Source: New Zealand Government
It’s a pleasure to be invited here today by the Auckland Chamber for my first post-Budget speech.
The Chamber is the peak body for the Auckland business sector, where so many of our country’s businesses are based.
Our Government backs business-friendly policies because, ultimately, business success underpins our success as a nation.
I am going to talk to you today about the Budget’s business growth measures.
Thriving businesses deliver the growth, jobs and incomes that New Zealanders need to get ahead.
One of those thriving businesses is hosting us right here.
If you’ll pardon the pun, I reckon that Recorp is the can manufacturing company with the can-do attitude.
I admire the scale of your ambition to eliminate the use of single use plastic bottles in New Zealand by 2030.
My congratulations to you Bruce Parton and your team, and also to Rob Fyfe whose vision and commitment helped get this company up and running.
One of Recorp’s critical points of difference is the quality of its manufacturing equipment.
You invested heavily at the outset in the technology that enables you to accurately tailor orders to match customer requirements, regardless of size.
You have set an example for other new Kiwi businesses. Many are following it, but it’s a challenge for others.
We know that capital investment is a key to business success. So often, it’s the piece that gives companies the edge over competitors at home and overseas.
One of the things I hear from business leaders is the difficulty many Kiwi businesses face raising capital to invest in the equipment and other assets they need to succeed.
Lack of good quality capital has become a barrier to growth.
This Government has acted to lower that barrier.
The Investment Boost tax incentive announced in the Budget gives businesses an adrenalin boost to invest in the new productive assets they need to succeed.
I’m really proud that we’ve managed to incorporate this exciting new initiative in the Budget.
I expect almost all of you will have heard something about Investment Boost in recent days.
You may even have heard our critics say in the media that it won’t make much difference.
Well, our MPs have been out since the Budget was delivered and what they’ve heard is that Investment Boost will be a game-changer for many Kiwi businesses.
Like the manufacturer now planning a $70 million capital expansion over the next two years to install a fully automated plant.
Like the chicken farmer now planning to raise his investment in upgrades and new assets from $12 million to $18 million over the next 12 months. He said this was the “best news for our sector in a long time”.
Like the caterer with a new kitchen to fit out, who says they will be “thousands and thousands better off”.
Like Robbie Smith, owner of Stevenson and Taylor, the large Hawke’s Bay agricultural machinery business. He has already seen a jump in sales since the announcement, with one customer purchasing two tractors. He said: “This initiative is great news for local businesses.”
Like Pic’s Peanut Butter Chief Executive Aimee McCammon, who thinks Investment Boost will be “super helpful” for the many small to medium-sized businesses like hers that are running on old kit.
Or like Chartered Accountants New Zealand country head Peter Vial who says the announcement was more generous than expected and will significantly increase productivity and growth
He says: “New Zealand’s poor productivity is not due to poor work ethic or laziness, but rather a lack of capital investment in equipment, machinery and technology. The Investment Boost tax incentive strikes at the heart of this.”
I couldn’t agree more.
Then there’s the semi-retired accountant who was inundated with calls on the Friday morning after the Budget from clients looking to take advantage of Investment Boost.
He said: “It is a long time since I have seen a reaction like this to the Budget.”
I’m going to talk more about Investment Boost soon – how it works, with some examples of the savings it offers.
But I’d like to start by putting a bit of context around the Budget, and why we’ve taken the approach we have.
The Budget is a responsible Budget for uncertain times.
I’ve been calling it the no-BS Budget.
We’ve levelled with Kiwis about the challenges we face as a nation.
No rainbows or unicorns. No lolly scrambles. Just straight talk, and responsible actions.
We inherited a country with its bank account run down and the credit card maxed out.
Thanks to the previous Government’s refusal to turn off the spending tap after Covid, public debt ballooned from just 18.6 per cent of GDP in 2019 to 41.7 per cent in 2024, just five years later.
We’ve slipped back to the bad old days of the eighties and nineties, when debt servicing was among the biggest government spending items.
Today, about one dollar in every 15 of the Government’s operating spending goes to paying the interest bill on our borrowings.
Our political opponents say that’s all good. Other countries have higher debt, so we can just borrow and spend more to get ourselves out of trouble.
That kind of talk ignores the reality that New Zealand’s economy is different to many of those other more highly indebted economies.
We are small, isolated and heavily reliant on overseas trade. We have very limited ability to influence the global financial and trading conditions that affect our livelihood.
