Investment Boost: Just A Cherry On Top For Well-Placed Businesses?

• We surveyed our business bankers across the country to gauge what they were seeing around the uptake of the Government’s Investment Boost initiative.
• While there have been some early signs of engagement, most businesses remain cautious and seem to be waiting for better economic conditions before committing to new investment.
• Only one third of our Business Bankers reported an uptake of the initiative among clients — and even then, it was limited. Most of the activity came from businesses either catching up on deferred capex from the past couple of years, or those whose investment plans were already underway prior to the scheme’s announcement. It’s a boost for those already investing… a cherry on top. But the accelerated depreciation is not yet enticing firms off the sidelines.

Back in May, the Government presented their “Growth” Budget” for 2025. But with the books in deficit as far as the eyes can see, the overall fiscal impulse profile remained contractionary. There was some stimulus for growth now, but none further out. That was no surprise. The Government’s hands have remained tied as they continue to grapple with balancing the books. It's hard to “go for growth” without the funding to back it.

So, in came the Governments Investment Boost scheme - the cornerstone of Growth Budget 2025. A tax incentive whereby businesses can deduct 20% of a new asset’s value from that’s years taxable income, on top of normal depreciation. The goal? To encourage investment in productive assets, like machines, tools, and equipment… and accelerate growth. The incentive helps Kiwi businesses to lead the growth in the economy. They know, better than most, where to invest.

Boosting investment in productive assets is something we certainly support, but it will take time to work. The timing of the initiative landed when businesses were, and still are, grappling with uncertainty, a lack of confidence, and weak demand. Businesses have been more concerned with simply surviving rather than looking to expand and invest. Businesses ‘surviving’ rather than ‘thriving’ has muted the uptake of the scheme, at least in the near term. We need a more convincing period of sustained demand in the economy. We’re closer to that now than we were in May, especially with the RBNZ signalling a shift toward stimulatory settings. Conditions are set to improve. But the here and now still poses many challenges for Kiwi businesses, with many unable or unwilling to invest.

Quantitative data on both the uptake and impact of the scheme remains limited. But we know that some of the anecdotal insights we get from Kiwi businesses paint a telling picture, well ahead of any official data.

So, we asked our business bankers across the country what they were seeing on the ground.

In response to whether clients were considering taking up the Governments “Investment Boost”, two thirds of the survey responses were no.

It’s what we expected might be the case. Businesses are still holding out for calmer waters, and a brighter outlook. And for those who did report clients taking up the scheme, it seems that most businesses using the incentive were either already planning to invest in capex or were catching up on deferred investment from the past couple of years.

© Scoop Media