Despite Finance Minister Grant Robertson's assurances that, "ultimately, we want New Zealand to be a place where everyone has a fair go," SME owners up and down the country may have come away feeling a little disheartened by the first Labour budget.

The Government has noted that the country is underspending in Research and Development (R&D), and that it is a top priority to move R&D spend in NZ from the current levels of 1.28 per cent of GDP to the OECD average of 2.35 per cent. Its answer - an additional $1 billion allocation towards an R&D rebate over the next four years. Upon first consideration, $1b towards R&D for Kiwi businesses seems like a big step in the right direction, but when you take a closer look at the requirements, it's not all that it seems to be.

Under the new policy, businesses will be able to claim 12.5c back for each dollar spent on R&D, paid at the end of each year as a tax credit, but only if their total R&D spend amounts to $100,000 or more a year and they make a taxable profit.

So, what does that target mean for small Kiwi firms that need assistance the most?


According to the 2017 Small Business Factsheet, small businesses (less than 20 employees) make up 97 per cent of all New Zealand enterprises - with a significant proportion of those start-up companies that don't make a profit. In comparison to the existing (soon to be phased out) subsidy which sees 20 per cent of eligible R&D spend paid out quarterly in cash to the business, this new policy effectively shuts out the majority of Kiwi businesses and may not do the intended job of increasing R&D spend.

Rather, this directly discourages businesses by taking away what little cash subsidy they previously received from the Government.

Additionally, the Tax Working Group has alluded to the recommendation of introducing a capital gains tax (CGT) - which, if a CGT on sales of businesses were included, I believe would be a calculated attack on all small business owners in New Zealand, and those who are trying to invest in productive assets.

There is already a gaping hole between the administrative burden and income tax levels that are imposed upon New Zealand companies, and with the lack of Government subsidies to assist with these costs, the addition of a CGT on business sales will only create further problems for SMEs.

When you invest into a Kiwi business, you are investing into a productive asset for our country - helping the economy, creating jobs and assisting with customers' needs. Businesses succeed via sweat equity, risk taking and entrepreneurial ambition, and the Government has already taxed all of that.

The introduction of a CGT would stifle entrepreneurial ambition, with significant flow on effects to employment, GDP and investment.

There is also a needed and overdue divestment of businesses that are currently sitting in an aged demographic. According to Xero, over 90,000 businesses are owned by people aged 55 and over. A CGT on business sales would encourage the owners to lock-in and hold on to the business for as long as they can - likely to the detriment of the business. With a resulting decline in purchases and sales of businesses, potential buyers may swing decisions towards investments into things such as larger personal homes, a non-productive use of funds.

Small businesses are the lifeblood of our country. An imposed CGT and the new R&D tax rebate will do little for these companies. If the Government wants Kiwi businesses to thrive, their focus for the next budget should be policies in a way that allows SMEs to actually access the critical support they need.


Aaron Toresen is Managing Director of LINK