Hon John Key

Prime Minister

11 May 2010 Speech
Budget 2010: Investing in New Zealand’s future

Thank you all for coming.

I want to do two things this morning.

First, I am going to announce the research and science component of next week’s Budget.

Announcing this separately from other Budget measures shows how important research and science are to this Government.

They are key elements of the Government’s economic agenda, both this year and into the future.

Second, I want to release the Government’s direction for science and innovation, called Igniting Potential.

Before I do any of these things, however, I want to put this Budget announcement into an economic context – where we have been, where we are going, and where science fits into all that.

The economic context

‘Where we have been’ is pretty straightforward to describe.

In the last two years we have been in recession, amplified by the effects of the global economic and financial crisis.

Our first year in office was therefore focused on getting New Zealand through the crisis in as good a shape as possible.

That was not an easy task.

In order to sustain economic activity, keep up public services and support jobs, the Government significantly increased its borrowing, absorbing much of the shock of the recession on its own balance sheet.

At the same time we fulfilled election commitments and kept control of the country’s finances, in particular maintaining our international credit rating.

The worst of the global crisis has now passed.

And as the clouds part, it is clear that New Zealand has weathered the economic storm better than many other developed economies.

The economy has begun to grow again, although tentatively. Last week’s Household Labour Force Survey showed that unemployment is dropping, which is great news.

So the Government’s attention, in terms of the economy, has now turned to two key objectives:

• lifting the long-term performance of the New Zealand economy, and

• maintaining firm control of the government’s finances.

Maintaining firm control of the government’s finances means bringing the budget back into surplus over the next few years, and returning public debt to a prudent and manageable level.

At the moment we are borrowing $240 million a week and that cannot continue indefinitely.

Crucially, we have to keep a tight rein on spending increases, well out into the future.

New operating spending allowances have been limited to $1.1 billion a year increasing at 2 per cent each year from 2011/12.

This new spending will be directed only to a few areas of highest priority. Most government agencies will see no additional funding in the foreseeable future.

Science as a Government priority

That is why it is highly significant that behind Health and Education, Science will get the biggest increase in operating spending in the 2010 Budget.

In what will be a very responsible Budget, we have continued to prioritise funding for research and science.

That is because science fits into the first of our objectives – lifting the long-term performance of the New Zealand economy.

Knowledge drives prosperity. That has long been established. And the Government has a crucial role in ensuring that knowledge is developed and used to improve the living standards of all New Zealanders.

Sir Peter Gluckman, who has vast experience of science systems around the world, tells me we are lagging behind other countries.

As a small country, recovering from recession, we do not have lots of new money to spend. But we can make research and science a priority for new Budget spending and we can certainly improve the way we do things.

The Government wants to establish a high-performing public science system which supports economic growth, and a wider innovation system that encourages firms to increase their investment in, and application of, research.

Achieving that won’t happen overnight. It takes an ongoing programme of policy, institutional and funding initiatives over a number of years to effect real and enduring change.

That is what we began when we first came into Government, and I want to acknowledge Dr Mapp’s leadership in this area.

In last year’s Budget we focused on boosting the public science system, including more secure funding for CRIs through the Capability Fund, as well as increased funding for the Health Research Council and the Marsden Fund

We established the Primary Growth Partnership to invest, alongside industry, in research and innovation to boost New Zealand’s primary, forestry and food sectors.

We are funding a network of open-access food development and commercialisation facilities across New Zealand

We are also investing significantly in the Domestic Centre for Agricultural Greenhouse Gas Research, and in the Global Research Alliance, to drive much-needed research on agricultural greenhouse gas emissions.

We have begun to make significant changes in the CRI sector, working from the recommendations of the CRI Taskforce. In particular, we are going to be much clearer about the role and purpose of each CRI, fund them on a more strategic and longer-term basis, and improve the way we monitor their performance.

To support these and other changes, the Government is combining its science agencies, MoRST and FRST, to give science a strong voice and to simplify and better coordinate science administration.

My own objective has also been to lift the profile of science in New Zealand.

On becoming Prime Minister I appointed Sir Peter Gluckman as Chief Science Advisor, reporting to me personally.

I also launched the Prime Minister’s Prizes for Science, with total prize money of $1 million, because I think our world-class scientists deserve their share of public acknowledgement and acclaim. I was delighted to award the first round of these prizes in March this year to some outstanding scientists.

Budget 2010 takes this programme a step further by shifting the focus onto business R&D. Our goal is for firms to be making better use of R&D to take greater advantage of market opportunities.

New Zealand has very high-quality research institutions – both public and private – which are carrying out cutting-edge science. But we have some way to go when it comes to turning scientific knowledge and insights into business growth.

For a long time, New Zealand firms have undertaken a relatively low level of R&D compared to firms in other developed countries. That is in part due to our industry structure – we don’t have a large defence or pharmaceutical industry, for example – but it really is only in part.

New Zealand is also wanting when it comes to taking up and applying research for commercial ends. That includes both research that is being done in New Zealand and research that comes from overseas.

So the main part of the Budget package is a boost in support for business R&D.

In total, the Budget allocates $321 million for new initiatives within RS&T over the next four years.

Of that, $225 million is new funding and $96 million has been reallocated from across other parts of the Vote.

As I said before, this level of new funding means that RS&T gets the third-biggest increase in funding in the Budget, behind only Health and Education.

