There’s an interesting contrast in today’s NZ Herald between its rather muddled editorial that appears to poo-poo the R&D tax credit and what our two largest and most innovative companies, F&P Healthcare and F&P Appliances, are saying in the business pages. Both companies speak of the research benefits they gained from labour’s previous tax credit scheme.
I’ve yet to come across a high-tech company - and I’ve visited a lot - that doesn’t believe tax credits are a great thing. The top 100 of these companies generate $6.5 billion and high value jobs. Inevitable perhaps they would say that because they benefit, but with those sorts of numbers, it’s not rocket science to work out that we all win.
The National Herald has a severe credibility problem. Their political coverage screams ‘trust National’, but is their business coverage screams ‘clueless Tories’. Must be a tough gig.
Does it not surprise you that Companies who do R&D back getting some money back? Doesn’t surprise me in the least.
To me this issue is easy. If a company spots a niche which they think is going to justify the research risk, then they will leap in.
All and R&D credit does is create an incentive for companies to re-jig their spend so it qualifies for the subsidy…
JR while your attitude does reflect the attitude of many to R & D it is seriously flawed. R & D underpins, and ought to underpin everything a business does in good times and bad. It’s not the icing on the cake it’s the rising agent in the base. IF NZ Businesses were better educated about what R & D is and how it benefits them, we might find ourselves more than looking to mining for our future
from Ben Bernake
“In addition, recent research has highlighted the important role played by intangible capital, such as the knowledge embodied in the workforce, business plans and practices, and brand names. This research suggests that technological progress and the accumulation of intangible capital have together accounted for well over half of the increase in output per hour in the United States during the past several decades.2
Innovation has not only led to new products and more-efficient production methods, but it has also induced dramatic changes in how businesses are organized and managed, highlighting the connections between new ideas and methods and the organizational structure needed to implement them.”
Just Right: An R&D tax credit will effectively reduce the costs of doing R&D. As the cost of the ‘research risk’ is reduced, it affects the calculations made by companies whether or not to pursue an research opportunity, and companies will pursue such opportunities more often. i.e. it will provide a market-based incentive to encourage R&D, which will move NZ in the direction of having a higher value economy. Surely this is economics 101?
too true wtl, and also, why do people who otherwise bemoan government intervention in business happily sit back and allow tax payers to fund the research they won’t but which their businesses can reap rewards from?
@tracey
based on that quote we should be giving tax credits to those companies with business plans, organised structures, brand names and some workers wth a bit of knowledge. They are as much part of the equation as technological innovation. Why just pick R&D for special treatment? And can you define R&D?
insider
The way some businesses organise themselves IS based on R & D, maybe not their own R & D but by another business earlier, and it is picked up and used by others. This is a fundamental understanding of R & D and why government tends to be behind R & D to reduce the “risk factor” referred to above, and which makes some shy of investing in this part of their business, in case they dont get the full benefit but do pay the full cost. Perhaps you could share your definition of R & D. By my quote above and the following post I gave some insight into mine.
Are you aware that the lion’s share of R & D in NZ is already Government funded amounting to a kind of business subsidy through various research entities?
Building Research New Zealand gets most of its money from building owners through a percentage of the cost of a building consent. In other words Ratepayers pay for this research. Now, go to the BRANZ website, and see their primary business and how that research is used.per
@tracey
I don’t have a definition, but then I’m not saying a tax break is a good thing, that’s why I asked you.
My concern is how do you police the line between ‘real research’ and ‘market research’? Should we be funding Kellogs marketers calls, asking us questions about our preferences for cereal which leads to a ‘new and improved formula’? I’d say no, that doesn’t smell right. But I could also quite comfortably argue it has led to an innovation, and isn’t that what research and development is about?
BRANZ I’d suggest is a poor example given their culpability around leaky buildings. I’m not sure why they would get tax breaks for making up ways to build worse buildings.
insider, sorry, I misunderstood you and impugned a tone that obviously wasn’t there.
I couldn’t agree with you more about BRANZ, they took home owners money and used it to screw over home owners… the cynic in me suspects that between them and BIA we have the reason for the govt pitching in with 25%.
I work for a company that has been neck deep in research and development and all of it financed by the owner and his bank probably, but no other sources. To date he has developed 4 products now available to those who care to embrace innovation. I suspect he will be one of those who does not truly benefit from his own investment and hard work because of industry blocks I won’t bore you with but are based on ego and business models that would have to alter if the technology was taken up by them.
