Marc Daalder
Wellington, May 25, 2025
Analysis
A Growth Budget from Prime Minister Christopher Luxon and Finance Minister Nicola Willis (National Party Photo)
On its face, the government’s Investment Boost policy is hard to argue with.
It is, in effect, accelerated depreciation. Businesses can deduct an extra 20% of a new asset’s value from their taxable income in the first year, before depreciation proceeds as normal.
“It is designed to encourage firms to make more growth-enhancing investments now and into the future,” says Finance Minister Nicola Willis.
Labour’s Finance Spokesperson Barbara Edmonds agrees, saying that Investment Boost is a “good measure because it helps businesses to reinvest in their business.”
Yes, it has a significant fiscal impact for the Crown ($6.6 billion over four years). But a lot of that is front-loaded because it brings forward depreciation which would otherwise occur later on anyway. And, officials advise, about $2.6 billion of that will be offset through higher tax revenue due to higher economic growth resulting from the policy.
Infographics Courtesy: PwC New Zealand
Accelerated Depreciation
So-called partial expensing, or accelerated depreciation, is common in a range of countries overseas. Officials point to the United States, United Kingdom, Australia, Germany and Canada as examples of other nations running similar schemes with positive economic results.
There is just one problem.
As Newsroom reported on Friday (May 23, 2025): There is no cap. And eligibility for the deduction extends beyond the normal set of depreciable assets, to the primary sector (petroleum and mining), company cars and commercial property. That is, notably, very different from the international schemes on which officials have based their modelling.
Australia’s various partial expensing policies have been limited to small and medium businesses. Any company, even a multinational corporation like the oil major OMV, is eligible under Investment Boost.
The United States’ partial expensing is limited to assets with a lifetime of less than 20 years, effectively barring buildings and major infrastructure like power plants or mines. There is no such limitation under Investment Boost.
There are two partial expensing policies in the United Kingdom. One has a cap on the value of the asset (currently £1,000,000). Investment Boost has no asset value cap, meaning a $5 billion offshore wind farm would be included.
The other policy is explicitly limited to machinery and equipment, barring buildings, cars and intangible assets (which are all eligible under Investment Boost).
Canada, too, tightly prescribes what assets are eligible: “equipment used for manufacturing and processing or used for producing clean energy”.
Finally, Germany has a similar policy but only for moveable assets, which excludes buildings and mines, for example.
All of this has the effect of transforming Investment Boost from a policy backing hardworking Kiwi SMEs to massive, uncapped tax cuts for billion-dollar oil rigs, fast-tracked coal mines and glittering skyscrapers.
A Gargantuan Risk
Officials estimate the fiscal cost of the policy at $6.6 billion over four years. While these sorts of estimates always involve some guesswork, the risk of getting this policy in particular wrong is gargantuan.
It only takes a handful of giant new commercial property developments, a few new mines and a dozen wind and solar farms to come close to exceeding that $6.6 billion envelope. And if the envelope is exceeded, the Government still has to fork out the cash, worsening the already grim pathway back to surplus by the end of the decade.
Consider the projects listed in the government’s fast-track legislation alone. They include seven aquaculture and farming projects, 22 renewable energy developments and 11 mining and quarrying schemes, all of which would be eligible for Investment Boost.
There is no indication in the handful of documents released around the policy so far that a cap, or the risks of not having one, was ever considered.
Resources Minister and NZ First Deputy Leader Shane Jones freely admits why so many categories of assets not eligible overseas are included here: He asked for it.
“We fought for the entirety of the primary sector, including the natural resource sector, to be included within the sectors eligible for a 20% write-off,” he told Newsroom on Budget Day.
The Commercial Property Sector
Commercial property wrangled its way in off the back of official recommendations.
IRD was worried that excluding it would distort the neutrality of the tax system – better, presumably, to offer up substantial tax write-offs to the commercial property sector, in contrast to international precedent and experience.
Fortunately, Revenue Minister Simon Watts says he has it under control.
“There is no cap or limit, other than the integrity measures outlined in the context of this bill, therefore, there cannot be any cost blow-out in the context of this,” he said in Parliament on Friday (March 23, 2025).
The costs will not blow out because there is no cap to blow out, he assures the public.
If the tax deductions run to $10 billion, or even $100 billion, it could be seen as part of the plan. Just more economic growth for New Zealand, even if, as officials advise is likely, much of the money flows to offshore companies.
“Investment Boost delivers the confidence injection business needs,” Willis says.
That, at least, is true.
It is hard to imagine a policy that could inject more confidence for the big end of town than an uncapped opportunity for everyone from multinationals to commercial property developers and Jones’ beloved Mining Sector.
Marc Daalder is a Senior Political Reporter at Newsroom based in Wellington. He covers Climate Change, Health, Energy and Violent Extremism. The above article has been published under a Special Agreement Newsroom.
