New Zealand’s Labour Party Slams Govt's R&D Policy: Seeks Tax Breaks In Place of Repayable Grants

New Zealand government’s R&D policy has been slammed by the opposition Labour party. The finance spokesman of the party, Grant Robertson, charged that John Key’s Government policy is not helpful in arresting the slide in business R&D spending, which is slipping below the OECD average levels.

Robertson said the R&D policy that allows start-ups to cash in 28 percent of tax losses for income received from the start of the 2015 financial year until the business turns profitable or it sells off, reports 3 News.

Serious Flaw

“These half-baked tax credits come with some serious small print - when the business becomes profitable it has to pay them back. That's not an incentive, it just encourages creative accounting,” Robertson said. Labour had actively campaigned in September 2014 election to reintroduce the R&D tax credits, which the National part had scrapped when it came to power.

Andrew Dickeson, a taxation expert with Staples Rodway also criticised the new policy as not being result-oriented and not significantly boosting investment in R&D, although it was a step in the right direction. Robertson also said Dickeson’s view was right that people would be slow to adopt the change on R&D under the attraction of a bit of interest-free money.

Below OECD levels

New Zealand’s spending on R&D through universities and business sector comes to just 1.1 per cent of gross domestic product, which is less than half the OECD average of 2.4 per cent of GDP, reports New Zealand Herald.

Labour objects to National party’s preference for grants on the ground that tax credits would lead to firms claiming back existing R&D spending rather than seriously promoting new investment. But Labour is fully supportive of tax credits. The Government has set a goal of lifting business R&D investment to one percent of GDP, but the latest biennial Statistics NZ Business Operations Survey showed that it has been falling from 0.57 percent in 2012 to 0.54 percent in 2014, ironically in a period of strong economic growth. The growth was only 0.6 as a percentage point of GDP in the past 12 years.

Gov't Defends Policy

Economic Development Minister Steven Joyce defended the current policy and said it equate to around NZ $15 million of cashed out losses each year across 250 to 350 start-ups. Joyce said the move was aimed at encouraging R&D spending, particularly for smaller businesses that struggle to manage the early losses. “We've lost so many good companies over the years going offshore because if they go off to Singapore or even to Australia they get much better incentives,” Joyce noted.

The minister urged all to view the new policy in conjunction with other R&D tax measures which would lift spending in the area. "You can't just say we don't like this one policy because it doesn't go far enough without looking at the R&D growth grants, for example, and what's being done in the incubation accelerator area," Joyce told NZ Herald.

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