Investment Boost is the second-largest spending initiative in Budget 2025, closely behind investment in the health sector.
While Finance Minister Nicola Willis and Prime Minister Christopher Luxon made positive noises about using the tax system to incentivise business to invest more in plant and equipment, observers expected support to be more targeted.
Peter Vial, of Chartered Accountants Australia and New Zealand, believed the Government could have achieved the same outcome by applying the policy to a narrower set of assets.
Investment Boost will enable businesses to deduct 20% of a new asset’s value from that year’s taxable income, on top of normal depreciation.
So, let’s say a company invests in a machine worth $100,000, which depreciates over 10 years (i.e. assuming a 10% straight line depreciation rate).
Previously, the company would’ve been able to deduct $10,000 worth of depreciation each year from its taxable income.
Under the new policy, it could make a $20,000 up-front deduction, followed by $8000 in depreciation deductions each year – including in year one.
Vial said the change would “significantly increase productivity” by encouraging businesses to invest in new assets now, rather than waiting for the economy to improve.
“The good news is that it applies from today and there is no cap on the deduction amount,” Vial said.
“We would have preferred a more targeted approach, focused on the most productive assets.”
Speaking to the Herald earlier this week, tax consultant Geof Nightingale similarly foresaw the Government limiting the change to certain assets or sectors.
He acknowledged this would add an element of complexity to the system. New laptops, for example, may enhance productivity more for one business than for another.
But he believed it would be a way of keeping a lid on costs.
Inland Revenue, in a Regulatory Impact Statement prepared for the Government, said: “A 20% broad-based PE [partial expensing] regime would materially support the minister’s productivity objectives and, of the policies with similar magnitudes of impact, is likely the most cost-effective tax policy available to support that objective.
“Reducing the company tax rate would have a range of flow on impacts that would need to be addressed. For example, the creation of new rules to minimise avoidance opportunities that would arise from a larger gap between the company tax rate and personal tax rates.”
Treasury expected Investment Boost to lift capital stock projections by 1.6% over 20 years.
It predicted this would lift gross domestic product levels by 1% over the same 20-year period and wages by 1.5%. Half of these gains are expected in the next five years.
BusinessNZ chief executive Katherine Rich said Investment Boost was “a significant and forward-looking move that will incentivise capital upgrades and improve competitiveness”.
She said the policy would front-load some tax deductions and free up cash for businesses.
Rich was also supportive of the fact it would help all kinds of businesses.
The biggest saving in Budget 2025 comes from a change to the pay equity regime.
This will result in about 180,000 workers in female-dominated sectors receiving pay rises estimated to be $12.8b lower over the forecast period than would otherwise have been the case.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
