Businesses Want More Innovation, And More Action On Tax, This Budget

• 57% of businesses believe the Government is performing well on the economy – 33% disagree
• 42% think the Budget will have a negative impact on New Zealanders’ wellbeing
• 76% want a company tax cut to boost competitiveness, while opposition to a capital gains tax has decreased

Business optimism ahead of this year’s Budget is markedly better than it was pre-Election, but the overall report is “could do better”. Baker Tilly Staples Rodway’s pre-Budget poll shows businesses want to see bolder tax measures alongside prudent public spending, and many have concerns about the so-called Austerity Budget’s impact on our wellbeing.

“What we’re seeing is a patient that’s just up and out of bed, not dancing around,” said David Searle, National Chair of Baker Tilly Staples Rodway. “There’s optimism, but it’s notably cautious. While people rate the Government highly on having reduced spending and cut red tape for businesses, there’s a broad sense that the impacts of various policies haven’t been as profound as they hoped, from personal tax reductions to measures to boost foreign investment and attract highly-skilled workers.”

Economic pain spells mixed score-card for Government performance

While 57 per cent of businesses surveyed felt the Government was managing the economy well, significantly up from 14 per cent in the previous poll in August 2023, a third disagreed. The figures from 2023’s pre-Election poll indicate why this might be. Back then, two-thirds (65 per cent) of businesses believed a National-led government would improve the operating environment for businesses, with just 8.5 per cent predicting a worse outcome. On the other hand, this year’s poll revealed 32 per cent of businesses had performed worse over the past 12 months, and 43.5 per cent hadn’t seen any difference.

Likewise, more than 78 per cent of respondents placed the cost of living in their top three personal concerns, up from 71 per cent prior to the Election. This was followed by the cost of doing business (65 per cent) and geopolitical issues such as trade wars and regional conflicts (47.5 per cent). From a business perspective, inflation and low consumer spend were the top issues.

Government pledges to cut spending further should therefore be popular, avoiding adding to inflation. However, it’s also clear that businesses expect the upcoming Budget to bring pain to many New Zealanders. Asked how the Budget would affect wellbeing, respondents were overwhelmingly neutral about how it would affect them personally (53.5 per cent), but 42 per cent thought it would have a negative impact on New Zealanders generally, against 28 per cent positive.

Notably, demand for health spending has grown even stronger. In 2023, it was already top of business leaders’ wish list, but two-thirds (65 per cent) of all businesses want the Government to prioritise healthcare in this year’s Budget, up from 61 per cent in 2023. By contrast, defence ranked last in the list of 11 priorities, showing little support for the Government’s planned increase in defence spending despite geopolitical concerns.

“As we all know, it’s not just what you spend, it’s how you spend it. Businesses appreciate Government measures to reduce waste in the public purse, but they want to see the remaining spend targeted towards health, infrastructure and crime reduction. Care will need to be taken to ensure an increased defence budget doesn’t look like robbing core services to fund the military,” said Searle.

Businesses want bolder action on tax

While the Government has adjusted personal income tax bands to address bracket creep, addressing a long-standing concern, businesses also overwhelmingly wanted to see a reduction in the 28 per cent company tax rate. Seventy-six per cent of respondents supported a company tax cut to boost competitiveness and enable business growth and foreign investment. Although a new tax on charities’ non-charitable business has been postponed, nearly the same percentage of businesses were also in favour of such a tax, provided sports clubs and trade associations were excluded.

In fact, while two-thirds of businesses continue to oppose a wealth tax, strong opposition to a capital gains tax has decreased. While overall support has increased only slightly (45 per cent now vs 42 per cent pre-Election), those who strongly disagreed with a capital gains tax declined from 39.5 per cent in 2023 to 31.5 per cent now.

“This is a really key message we’re hearing from our clients – simply cutting spend isn’t enough. They’re calling for bolder action on our tax settings to help spur new investment and start growing rather than going backwards in real terms. The softening in attitudes towards new taxation is a sign of how much people want to avoid falling behind on critical services, and keep moving forward,” Searle said.

“The good news for the Government is that their actions so far to reduce obstacles and spend prudently have given businesses optimism for the future. However, to maintain that, we’ll need to see something more positive and innovative, rather than more of the same.”

About Baker Tilly Staples Rodway

Baker Tilly Staples Rodway is a New Zealand-wide network of accountancy and business advisory firms providing practical, responsive, and business-focussed services to a broad range of clients from start-ups to significant businesses across all industry types. It is part of the Baker Tilly International accounting network, with members in 145 territories around the world.

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