I think you would have to draw a line between general market research for exisitng products (that is been around for a while and different businesses are trying to get a bigger market share, and say, a newly developed product or thought up product which is no where else and you need to see if it is worth pursuing it into production.
Part of my point is WE are already paying for most of this stuff through Govt or Govt affiliated programmes and money, Labour is looking for a way to claw some of that back from farmers on the one hand, to potentially grow new industries on the other. It’s a balancing act for sure.
Si I suppose R & D refers to performing research and developing new products
@wtl sure tax credit does lower the cost of R&D, but also creates an incentive for businesses to classify all parts of stuff as research… So is a blunt instrument open to rip offs.
To me there are different types of research… Pure/theoretical stuff which is done in our CRIs and places like Xerox Palo Alto labs and then there is the sort of stuff my company does… That is pulling together pre-made components in novel ways, packaging them up yadda yadda
My point is as an entrepreneur, if I can see some serious cash in the form of customers who are willing to pay, then my type of research gets done, regardless of any tax incentive.
Not all ideas have been winners, but enough have been to make the risk worthwhile. Never had a Govt tax break, never applied for funding of any sort.
That said, if we needed to do pure research I might feel differently as this is more risky.
My opinion is we don’t have a research issue, we have a commercialization issue in NZ. It is easy enough to come up with a cool idea. It is a whole different ball if wax to grow the idea
Into a company if any scale… Even harder when you need to fly for hours to press the flesh (which you need to do, despite Internet enablement)…
Best way for the Govt to help is to lower corporate tax based on employee size… Ie smaller companies pay lower tax rates…
@Just Right
May 24, 2011 at 8:24 pm
“To me there are different types of research… Pure/theoretical stuff which is done in our CRIs and places like Xerox Palo Alto labs and then there is the sort of stuff my company does… That is pulling together pre-made components in novel ways, packaging them up yadda yadda”
The problem with this is that the divide isn’t as clear cut as you might think. There is quite a lot of overlap between some of the work that a company like F&P Healthcare does and the work that is carried out in the engineering and design departments of some of tertiary institutions and CPI’s.
F&P, for example, might commission a research project which is carried out in a university to the benefit of the company and the institution but the reverse also happens where a company employs a post-graduate student to work on a problem that the student has based his or her research proposal on.
A company may have very good reasons to want to do this sort of research in-house as opposed to commissioning a university or CRI to do it. Some of these may be that the people working on the project are also the subject matter experts, the company’s facilities may be better and not subject to the competing demands of other researchers (and their students). The company may also want their people to be available to work on other tasks that are not research related.
The result is that companies like F&P end up developing significant research capabilities in their own right which feed back into the academic institutions. This deepens the country’s base of expertise from which it can generate wealth.
It’s also worth bearing in mind that although while F&P will undoubtedly have agreements to capture any IP that’s generated from these r&d projects, the students and institutions also benefit – so it’s impossible to assign property rights to the outcomes. This is one of the arguments for sharing the costs of r&d via a tax credit.
@Insider
“How do you police the line between ‘real research’ and ‘market research’?”
How like an entrepreneur to try and reinvent the wheel
You start by having a look at how everyone else does it and then lay down some criteria.
http://www.hmrc.gov.uk/manuals/cirdmanual/cird81300.htm
“Best way for the Govt to help is to lower corporate tax based on employee size… Ie smaller companies pay lower tax rates…”
Talk about a blunt instrument!
I’d simply use the American system of progressive tax on companies – a higher rate for companies making a larger profit – such as banks (larger companies have their tax avoidance teams after all). Personally I’d use 30 cents for smaller companies and 33 cents for larger ones (it’s one way to afford unlimited R and D tax credits and worker training etc).
Just Right
“My point is as an entrepreneur, if I can see some serious cash in the form of customers who are willing to pay, then my type of research gets done, regardless of any tax incentive.”
You sir/madam are in serious minority in NZ.
First job created by cycleway confirmed by PM
“Prime Minister John Key today announced that Olympic Gold medallist Sarah Ulmer has signed up as an ambassador for Nga Haerenga, the New Zealand Cycle Trail project (NZCT).”
I am all for tax credits on R&D and I am also for tax credits for new businesses who employ 5 or more people for their first five years. New businesses would not include new companies set up by existing successful Corporations.
I am a labour supporter but I am also a supporter of small business who employ the greater part of our work force.