No shortcuts to the summit: Why the Budget should prioritise long-term productivity
Key announcements from Budget 2025
The centrepiece of Budget 2025 is Investment Boost – a tax incentive for businesses to invest in productive assets such as machinery, tools and equipment. With Investment Boost, businesses can deduct 20 per cent of a new asset’s value from that year’s taxable income, on top of normal depreciation. Because the cashflow from investments improves, more investment opportunities become financially viable and therefore more take place. Investment Boost is expected to lift GDP by 1 per cent and wages by 1.5 per cent over the next twenty years, with half these gains in the next five years.
Other initiatives to boost productivity:
- Reprioritisation of science and innovation funding towards encouraging economic growth, including establishing a new Gene Technology Regulator
- $100m of additional capital funding for the Elevate NZ Venture Fund, to enable further investments in venture capital funds targeted at promising, high-growth New Zealand technology startup firms
- $85m funding to establish Invest NZ, an investment promotion agency that will work with multi-national corporations and foreign investors to attract people, businesses, and capital. The entity will have a particular interest in investing in science, innovation and technology to drive economic growth
- Closure of the Sustainable Food and Fibre Futures Fund, allocating the remaining $70m average operating per annum to establish the Primary Sector Growth Fund. The Primary Sector Growth Fund will focus on pursuing high-value co-funded economic growth opportunities with the primary sector
The pressure for the Government’s Budget to deliver quick wins and headline-grabbing announcements is strong. But real economic progress doesn’t come from short-term fixes – it comes from playing the long game.
The Government is positioning Budget 2025 as the ‘Growth Budget’ and we hope to see New Zealand’s long-term productivity challenge take priority over short-term agendas. However, the current economic backdrop will make this difficult.
From a global pandemic to a monetary policy-induced recession, the New Zealand economy is only just emerging from the deepest sustained per capita contraction since the 1990s.
In addition, the US tariff announcements bring highted uncertainty, although the recent de-escalation of the global trade war has eased downside risks.
Productivity reform is an important way to address budget deficits and strengthen the economy.
Since December 2024, the Government has introduced several initiatives in this area. For example, there’s been a review of New Zealand’s overall competition settings, the establishment of Invest New Zealand, changes to the Active Investor Plus resident visa programme, the International Investment Summit and reforming the Overseas Investment Act.
This is only a start.
Against this backdrop, ‘Growth’ is a welcome theme for Budget 2025 – but navigating the fiscal year ahead will be no easy task.
Setting our sights on long-term issues can be challenging but has never been more crucial. Budget 2025 provides an opportunity to put these issues front and centre.
We hope to see the Budget deliver the funding and incentive structures to support long-term productivity improvements. The Government’s Budget Policy Statement provided a first step in the right direction on these issues.
Propelling productivity
The five “pillars of growth” (workforce, regulation, innovation, international connections, and infrastructure) provide a useful framework to focus policymaking on long-term productivity.
In the first report in our ‘Productivity Propelled’ series with 2degrees, Deloitte Access Economics identified the importance of productivity to New Zealand and key focus areas to propel our slowing productivity:
- Ensure Research & Development tax incentives are fit for purpose: Currently there is a disconnect between innovating for productivity gains and R&D funding. Closing this disconnect requires that the R&D Tax Incentive (RDTI) is fit-for-purpose. Changes to achieve this could include expanding the definition of R&D to include innovative technology applications, reduced barriers to funding and reviewing ineligible technology expenditure exclusions on the cost of base technologies.
- Address barriers to scaling start-ups: Innovation and entrepreneurship in the start-up sector is crucial to productivity. Policy settings need to facilitate the scaling of start-ups by supporting global market reach and addressing barriers such as access to funding and skills.
- Address innovation funding gaps: The disestablishment of Callaghan Innovation has left a gap in innovation funding and support services for New Zealand businesses. To address this gap, new innovation support services could be established, alongside measures to attract foreign direct investment and skilled talent.
- Encourage self-monitoring of productivity: Productivity doesn’t happen by accident, and what gets measured gets managed. If the Government wants to use Budget 2025 to support businesses in improving their productivity, they also need support in the form of tools and incentives to effectively monitor their productivity.
Improving New Zealand’s productivity is a long game. Prioritising long-term benefits needs to be traded-off against short-term outcomes.