This audience needs no reminding of how unstable and unpredictable the world trading environment is right now.
Further, we are a country that’s vulnerable to sudden, costly shocks.
One day another big earthquake, cyclone, pandemic or biosecurity breach is going to hit us. Recovering from events like those is even harder if there’s nothing left in the kitty to pay for it.
The good news is that the economic recovery is under way.
Inflation is down and is forecast to stay within the 1 to 3 per cent target band.
Interest rates are down, and forecast to fall further.
The Budget forecasts GDP to rise to healthy rates of around 3 per cent in each of the next two years.
Wages are forecast to grow faster than the inflation rate, making wage earners better off, on average, in real terms.
The Budget also forecasts that 240,000 more people will be in work over the forecast period to mid-2029.
Many New Zealanders may not be feeling better off now, but over time they will – provided we stay the course.
The recovery remains fragile. Global uncertainty has caused Treasury to peg back its forecasts, especially in the near term.
The recovery isn’t in danger, but it is likely to be slower than previously forecast.
As a government, we’re talking straight with New Zealanders about the way ahead.
About getting public debt under control and nurturing the economic recovery now under way.
About carefully managing the public purse. Making sure we’re using taxpayer dollars to pay for the must-haves, rather than the nice to haves.
About doing nothing to put the economic recovery at risk – because a growing economy is the route to higher living standards for everyone.
But we’re also clear that the no-BS Budget doesn’t mean penny-pinching across the board.
We get that New Zealanders are struggling with the cost of living. The Budget responds with some carefully targeted help, including rates relief for more SuperGold Card holders, 12-month prescriptions to save the cost of repeats, better targeting Working for Families to low and middle-income earners, and continuing funding for food banks.
We’re also investing more in health, education, law and order and other frontline public services.
We’ve done that while also finding room to invest in business success.
The Budget demonstrates that we truly can walk and chew gum at the same time.
It’s about hope grounded in reality.
That we can continue to invest in the things that matter, while staying on a debt reduction and economic growth track.
That we can reduce government spending as a share of the economy and return the government’s books to balance.
We’ve done it despite reducing our operating allowance from $2.4 billion to $1.3 billion a year.
That’s the lowest allowance in a decade. The adjustment was made to keep government spending on a tight track, recognising changing forecasts due to the uncertain economic conditions.
Despite the smaller discretionary kitty, we’ve still been able to deliver $5 billion in new spending and $1.7 billion for the Investment Boost tax incentive that I talked about earlier.
That’s because most of the spending increase is funded by savings.
We’ve been able to find $5.3 billion in savings through reprioritising and cost reductions across government.
Half the savings come from changes to the pay equity regime.
To be clear, I am absolutely committed to pay equity. But we have to be sure that future settlements stick to fixing pay discrepancies between occupations that are based only on sex-based discrimination, and not for other reasons.
Otherwise, pay equity negotiations simply become a surrogate for a normal wage bargaining round.
Even our political opponents are starting to realise that the previous pay equity regime was simply out of control. The scale of settlements coming at us would have limited our ability to invest in health, education and the other public services that the women – and men – of New Zealand rely on.
We’ve also put another $1.8 billion towards investment in health and education infrastructure like hospitals and schools.
And we’re putting $1.7 billion into what I believe is the single most important policy in this year’s Budget – the Investment Boost tax incentive that I talked about earlier.
Investment Boost is available right now to every business represented in this room.
Businesses large and small – manufacturers like Recorp, farmers, tradies, whoever.
It’s for all those businesses that are keeping their heads above water but need a bit of help to get beyond that, by getting their hands on the productive assets they need to grow.
Assets like machinery, tools, equipment, technology, vehicles and industrial buildings.
Investment Boost applies to new assets purchased by New Zealand businesses. It can also apply to second-hand assets imported from overseas.
It excludes land, residential buildings, and assets already in use in New Zealand.
There’s no cap on the value of new investments. All businesses, regardless of size, are eligible.
It allows you to immediately deduct 20 per cent of the cost of a new asset from your taxable income, on top of depreciation.
That means a much lower tax bill in the year of purchase. The remaining book value is depreciated at normal rates.
Since a dollar now is more valuable than a dollar in future, the cashflow from investments is more attractive and the after-tax returns are better.
It means that more investment opportunities stack up financially, so more investments will be made.
Let’s look at an example.
A manufacturer – let’s call it Green Kiwi – wants to invest in a new environmental test chamber, at a cost of $200,000.
