NZ government R&D incentives: a torrid saga
New Zealand’s R&D expenditure is one of those hand-wringing issues that successive governments have tried to fix. Expenditure on R&D was 1.25% of the gross domestic product in 2017, and the current Labour government has ambitions to lift R&D expenditure to 2% of GDP by 2027.
Previous efforts to boost R&D came in the form of a growth grant administered by the government agency Callaghan Innovation. This approach was criticised by some as too liberal—including Trade Me founder Sam Morgan, who labelled it a “stupid” taxpayer subsidy for unprofitable companies. That was back in 2014 and as it was National government policy, it stuck around until the change to a Labour-led government three years later, when it was decided to biff the growth grants in favour of a R&D tax incentive, which basically subsidies 15% of the cost to a business of undertaking R&D.
Those who had benefited under the growth grants scheme were encouraged to apply for the R&D Tax Incentive scheme, and there was a transition period put in place to ensure everyone got on board with the new regime.
Trouble is, not many people made the transition. So PwC was called in to investigate why; it handed its (reasonably critical) report over in November 2020. Six months later, the Ministry of Business, Innovation, and Employment has published documents explaining how the government is going to fix the issue of an R&D tax incentive nobody seems to really understand.
Here, in summary, is some of what the PwC report highlighted in November 2020:
- The dynamic between Inland Revenue and Callaghan Innovation was that the former was the buyer of the service and the latter was the provider. This resulted in the emphasis on protecting the tax base rather than increasing the level of R&D expenditure.
- It was difficult for businesses to understand how the incentive works. For example, the IR guidelines run to 138 pages, and the team at Callaghan Innovation were timid about offering guidance for fear they’d be considered tax advisers. Getting external help on compliance was costing some companies more than $10,000, making it prohibitive for small businesses.
- The bar to entry was too high—with assessors looking for R&D that sought a “step change” rather than incremental improvement. This had the effect of ruling out a huge number of businesses engaged in producing commercial products while favouring high-end scientific research.
- Inexplicably, some businesses got the message that software was out of scope.
- There was not enough transparency over decision-making, and it was taking too long process the applications.
Here, in summary, is how the government now proposes to fix the issues:
- Shake up the Inland Revenue/Callaghan Innovation partnership by adding in MBIE to “strengthen governance and oversight”.
- Hire more programme managers at Callaghan Innovation to help businesses through the application process.
- Update the guidelines so that those administering the R&D tax incentive take a broader approach to eligibility.
- Work closer with industry groups—starting with the software industry—to ensure greater participation.
- Previous growth grant recipients are now eligible for further support payments, in an effort to ensure they maintain their R&D. They will still be expected to transition to the R&D tax incentive.
Time—and no doubt another PwC report—will tell if these fixes make a difference.
Implementing this stuff is hard, according to the MBIE website, which notes: “Our engagement with other countries implementing R&D tax incentives internationally has shown refinements and improvements over the initial implementation phase was common.”
Some may wonder if they should have learned from others’ mistakes, while others will be just hoping they get it right this time.
Internet NZ considers tackling online extremism
Are the laws governing online harm good enough? The answer is a flat-out ‘No’, if you are InternetNZ, the organisation that administers the .nz domain name. Its chief executive Jordan Carter says that online incitement of racial hatred and violent extremism is an “abuse of the internet”, and something more needs to be done.
“Active harm is being done, and the country’s systems for tackling this harm are woefully inadequate to the scale of the challenge,” he says.
Carter notes that during this month’s He Whenua Taurikura—the first national hui on terrorism and violent extremism in Christchurch—two themes stood out:
- The people who are the target of online extremism need to be central to the discussion.
- “Te Tiriti o Waitangi and the values and approaches of Te Ao Māori provide a place to stand in understanding and responding to these harms.”
He says InternetNZ can help in addressing this issue, but “we don’t know what this looks like yet.” Carter does say that the organisation is prioritising this work. “Part of it will be to listen to our community and use our voice to demand better systems to protect all New Zealanders online,” he says.
It will be interesting to see what new policy InternetNZ develops in this area. Previously, Carter has been outspoken about moves by government to introduce technology that prevents access to objectionable online publications, labelling the proposal an internet filter that is “extreme and undemocratic.”