The centrepiece of New Zealand’s 2025 Budget is a massive business tax incentive grandly titled “Investment Boost.” By the Government’s own admission, it’s inspired by the Muldoon-era “Think Big” schemes – and it shows.
It is unbelievable with the criticisms they levelled at wasteful spending under Labour. The policy is ill thought through to say the least. AND at what cost to the worst off ..
Reading between the lines of the various analyses and critiques, it sounds as if the Investment Boost parameters potentially could result in a bankrupted economy….
The fine print on 'Investment Boost' for all but buildings (where depreciation has been removed otherwise) is explained by IRD as: "In the year that you purchase the asset you can claim:
▪ 20% of the cost of the asset, plus
▪ the amount of the usual depreciation deduction that would otherwise apply but calculated as if the cost of the asset were reduced by 20%.
What no one but one or two tax commentators have noted is that all that is happening here is that depreciation allowances for plant and equipment are given an upfront 'boost' against the first year's profit. Subsequent years' depreciation allowances will be smaller than they otherwise would have been (and so reported profit will be lower), because the asset value calculation is on 80% of actual cost if you use the Boost method. Over the life of the asset, until full write-off against taxes, the same depreciation will be paid as would otherwise have occurred without the boost. This seems to have escaped all commentators Bryce has referenced bar a couple, and he didn't understand that, clearly. This is not an uncapped commitment, it is the same one we have always had for depreciation, with an extra 20% of it brought forward.
The Nick Stewart reference of about 0.05% is wrong. Both Treasury and the IRD explain their modelling suggests the level of GDP is likely to be 1% higher than it would have been in 20 years, with half of the growth within 5 years (ie, the new level of GDP is cumulative year after year and clearly estimated to be 0.5% higher after only five: it's a Boost - the clue is in the name......).
I think I have isolated the only two relevant facts in Bryce's paean to downside paranoia about a genuine effort to get a fairly stalled economy moving.
As was noted by one commenter he reports, the boost will be achieved by anyone who wants it, and who may have been going to invest anyway. The IRD trick is that these businesses can decide to get better tax write-offs for their investments as normally, in the years after the first, basing them on a first year 100% cost and benefitting more over the series of years they know depreciation will affect their profits.
Applying an integrity lens too broadly might lead to contorting issues just to fit that perspective, potentially overlooking other valuable aspects like the benefits of increased investment.
I'm no fan of the investment boost measure, but two thoughts Bryce:
- there is nothing unusual about governments having an uncapped liability. That's the welfare benefit system and anything with a legally defined right - service or cash - that is allowed to be "demand driven".
- this is a measure consistent with an "entrepreneurial state"/donut economy. Those who have been promoting activist targeting of the economy by the state need to own this, or think harder about what they are promoting
Only in as much as they can predict the economy, and that only in the short term. When you hear "the worsening economy means the government borrowed..." that difference is almost entirely welfare costs. It can be in the billions. Long run projections are also poor. When they introduced DPB, the expectation was a few hundred people...
In any case, the issue is the commitment to pay the tax break regardless. That's an extraordinary commitment for a cost government does not control. The 2025 BEFU, p30, has a discussion of the issue. It's disappointing how few media (Newsroom was the exception) have picked up on what it means. State media are so up their own ideological fundamentally they can't see when there is a real problem with a policy by this govt.
The tax take will go down so there is an unknowable, potentially huge cost with this policy. N Willis may have excused herself from voting on the policy in cabinet because of her potential conflict of interest with her lawyer father acting for fossil fuel interests, but this doesn't account for the influence which may have made on the actual creation of the policy in the first place. Taxpayers are exposed to a potentially massive debt. How is this fiscally prudent.
This is a bold Government move to boost productivity, which seems unusual in what have otherwise been timid changes, in my view deserving of applause in its entrepreneurial risk taking flavour. No cap for me is smart as that's most likely to attract big players. Oil and gas exploration rigs are expensive, so are robots to automate our backwards industries. I have to applaud the immediacy as well. Letters from IRD already received ... and I'm in no way "connected". Irrespective of whether it achieves the hoped for outcome I'd rather a concrete and immediate attempt than the usual do nothing cautiousness. More of the same please.
It got us peace of mind and a feeling of security. Labour/Greens led the way on what voters desired for NZ's future. They have not gone away and judging by the behaviour of the COC, will be back.
It is unbelievable with the criticisms they levelled at wasteful spending under Labour. The policy is ill thought through to say the least. AND at what cost to the worst off ..
I thought we had a balance of payments issue in the economy. How is encouraging investment in machinery made overseas going to help with this issue?
