National’s Covid economic recovery plan

Simon Bridges in a speech to Business NZ has announced two major policies to help businesses survive the economic carnage caused by the (necessary) responses to Covid-19.

The first is GST refunds to businesses. The details:

• A business can claim back any GST they paid between 1 July 2019 and 31 December 2019 up to $100,000 if revenue down over 50% across two successive months
• An eligible business can claim back an additional $250,000 of GST over that period but as a five year loan with a 0.7% interest rate

Bridges makes the point:

Let’s face it – these businesses have been forced to shut down in the national interest.

It is in the national interest to keep them afloat.

It’s not right that small business should be left to carry so much of the economic suffering.

The wage subsidy has helped employees for 12 weeks, but it hasn’t helped businesses with zero revenue pay overheads like rent, power and stock.

This is key. These businesses have not lost their income due to poor planning, due to not being in the right market, due to bad customer service etc. They lost their income due to the response to a pandemic.

The second policy is to increase the amount of capital expenditure that can be claimed off tax immediately rather than depreciated over many years. The limit was anything over $500 must be capitalised and depreciated, not expensed. Bridges proposes lifting it to $150,000.

So, if you have a company and spend $145,000 on new machinery, rather than depreciating that asset over many years, you’ll be able to expense the full $145,000 in this tax year.

This would encourage capital investment, which is excellent.

Great to see National with ambitious practical policies for helping small and medium businesses. Some of the aspects I like are:

• The 50% revenue decline over two months means it is tightly targeted at those businesses most in need
• Having the grant proportional to GST (and hence revenue) is better than merely based on staff numbers
• Targeting it at smaller businesses with the $100,000 cap but allowing the five year loan for larger businesses
• The huge lift in the level for expensing capital expenditure will incentivise investment

It will be interesting to see what Labour announces in next week’s Budget.

I encourage National to keep rolling out policies like this. If the election is a referendum on who has the best economic plan going forward, this is an excellent start.