Companies happy with acceleration

F&P Healthcare chief executive Mike Daniell says the scheme is not a big deal but every little bit helps.

Businesses are welcoming the Government's accelerated depreciation scheme for short-term assets but analysts say it's a ho-hum move.

"The depreciation changes will have a marginal impact only," said Alan Dent, partner in corporate finance for Deloitte & Touche, responsible for technology, media and telecommunications.

"They've really just brought them up to reality - they're not really using them as an incentive to drive new investment."

The Budget is changing the depreciation rules so the rates better reflect how assets decline in value.

Short-term assets - such as technological items like PCs or laptops - will now depreciate faster and long-term assets, such as buildings, will depreciate more slowly.

Under the old scheme, 40 per cent of a laptop computer's value could be written off each year. A company would thus need three years to write it off.

The new scheme chops that to two years by changing the depreciation rate to 50 per cent a year.

New and old schemes also had an extra front-end load built in, which means an additional 20 per cent of the asset's value could be written off immediately if it was bought new, rather than used.

With the laptop example, under the old scheme 48 per cent of its value could be written off. Now, it's 60 per cent.

Businesses applauded the move, saying it would spur purchasing and benefit sellers.

"That's going to be a positive so people can stay more current with the technology," said Ross Peat, Microsoft New Zealand managing director.

"It will allow a more up-to-date strategy in terms of technology. That's positive throughout hardware and software."

The rule changes also raise the low-value asset threshold to $500 from $200. Assets worth less than the threshold can be written off immediately, while those above must be depreciated. This move was also applauded by business.

"Businesses big and small will welcome any tax relief by way of changed depreciation rates or the reduction in compliance costs," said Simon Moutter, Telecom chief operating officer.

"This has got to be a move in the right direction."

But Mike Daniell, chief executive of Fisher & Paykel Healthcare, said: "I don't think it's a big deal for us, but everything helps. It's in that category, rather than being a deal-breaker one way or another."

F&P Healthcare spends only $10 million to $12 million a year on plant machinery and computers, with its biggest spend going on staff.

Analysts would like to have seen the threshold raised even higher, to perhaps $1000. And, they would have liked to see the Budget provide businesses with better incentives to spend on technology.

"All they've done is address a disincentive. They haven't created an incentive to pursue this kind of investment," said Geof Nightingale, tax director for Ernst & Young.

"This Government doesn't like tax incentives. It likes to avoid things that distort investment decisions."

The Government, which says the changes were necessary to encourage better investment decisions by business, estimates it will lose nearly $1 billion in tax revenue over the next four years with the move.

But observers say the estimates are entirely dependent on the economy and spending trends.