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Tax incentives for R&D; election issue

NZ Newswire logoNZ Newswire 6/04/2017 Rebecca Howard

Tax incentives have a "positive and significant" impact on research and development spending, according to an International Monetary Fund working paper published this week.

But they remain contentious in New Zealand with the ruling National Party dubbing them an "unknown financial liability" while the opposition Labour Party is still committed to implementing them.

While R&D spending is inching higher, New Zealand still lags behind its peers with recent data showing total R&D investment as a proportion of gross domestic product increased to 1.3 per cent in 2016 from 1.2 per cent in 2014.

The OECD average is 2.4 per cent.

Business investment in R&D was 0.6 per cent of GDP in 2016, still well off the government's aim to lift it to 1 per cent.

The IMF paper notes many governments use tax incentives to stimulate private expenditure on research and development.

In a recent mission to New Zealand, IMF officials recommended the government lift its support, describing those incentives as "a bit on the timid side".

Both National and Labour see innovation as critical to lifting the country's productivity levels, a challenge given its relatively small economy and distance from other markets.

National, however, has argued New Zealand's research and development grant system administered through Callaghan Innovation stops companies "gaming the system" by reclassifying spending to qualify for tax credits.

"The R&D Growth Grant works like a tax incentive in that the grant approval process is non-discretionary and available to all businesses that meet pre-defined criteria,'' Science and Innovation Minister Paul Goldsmith told BusinessDesk.

''The Growth Grant system gives us a much better idea of the likely cost, rather than a tax credit system which would be an unknown financial liability,"

The grants cover 20 per cent of a business's R&D costs, up to $5 million a year, and are available to businesses that invest more than 1.5 per cent of turnover in R&D.

Callaghan handed out $112 million in three different types of grants in the 2015/16 year, according to its annual report. The bulk of that - $86 million - went to Growth Grants.

Megan Woods, Labour's spokesperson for Innovation and Science, said Labour had a commitment to tax credits for research and development in the last election and "I think the reasons for those commitments still stand".

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