By Kevin Summerhays, Connected Accountants Director
NZ Government Budget 2022
Key Budget 2022 Outcomes for SMEs
The Government has supported the economy over the COVID-19 pandemic and via the hard work and grit of the population, the economy is in a relatively good state. For our small businesses, the journey has been a constant challenge and test of resilience. The resolve of many over the next year or two will be tested further by supply chain disruptions, the impacts of new virus outbreaks, a war in Ukraine, increasing interest rates and alarmingly high inflation. These issues are not confined to NZ, they are global and present a significant and immediate challenge that must be balanced with the need to look further ahead.
The 2022 Budget provides a ‘prudent’ amount of relief to households, targeted toward the cost of living for low to middle income Kiwis. The budget also allows for investment toward our longer-term priorities - climate change, infrastructure, health and equality.
We’ve delved into the 2022 budget and identified several of the key areas of interest for small and medium enterprises. Our coverage aims to showcase how the budget might impact businesses like yours.
Key numbers for SMEs
- $100 million small business growth fund announced
- $192 million to support regional growth
- $60 million for regional support
- $30 million to boost cyber resilience in the private sector
- $20 million to support expansion of the SaaS & technology sector
- $40 million to transform primary industries
- $5 million agritech industry
$100 Million Capital for a Small Business Growth Fund
This growth fund is aimed at providing long term and patient capital to small and medium sized businesses. The goal is to support some SMEs with improved access to finance for growth, with the BGF investing alongside banks. For example, a bank could refer an SME where equity finance makes more sense than debt finance.
We think this is a great initiative but note that there’s still plenty of work to do to get all stakeholders committed. The question will be how quick and easy to access the scheme is, and how far the fund will go. Similar funds internationally, such as the modelled Canadian fund which invested in 25 companies resulting in 1,510 jobs since 2018, have demonstrated modest outcomes in their respective SME sectors. The NZ fund could have a positive return on SMEs ability to access growth capital, creating job opportunities and enhancing their contribution to our wider economic development.
$20 Million Committed to Support Expansion of the Digital Technologies Industry Transformation Plan (ITP)
The government's investment of $20 million into the digital technology sector in budget 2022 has provided a good incentive for SMEs to invest in digitisation. The key initiatives of the ITP include supporting the growth of the Software as a Service community (SaaS) and taking New Zealand’s tech and innovation story – an industry and government marketing initiative - to the world. The SaaS investment will help to build the trajectory of SMEs while building the reputation of New Zealand's tech and innovation sector in domestic and international markets.
The Government is working to transform technology companies to help them fulfil their potential as high job generators and high export
revenue businesses, which contributes to a high wage, and low emissions economy. This budget announcement is a step in the right direction.
However, when considering the scale of the sector – $7.4b in 2020 – the amount feels like a small investment, especially when reflecting on
how significant the influence of digital technology is on a low emission economy.
$192 Million to Support Regional Growth
Budget 2022 announced a Regional Strategic Partnership Fund (RSPF) providing $200 million to support the growth of regional economies to
improve their economic prospects. This section of the budget aims to improve the strength of regional economies, recognising each
region’s strengths and working in partnership with them to enhance their resilience and help them to fulfil their economic potential to
enhance the wellbeing of New Zealand communities. In addition, there is $60 million to improve the broadband of the most disadvantaged
regions, enabling stronger connections and greater productivity.
This policy may help to address digital inequalities which remain a significant issue. It is encouraging to see areas of the 2022 budget going towards digital investments addressing these inequities.
The budget did not include any changes to tax rates, or any further relief to businesses impacted by COVID. We had wondered if FBT would be excluded from electric vehicles, or if an extension to the tax loss carry-back scheme would be put in place. Unfortunately, neither of these initiatives were put in place.
The main points to note are:
- Continued funding will be provided to IRD for the Research and Development Tax Incentive
- $60 million from the 2022 budget to support the continuing development of the New Zealand Income Insurance Scheme (NZIIS), with a target launch in 2024.
- A plan to introduce a Tax Principles Bill to legislate a reporting framework that will require officials to assess the performance of the tax system against a set of high-level principles.
The last point is interesting, we suspect it foreshadows changes to how personal services are taxed, with a view to increasing the
amount of income taxed at the top 39% rate by limiting the opportunities to avoid paying this rate.
For SMEs, the next year will continue to be challenging and our team is here to help you understand exactly how this year’s expenditure will affect your business. We look forward to helping you get clear direction and keeping you and your business on course.