Economic Analysis Casts Doubt On Impact Of Investment Boost

Scoop

23-05-2025

Analysis by Dr Paul Dalziel, former Professor of Economics and current Research Economist for the Wellbeing Economy Alliance Aotearoa, casts serious doubt on the effectiveness of the Government's Investment Boost initiative.
According to Dr. Dalziel, much of the investment the policy seeks to incentivise would occur anyway. 'For businesses that would have purchased new assets anyway, the 20 percent deduction is essentially a gift,' he said. 'For taxpayers, it's pure waste.'
Dr. Dalziel's analysis is supported by long-standing economic theory and Treasury's own internal evaluations. He references the Solow growth model - an economic staple since 1956 - which shows that such incentives produce only a one-off lift in output, not a stimulus to long-term growth.
'At the end of 20 years, Treasury suggests the level of New Zealand's GDP might be 1 per cent higher than without the policy,' Dr. Dalziel noted. 'That increase in output is equivalent to just four months of typical economic progress. In effect, we're trading $34 billion over two decades for a four-month head start.'
Paul argues the Government has missed a better opportunity by failing to invest in knowledge and innovation. As he explained in a Treasury Guest Lecture, the only factor that can support higher growth in living standards is the ongoing discovery and use of new knowledge. Despite branding it a 'Growth Budget,' the 2025 Budget does not reflect the central role of knowledge in sustaining economic wellbeing.'
Dr. Dalziel pointed to recent decisions such as ending the eleven National Science Challenges in 2024 without replacement, and denying applications for the Endeavour Fund in 2026. 'These cuts undermine our future resilience and damage our nation's long-term prosperity and wellbeing. We are underinvesting in our knowledge infrastructure at a time when global challenges such as geopolitical uncertainty and the climate crisis make new knowledge as vital as ever.
He concluded: 'Public investment in discovery and innovation is the only proven path to sustained growth in living standards. This policy takes us in the wrong direction.'