Budget 2010: Good outweighs bad for business leaders

EMA chief executive Alasdair Thompson. Photo / Steven McNicholl

Business leaders broadly welcomed the Budget, despite depreciation rule changes the Government says will raise hundreds of millions of dollars.

Employers & Manufacturers Association chief executive Alasdair Thompson said it was the fairest Budget in more than a decade, with personal tax reductions across the board, a cut to the company tax rate and an increase in GST.

The company tax rate would drop from 30 per cent to 28 per cent from 2011/12. It would cost $340 million in that year.

However, changes to building depreciation rules meant deductions would no longer be allowed for buildings with an estimated useful life of 50 years or more, including rental houses and offices.

According to the Budget the building depreciation change would raise $685 million in the 2011/12 year, of which the Herald understood about 60 to 70 per cent would come from commercial properties.

Thompson said most factory and office buildings did not have an economic life exceeding 50 years and would therefore be able to still claim depreciation.

Meanwhile, changes to depreciation loading meant businesses would no longer be able to claim 20 per cent accelerated depreciation on new plant and equipment, raising $135 million in 2010/11, rising to $345 million in 2013/14.

"They will still be able to claim all the depreciation but it will take longer," Thompson said.

"But on the other hand there is an offset here by the reduction in company tax rates and doing that two years ahead of Australia is, I think, a great achievement and it will have a great result in encouraging more investment in New Zealand and recording of more profit in New Zealand."

Overall the Budget was good for business, Thompson said.

Deloitte said the Inland Revenue Department currently determined the estimated useful life for an ordinary building - other than certain types with a shorter life - was 50 years, which would include factories and offices.

Deloitte tax partner Mike Shaw said: "It is incomprehensible that the Government is moving to deny depreciation deductions on assets that reduce in value."

Building owners would be able to apply to the Inland Revenue for a provisional depreciation rate if they consider a class of building had an estimated useful life of less than 50 years.

"The Minister deserves a D- for this measure," Shaw said.

The Budget said changes to thin capitalisation rules - reduced from 75 per cent to 60 per cent - would limit the extent to which foreign multinationals could allocate debt to New Zealand subsidiaries and generate $200 million of extra revenue a year from 2011/12.

BusinessNZ chief executive Phil O'Reilly said the Budget's tax provisions pointed in the right direction.

"These tax decisions are targeted at the long-term health of the economy," O'Reilly said.

"I think you'll find business will be pretty happy with it.

"It does all the Government said they would do - there's a good little surprise there for business in the company tax rate and as long as this is part of an ongoing piece, as long as they don't lose their nerve and say this is all there is, well you know, let's keep going."

The depreciation provisions- across all buildings with an estimated useful life of 50 years or more - had the merit of consistency and fairness, O'Reilly said.

New Zealand Business Roundtable executive director Roger Kerr said the Government deserved credit for correcting some of the economic mistakes of its predecessor but was still well away from putting the economy on a strong and balanced growth path.