R&D grants for business – a new direction

R&D grants for business – a new direction

Media Statement by Paul McPadden, Head of R&D services, KPMG

The Government is to change the way it supports business R&D, with additional funding in excess of $200m and several new initiatives. The Budget today confirms the announcements made by Prime Minister John Key last week.

The key changes for business are:

• New technology development grants – businesses that invest at least 5% of their revenue in R&D and have revenues of at least $3m will qualify. They will have to show a track record in R&D. The grant will equal 20% of the business’ R&D budget for 3 years capped at $2.4m per annum.

• New technology transfer vouchers – a trial will be introduced where businesses will be able to apply for R&D vouchers which can be spent at approved research organisations such as universities and Crown Research Institutes. Vouchers will be worth between $100,000 and $1m and will cover 50% of the funding towards R&D projects. Funding for this is limited to $20m over four years.

Many businesses will be asking themselves “how does this compare with the R&D tax credit regime of the previous Government?”

As with any change, there will be winners and losers. The main beneficiaries of this change will be companies that already have established R&D programmes and a high degree of investment in R&D. These companies will continue to benefit from a solid level Government assistance, although with the level of assistance being capped, in many cases it will still be less than that available under the R&D tax credit regime.

However, many businesses will no doubt be worse off. The financial assistance available to the SME sector or to companies in “start up” phases will be limited largely to the new technology transfer vouchers. But, with funding of only $20m over four years and a process requiring an application to made to a Government funding body, the Government is adopting a cautious approach that will leave many companies with no assistance to undertake R&D.

The Government would probably say that these are in many ways intended results. It was concerned that the R&D tax credit regime was too loose and, therefore, open to abuse. The new direction for Government support of business R&D is no doubt more targeted and allows a greater control over the level of funding provided.

Of course, it is important to bear in mind that the targeted financial assistance for R&D is only one of the Government’s initiatives to boost productivity and growth in the economy. The lower tax rates for individuals and companies will also go some way to encouraging the right environment for investment in R&D. What is clear is that, for New Zealand to prosper and grow, it is imperative that our investment in R&D grows to at least match the level of our trading partners.

ENDS

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