Bringing in tax credits for R&D is the first part of Labour’s package to put NZ back on the path of growing the economy. Its key aim is to incentivise our exporting companies to invest more in new research, lift skills and build the clean, green and clever society.
National’s decision to axe the R&D tax credits in 2008 to pay for personal tax cuts, when the scheme was already in operation, was incredibly shortsighted. It highlighted Bill English as a bookeeper not a leader of the economy. But it ignored what is seen as international best practice. Only a handful of OECD countries don’t offer their private sector tax credits on R&D.
Ironically, Australia has lifted our tax credit policy brought in by the Labour Government and is currently passing through their Senate now.
Tax credits incentivise business to do more R&D. They boost our private sector R&D spend – currently languishing at about one-third of the OECD average. And, at 12.5% if the full budgeted amount exempted tax is reached, the R&D spend by our companies will lift to more than $2 billion.
All the literature shows that increased R&D translates into greater productivity and lifts economic performance.
The grants and vouchers announced by Mapp last year – after a wait of two years after axing the tax credits – are effectively handouts from government. They lift government R&D spend slightly, but encourage business to put out their hand for a hand out.
And who gets a grant is decided by a Wellington bureaucrat not an entrepreneur. Only 40% of those applying for grants were successful. Those who missed out are the innovative entrepreneurs with smart ideas and need that lift.
It’s a first step to increase our productivity, but don’t underestimate the importance of pushing R&D.