Budget 2025: Christopher Luxon says allowing higher depreciation write-off for businesses ‘not an unattractive idea’

The Government is continuing to talk up the need for businesses to invest more in technology, tools and machinery to improve productivity.

This has prompted speculation it might lower the tax bills of businesses that make these sorts of investments by enabling them to increase the amount of depreciation they expense.

Speaking to Newstalk ZB yesterday morning, Prime Minister Christopher Luxon said changing capital depreciation rules was “not an unattractive idea”.

“If you look at the small and medium enterprises in New Zealand, the top 10% are seven times more productive than the bottom 10%,” Luxon said.

“A lot of it is to do with their adoption of capital, plant and equipment and automation and all that good stuff. I’ve got a lot of sympathy for that.”

He made a similar comment at a post-Cabinet press conference yesterday afternoon, but pointed out that changes could be costly.

Finance Minister Nicola Willis dropped similar hints in a pre-Budget speech last week.

Willis said Treasury partially attributed waning productivity to New Zealand’s low capital intensity, saying: “The increase in New Zealand’s capital intensity has slowed over time from 1.9% per year between 1997 and 2008 to 0.7% between 2012 and 2023.

“Basically, our workers have less access to the machinery, innovation and technology that would allow them to be more productive. Our Budget will take steps to address that.”

Consultant accountant Geof Nightingale explained there were a few ways the Government could change the tax treatment of depreciation.

He believed it would be sensible for it to use a similar approach to that used before 2010.

This enabled businesses to lift the depreciation rate applied to a particular asset by 20%.

So, pre-2010, if a business invested $10,000 in laptops, it would be able to book 48% of this cost as depreciation – a rate that is 20% higher than the 40% rate normally applied to laptops.

This meant the business could deduct $4800 from its taxable income, rather than $4000, making an $800 saving.

Nightingale believed using a similar approach would be good, because it would mean the Government wouldn’t need to tinker with the schedule of depreciation rates applicable to different assets.

Rather, it could just allow these rates to be lifted by a certain percentage.

Similarly to Luxon, Nightingale said these sorts of changes could be costly.

Accordingly, Nightingale said he wouldn’t be surprised if the Government only allowed the uplift to be applied to certain assets deemed “productivity enhancing”.

This would of course add an element of complexity to the system. New laptops, for example, may enhance productivity more for one business than for another.

So how would the Government decide which assets or sectors would receive favourable tax treatment?

Nightingale recognised this would be niggly, but said it would be a workable way of keeping a lid on the cost of the policy.

“Despite this government not being a “picking winners” mob, I’d expect them to pick some sectors,” he said.

At yesterday’s press conference, Willis came equipped with figures to make the point the Government would most certainly not allow a 100% depreciation write-off, as this would cost more than $8 billion a year.

Asked whether she would be open to lifting depreciation rates by 20%, as was the policy pre-2010, she said: “I’m going to leave comments on these matters to Budget day.”

Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.