Government ramps up R&D tax incentive

Research, Science and Innovation Minister Megan Woods and Revenue Minister Stuart Nash today announced the design of the research and development (R&D) tax incentive after extensive consultation with businesses.

The consultation process prompted significant changes to the tax incentive originally proposed. The rate will be higher, the threshold lower, and the definition more inclusive.

The key changes include:

  • A credit rate of 15 per cent, a $120 million cap on eligible expenditure, and a minimum R&D expenditure threshold of $50,000 per year
  • The inclusion of State Owned Enterprises, industry research cooperatives (including levy bodies), and minority-owned subsidiaries of Crown Research Institutes, Tertiary Education Organisations and District Health Boards
  • A definition of R&D that ensures the credit can be accessed more easily across all sectors, including the technology sector
  • A limited form of refundable tax credits which will mirror the R&D tax-loss cash-out scheme run by Inland Revenue.

The Ministers said the Government had set aside $1 billion for this incentive.

Work to increase R&D spending to 2 per cent of GDP over 10 years was part of the Coalition Agreement between Labour and New Zealand First.

Revenue Minister Stuart Nash said a balance has been struck between including as many businesses as possible in the scheme, and “upholding the integrity of New Zealand’s tax system”.

“We have learned from international best practice how to incentivise R&D expenditure and retain trust and confidence in the tax system. The new policy meets the rigour of international schemes, and will support businesses to undertake genuine R&D.

“We received a lot of feedback from businesses that it was particularly important to include a form of refundable tax credits for start-ups and loss making businesses in the first year of the tax incentive. This is why we have introduced a temporary measure that will mirror the current R&D tax-loss cash-out scheme.”

Mr Nash assured all businesses that having a more comprehensive form of refunds in the R&D tax incentive is a high priority to have in place for the 2020 tax year.

The Ministry of Business, Innovation and Employment’s website provides further information  HERE. 

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Scientists lament NZ’s slide in the Global Innovation Index rankings

The appreciation of sound science advice and economic importance of investment in research and development in New Zealand –  or lack of it – was  examined in an article published in the New Zealand Herald at the weekend

Authored by Dr Jim Salinger and the late Dr James (Jim) Watson, the article was developed from a chapter in Dr Watson’s book,  A Walk on the Science Side,completed just before his death..

The quality of New Zealand’s research and development is extremely high and is often the pioneering nature of that R&D which sets it apart, the authors say.

It has a distinctive character which is robust and resourceful, often multi-disciplinary, breaks boundaries, challenges preconceptions and tackles traditional problems in innovative ways.

This character may be the result of New Zealand’s distance from world centres, with the unique mix of freedoms and constraints that distance brings.

It may result from learning to make do with the relatively few resources that we have, “the No 8 wire” approach.

It may reflect our creative responses to chronic under-funding or the can-do attitude that is inevitable in a small society.

And because our R&D is carried out in relatively small institutions, it has a certain practical intimacy to it.

But New Zealand sits in the lower range of OECD metrics on researchers and science spending — eight researchers per thousand employed, with 1.2% of GDP spent on R&D.

The top country, Israel, employs 18 out of 1000 and 4.3% respectively.

The article recalls how NZ leaders, in two tough economic times, had the vision to establish the New Zealand University Act of 1874 to build the nation’s knowledge capacity and, in 1926, to establish the Department of Scientific and Industrial Research (DSIR) to build science that supported industry and economic development.

The DSIR surveyed, identified and classified the country’s animal, vegetable and mineral resources; worked on ways to increase the utilisation of natural resources and reduce the risks of natural disasters; bred better plant varieties; developed better pest and disease control methods for agriculture and horticulture; provided advice for industrial developments; standards for commerce and industry; and data for the maintenance of public health.

In 1989, the Government restructured and partially commercialised R&D institutes (including the DSIR, Ministry of Agriculture and Technology, Research Division of the NZ Meteorological Service, and others) into corporatised new Crown Research Institutes (CRIs).

Their funding allocations were placed in the Public Good Science Fund for competitive funding.

The article says:

In the absence of strategic planning we tend to allow the system to meander wherever the funding takes us.

This puts pressure on science culture, institutions and commercialisation.

