With 478,000 people behind on payments and hospitality businesses more than two times likely to fail than other businesses, New Zealand’s households and businesses continue to navigate economic uncertainty, credit bureau Centrix says.
When it comes to households, the latest Centrix Credit Indicator report shows a slight year-on-year decrease in the number of people behind on payments.
In the June quarter, 478,000 people were behind on payments - down 7000 from May, Centrix says.
Wairoa District and Kawerau District were areas with the highest rates of people behind on payments. Meanwhile Tasman District and Nelson City had the lowest rates of people behind on payments.
With figures on the number of people behind on payments largely unchanged from a year ago, Centrix says this begs the question: “Is the trend of year on year arrears improvement coming to an end?”
Financial hardship
There are nearly 14,450 accounts reported in financial hardship, Centrix says.
While the rate of increase has eased in recent months (there was a drop of 550 accounts in the last month), Centrix says the number of accounts in financial hardship is up 7.1% year on year.
"Almost half (45%) of hardship cases relate to mortgage payment difficulties, which are up 7% year on year."
Credit card debt at 29% and personal loan repayments at 18% make up the rest of the financial hardship cases.
Financial hardship cases have been generally rising since November 2022 and in the June quarter, people aged between 35 and 49 had the highest rate of financial hardship.
Vehicles, credit cards, retail energy and communications arrears
The number of people behind on their vehicle loans, credit card payments, retail energy and communications (things like mobile and broadband) has gone down, Centrix data shows.
Vehicle loan arrears were at 5.4% in June, slightly below the level recorded a year ago.
Centrix says credit card arrears had improved to 3.9% in June, the first time they have gone below 4% since September 2022. They are down 6% compared to a year ago.
The proportion of households behind on their retail energy payments was the lowest level since July 2023 - falling to 3.7% in June.
Communications accounts fell to 10.6% but this is 6% higher than the same time last year, according to Centrix.
Personal loans
Personal loans were at 9.3% and Buy Now Pay Later arrears fell to 8.4% in the June quarter.
Personal loans that were at least 30 days past due had improved in June at 5.6%, but this is higher than in June last year which was 4.8%.
People’s credit scores are between 1 and 1000 - it reflects how likely you are to pay bills on time. The higher the number, the better your credit rating is.
Nine out of 10 personal loans were granted to borrowers with a Centrix credit score of 505 or higher. This credit score is up from 450 at the start of 2020.
Centrix's managing director Keith McLaughlin says; “this shift underscores the impact of the Credit Contracts and Consumer Finance Act and ongoing economic pressures, prompting lenders to maintain tighter credit policies".
New lending for things like credit cards, vehicles, personal loans and Buy Now Pay Later was up 5.5% year-on-year with Centrix saying this was driven by increased activity in personal loans and vehicle finance in recent months.
New household lending is up 19.9% year-on-year.
Hospitality businesses increasingly vulnerable
New Zealand’s hospitality sector is fast becoming one of the most vulnerable industries, Centrix says.
"Hospitality businesses are more than two times likely to fail as the typical New Zealand business," the credit bureau says, with cafes, restaurants, pubs and clubs particularly at risk.
Over the last year 288 hospitality companies were placed into liquidation - up from 199 in the same period last year.
"That is a clear sign that the industry continues to struggle with rising operating costs and shifting consumer spending patterns."
This also put the hospitality sector in a new spot - overtaking the property sector as the second-largest industry contributing to company liquidations.
Company liquidations up but growth easing
Overall, company liquidations are up 26% year-on-year but the rate of this growth continues to ease, Centrix says.
"The number of liquidations are partly due to increased enforcement activity by the Inland Revenue Department."
The construction industry remains in the top spot when it comes to contributing to company liquidations, with 755 construction companies liquidated in the past year. This is an increase of 48% compared to the previous year, Centrix says.
"This continues to be a challenging environment for small to medium enterprises, with elevated stress across multiple sectors."