Technology development grants

This increase in funding has allowed us to significantly expand and refine the way we support business R&D. We are re-engineering the support which exists at the moment and introducing new measures where there are gaps.

The biggest of the new measures is an investment of $189.5 million over four years to create a brand new type of R&D grant.

These grants will be targeted at medium to large, research-intensive firms, which can show that their activities result in wider benefits to New Zealand.

These will almost certainly include, but are not limited to, firms that undertake high-value manufacturing.

The Government will contribute 20 per cent of the firms’ expected R&D spend for a period of three years, up to a set maximum.

In turn, the firms can determine exactly what R&D activities this money is spent on. These firms are, after all, “R&D savvy” so know better than anyone where this funding would be best spent.

Funding through technology development grants will give firms the confidence to invest in longer-term R&D programmes, increasing the amount of research they do. Firms which already have R&D experience will have a real incentive to do better.

We are retaining the existing TechNZ grants, which provide for 50% funding of a particular project. These work well for many firms and we are keen to continue with them, albeit with a sharper focus.

However the new technology development grants are something entirely different.

They are not project based, which cuts down on bureaucracy and lets research-intensive firms determine the best use of the funding. Neither are they delivered through the tax system. That means we avoid the sorts of inventive accounting and lack of cost control that plague tax-based measures like R&D tax credits.

I think the new grants are a real step forward.

Technology vouchers

Another brand new tool we are introducing is a technology transfer voucher.

We are putting $20 million over four years into these vouchers.

They will be targeted at firms which don’t have much of an in-house R&D capability but would really benefit from working with a public research organisation like a university or CRI.

Firms will able to apply for a voucher – typically worth around $100,000 to $200,000 – which they can then use to get a project completed with a research organisation.

Having these vouchers will obviously result in more R&D being done, to the benefit of New Zealand firms.

But they will also have wider benefits, in terms of improving links between business and the science system.

In particular, they provide an incentive for research organisations to collaborate with firms and to be responsive to what firms want and need. And they have the potential to demonstrate to all firms, including those who don’t have vouchers, the benefits of working with public research organisations to improve their businesses and develop new ideas.

Technology transfer

Another $24.7 million has been set aside in the Budget for initiatives to help capture the commercial value of research done in public research organisations.

There is scope in New Zealand to improve the way new technologies are transferred from research organisations – which generate new scientific knowledge – to businesses which can use this knowledge to produce and sell products.

In addition, we can improve the way research organisations themselves commercialise the new knowledge they create.

In any case, it is important that we get better in New Zealand at diffusing the knowledge generated by the public science system.

To that end, the Government will be investing $11 million over 4 years to establish a national network of commercialisation centres.

This network will bring together existing expertise from the commercialisation units already attached to public research organisations.

We don’t want to duplicate what currently exists in this area but we do want to see commercialisation units working together, sharing their expertise, and developing critical mass, for the benefit of New Zealand as a whole.

This initiative is in the early stages of development but we have secured money for it in the Budget, and intend to put out a Request for Proposal to operate the new network later this year.

A number of other technology transfer initiatives are being considered as well, including funding to assist actual commercialisation projects. Again, we have secured money in the Budget to cover these initiatives but full proposals are still being worked up.

Science capability

Ladies and Gentlemen, Budget 2010 has a strong focus on improving business R&D performance.

But the Budget also recognises the importance of New Zealand’s science capability, particularly when it comes to talented people and research infrastructure.

The Budget will contain a new fellowship programme for emerging talent.

A total of $25 million over four years will be invested in the Rutherford Discovery Fellowship Programme, which will target our most talented post-doctoral researchers in their early-to-mid careers. These prestigious grants will be worth up to $200,000 per year for up to five years.

In addition, the Budget includes $9 million over three years for a programme to attract top-flight entrepreneurial scientists to New Zealand.

This programme, which will start in 2011, will attract high-calibre researchers with experience or expertise as entrepreneurs to improve the value we get from our public research organisations.

Research infrastructure is another crucial element of our science and innovation system.

New Zealand needs infrastructure of an international standard if we are to attract and retain talented people and enable them to undertake world-class research.

The Budget sets aside $44 million over four years as part of a plan to expand our research infrastructure.

Some large items, such as high performance supercomputing or contributions to big science projects like the Square Kilometre Array, are too big for one institution to develop on their own.

The Government intends to take a national approach to investing in key infrastructure and that will include the funding set aside in the Budget.

Igniting Potential

As I said at the beginning of this speech I am also taking this opportunity to release a document called Igniting Potential: New Zealand’s Science and Innovation Pathway.

This has been Dr Mapp’s initiative, and it is a document that clearly explains the direction we are taking with research, science and innovation.

It emphasises that these are, and will remain, areas of significant focus for the Government.

The past 18 months have been a period of significant change in the science sector and the document reflects on where we are and where we are heading.

It captures and summarises the changes taking place in the science system, like setting clearer priorities for science, reshaping CRIs and today’s announcements of business R&D incentives.

But this booklet is by no means the end of the story.

The document is deliberately called a “pathway” because this is a long-term programme of change.

You’ll see in Igniting Potential that there are further improvements to come, for example in the areas of building science infrastructure, attracting talented people, and building international partnerships.

We will continue to build our science and innovation system in the years ahead. We will back the programmes that work well, and ensure that resources are directed to where they will get the best results.

Please take a copy of the document home with you.

Thank you.

ENDS

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