Budget 2017: Positive moves and missed opportunities

25th May, 2017

new zealand budget

While the National-led Government’s ninth budget has a number of positive initiatives, which will be well received by local businesses, it’s disappointing that business tax cuts didn’t feature.

“It’s great that the government recognises the importance of education, research and development with more investments in initiatives to support innovation,” says MYOB New Zealand General Manager Carolyn Luey.

Finding the right skills

She says business owners will welcome the focus on education and training because, according to MYOB’s Business Monitor, 38 percent of local business owners report that they’re struggling to find new staff with the right skills.

The skills shortage is particularly acute for businesses with six to 19 employees, with 58 percent identifying it as a significant issue, and mid-sized businesses, for which 60 percent see it as their key problem. In Auckland, just under half of Auckland-based employers report a struggle to find staff.

“The current skills shortage risks turning into a skills crisis. Businesses are crying out for talented people who can help build and develop their operations.

“It has the very real potential to constrain growth across the economy, especially as it is the mid-sized businesses that are our key employers, which are finding it hardest to find the skilled staff they need to expand. That’s why it’s good to see more investment in education and skills.”

Lack of tax relief disappointing

However, New Zealand businesses will be disappointed with the lack of tax relief with Minister of Finance Steven Joyce opting to leave the business tax rate at 28 percent.

MYOB’s most recent Business Monitor survey found 63 percent of business owners support the introduction of a graduated company tax scale as is now the case in Australia.

Australia’s most recent Budget saw company tax rates for businesses earning up to $10 million drop to 27.5 percent, with those above paying 30 percent. The goal is to reduce company tax rates down to 25 percent for all businesses by 2026-27. New Zealand business all currently pay 28 percent.

“There is definitely a case for supporting small and start-up businesses with a lower tax rate and gradually extending the rate to cover all businesses. Our businesses will soon face a higher tax burden than competitors across the Tasman,” says Ms Luey.

“Leaving businesses with more cash on hand means they’re more likely to invest in new staff, new equipment and growth. It should be a focus for all political parties heading into the election.

“We welcome the announcement that the government is looking to allow so-called black hole expenditure to become tax deductible. It would mean the costs of investigating new proposals could be made tax deductible or depreciable.

“We’d like to see the government introduce an instant asset write off scheme for small businesses, whereby businesses receive a tax benefit and big productivity gains from upgrading plant and equipment.”

Initiatives and infrastructure

In addition, the government expects to raise at least $250 million over the next three years from closing foreign tax loopholes exploited by multi-national businesses, a move that is supported by 91 percent of local SME owners.

Other important initiatives of Budget 2017 include:

  • $1.1 billion of new operating funding in education over the next four years, plus almost $400 million of capital funding
  • $373 million of new operating funding in the second round of the Government’s Innovative New Zealand programme
  • $132.1 million of investment in tertiary, skills and employment, including:
    • $81.9 million for the contestable science Endeavour Fund
    • $74.6 million for Callaghan Innovation’s Research and Development Growth Grants
    • $6 million over three years for the expansion of the Strategic Innovation Partnerships Programme to deliver on the goal of attracting 10 multinational companies to undertake R&D activity in New Zealand by 2020.
    • $6.4 million over two years for the New Zealand Business Number initiative to support adoption and implementation across the private sector and government agencies
  • $3.5 million of reprioritised funding to meet increased demand for workplace-based literacy and numeracy programmes in 2018, giving more people the skills and confidence to engage in the workplace and community.

There was also infrastructure investment that covered:

  • $812 million capital investment to reinstate the earthquake damaged sections of State Highway 1 from Picton to Christchurch
  • $548 million investment in the rail network with Kiwirail, including $98 million for the Wellington Commuter Rail Network
  • $436 million investment for the first part of the Crown’s share for the Auckland City Rail Link project

“Overall there was a lot to like about the budget and the government ought to be commended for getting the books into a positive state where we have choices about where to invest next,” says Ms Luey.

“However, we’d like to see the government be bolder when it comes to reducing the tax burden on local businesses to ensure we remain internationally competitive.”