17 May 2018

2018 Budget: Does the economic vision match the societal one?

There are promising signs for business in today’s Budget, such as increased support for R & D and investment in infrastructure and regional development, says Peter Vial, Chartered Accountants Australia and New Zealand’s Advocacy and Professional Standing Leader for New Zealand.

“However, business is built on confidence and certainty – and, for that, there are still some critical gaps in the foundations,” Vial said.

“I wonder whether the Budget is visionary in an economic sense, as well as a societal sense.”

Budget 2018, sub-titled ‘Foundations for the Future,’ sets out the Government’s plan to shift the settings of the New Zealand economy to face the challenges of the future, including lifting productivity, making a just transition to a more sustainable low carbon economy and adapting to rapidly changing work practices.

Vial said there was is a vision for transformation in some important areas including reducing child poverty and supporting the most vulnerable members of our society.

“But in areas important for business it is not quite so clear. The focus on infrastructure investment and regional development is visionary, albeit lacking in detail.

“Whether the Budget is transformational in terms of increasing productivity and encouraging innovation is less clear.”

He said many of the gaps will only be filled once the Government has made a call on, for example, changes to tax settings, policies to boost business use of technology, further welfare reforms and on its full response to climate change.

“Before the Government can make those sorts of calls, it will need to consider the deliberations of the many external review committees it has set up.”

R & D

The Budget included a commitment to increase investment in R & D from 1.3% of GDP to 2% of GDP inside 10 years via a tax incentive rather than an increase in grants. The R & D tax credit will allow businesses to claim a tax credit of 12.5 cents on eligible investment in R &D.

Vial said the devil will be in the detail of the rules. “The key will be to ensure the Government’s subsidy is easy to access, targeted appropriately and spent wisely.

“The focus should be on encouraging incremental activity that would not have happened absent the support.

“The last R& D tax credit only lasted a year – being repealed by the then new National-led government in 2009. This time the credit needs to have a longer run at succeeding.”

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