Centrix says small businesses are "facing elevated levels of mortgage stress, with sole proprietors experiencing more than double the debt stress of non-business owners".
And when it comes to business credit defaults, they have increased across all business sectors year-on-year.
Centrix says this is sitting at 13% overall with the worst impacted industries manufacturing, property/rental, construction, transport, hospitality and retail trade.
Business credit demand is also up 8% year-on-year.
"Credit demand has increased by 23% in the retail trade and hospitality sectors over the past year, with financial/insurance and arts/recreation services up 22%," Centrix says.
28 Comments
Overall, company liquidations are up 26% year-on-year but the rate of this growth continues to ease, Centrix says.
"The number of liquidations are partly due to increased enforcement activity by the Inland Revenue Department."
What, so it's not the economy behind an increase in company failures, but the IRD?
These figures are at odds with how things are often being portrayed.
A popular and longstanding restaurant/cafe in a tourist centre I go through frequently just went under, IRD put them into liquidation.
Apparently they never really recovered from the Covid lockdowns. Now those jobs are gone, 15-20 mix of perm and casual. Hospitality has never really recovered from Covid, sure trading may have been ok now but most have significant debts as a result of 2020 to 22. No winners here, even less tax being paid and higher benefits, hollowing out of rural and tourist centres. Thanks Jacinda.
Your solution is to what?....write off the tax/loan liabilities? Not sure how those businesses that have met theirs will feel about that.
You may also note the number is 'partly' due to increased IRD enforcement.
5 years on from the covid packages if the business is not in a position to make acceptable arrangements with IRD (and other creditors) then they are insolvent and should be wound up.
To me this presents a picture that is different to what you are all grasping on, perhaps even the author of the article. To me this points to a flawed tax system. we keep getting told that the Government must tax to spend, but this is not true. It must tax to manage the amount of money in circulation, thus managing to an extent the value of the dollar, but also peoples behaviour. Taxing marginal business's to the extent that they can't survive is not constructive and doesn't support or promote the economy. Fundamentally this needs to change.
This is not a question of government revenue but rather an issue of public trust in institutions and avoiding making a bad situation worse...after all there is little difference fiscally if tax is written off or benefits paid....efficient use of labour however does make a difference.
Agreed.
And I hope You didn't take that i was countering your view, just that mine is a different perspective. People working and getting paid for it is many times more beneficial to the economy than forcing a business to close because of a relatively small tax bill that makes very little difference in the scheme of things.
In this case the government loses due to the loss of GST, PAYE and the cost of benefits, not to mention the simple attitude of working to support oneself being undermined.
What is this public trust you speak of? Public trust in institutions left the room when masks went from being virus useless to compulsory and a sailor was denied entry/attending his wifes funeral. Not to mention the other million batshit crazy public institution decisions of late - from $30k to move a turtle to the mongrel mob head given a free pass during lockdown to 11k gene therapy exemptions handed out to public health drones like lollies.
I admire your faith Frank.
Trust in that if you are required to pay your tax liability then others will be required to do the same.
My faith (or lack of) has little to do with that.
But most of the tax liability isn't due to the government taxing the business. Most of the liability is due to tax collected from others and not passed on due to the miss use of it for cash flow purposes.
GST is a tax paid by the customer and paye is tax paid by the employee. The business mistake is to think that it is your money.
Your solution is to what?....write off the tax/loan liabilities?
I'm not saying anything regarding that, it's just while everyone is freaking out saying the RBNZ is tanking the economy, the evidence (business liquidations) looks to have other causes.
Unless the solution to large tax bills is to print or borrow more money to pay them. Which in itself sounds fairly problematic.
The causes will be many and different case by case but the RBNZ reducing discretionary income will certainly be a factor in many.
The solution may well be for the state to offer guaranteed employment so as to mitigate the social cost of business failure and provide a level of stability to incomes which may well flow to hospitality.
