Businesses mull R&D tax breaks versus direct handouts

Thursday, 19 April 2018

Labour Party announces a funding programme to assist company's in the area of research and development.

Businesses groups and commentators are keen to debate Labour's research and development package revealed today by ministers Megan Woods and Grant Robertson.

The proposal will phase out state quango Callaghan Innovation's controversial hand-picked growth grants in favour of a rules-based tax credit allowing companies to claim back 12.5 per cent of spending on research and development.

BusinessNZ chief executive Kirk Hope said the planned consultation may help determine whether tax credits or direct grants were the best ways of supporting large and small companies respectively.

A major part of research spending goes on salaries.

'The proposed tax credit system is focused mainly on helping larger companies,' Hope said.

**READ MORE:

Gary Foot, left, managing director of Enatel, talks with Megan Woods, Labour Minister of Energy and Resources, and Grant Robertson, Labour Minister of Finance, in the factory where they announced an R&D tax package.

* Tax break of 12.5 cents in dollar proposed for research and development

* Market welcomes back R&D tax credits, with calls for a cross-party deal**

Professor Rod McNaughton, deputy dean, the University of Auckland business school, said the devil was in the detail but New Zealand's current investment in R&D was below the OECD average.

'I expect the introduction of the tax credit will be favourably received by industry. There is likely to be considerable debate over the next few weeks about whether the government has the design of the programme right.

'For example, there are bound to be issues around the application of the 'science test' for eligibility, especially for software firms, and questions about whether the $100,000 expenditure threshold is unfair to start-ups.'

Companies must spend more than $100,000 on R&D to be eligible.

McNaughton said most countries also relied heavily on targeted grants - 'Getting the balance right between the use of these policy tools is important'.

'It is important to keep in mind that the majority of R&D spending goes into salaries, so labour force issues around education, training and attracting the best and brightest talent to make New Zealand their home are also critical,' McNaughton said.

Another Auckland University academic, Professor Shaun Hendy, director, Te Pūnaha Matatini, said R&D tax credits had some advantages over direct grants, but there was no single silver bullet solution.

ManufacturingNZ executive director Catherine Beard said support for firms investing in innovation was critical.

'Surveys of manufacturing exporters consistently show R&D support as their biggest need. This proposal could go a long way towards increasing company-level investment in innovation.'

Beard said questions to be answered included whether the tax incentive would be easier to navigate than the current growth grants, how easy the system would be for small companies, the level of information required from companies as they lodge a claim, and levels of support for companies undertaking research overseas.

Employers and Manufacturers Association chief executive Kim Campbell said members had been relatively evenly split between using grants or tax credits.

'I think the proposal to have both is worthy of discussion and we encourage business to engage in this debate,' Campbell said.