Kiwibank business bankers say Investment Boost has yet to boost investment

Few firms have accessed Investment Boost, and those who have were going to invest anyway, according to a Kiwibank survey of its business bankers.

Only a third of the business bankers surveyed said clients had claimed Investment Boost's accelerated depreciation benefits for capital expenditure, says Kiwibank economist Sabrina Delgado.

And for those who have claimed Investment Boost deductions, most were either already planning to invest when the scheme was announced in last May's Budget, or are catching up on deferred capex.

Investment Boost - unveiled as the centrepiece of the Government's "Growth Budget" - is a tax incentive that allows firms to deduct 20% of a new asset's price from taxable income in the year of purchase, on top of "normal" depreciation.

An IRD factsheet explains Investment Boost doesn't change the total value of deductions claimed over the life of an asset.

"However, it does mean you can claim a greater deduction in the 1st year. This means you pay less tax in that year. Because money saved today is worth more than money saved later, this helps you save more overall," IRD says.

Treasury has estimated the scheme will cost the Government around $1.5 billion a year, but will lift GDP by 1% and wages by 1.5% over the next 20 years.

Delgado says businesses have been, and are still, surviving not thriving, and "we need a more convincing period of sustained demand in the economy" if uptake of the scheme is to move beyond "muted."

"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," says Delgado.

Delgado says there is limited quantitative data on the scheme's uptake and impact, so she decided to gather anecdotal insights from Kiwibank's business bankers.

Their response, "as expected," was that firms are holding on for "calmer waters and a brighter outlook."

"Need surety of revenue before further investment, especially as it's a cash flow plus, not a permanent write-off as such," one banker said.

"Yes, if they had the projects to purchase the new equipment for. Most are saying they don't have the projects to warrant buying new equipment at present," said another.

"Our conversations with local accountants indicate a mixed response to the policy. There are unanticipated accounting software updates required to accommodate the change, and the financial impact won't be felt for approx. 12 months, so whilst it reads well, the real-world impact is somewhat muted,” said another.

Delgado concludes Investment Boost is "a cherry on top" for those already investing, "but the accelerated depreciation is not yet enticing firms off the sidelines."