Tip Top Closure – depreciate assets, not activities

The Canterbury Manufacturers’ Association is concerned that under-investment in plant and the ensuing loss of productivity and competitiveness is eroding the region’s manufacturing base and more companies will follow in the wake of Tip Top and leave Christchurch.

“There are questions as to why Tip Top’s Christchurch factory continued to lose $21 million throughout the past seven years”, says Chief Executive John Walley. “It may be that the company lacked the innovation in its product range or its working practices to meet the challenges of a changing market or that the current strength of the dollar damaged its export capability. What is certain is that the company did not invest in its local facilities and is steam lining and moving to Auckland”.

Mr. Walley says that most manufacturing companies such as Tip Top, require substantial and ongoing investment in plant and equipment – obsolescence is not long an issue of things being worn out, investment is a key issue in lifting productivity. “Although there were changes made to depreciation rates in the 2005 Budget, (and more might follow in the current review), to date the Government has not gone far enough to match countries such as Germany, where plant and equipment are written off in the first year. This enables and encourages German firms to invest earlier in productivity driving plant and equipment”.

Mr. Walley says that had this been an option for Tip Top, the company may have made key investment decisions at an earlier date and it would not have reached this situation whereby profitability relies only on scale, so local jobs are threatened.

“Tip Top says they are still exploring all avenues for keeping the Christchurch factory open but it is unlikely that it will receive an upgrade on the scale that its Auckland counterpart has. I hope that the factory remains operational but whatever the outcome; this is a warning to the Government that unless its policy settings are adjusted to provide assistance to manufacturing, more companies and jobs will be lost”.

“The CMA’s members are telling us that their machines don’t wear out these days, they become competitively obsolete as even better machines are installed by their competitors. Machines these days are really lumps of hardware with flash computers and control systems attached – how many 10 year old computers do you see about? Depreciation schedules don’t take this into account, and our competitors offshore are able to write off their investments in plant and equipment”, says Mr. Walley.

ENDS

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