Analysis: It is natural to be a little suspicious of the timing of Labour’s small business relief announcement.
It comes just days after Prime Minister Christopher Luxon found himself in hot water for telling business-owners to “be adult” and end the “parent-child mentality” between business and government. The comments were so politically damaging that Luxon issued a rare apology, from the podium in the Beehive theatrette, no less.
Labour leader Chris Hipkins says there’s nothing to see here, when asked about the timing.
“We actually had this well-scheduled, but you know sometimes you get lucky in politics, and your opponents demonstrate the need for a policy very clearly before you announce it,” he said, at the announcement at an car mechanic’s shop in Kingston, Wellington.
But he wouldn’t be the first to bring forward the schedule for announcing a planned policy to seize an advantageous political moment. National’s own decision to announce a paid parental leave policy just after one of its MPs was attacked by erstwhile NZ First candidate Stuart Nash as “lazy” for taking maternity leave similarly raised eyebrows.
The timing, however, is not the most important part of the policy. Arguably, the most significant part is what’s been cut to make room for Labour’s proposals.
In brief, the party announced it would implement new requirements that big companies pay their small business suppliers within 15 days, hike the threshold for 100 percent asset depreciation to $10,000 and lift the GST threshold from $60,000 to $80,000.
“It’s good news for small business,” said Chartered Accountants Australia New Zealand head of tax John Cuthbertson. “I think it’ll encourage people to engage fully in the market.”
BusinessNZ chief executive Katherine Rich welcomed the announcement as well.
“Small businesses are the backbone of the New Zealand economy, and any credible plan to ease their cash flow and compliance burden deserves a considered look,” she said.
But she was concerned at the trade-off Labour plans to make. To pay for the package, at an estimated $1.56 billion over four years, the party will scrap the Investment Boost accelerated depreciation policy, announced by the Government at last year’s Budget.
“Investment Boost is one of the most important productivity policies New Zealand has introduced in years, and BusinessNZ would be very opposed to seeing it curtailed,” Rich said.
This is a major change, not just in the amount or structure of tax relief, but in the purpose of each party’s depreciation policy.
Investment Boost was designed to jumpstart economic growth. By providing any business with 20 percent depreciation in the first year for any asset, whether it be a skyscraper or a laptop, an oil rig or a nail gun, National’s Nicola Willis hoped to incentivise new investment at a time when economic growth is sluggish at best.
Labour’s alternative has a different focus. Currently, any asset worth under $1000 can be depreciated in full in the first quarter or year of tax filings. It’s a complete write-off, for tax purposes.
Under Labour’s policy, that threshold would rise to $10,000 – but only for small businesses, defined as a company with an annual turnover of less than $10 million.
The party’s small business spokesperson Dan Rosewarne, himself a former mechanic, pointed out the equipment and gear the Kingston service station would be able to deduct in full under the policy. That ranged from $10,000 post hoists for lifting cars, to a $6000 tyre-changing machine down to a $1500 beam setter.
Why not simply target Investment Boost to small businesses? It would be easy enough to tweak the regime so only a business with annual turnover below $10 million is eligible.
Barbara Edmonds, who holds Labour’s finance portfolio, said she’s not convinced the policy actually works.
“IRD did a survey around Investment Boost, and they got about 826 responses. Fifty-three percent of those responses said that Investment Boosts made no difference to whether they were going to purchase an asset or not. Only 7 percent said it was significant,” she said.
Those figures come from an Inland Revenue survey with a relatively small sample size. It’s not clear that they are actually representative of the views or experiences of businesses more widely.
But there’s a bigger reason why Labour hasn’t simply watered Investment Boost down to an investment bump: The party isn’t trying to use depreciation to stoke economic growth.
Edmonds confirmed, when asked by Newsroom, that Labour’s change to the write-off threshold is not designed to prompt small businesses to invest in new assets, but simply to take costs off them in a quick and convenient manner.
“For us, it’s about making it easier for small businesses. This is very much targeted around the compliance costs for them.”
There will still be more economic policy to come from Labour, geared at economic growth and incentivising investment.
Indeed, despite funding the small business policy from the funds set aside for Investment Boost, there is still some $5 billion left for the party to play with, though Hipkins wouldn’t promise it would all go to business support. Certainly, it’s a tidy sum to set aside for a party facing a bill for restoring the pay equity system of some $12.8 billion.
Although more business support may be forthcoming, Investment Boost isn’t a part of the party’s plan, and right now Labour wants to be talking about small businesses.
Unfortunately, it doesn’t always get to pick the topic du jour. Labour might have been able to manage a clean sweep with a small business policy that didn’t scrap Investment Boost in this way, taking advantage of Luxon’s ill-considered comments with a policy that is hard to object to.
By linking the move to the end of Investment Boost, however, it has given National ammunition with which to attack Labour’s efforts and a way to change the subject from comments about parent-child mentalities to Labour’s plan to axe a policy that was, when announced, similarly widely supported.
Barely an hour after Labour’s policy announcement, Willis had put out a statement doing exactly that.
“Scrapping National’s $6.6 billion Investment Boost to fund a $1.56 billion fig leaf means business owners lose the incentive to invest in genuinely transformative, productivity-enhancing equipment. It is nothing more than a $5 billion tax grab dressed up as a business policy,” she said.
Whether that’s an argument small businesses buy will become clear in November.