Compared to New Zealand’s sports icons, our scientific community is perhaps not held in high regard.

For example, there is not one agricultural scientist on the primary production (agriculture) committee.

In the 2018 Queens Birthday Honours there were few scientists, but plenty of sportspeople, community carers and of course medical professionals received awards.

The article says the failed attempt to develop New Zealand’s biotechnology economy has been a core theme of national and regional economic development strategies since the publication of “Growing an Innovative NZ”.

This is reflected in our slide down the rankings in the Global Innovation Index:

In 2012, we ranked as the 13th most innovative economy in the world — now we are 22nd.

Israel has climbed from 17th to 11th.

Agriculture in Israel is now only three per cent of the GNP.

New Zealand ranks 22nd in R&D and Israel is third.

Israel is now a high-tech nation.

Ultimately, no science strategy can work unless it is led by a partnership between the leading scientists and government, the article says.

We must develop a science-driven model of policy setting, in which scientists are involved and respected from the very beginning.

Science is a common good, and it is in the national interest that our capability be better directed, maintained, resourced and utilised in support of national economic, environmental and social goals.

  • Dr Salinger is a Visiting Professor at the University of Haifa, Israel. The late Dr James (Jim) Watson, founder of New Zealand’s first biotech company, Genesis Research and Development, was a passionate advocate for science in New Zealand and former President of the Royal Society of New Zealand.

Budget provides $1 billion for Govt’s R&D tax incentive

The Coalition Government is delivering on its plan to support a stronger and more productive economy with higher wages by injecting $1 billion into business research and development (R&D), Research, Science and Innovation Minister Megan Woods and Revenue Minister Stuart Nash say in a Budget press statement.

New Zealand spends just 1.3 per cent of GDP on R&D, whereas the OECD average is 2.4 per cent, Dr Woods says.

“We need new ideas, innovation and new ways of looking at the world if our businesses are to build a more productive economy,” she says.

“That’s why this Government is putting $1.0 billion of operating expenditure over four years on the table to finance an R&D tax incentive, giving eligible businesses 12.5 cents back for every dollar they spend on R&D. This funding will be available to all businesses spending more than $100,000 a year on R&D.

“This system will help us transition away from the current Growth Grants model, which is available to a narrower range of firms. This represents a significant increase in the amount available to help smart Kiwi businesses to innovate.”

Mr Nash says the design of the R&D tax incentive is currently out for public consultation and productive conversations are being held with businesses around the country.

The billion-dollar boost for innovation would make the New Zealand economy stronger and more productive, he says.

Let’s not forget science is one of the pillars of Labour’s primary industries approach

NZIAHS president Jill Stanley – going out to bat for agricultural and horticultural scientists on Radio Live at the weekend – reminded her interviewers and audience of something Labour’s Andrew Little told Federated Farmers almost a year ago.

Mr Little was Labour’s leader at the time and immediately after the introductory courtesies he told the feds:

The future of New Zealand’s primary industries can be summed up in two words — science and sustainability.

These are the twin pillars of Labour’s approach.

Last month Agriculture Minister Damien O’Connor announced 15 appointments to the Primary Sector Council, which has been charged with helping the primary sector to capture more value from its work.

The council will provide independent strategic advice to the Government on issues confronting the primary industries.

But where are the scientists?

Dr Stanley raised that question in a press statement (HERE).

She was asked to discuss her concerns with Radio Live’s Rural Exchange team (the interview can be heard HERE) at the weekend.

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For good measure, let’s lop Callaghan Innovation’s admin costs, Taxpayers’ Union says

The eradication of Callaghan Innovation’s controversial Growth Grants in favour of a rules-based R&D tax incentive is a major victory for taxpayers, the New Zealand Taxpayers’ Union.

Taxpayers’ Union Executive Director Jordan Williams for years has been campaigning against these handouts to businesses hand-picked by Callaghan Innovation.

“Governments shouldn’t be in the business of picking winners – it rewards businesses for political connections rather than productivity, and it’s unfair on the winners’ competitors,” Mr Williams says.

“Despite countless examples of businesses receiving grants and then going bust (or being bought out from overseas), the National Government refused to accept criticism of Callaghan grants. On this issue, the Honorable Doctor Megan Woods has shown far better business sense than her National Party counterparts.”