Before Investment Boost, the company could claim an annual depreciation deduction of 10.5 per cent. That would reduce Green Kiwi’s taxable income by $21,000 a year over its useful life.
With Investment Boost, it can now also claim 20 per cent of the value of the asset – that’s $40,000 – in the year of purchase, as well as the standard depreciation on the remaining 80 per cent of its value
Together, these deductions reduce the company’s taxable income in that year by $56,800.
This translates to an additional $10,000 off the company’s tax bill that year.
That’s $10,000 more that Green Kiwi has to reinvest in the assets it needs to grow.
Another example. Farmer Brown gets a woolshed built for $150,000. The extra deductions he gets under Investment Boost mean his tax bill will be $8,274 less than it would otherwise have been, meaning more to invest in shearing equipment in his new shed.
And another one. Pam the plumber buys a ute for $60,000. Investment Boost gives her $2906 more than she would otherwise have had to buy new tools.
Over the next 20 years, Investment Boost is expected to lift New Zealand’s capital stock by 1.6 per cent, leading to wages rising by 1.5 per cent and GDP by 1 per cent.
These are estimates, not precise values. But officials estimate that roughly half those benefits will be achieved in the first five years.
The Government did consider reducing the company tax rate as an alternative to Investment Boost. But dollar for dollar, Investment Boost raises investment more than a company tax rate reduction as it only applies to new investments, not those made in the past.
The other advantage of Investment Boost is that the benefits are expected to flow to workers.
Inland Revenue’s Regulatory Impact Statement states that “the majority of the increase in national income from Investment Boost would flow to workers. This increase would come from a combination of higher wages and higher employment. We therefore expect that the benefits of Investment Boost will be spread broadly across a wide range of New Zealanders.”
There you have it. Ultimately, all workers benefit from Investment Boost.
There’s a number of other business growth initiatives in this Budget.
We’re setting up a new agency, Invest New Zealand, to attract global capital, business and talent to this country. An experienced advisory group chaired by Rob Morrison, has been appointed to support its establishment.
We’re changing our thin capitalisation tax rules to encourage foreign investment in our infrastructure. We’re consulting now on the details of that.
We’re allowing employee share schemes to defer their tax liability, to help start-ups and unlisted companies to compete for and retain talent.
We’re re-prioritising our science and technology funding towards growth-promoting investment in areas like gene technology. We want our researchers to focus on real-world problems and innovations that can be commercialised.
And we’re supporting our highly successful film and television sector by increasing the screen production rebate to just over a billion dollars across this year and the next four years.
We don’t subsidise business as a rule, but when it comes to the screen industry, a rebate is the price of entry to the game.
Over the last decade overseas production companies have invested $7.5 billion in New Zealand. We simply wouldn’t get that kind of investment in future without continuing the rebate.
We’re also replacing the much-maligned Resource Management Act to unlock investment and growth across the country. You’ll be hearing more about that in the months ahead.
No doubt you have heard about the changes to KiwiSaver, which the media has focused pretty heavily on.
Essentially, we are raising the default employee and matching employer contribution rate from 3 to 4 per cent over the next three years. To ensure the scheme’s sustainability, we are also reducing the government contribution by half, to just over $260 a year.
We’re also extending the government contribution to 16- and 17-year-olds, to foster the savings habit, but removing it altogether for people earning more than $180,000 a year, because they don’t need it.
I acknowledge that change impacts on employers. But to allow time to adjust, we are phasing it in over the next three years, and we are not making the new rate compulsory – employees can choose to opt back down to a three per cent contribution if they wish.
The changes are designed to lift our retirement savings rates which, frankly, are too low, especially when compared with other countries like Australia.
Higher retirement savings deliver big benefits for individuals and for the country. Our financial institutions have a larger pool of capital to invest back in the economy, and the pressure on Government to financially support retired New Zealanders is eased.
To finish, I want to touch on where this Budget takes us.
Our decisions mean we are on track to bend the debt curve downwards without applying a blowtorch to public services.
We are taking a deliberate, medium-term approach to fiscal consolidation.
This is far from austerity, as some commentators have claimed. In fact, it is what you do to avoid austerity.
There’s no doubt that balancing the books is challenging.
Some would do it with higher taxes; we are doing it by controlling growth in spending.
We’re saying to New Zealanders: we’re about no BS, just straight talk about the choices we face as a country.
Thank you.