R&D incentives looming as election issue

Media release

13 January 2014

R&D incentives looming as election issue

With elections looming later this year, the incentives the respective political parties offer businesses around Research and Development (R&D) is likely to become a major issue, according to a recent survey undertaken by Grant Thornton.

When asked what policies would best aid the growth of New Zealand businesses, 88.6% of business leaders said that providing incentives for businesses to invest in R&D would help in this area.

Peter Sherwin, Partner at Grant Thornton New Zealand, said that Labour has already indicated they will offer a tax rebate incentive so that for every dollar a company invests in R&D, they could claim back $1.50 to $2.

“The Government on the other hand, is not in favour of such a policy as they believe there is too much scope for this to be abused.

“While they do have their own grant and incentive schemes through the likes of the Callaghan Fund, which will match dollar for dollar what a company invests in R&D, this does have its flaws.

“I have a client who has developed a great software offering but he needs to invest a further $200,000 in more R&D. The problem is that he does not have the necessary capital to outlay in the first instance so that he can get the Government’s money. Often, individuals or small businesses just run out of capital to invest up front.

“Perhaps we need something like the large innovation funds that Hong Kong has to co-invest or lend money to our entrepreneurs.

“By the time the elections come around in November 2014, the economy is predicted to be running at around 4% growth and it could be up to 10% in hotspots like Christchurch. This will put tremendous strain on capacity and the skilled workforce. R&D is just one way that companies can look at helping themselves do things smarter, quicker and more efficiently.

“While traditionally we are a country that does not invest heavily in R&D, often preferring to throw people rather than technology at problems, necessity may see this change and become more of an election platform.

Sherwin believes the focus on R&D needs to be widened much further than the primary sector.

“Ultrafast broadband, the cloud and internet technology has removed the restraints of geography from many sectors, allowing New Zealand companies to export their Intellectual Property in areas of software, games and the like.

“A Wellington based computer games business (employing about 80 people), launched a new game this year. In this industry, you’re doing extremely well if you can be in the US top 10 downloads in the first 36 hours of release. This Wellington business was in the top 10 within 24 hours. R&D investment can make a great difference and was critical in this success.”

Another issue that could also become an election topic is the provision of incentives for business people to come to New Zealand. Seventy-two percent of those surveyed were in favour of assisting business migrants.

“Skill shortages are already hurting our economy, so we do need to address that problem. But of equal importance is ensuring that skilled migrants don’t all end up in Auckland, thereby exacerbating the existing housing and traffic problems. Part of an incentive scheme could be to make it more difficult to settle in Auckland, or easier to settle elsewhere.”

Another policy favoured by businesspeople is to negotiate more free trade agreements, similar to that with China.

“China is actually a double-edged sword for New Zealand. In the last six years it has grown to be our biggest export market having just recently passed Australia. However, the weight of its influence means that if the market turns sour it will have a massive negative impact on our economy. The recent dairy scare was a small example of what could lie ahead.

“The more free trade agreements we sign, and let’s hope that our present negotiations with Korea and India progress smoothly, the better, as it will help counterbalance the growing weight of China on our export receipts.

“While the elections are still 10 months away, businesses are already indicating what they are looking from the respective parties and are likely to vote accordingly,” he said.

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