The Government should introduce accelerated depreciation for manufacturing technology in this year’s Budget, if it wants to kick-start manufacturing businesses’ investment in advanced equipment and boost productivity. That’s the message from Employers and Manufacturers Association boss Brett O’Riley.
O'Riley told Newsroom accelerated depreciation – which effectively reduces the cost of a companies’ new investments by allowing them to deduct the money they spent from their taxable income more quickly – is the key incentive to support the Government’s Advanced Manufacturing Industry Transformation Plan.
The transformation plan, two years in the making already and still very much in development mode, was announced by Economic Development Minister Stuart Nash yesterday.
The number one priority is “increasing investment in advanced technologies and processes to lift productivity and wages” and O’Riley says accelerated depreciation is key to this goal.
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The details of any potential accelerated depreciation plan – and there are a number of alternative options being used overseas – is up to the Government to determine, he says. However, he would like to see the costs of reskilling workers being included in any depreciation regime, not just the costs of equipment and software.
MBIE and Treasury have looked at the idea in the past, but it’s never got past the drawing board. The National Party has also talked about it; “so it’s not pie in the sky”, O’Riley says
“My sense is there’s political appetite for it and we’re pushing hard for it to be part of this Budget.
“Given how hard it is for companies to raise capital and debt, this would be a massive help.”
As well as the costs of setting up and running any accelerated depreciation scheme, the IRD would also miss out on income that would have come in from undepreciated assets. But any drop in revenue would hopefully be offset by an increase in production and productivity from the companies making the technology investments, he says.
The Industry 4.0 Demonstration Network – an existing Government initiative to promote digital technologies (robotics, artificial intelligence, virtual reality, 3D printing and others) to lift manufacturing performance has already highlighted the problem companies face.
“When we run Industry 4.0 workshops businesses say ‘How would I be able to purchase the equipment. I can’t borrow money at the moment’.”
Other key priorities in the industry transformation plan are:
- developing and attracting a diverse high-skilled and high-wage workforce - creating a leading sustainable circular net-zero emissions sector - making innovation, R&D and science work for advanced manufacturing - improving the understanding and perceptions of advanced manufacturing - enhancing global connectivity and opportunities
The research, which is co-created and co-owned by business, unions and workers, government, Māori, Pacific peoples and wider stakeholders, talks about “advanced manufacturing” but makes it clear that actually means “all manufacturing” (from chocolate to computer chips).
It also quantifies the importance of the sector to New Zealand – it provides 10.7 percent of the workforce (248,800 people), and is the second largest employer of Māori and Pacific peoples. It makes up 9 percent of the economy in the largest centre, Tāmaki Makaurau and accounts for 73.5% percent of goods exports and just over half of total goods and services exports ($44.5 billion).
But our ‘advanced manufacturing’ sector needs a bit more of the ‘advanced’ stuff, according to the report; hence the need for a transformation plan. “Currently, the sector has relatively low capital investment in advanced technologies and processes compared to international benchmarks. This correlates with relatively low productivity by international standards.
While the annual median wage in advanced manufacturing is 10.1 percent above the national level, more can be done to grow high-skill high-wage jobs, the plan says.
“There is significant opportunity to grow investment and adoption of advanced technologies and innovation to boost the advanced manufacturing sector’s productivity. If this is combined with other ITP initiatives it will lead to higher wages.”
As a first step, the Govt has committed $30m, including $3.65m for company-specific advice on adopting advanced technologies, $4m to train manufacturing workers in digital skills, and $2.9m for support to achieve circular low-emissions manufacturing.
