The Aust Govt is forging ahead with plans for a R&D tax credit while its NZ counterpart dithers over how to progress a similar agenda here. Aust is proposing the introduction of a 45% refundable tax credit for firms turning over less than $20m a year, effective from the 2010-2011 tax year. It is equivalent to a 150% tax concession – with the added advantage companies can benefit from the credit regardless of whether they are in tax profit or tax loss. There will also be a 40% tax credit for larger firms – equivalent to a 133% tax concession. On this side of the Tasman, senior Govt officials are pushing for the replacement of the 15% R&D tax credit axed by National when it came to power late last year. The proposal would see businesses receive a direct grant for R&D spending or vouchers allowing them to buy research.

Treasury Ignored. Getting this past John Key and Bill English could be another matter, since the pair were instrumental in the scrapping of the tax credit regime introduced by the previous Govt. After the election Treasury officials pushed for the tax credit to be preserved-advice Key and English ignored- and suggested replicating key features in a new R&D grant scheme to be “non-discretionary” and with relatively low compliance costs; or tightening eligibility for the credit to lower its fiscal cost. Key has named innovation as one of several key policy platforms for hauling the economy out of the mire and stimulating growth. He and English were somewhat justified in expressing doubts about the scheme’s effectiveness, and misgivings about its potential to stimulate actual increases in private sector R&D spending.

Scheme Had Merit. Some businesses with a historical tendency to claim tax relief for activities unconnected to genuine R&D spending spoilt it for companies who were genuine and passionate about innovation. Yet, on balance the scheme’s merits outweighed its failings. And, as Treasury pointed out late last year, its overall benefit in terms of higher productivity would likely have been greater than the cost and complexity of the tax credits themselves. Treasury accurately highlighted the strength of NZ’s public sector science system but relatively low level of private sector R&D. Officials told English “our low level of commercialisation of innovation points to weak linkages between firms and research organisations.”

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