data from Inland Revenue released under the Official Information Act shows that in the 2023 tax year, 107,360 companies out of 475,010 reported a current loss.
Another 40,670 were carrying a loss over from a previous tax year.
In the most recent tax year, for which data is still being compiled, there were 107,450 business with a current loss.
That compares with 99,500 in 2022, and 98,260 in 2016.
In the 2024 year, there were 157,560 companies with no income. Inland Revenue said that could be because the company had brought forward losses from previous years in some cases.
The number of companies reporting a profit had lifted in recent years, from 146,930 in 2021 to 164,670 in the 2023 year and 162,300 in the 2024 year.
Infometrics chief forecaster Gareth Kiernan said, leaving aside the companies not recording any income, the share of companies recording a profit had climbed from 46.5 percent in 2016 to 52.8 percent in 2022.
"It has edged down a bit over the last two years though, getting down to 52.3 percent.
"Although some of this growth between 2016 and 2022 has come due to fewer companies making losses … some of the growth has also come from fewer companies claiming previous losses against current income.
"The downward trend in this latter share, from 16.5 percent in 2017 to 13 percent in 2023, reflects the further and further away we've got from the last major downturn, the GFC (global financial crisis), meaning there are fewer currently profitable businesses with remaining losses to offset against current profits."
He said that meant it was probably better to measure profitability through the proportion of companies posting a current loss.
"The increase in the 'current loss' share from 32.3 percent to 34.6 percent since 2022 is probably the most instructive figure."
He said the March 2023 year was still relatively good from an economic perspective, and the worst of the recession would not appear until the June and September quarters of 2024.
The data showed that in the 2023/24 tax year, more than 40 percent of accommodation and food services businesses were making a loss.
Just 25 percent of companies in arts and recreation services were recording a profit.
Miles Workman, senior economist at ANZ, said the economy was growing in a nominal sense.
"The population is expanding, even if migration is low, it's still positive."
He said the data so far was stable but many businesses were holding on in the expectation of a recovery soon.
"There are other pieces of data out there suggesting business balance sheets are becoming a little bit more stressed."
He pointed to Reserve Bank data, which showed about 1.2 percent of total business loans were non-performing.
It was low compared to its previous peak but the highest level since about 2016, he said.
The number of business liquidations was also on the rise.
He said Stats NZ business financial data also provided a helpful insight. It showed sales up in most sectors year on year except for mining, construction and information media and telecommunications, which all fell.
Forestry and fishing was flat and retail and accommodation up just 1.3 percent.
"The parts of the economy that are quite interest rate sensitive do appear to be the parts that are doing it perhaps the toughest - then of course you've got those that are, you know, exposed to international tourism, which still hasn't fully recovered. So they're doing it really tough and then you've got other pockets of the economy, the agricultural sector … it's been a good season."
He said there was generally evidence that business balance sheets were stressed because costs were still quite high and demand for goods and services had diminished.
"Obviously we're in the lull of the cycle, it's very difficult to pass high costs on which effectively erodes profits."
Many businesses had come out of the pandemic in relatively good health, he said.
"What really took the hit through the pandemic and the lockdowns was the government's balance sheet ... Ultimately there was a huge amount of money transferred which meant businesses had a bit - not all businesses of course, but some businesses had a bit of a buffer built up to get through difficult times. So the question becomes one of how long can businesses hold out?"
He last week raised the prospect that businesses could be "labour hoarding" in the expectations of recovery. Those workers could be dropped if it did not happen as quickly as expected.
"We know businesses are expecting the Reserve Bank to eventually engineer a recovery and the question becomes, well, how long can businesses hold out before they have to shed some of the labour they've been holding because they just don't have the balance sheet capacity to do that anymore?"
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