MZMEA releases its OutLook report

Media Release 15 October 2007.

The New Zealand Manufacturers and Exporters Association (MEA) releases its OutLook report titled, ‘Research and Development’.

This OutLook report is the first in a series published by the MEA examining the Association’s policy development research that supports a targeted taxation framework in New Zealand.

This OutLook discusses how research and development tax credits that apply from April 2008 onwards, will change the competitive position of New Zealand firms and how research and development fits into the wider picture of enhanced productivity. Later releases will further detail wider policy options that will support the R&D changes. Improved living standards will depend on higher levels of innovation in the economy, increased exports and over time, substantial reductions in the current account deficit. However, without change we can expect to see further erosion of capability and our sophisticated export base, as more New Zealand companies move production offshore to confront the ’China price’ and entrenchment of the ‘two economies’ syndrome.

“The MEA sees competition from low cost countries as a reality confronting New Zealand manufacturers and exporters, but the Association also recognises that policy settings in New Zealand are not built on long-term strategic thinking regarding our future economic development”, says Chief Executive John Walley.

“We will show that the process of loss is not inevitable, that policy settings which we can control locally can make a vast difference to comparative advantage (note the example for the B index) and that New Zealand is not a candle in the wind. Resisting the inevitably mindset avoids even simple issues being seen as too hard to confront and deal with”, says Mr. Walley.

“New Zealand’s Elaborately Transformed Manufacturers (ETMs) and Small Medium Enterprises (SMEs) contribute a significant portion of New Zealand’s exports. They achieve success by exploiting the differences between themselves and their competitors and seizing opportunities that are presented in an ever changing business and economic environment both in New Zealand and within their international markets”, says Mr. Walley.

“However, while these companies lead the developments in high tech, high margin products that inject value add back into the economy, many ETMs and SMEs are faced with constraints that make their product innovation and exporting more difficult than it needs to be, therefore we can and must do better”.

There will be OutLook papers to follow this report, including research on “Asset Taxes and Productivity” and later “Two Economies”.

The key findings of this report are:
 Only those economies that succeed in the innovation race will have a place in the world of rich nations.
 R&D Tax Credit to be introduced in April 2008 is a significant step supporting higher levels of innovation, though teething problems are to be expected, these should be seen as systematic issues not a failure in the inherent value of the policy.
 A range of policy settings that support innovation are necessary. Create an environment for innovation in ETM firms by:
(1) Encouraging more investment in productive activity.
(2) A balanced taxation regime across income, profits and realised capital gains.
(3) Extended deductibility on early stage investments for R&D based firms.
 More R&D based commercial outturns are produced in ETM firms, yet they require:
(1) Tax credit for R&D (implemented April 2008, and the subject of this paper).
(2) Expense all productive equipment and patents (see our Tax and Depreciation paper).
(3) Tax Credit for people and skills development targeted at new products and process.

Download the full version of this Outlook at the following link:
http://www.mea.org.nz/Page.aspx?p=Documents

MEA – the authentic and independent voice for manufacturers and exporters.

ENDS

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