Reading between the lines of the various analyses and critiques, it sounds as if the Investment Boost parameters potentially could result in a bankrupted economy….
The fine print on 'Investment Boost' for all but buildings (where depreciation has been removed otherwise) is explained by IRD as: "In the year that you purchase the asset you can claim:
▪ 20% of the cost of the asset, plus
▪ the amount of the usual depreciation deduction that would otherwise apply but calculated as if the cost of the asset were reduced by 20%.
What no one but one or two tax commentators have noted is that all that is happening here is that depreciation allowances for plant and equipment are given an upfront 'boost' against the first year's profit. Subsequent years' depreciation allowances will be smaller than they otherwise would have been (and so reported profit will be lower), because the asset value calculation is on 80% of actual cost if you use the Boost method. Over the life of the asset, until full write-off against taxes, the same depreciation will be paid as would otherwise have occurred without the boost. This seems to have escaped all commentators Bryce has referenced bar a couple, and he didn't understand that, clearly. This is not an uncapped commitment, it is the same one we have always had for depreciation, with an extra 20% of it brought forward.
The Nick Stewart reference of about 0.05% is wrong. Both Treasury and the IRD explain their modelling suggests the level of GDP is likely to be 1% higher than it would have been in 20 years, with half of the growth within 5 years (ie, the new level of GDP is cumulative year after year and clearly estimated to be 0.5% higher after only five: it's a Boost - the clue is in the name......).
I think I have isolated the only two relevant facts in Bryce's paean to downside paranoia about a genuine effort to get a fairly stalled economy moving.
As was noted by one commenter he reports, the boost will be achieved by anyone who wants it, and who may have been going to invest anyway. The IRD trick is that these businesses can decide to get better tax write-offs for their investments as normally, in the years after the first, basing them on a first year 100% cost and benefitting more over the series of years they know depreciation will affect their profits.
Applying an integrity lens too broadly might lead to contorting issues just to fit that perspective, potentially overlooking other valuable aspects like the benefits of increased investment.
I'm no fan of the investment boost measure, but two thoughts Bryce:
- there is nothing unusual about governments having an uncapped liability. That's the welfare benefit system and anything with a legally defined right - service or cash - that is allowed to be "demand driven".
- this is a measure consistent with an "entrepreneurial state"/donut economy. Those who have been promoting activist targeting of the economy by the state need to own this, or think harder about what they are promoting
Can't the government forecast the numbers going onto jobseeker, supperannuation and so on reasonably accurately?
Only in as much as they can predict the economy, and that only in the short term. When you hear "the worsening economy means the government borrowed..." that difference is almost entirely welfare costs. It can be in the billions. Long run projections are also poor. When they introduced DPB, the expectation was a few hundred people...
In any case, the issue is the commitment to pay the tax break regardless. That's an extraordinary commitment for a cost government does not control. The 2025 BEFU, p30, has a discussion of the issue. It's disappointing how few media (Newsroom was the exception) have picked up on what it means. State media are so up their own ideological fundamentally they can't see when there is a real problem with a policy by this govt.
If being outside of 'international policy norms' is really that alarming, then you should be alarmed by the unique ACC and NZ Superannuation schemes.
The tax take will go down so there is an unknowable, potentially huge cost with this policy. N Willis may have excused herself from voting on the policy in cabinet because of her potential conflict of interest with her lawyer father acting for fossil fuel interests, but this doesn't account for the influence which may have made on the actual creation of the policy in the first place. Taxpayers are exposed to a potentially massive debt. How is this fiscally prudent.
I shudder.
This is a bold Government move to boost productivity, which seems unusual in what have otherwise been timid changes, in my view deserving of applause in its entrepreneurial risk taking flavour. No cap for me is smart as that's most likely to attract big players. Oil and gas exploration rigs are expensive, so are robots to automate our backwards industries. I have to applaud the immediacy as well. Letters from IRD already received ... and I'm in no way "connected". Irrespective of whether it achieves the hoped for outcome I'd rather a concrete and immediate attempt than the usual do nothing cautiousness. More of the same please.
Oil and gas exploration rigs are expensive and I don't want them or pay for them.
Nor did Ardern et al and look where that's got us.
It got us peace of mind and a feeling of security. Labour/Greens led the way on what voters desired for NZ's future. They have not gone away and judging by the behaviour of the COC, will be back.
Promising peace and security as saviour from a fake boogie man is the oldest political trick in the book for achieving power and control.
We are witnessing many 'fake' tricks right now, and it's a worry for the future.