Budget 2025: $6.6b business tax incentive much needed but abrupt closure of pay equity door not ok - Fran O’Sullivan

THREE KEY FACTS

• Nicola Willis’s Budget includes a $6.6 billion tax incentive for businesses to boost investment.
• Means-testing Best Start will extend for three years for those earning over $180,000.
• The Budget forecasts 3% GDP growth by 2027, with unemployment decreasing and inflation within 0-3%.

In a single word, Nicola Willis’ second Budget is “pragmatic”.

It remains a brutal truth that New Zealand is living beyond its financial means.

More of that later.

But Willis’ $6.6 billion windfall for business after some years of sluggish growth is welcome.

The incentive allows businesses to deduct 20% of a new productive asset’s value from their tax returns.

This ought to be a spur to New Zealand business to invest more and perhaps make for a more joyful spend-up on new tractors and machinery at next month‘s Fieldays.

For foreign investors who are also benefiting from some pre-Budget announcements, it places the tax incentive in the right place.

Their tax incentive will come from actually investing in hard assets rather than a special corporate rate on profits which would be more open to manipulation.

The Budget also provides a welcome nudge to getting more New Zealanders to stand on their own feet (or their parents’ feet in the case of late teenagers which will hopefully incentivise them to push their kids into work or more education).

Means-testing Best Start – where parents get a weekly payment for their children – will be extended for all three years for those earning over $180,000.

Cutting back the Government’s contribution to KiwiSaver at the same time ensuring workers and employers lift their contributions to 4% each of salaries by 2028 is also a good step. But the Government has stopped short of introducing full compulsory savings as with Australia.

Back in the day when The Economist used to send their economics editor down to New Zealand economy-class to report on the bold steps the 4th Labour Government was imposing to transform the economy and dig New Zealand out of a seemingly impossible debt hole, there used to be a running joke about how New Zealand was essentially a “bunch of public servants by the sea” – looping rather unfairly into this slogan the many on welfare as well as heavily subsidised farmers and manufacturers benefiting from the fraud that was import licensing.

That was pared back.

But subsequent Governments have again increased welfare dependency by extending family tax credits and the like and by wilfully not facing up to a fast-growing New Zealand Superannuation impost by instituting sensible means testing and claw backs and lifting the age of eligibility over time.

Unless we get surging economic growth, that super iceberg remains a major threat to our long-term livelihoods.

The New Zealand Taxpayers' Union's Debt Clock on its nationwide tour. Photo / Ayla Yeoman

In a second word, the Budget is ‘ruthless’

All finance ministers need nerves of steel to manage difficult Budget trade-offs – particularly with the enormous Government debt left over from the Covid years; the much-needed impulse to get debt down yet at the same time provide a spur to growth.

Plundering the forecast “fund” for pay equity settlements to the tune of $12.8b over four years to help finance the $6.6b tax incentive for business will stick in the craw of many New Zealand women. It gives opposition parties a stick to beat the coalition with right through to the 2026 election.

Although it is commensurate on Labour in particular to explain how they will fund pay equity payouts given Willis’ revelation the costs had blown out from forecasts dating back to 2020 that Labour’s pay equity regime was expected to cost just $3.7b over the period.

When it comes to that part of the politics of the Budget, Willis and her boss Christopher Luxon have a great deal of explaining and soothing to do.

The ice-cool Brooke van Velden – Minister of Internal Affairs and Workplace Relations and Safety – recently pronounced in Parliament that she was “strong Mr Speaker”.

Strong enough to use Parliament to deflect the pay equity issue from one of fairness to the “misogyny” she and her female Cabinet colleagues had apparently suffered from being slammed with the “C” word.

But not strong enough to take early public advice on the issue and flag the projected fiscal blowout (and start talking with the unions on options) well before the day the coalition used Parliamentary urgency to slam the door shut.

It’s notable that van Velden is seen by many to have operated a “shut-door” approach to the union sector.

This is something Luxon needs to reassess. He is a fan of the systems operated in small, advanced economies like Singapore and Ireland.

But their successes came out of a strong consensus built by the three pillars of their economies: Government, capital and labour. It’s not as if he doesn’t “get this”.

He chiefed Air New Zealand at a time when labour relations were exemplary. Port of Auckland’s increased financial success was also borne out of a changed labour environment. Take note.

This needs to be rethought.

Achieving pay equity has been and remains a long slog.

Pay equity protesters on Budget Day. Photo / Marty Melville

The state sector was a leader in equal pay for men and women. It took our legislators to introduce Equal Pay legislation in 1976 so that women working in the private sector were paid commensurate with men for the same job.

Those of a certain age have sharp memories of working in factories, hospitals and the like and being paid two-thirds that of men doing the same job meantime putting up with bullying foremen ensuring women stayed on the job while the blokes had prolonged “smokos”.

That scenario has thankfully long changed and women are these days valued, but clearly not enough in the eyes of many.

Many women – including this columnist – find the means the Government has used to slam the pay equity door shut for now unacceptable but understand the end, ie to redirect the $12.8b to either fund half the $21.4b Budget savings cuts or pony up half the cost of the $6.6b tax incentives for business – depending on your philosophical stance.

Generous

In a third word, the Budget is generous.

Treasury forecasts New Zealand will sport 3% GDP growth by 2027 with unemployment decreasing and inflation staying within the 0-3% bounds.

The economy is benefiting from high international dairy and meat prices (the lower New Zealand exchange rate particularly against the US dollar also assists).

But net core debt is expected to peak at 46% in 2027/28 with borrowing costs continuing to rise and this leaves us with not much of a buffer against predictable risks like major earthquakes or flooding disasters let alone global financial crises or pandemics.

Given this backdrop, the $6.6b tax incentive for business could be construed as generous.

There’s not a great deal in the Budget for infrastructure.

But the tax incentive allowing businesses to deduct 20% of the hard costs of new assets will be attractive to that sector as well.

It will also help make the shift further away from state borrowing to directly fund infrastructure to more public private partnerships and a user pay model where users also contribute via road tolls and the like to pay for new infrastructures, not simply taxpayers.

Let’s hope sufficient businesses do take up the new incentives, invest more and employ more in their firms. It is timely.