Budget includes extra spending for science and provides for new centres of research excellence

Finance Minister Bill English’s sixth Budget increases the Government’s investment in tertiary education, research and innovation, which he said were crucial for sustained economic growth.

This investment includes $83 million of operating funding over four years to raise tuition subsidies in science, agriculture and health sciences.

The Budget also provides an additional $53 million over four years to establish another three Centres of Research Excellence, bringing the total number to 10. This includes a Centre focusing on Māori research.

And it provides an additional $57 million over four years for contestable research in science and innovation.

English said in his Budget speech:

As a result of this investment, and the investments made in previous Budgets, the Government’s total funding of science and innovation is expected to reach $1.5 billion by 2015/16.

The Government is also supporting innovation through two new tax measures.

First, loss-making start-up companies will be able to cash out all or part of their tax losses from R&D expenditure. And second, all businesses will be allowed tax deductibility for R&D “black hole” expenditure that is currently neither deductible nor able to be depreciated.

These two measures will return an estimated $58 million in tax to innovative companies over four years.

Science and Innovation Minister Steven Joyce fleshed out the Budget speech announcements.

In one of the statements he issued on Budget Day (see here), he gave more details on the Government’s commitment to increase its investment in contestable science with $56.8 million of operating funding over three years starting from 2015/16 as part of the Business Growth Agenda.

“The Government has set a goal of increasing public expenditure on science to 0.8 per cent of GDP as fiscal conditions allow. Each year we have added investment through programmes like the National Science Challenges, the Marsden Fund, and the development of Callaghan Innovation.”

The National Statement of Science Investment, which is being drafted, highlights the Government’s commitment to investment in science, which has increased by more than 60 per cent since 2007/08, he said.

“This additional funding will help to achieve the goal set out in the statement – of a science system that produces high-quality, relevant, internationally connected research that makes a real difference to New Zealanders,” Mr Joyce says.

“The Statement also sets out our intention to reform the contestable funding system from 2015, to make it more flexible, less complex and more closely focused on research that is of relevance to New Zealand. This funding will support those reforms.”

The additional funding will be available from the 2015 contestable science funding round, with further increases planned for the 2016 and 2017 rounds. It will be managed by the Ministry of Business, Innovation and Employment.

In a second statement (here) Joyce gave more detail on the decision to fund three additional Centres of Research Excellence (CoREs) from 2016.

He said Budget 2014 boosts CoREs operating funding by $53 million over four years. Annual ongoing funding will increase to $49.8 million from 2016/17 to support three additional CoREs, bringing the total number able to be funded up to 10.

“CoREs are cross-institutional research networks that support production of the absolute best research and researchers in tertiary education institutions across New Zealand.

“By investing in additional CoREs the Government is increasing its support for excellent research in areas that are important to New Zealand’s future development,” Mr Joyce says.

The decision follows the recent announcement by the Tertiary Education Commission of the results of the 2013/14 selection round in which six CoREs will receive funding from 2015.

A total of four additional CoREs will be selected through a competitive selection process: three that will be funded through the new funding, and one from money from the existing appropriation. One of the four additional CoREs will be dedicated to Māori development research.

A third statement (here) deals with two new tax measures to support business R&D.

Loss-making start-up companies will be able to cash out all or part of their tax losses from R&D expenditure, while all businesses will be allowed tax deductibility for R&D “black hole” expenditure that is currently neither deductible nor able to be depreciated.

The two initiatives together are estimated to return a net $58.1 million in tax to innovative companies over the next four years. Both are part of the Building Innovation stream of the Government’s Business Growth Agenda.

“The Government is targeting an increase in business R&D to 1 per cent of GDP to help build long-term growth and prosperity for New Zealand,” Mr Joyce says. “As part of that we want to reduce tax hurdles that discourage R&D investment by innovative companies.”

The two measures will mean:

* R&D-intensive start-up companies will have early access to all or part of their tax losses in the form of a cash receipt, rather than carrying these losses forward.

* All capitalised costs on depreciable, intangible assets (for example, patents) will be deductible over time. Currently, only the legal and administrative costs of registering the asset are treated as depreciable. Additionally, a one-off tax deduction will be allowed for capitalised development expenditure on intangible assets that are written-off for accounting purposes. This will relieve “black hole” expenditure on R&D projects that ultimately turn out to be unsuccessful.

Both new policies are expected to take effect from the 2015/16 income year.

In a fourth statement (here) Joyce dealt with the $198.6 million of operating funding for new investment in tertiary education.

Operating funds for new initiatives over the next four years include:

* An additional $67.9 million for science (an 8.5 per cent increase per equivalent full-time student).

* An additional $8.5 million for agriculture (an 8.5 per cent increase per equivalent full-time student).

* An additional $3.8 million for pharmacy (a 16.4 per cent increase per equivalent full-time student).

* An additional $3.1 million for physiotherapy (a 12.4 per cent increase per equivalent full-time student).

* $28.6 million for ICT training initiatives (including $11.8 million of contingencies).

* Sn additional $53 million to increase the number of Centres of Research Excellence (CoREs) to 10, including a CoRE that focuses on Māori research.

The boost in funding for new investment in tertiary education will come from reprioritisations within Vote Tertiary Education, and will also include additional money from the Crown.

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