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Investment boost seen as a step in the right direction

Investment boost seen as a step in the right direction

Dunedin manufacturers say a tax deduction on new assets is a "great step in the right direction" which will give some companies a chance to make smarter investment decisions.
Investment Boost, a new tax incentive focused on encouraging businesses' capital investment, was among the announcements made by the government yesterday as part of Budget 2025.
It would allow businesses to deduct 20% of the value of new productive assets, such as machinery, tools, equipment, vehicles and technology, from that year's taxable income, on top of normal depreciation.
"There's no cap on the value of eligible investments," Finance Minister Nicola Willis said in a statement yesterday.
"All businesses, regardless of size, can benefit."
The deduction applies to new assets purchased in New Zealand from yesterday, as well as new and used assets imported from overseas.
It included commercial buildings but excluded land, residential buildings and assets already in use in New Zealand, Ms Willis said.
Advancing Manufacturing Aotearoa board chairwoman Sarah Ramsay said a policy on accelerated depreciation had been its "number one ask" to the government.
"So I think it's fantastic that they've made a start on it.
"I think there's still more to go ... but I think it's a great step in the right direction."
More advanced and productive assets had "a much higher price ticket", and the incentive could be the difference between replacing existing assets and investing in more advanced pieces of equipment, she said.
"So I certainly think it will factor into decisions around do we buy and replace an asset with like-for-like, or do we actually look at taking a more innovative step because it has been de-risked to a certain extent with that accelerated depreciation."
Purchasing new assets could also be challenging due to high commissioning costs and other costs associated with training and onboarding.
"It certainly gives companies a bit more air to be able to execute that properly."
Mrs Ramsay, who is also the chief executive of United Machinists, said most of the company's machinery purchases were valued at between $500,000 to $1.2million.
The company had just commissioned three new pieces of equipment and was looking at investing about another $1.5m over the next year into two new pieces of equipment.
Investment Boost would "certainly help" with the company's capital planning and business case, and could even bring some investments forward, she said.
Farra Engineering manager director Gareth Evans said the incentive was "definitely a great move" but did not think it would have the impact the government perhaps hoped it would on capital investment in the manufacturing sector.
"I think anything that supports capital investment is good.
"I'd like to see it augmented with concessionary loans, which would, I think, be much more stimulative in terms of private business capital investment.
"But this is a great first step and it's very positive to see."
While he did not believe it would affect the company's investment decisions, it could have a material impact for a lot of other businesses.
Companies with established revenue streams might stand to benefit rather than any particular specialised field of manufacturing, Mr Evans said.
"It's good for established businesses like ours, but for earlier stage businesses where possibly they're not at profitability yet, it doesn't give them the same advantage."
While the incentive would have "zero impact" on the company's capital investment plan, it could be a factor for the plans of a select number of other businesses, he said.
"I don't think it will drive a fundamental change in behaviour, whereas access to better interest rates or other mechanisms would have a huge impact.
"Personally, I don't see it having more than a fairly small percentage uplift in capital investment across the sector."
tim.scott@odt.co.nz
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