The solution to large (tax) bills is to dispute or arrange payment...and if unable, liquidate.
The solution may well be for the state to offer guaranteed employment so as to mitigate the social cost of business failure and provide a level of stability to incomes which may well flow to hospitality.
We did that for a few years after 2020. Not a sustainable option.
No Painter we did not do that for a few years after 2020
We literally gave companies money to pay workers who were sitting at home not producing or consuming much, to prevent people getting laid off or companies going under.
We also greenlit and fast tracked a number of fairly dubious projects as a sort of jobs programme.
10s of billions of dollars, for basically no gain other than we could pretend the economy was tickety-boo.
Did we all forget it that easily?
I disagree Frank. Hospitality faced disruption like no other sector and were not compensated nearly enough, thousands are failing. Yes, some of these should have gone under but the one I refer to was 30+ years old, well run and an asset to the community. We are hollowing out our provinces.
I don't have a solution, I'm pointing out the costs will be far greater to the tax system than was owed and that's not accounting for the lack of a community asset.
To much debt and when the small business bank of ponzi (owners mortgage) starts to go backwards its all bad. Add in inflation wave from the stupidity of the RBNZ and the last govt, ponzi is killing discretionary retail spend and hospo.
Higher wages and higher rent demands just make it worse.
Have you ever considered
The "ponzi" includes funding discretionary spending and going out for tea?
Having ready access to food is already amazing.
Expecting to be able to afford for someone else to cook it for you, might not be normal.
Good point. Most of my meals, I make for myself, which I prefer to "hospo" ones, cost around $6. Low carb, high protein/fat as well.
In my lifetime, it went from a once a year special occasion, to a weekly or biweekly affair.
$5-$6 gets you a decent meal at home, or a mediocre pie.
$9.90 now gets you a cafe lamington. No wonder hospo is struggling.
Pretty hard to compete if you don't have your staff on a passport/residency scam.
Be fair to say I was well into my 50s before I considered going out for a coffee was 'normal'. And every cent I spent was questioned by self.
Many of our immigrants operate the same - and get ahead.
Our own could learn from that, however victimhood and excuses are encouraged instead.
The Chinese community go to Chinese restaurants very regularly.
Haha you’ve made my Friday…that is as cliche as “it was a game of two halves, rugby was the winner on the day” 😂
Ace solution, let’s tell the younger generation to live 20 to a home & eat nothing but 2 min noodles so they can get ahead 🤦🏻♂️
Financial hardship cases have been generally rising since November 2022 and in the June quarter, people aged between 35 and 49 had the highest rate of financial hardship.
The demographic that would most benefit from further interest rate cuts. But hey, let's sit on our hands and delay the inevitable by letting the economic ship sink that little bit more before throwing emergency water pumps into the bow.
I'd mentioned it right at the start of the hiking cycle, they will only lower rates gradually, preferring a larger stimulus buffer for if/when things next really shit the bed.
And this aint shitting the bed.
I've always commented on hospo saying there are too many and they pop up during the good times and disappear during the bad times. Nothing to write home about. Take outs about 3x a month but a cafe serving reasonable meals about once a month and that hasn't changed much over about ten years.
The construction industry remains in the top spot when it comes to contributing to company liquidations, with 755 construction companies liquidated in the past year. This is an increase of 48% compared to the previous year, Centrix says.
I'd hazard a guess that a large proportion of those construction industry liquidations are 'strategic' take the money and run situations, where a company is axed to get rid of any future liability on their work.... close down Smith Construction #54, open up Smith Construction #55.
Anybody want to bid on a future leaky home? #55 is looking for home buyers.
I wouldn't say a large proportion. Small handful, at best.
The majority will have been those holding on through COVID years, high turnover but no profits due to constant inflation, and now things have gotten quiet, no point continuing.
If you have a good profitable business, shutting it down to avoid liability isn't a strategy most would entertain.
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