Firms are able to deduct 20 percent of an asset's value from their taxable income, on top of normal depreciation, under the scheme. Photo: Unsplash/ Li Rezaei
Businesses are largely lukewarm about one of the government's big Budget policies to boost the economy.
The Investment Boost scheme - announced in this year's Budget - allows firms to deduct 20 percent of an asset's value from their taxable income, on top of normal depreciation.
It can apply to assets purchased in New Zealand as well as new and used items imported from overseas with no cap on the value of eligible investments.
Kiwibank recently surveyed its bankers to find out how many of its business clients are taking up the Investment Boost scheme.
Kiwibank economist Sabrina Delgado said about one third of its business bankers reported their clients had taken up the initiative.
"From the business bankers we've surveyed talking to their clients, only one third have been uptaking the investment boost scheme," Sabrina Delgado said.
"The other two thirds, given the harsh economic climate, they have been unwilling and unable to invest."
Delgado said businesses were facing economic headwinds with declining profitability and revenue which may help explain why the scheme has not factored into their decision making.
"For those that are taking up the initiative it has been mostly in the case of catching up on deferred spending over the past couple of years that they haven't been able to do.
"Or for those who were already looking to invest it was an extra incentive to invest but it's not quite pulling others off the sidelines just yet."
Kiwibank's business bankers said they were seeing several reactions.
"The majority of customers I have talked to are planning to meet deferred capex from the last two years. I haven't heard much about customers thinking about growth capex with the Investment Boost," said general manager Troy Sutherland.
"Some are looking to replace aged assets as part of replacement programmes but poor 2025 FY trading may hinder this as a lot of businesses cashflows have been heavily impacted by weak trading," said Karl Trafford, commercial growth manager - Gisborne.
"Our clients haven't cited this as an influencing factor in asset purchase decisions yet, however, some clients are receiving a 'cherry on top' for decisions already made. This is boosting confidence, which is a good result. 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 Will Warren, commercial manager - Manawatu-Whanganui.
"It hasn't made clients rush into Capex purchase however has improved the equation for those already considering purchasing new gear and, in some cases, has been the encouragement needed to commit to new investments," said Jack Laity, commercial manager - Auckland.
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