A tax break built for diggers will never build a factory

Investment Boost is doing exactly what a tax break should do for a builder buying a digger. For a company weighing a new processing plant, it is close to irrelevant. Inland Revenue has now rejected an industry request to fix that, despite claims the change could unlock as much as $1 billion in extra investment.

That decision locks in a two-speed policy. Small firms making quick equipment purchases are cashing in. The large investors whose capital spending actually moves national productivity are mostly shrugging.

Small firms are winning

The mechanics are simple. Announced in Budget 2025, Investment Boost lets businesses deduct 20% of a new asset’s cost immediately, with the remaining 80% depreciated as normal. In 2025 Treasury forecast the scheme would cost about $1.83 billion in 2025/26 alone, making it the centrepiece of that Budget.

For a small operator, the maths works. Ross Bannan, who runs a small construction firm, called buying a digger under the scheme a “no brainer”, according to the same Newsroom report. Among small businesses that invested in new assets, 44% claimed the deduction, worth up to $132 million.

IRD’s own monitoring backs this up. Its analytical note, published in March, found that 40% of aware firms that invested in 2025 said the policy increased their spending, and 49% of those with five-year plans said it had a positive effect. That is a respectable result for a policy barely a year old, and the Government deserves credit for it.

Big firms have done the maths and moved on

The picture flips at the top end. Of 498 large Kiwi-owned and foreign-owned firms surveyed, only 13 said Investment Boost increased their planned investment. That is about 3%.

Early warning signs were there. In February, an internal IRD briefing found just 11% of surveyed businesses reported a “significant increase” in spending. Deloitte’s one-year review notes that non-claimers cited ineligible spending, an incentive too small to matter and administrative complexity, and that firms with fewer than 20 staff were more likely to be unaware of the scheme at all.

The real problem is timing. The deduction is triggered when an asset becomes “available for use”, not when the money is spent. A digger is available the day it arrives. A major plant or infrastructure project can take years. By the time the deduction lands, the scheme may have been changed or scrapped by a future government. No CFO can responsibly bake that into a business case, so they don’t.

IRD’s stability argument cuts the wrong way

Industry’s ask was narrow: move the trigger to the point expenditure is incurred, so big projects can claim closer to the investment decision. IRD said no, arguing that “stable and predictable tax settings are important” for long-term investment.

That is true in principle and self-defeating in practice. Large firms are discounting the scheme precisely because they doubt it will survive long enough to pay out. Defending the current design in the name of stability preserves the exact uncertainty that is keeping big capital on the sidelines. A tax department guarding settings is understandable. A tax department guarding settings that the evidence says are not working for the investors who matter most is bureaucratic caution winning over results.

What owners actually want

There is a wider lesson here. An Icehouse survey of 100 business leaders found business tax relief ranked last among election priorities, with 70% rejecting the idea that short-term cost relief matters more than long-term productivity investment.

“Business owners are not asking for a tax cut. They want certainty, they want a long-term play, regardless of who the government is,” said Icehouse director Blaylock. Finance Minister Nicola Willis responded that Investment Boost incentivises exactly that kind of productive investment. For small firms, she is right. For big ones, the data says otherwise.

What happens next

For SMEs buying plant, vehicles or machinery, nothing changes. Keep claiming, and make sure your accountant knows about it, because plenty of eligible firms still don’t.

For anyone planning multi-year capital works, treat Investment Boost as a bonus at commissioning, not a reason to commit. The more useful fight is political, not technical. With an election approaching, business groups should push for cross-party commitment to keep the scheme in place. A tax break that both sides promise not to touch would do more for large-scale investment than any trigger tweak, and it would cost IRD nothing to support.

Sources

• Newsroom: Inland Revenue rejects industry request for $1b Investment Boost change (2026-10-01)
• Newsroom: Just 3% of big firms spent more under Investment Boost – tax returns (2026-08-27)
• Newsroom: Business tax relief is lowest priority for Kiwi firms, Icehouse survey shows (2026-09-03)
• Inland Revenue: Budget 2025 Investment Boost (2025-05-22)
• IRD Tax Policy: Investment Boost – Early monitoring of business awareness and investment response (2026-03-30)
• BusinessDesk: Tax policy to boost capital investment has yet to gain wide traction (2026-02-13)
• Deloitte: Investment Boost one year on (2026-05-12)