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Recent key developments in MAKE│NZ
• We’ve had quite a bit of last-minute interest in our Manufacturing Industry Conference taking place in Christchurch tomorrow. We realise that it can be hard to take one – let alone several – key people out of production for a whole day, and we do appreciate all who have decided it might well be worth it. We’re sure it will be!
• Are you a manufacturer looking to innovate or need support with technical issues? The University of Canterbury [UC], together with the New Zealand Product Accelerator [NZPA)], works to support industries to innovate or overcome technical problems by connecting them with a diverse network of experts across New Zealand. From science to engineering, soft materials to robotics, we have experts who can help in almost any field of manufacturing.
• UC and the NZPA invite you to an industry introduction and networking event on Thursday, June 5, at UC. For details, and to register, please us this link. For any questions regarding the event, please contact michael.edmonds@canterbury.ac.nz
To lighten things up a bit up-front, here’s a caption competition:
Send your suggestions to dieter@makenz.org – The winner gets a chance to ask a question – any question / request for advice related to manufacturing – in our next edition of this newsletter.
Recent key developments in New Zealand
• In last week’s Budget 2025, the government included a provision of an additional 20% depreciation in the year of expenditure on any investment asset / purchase of capital goods that is eligible for depreciation under current tax rules. And, worth noting, included are certain commercial and industrial buildings that would otherwise have a depreciation rate of 0%. Also, you can claim Investment Boost, as the initiative is called, on all your eligible assets and there is no value limit. Plus, the 20% deduction is compatible with R&D tax credit claims.
Investment Boost does not cover:
– assets that have previously been used in New Zealand
– land (but primary sector land improvements, such as fencing, are eligible)
– trading stock
– residential buildings (dwellings)
– fixed life intangible assets (such as patents)
– assets that are fully expensed under other rules.
Investment Boost does cover things like commercial property and vehicles, as well as assets acquired as petroleum development expenditure and mineral mining development expenditure (except rights, permits or privileges), for example.
• Great news? Yes, undoubtedly, for manufacturers where the investment case for buying new machinery, or building a new factory, for example, just didn’t add up before. Keeping in mind that accelerated depreciation isn’t a government grant, it just affects the timing of tax payments. In the year of purchase, you can deduct more from your income tax bill than before. In subsequent years, you can deduct correspondingly less. The way it works is that the base from which standard depreciation is calculated is reduced by the amount of the Investment Boost deduction. In the year that you purchase the asset you can claim 20% of the cost of the asset, plus the amount of the usual depreciation deduction that would otherwise apply but calculated as if the cost of the asset were reduced by 20%.
From a New Zealand, Inc., perspective, however, a more targeted approach would have been preferable. We have this litany of complaints about our economy suffering from low productivity by international comparison. How about a more targeted approach at a higher rate, say 50% accelerated depreciation, applied only to the purchase of assets that can be clearly linked to improving productivity – automation equipment, for example. Such ring-fencing would have been a headache for the IRD, and a boon for tax advisors, but it can be done and has been done successfully in other countries. After all, this will ‘cost’ the government $1.7 billion per year in deferred tax income. Imagine what else could have been done with that amount …
• Speaking of targeted government investment elsewhere … Let it not be said that the current New Zealand government – like all of its predecessors since 2004 – is not willing to provide targeted financial support for a specific industry where it sees value. In its pre-budget announcement of May 16, confirmed in the 2025 Budget released last Thursday, the Minister for Economic Growth announced what amounts to a 113% increase in government funding for New Zealand’s export film industry. This means that baseline funding for the New Zealand Screen Production Rebate – International will increase to $1.09 billion for the financial years 2024/25 to 2028/2029.
In her release, the Hon. Nicola Willis provided the main reasons for her decision: “At last count our screen sector provided work for about 24,000 people and generated about $3.5 billion in annual revenue.” Based on the above figures, that equates to a subsidy of $45,417 per employee to ensure employment over the period in question. Note also that the above figures on employment and revenue – while not stated – almost certainly pertain to all parts of the screen industry and include indirect benefits.
