Just over half of sole traders are saying their income has increased this June quarter and there’s been a “modest improvement” in their optimism, according to Hnry’s latest report.
This is the strongest net gain in 12 months and marks a sharp turnaround from March, Hnry’s latest Sole Trader Pulse report says. It also outpaces the recent gains seen in Australia.
The report is commissioned by Hnry and polling of 502 sole traders in New Zealand is by Resolve Strategic between June 2 to June 13. Hnry is a digital accounting service that automatically does tax calculations and payments, invoicing, expenses and tax filings for contractors, freelancers and sole traders.
The report measures and tracks sole trader sentiment, views and experiences. Sole traders are people who run their own businesses, work for themselves or work as contractors for someone else. These include tradies, artists, and small business owners (think hairdressers or landscape gardeners).
To track sole trader sentiment Hnry asked sole traders several questions to measure past financial performance, current financial performance, how they feel about the economic conditions and how they feel about their personal lives.
Using 12 variables from these areas, sole traders and their sentiments are ranked from a scale of 0 (negative) to 200 (positive) with 100 being considered ‘average’.
The report found sole traders had made a “modest improvement” in their sentiment - but this improvement is the first time in a year that New Zealanders have become more optimistic.
The total index for June has gone up to 126. In March it was 120.
Hnry chief executive and co-founder James Fuller says for the past 18 months to two years, its previous reports saw a lot of the sentiment to be quite bleak due to government cuts to contractor resources, the rising cost of living and inflationary pressures.
But this June quarter, there’s been a rebound.
“Traders are a bit more optimistic and for the first time, they’ve overtaken their Australian counterparts in overall sentiment,” Fuller says.
“It’s the first time ever that New Zealand sentiment has been above Australia.”
Those working in the health and wellness sector had a high sentiment index of 142. Sole traders in this sector were personal trainers, physiotherapists, psychologists, midwives, nurses and locum doctors.
This particular sector, Fuller says, is consistent in terms of earnings while other sectors could be seen as direct indicators of disposable income.
Freelancers and creatives had a sentiment index of 119. Using freelance designers and graphic designers as an example, Fuller says “that tends to be more buoyant - when their customers are feeling a bit more flush".
The report says there was an “observable uptick” in sole traders reported incomes for this quarter - 54% had noticed their income had improved. This is up from 40% in March.
Meanwhile 24% of sole traders noticed their income had declined.
Economic outlook remains cautious
While there’s more optimism, sole traders are cautious about the economic outlook - with Wellington-based sole traders feeling especially pessimistic.
The report says: “Wellington sole traders are more likely to think things will get worse than better over the coming six months, with only 25% stating they expect the economy to get better over this horizon.”
Fuller says this is a direct response to the government activity seen in Wellington.
“I think one of the really nasty impacts to sole traders has been the government policy of slashing government spending on what they like to call consultants and contractors.”
From a government perspective, Fuller says this is “the lumping together of the big four consultancies and outside parties that come into government and do consulting work”.
“It accidentally swept up a whole bunch of contractors - people who might have been on the frontline in MSD on a six-month contract, or maybe a business analyst or a project manager. These are not the people who are at the top of the government spending list.”
Fuller says they are the core part of the government workforce, supplementing permanent staff within government departments and helping them deliver projects.
In the report, 17% of sole traders say they financially benefitted from interest rate cuts while 48% say it has given them confidence as customers have more money to spend.
Inflation
When it comes to inflation, 79% of the sole traders surveyed say they think it will increase or stay the same.
And because of inflation:
- 77% of sole traders are having to pay themselves more
- 71% say they are paying more for supplies and services
- 69% are trying to cut costs via things like technology
- 69% of sole traders say they are finding business is getting tighter generally
But there’s some pressure coming off, the report says, as 79% say they still have a loyal customer base and 66% of sole traders surveyed say they’re making a profit.
The report says cost-cutting is at 69% - down from 78% in March, and the impacts of fuel prices have also gone down from 60% in March to 50% in June.
Of those surveyed, 38% say they’re having to seek paid employment, down from 56% in March.
The majority of sole traders are still making a conscious choice to not work for a larger company (this is at 73%).
Flexibility is the main driver of this at 76%, followed by control over business direction at 53%, having responsibility for business performance is at 29%, and being able to deal with customers and suppliers directly sits at 21%.
KiwiSaver government contribution
The report says 46% of sole traders surveyed believe the National-led government has performed well since being elected.
“The overall view of their tenure is at best neutral, with half (48%) saying that the National-led government has had little to no effect on their sole trading business, and only a fifth (20%) saying that it has had a positive impact.”
Concerns have also been raised by sole traders about the impact of the Government’s changes to its KiwiSaver contribution rate.
Following Budget Day, the Government’s contribution rate has gone down to 25 cents for each dollar a member contributes. This was previously 50 cents for each dollar which meant receiving a maximum Government contribution of $521.43.
To get the Government’s full contribution now, which is $260.72, people need to put in at least $1042.86 of their own money between July 1 to June 30 each year.
The report found 52% of sole traders surveyed opposed the KiwiSaver co-contribution cut while 14% of sole traders believed the most recent Budget would benefit them.
“The majority (83%) are aware of the KiwiSaver change, and 43% say it will alter saving behaviour - indicating a long-term policy risk for retirement adequacy among sole traders.”
Alongside this, Fuller says 24% of sole traders surveyed were planning to reduce their voluntary contributions. This follows a previous 41% of sole traders who have paused KiwiSaver or saving contributions due to inflationary pressures.
"There’s been this steady stream in the last 18 months of sole traders having to reduce their voluntary KiwiSaver contributions just to get by and now with the Government contribution cut in half, there’s even less incentive for them to save for their futures.”
This is going to create a generation of sole traders who won’t have enough money saved for their retirements and will need Government support in the future when they reach retirement age, Fuller says.
Some sole traders are now looking for alternatives to KiwiSaver.
“What we’re seeing now is people in the sole trader industry diverting what would have been their KiwiSaver contributions to other investment products."
This is a huge challenge for sole traders, Fuller says.
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