With the primary function of Callaghan Innovation being phased out, the Taxpayers’ Union is pressing for a downsizing of the Callaghan Innovation organisation, which employs 386 staff with an average salary of $112,000.

It believes taxpayers could be saved up to $86 million a year in administration costs.

“An across-the-board tax incentive is a far tidier and less risky solution than gambling taxpayer money on a handful of fat grants to select businesses,” Mr Williams said.

But an even better solution – he argues – would be to simply reduce the corporate tax rate. That would avoid any boundary issues and risks of gaming of the new R&D credit.

The Taxpayers Union will be submitting to MBIE on these issues. weeks.”

Source: Taxpayers’ Union

R&D funding’s contribution to innovation is examined

Two separate papers, launched by economic and public policy institute Motu and the New Zealand Productivity Commission, examine the links between research and development (R&D) spending and the creation of new products and services. They use data from Statistics New Zealand’s Longitudinal Business Database.

The Government spends millions of dollars annually on direct subsidies for research and development in New Zealand businesses.

Government support for R&D ranged from NZ$33 million to NZ$90 million per year during 2009–2013 in various forms, including training, advice and funding. There were two main types of R&D funding: project grants and capability building grants.

The first paper, “The impact of R&D subsidy on innovation: A study of New Zealand Firms,” found that receiving a government R&D grant almost doubles the probability that a business will introduce a major innovation, defined as a new product or service.

The second paper, “Measuring the innovative activity of New Zealand firms,” focused on innovation at the level of the firm. The authors found that despite more total money being spent on R&D, fewer business were introducing new products and services.

The Science Media Centre collected expert commentary on the papers.

Shaun Hendy, Director of Te Punaha Matatini and Professor of Physics at the University of Auckland, comments:

“When Steven Joyce and Sam Morgan duked it out on Twitter last year over whether taxpayers get their money’s worth from R&D grants to businesses, there was surprisingly little evidence available to call it either way.

“Now, Adam Jaffe and Trinh Le at Motu Economic and Public Policy Research have found evidence that the New Zealand government’s R&D grant schemes do, in fact, boost innovation. This is important because any government scheme that can boost innovation by business (in this case, by leading to new products or services) can generate spillovers that benefit the entire economy. This round goes to Joyce on points.

“However, a second paper by Le, co-authored with Simon Wakeman from the Productivity Commission, suggests that Joyce may need more than 140 characters for his next bout. The Minister has set himself the goal of lifting business R&D spending from just over 0.5% of GDP (around one third of the OECD average) to 1% by 2018. Yet Le and Wakeman show that business R&D spending is not always a good proxy for innovation, finding that many innovations do not stem from investments in traditional R&D. Policies that focus solely on R&D spending may actually miss opportunities for economic growth.”

Professor John Raine, Pro Vice Chancellor of Research and Innovation, AUT University, comments:

“Over 27 years working in the area of technology commercialisation, I have observed that R&D grants can indeed increase the probability that a business will launch a new product or service.

“There is always room to improve the way in which such grants are allocated and that the due diligence on the product or service opportunity is robust and carried out early. Even with strong due diligence there will always be a significant percentage of prospects that don’t pay off. The trick is constantly improving the quality of the pre-funding processes with input from technology sector experts and the investment community to maximise the chances of downstream success.”

Advice in “Get off the grass” is welcomed – but the strengths of grass are championed, too

Massey University vice-chancellor Steve Maharey has joined the admirers of “Get off the Grass”, the recently published book by physicists Shaun Hendy and the late Paul Callaghan that offers advices on how New Zealand can become a prosperous nation. But he cavils with the authors, too.

Hendy and Callaghan argue that New Zealand should move away from its land- and sea-based industries and promote a high-tech future in which NZ prospers by becoming a high-wage, high-value, high-productivity economy.

But getting off the grass would be a mistake, Maharey contends. The primary sector and the science that underpins it have an important role to play in shaping a more prosperous future.

In a recent book review in The Listener, economist Tim Hazledine quibbles, too. “Get off the Grass” is a classy, spirited, intelligent book, he says. But its central claims are wrong.

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