Funding support for the wider screen industry (Feature films, post-production and TV) comes from various government agencies and the Lotteries Grants Board, and in various forms. Support is provided for domestic and international productions. Here we’ll restrict ourselves to the funding for international productions – in line with the government’s drive to double exports by 2030.
Between 2004 and 2014 (FY2013/14), international productions received a total of $532m under the Large-Budget Screen Production Grant [LBSPG]. Over the subsequent 10 years, the sum was $1,203m, and, as mentioned before, the budgeted amount for the next 5 years is 1,090m.
The (claimed) benefits from the direct financial support for the (export) film industry, supported by various governments since 2004, have come under scrutiny in the past.
There is a November 2017 NZIER report, commissioned by the Wellington Regional Development Agency, with funding from a range of government agencies. On top of that, there is 2018 report by sapere research group, commissioned by MBIE and the Ministry for Culture and Heritage, and a 2022 report by Olsberg SPI, commissioned by the New Zealand Film commission. At the core and as their main target output, these reports are an attempt to quantify the benefits of government investment in the sector – direct, indirect and ’induced’ benefits. Unfortunately, these reports come to quite varying conclusions. For example, this is the result in the NZIER report in terms of contributions to GDP:
And this is the equivalent analysis from the Olsberg SPI report, albeit for a different time period with some overlap only. However, for the two years where they overlap, their data is at a significant variance (Gross value added [GVA] is the contribution to GDP):
Note that the above results are for all screen industry activities, not just international productions. The latter do, however, make up the bulk of activities. Stats New Zealand stopped its screen industry reports in 2019, and before then their data was often inconsistent with that from other sources.
Just taking the last year above (2020/21) as an example, the direct contribution to GDP of $299m equates to less than 0.1% of New Zealand’s GDP in that year. For comparison, Machinery and Equipment manufacturing alone in the same year contributed $4,115m to our GDP in 2020, or 1.3%.
So, successive governments have felt compelled to support New Zealand’s screen industry, because without them the industry would struggle: “While industry incentives are not generally our favoured approach, the reality is we simply won’t get the offshore investment in our highly successful screen sector without continuing this scheme,” Ms Willis says. “New Zealand competes with more than 100 territories world-wide that provide screen incentives, including countries like Australia, Canada and the United Kingdom that provide more generous incentives than ours.”
Whereas other industries, also facing competition from countries with (much) more generous support, are left to fend on their own. In Australia, one central government initiative alone, the Modern Manufacturing Initiative, launched in 2021, has made AUD1.3 billion available to support manufacturers.
Direct support for manufacturing in the government’s 2025/26 Budget? Let us know if you can find any! Having said that, the accelerated-depreciation provision in the budget, although not specifically aimed at supporting manufacturing, will be welcome by manufacturers. It’s a modest move, and it’s something we’ve been proposing to government for years.
As we said above, we have to assume that governments make rational investment decisions, meaning each government will provide support for those economic activities where it expects the best returns for the benefit of the country.
Recent key developments in the World
•In a recent newsletter, we included a graph that demonstrated how large the gap is between best-practice and average performers when it comes to employee engagement
A recent report by McKinsey & Company painted the same picture for a different dimension of commercial success – productivity, measured here as GVA (GDP) per worker. Their analysis included data from 8,300 large firms in Germany, the UK and the USA and covered a range of different sectors/industries. It showed that a small number of excellent firms contributed a disproportionately large share to overall productivity growth:
These ‘standout’ firms also were clearly above average in size. In terms of sub-sector contribution to productivity growth, all of the top ten – except for one – are involved in manufacturing:
When it comes to demonstrating the link between productivity and the creation of wealth for employees and owners, the evidence is pretty compelling:
Apart from a small handful of exceptions, most of New Zealand’s manufacturers aren’t big like the ‘standouts’ in this study. That doesn’t mean smaller manufacturers can’t work on and succeed in improving productivity, and many of you are doing exactly that already. Our conference this week will show how we can move the dial using one of the key levers of productivity – engagement levels.
The starting move, however, will always be to overcome the hurdle of “If it ain’t broke, don’t try to fix it”. Which is easier said than done when it’s ‘all hands to the pump’ on the factory floor …
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