Budget 2014: NZ Govt supports tech startups in new budget

New Zealand has once again shown up Australia in its support of technology startups, with the NZ government announcing two new tax measures in its 2014 budget to help drive startup research and development.
Written by Leon Spencer, Contributor

The first New Zealand budget in six years to deliver a surplus is set to provide a windfall for technology startups, with two new tax measures expected to result in a return of NZ$58.1 million for research and development (R&D) intensive startup companies.

"The government is targeting an increase in business R&D to 1 percent of GDP to help build long-term growth and prosperity for New Zealand," said NZ science and innovation minister, Steven Joyce. "As part of that we want to reduce tax hurdles that discourage R&D investment by innovative companies."

The two new tax measures outlined in the budget, delivered yesterday, will mean that R&D intensive startups will have early access to all or part of their tax losses rather than carrying those costs forward, and that all capitalised costs on depreciable, intangible assets will be deductible over time.

"The objective of these proposals is to encourage businesses to invest more in R&D through targeted initiatives which focus on the actual issues faced by businesses and the economy," said Joyce.

"These initiatives, together with the development of Callaghan Innovation [a commercialisation accelerator] and our comprehensive R&D co-funding program, add up to a comprehensive agenda to support innovative Kiwi companies to develop and succeed on the world stage," he said.

The new budgetary measures stand in stark contrast to the Australian budget, delivered on 13 May, which announced the scrapping of at least two programs, Commercialisation Australia and the Innovator Investment Fund, both of which have supported Australian startups to the tune of hundreds of millions of dollars, while also pairing startups with angel investors.

The Australian government claims that will save it up to AU$845.6 million over five years by dismantling these two programs, along with Australian Industry Participation, Enterprise Solutions, Industry Innovations Councils, Enterprise Connect and Industry Innovation Precincts.

In their place, the Australian government has announced the Entrepreneurs' Infrastructure Program, which is expected to inject AU$484.2 million over five years into industry.

However, industry stakeholders have questioned the scheme, pointing out that the new program, to which tech startup grant applicants are now being directed, is aimed primarily at SMEs rather than startups.

Startup advocacy group, StartupAUS, published a paper in April indicating that the Australian startup sector could contribute up to AU$109 billion to the economy and 540,000 by 2033. However, it also suggested Australia lagged behind other countries — particularly New Zealand — in terms of startup support, with the country claiming one of the lowest rates of startup formation in the world.

"In NZ they've been focusing on innovation and it is an entrepreneur-friendly environment," said Richard Webb, founder of global interactive media incubator, Red Ocean, at a startup incubator event in Sydney last month. "Not so here in Australia. The future's got to be investing in minds here, not property."

The NZ budget, delivered by the country's finance minister, Bill English, also boosted funding for the Office of the Privacy Commissioner, in a bid to protect New Zealanders' private information in a "more collaborative and technologically-driven environment," according to NZ justice minister, Judith Collins.

The budget will allow for an extra NZ$7 million to the Privacy Commissioner's four-year budget and will maintain a similar amount of funding into the future, according to the government.

The Privacy Commissioner's current operational budget is NZ$3.2 million per year, along with a NZ$336,000 injection this financial year. Under the new budget, it will receive an additional NZ$1.9 million in 2014/15 and NZ$1.7 million per annum for three years.

"Safe and efficient collection, storage and exchange of personal information leads to better services, helping to modernise the state sector for the good of New Zealanders and the wider economy," said Collins.

"This additional funding will enable the Office of the Privacy Commissioner to carry out its new role, set out in the Privacy Amendment Act 2013, of reviewing and monitoring information sharing agreements among government agencies to ensure privacy concerns are adequately addressed.

"The funding injection also comes at a time when advances in technology are dramatically changing how personal information is collected, stored and shared," she said.

Meanwhile, across the ditch, funding for privacy oversight diminished in Australia's 2014 federal budget, delivered by Treasurer, Joe Hockey, on Tuesday night.

AU$10.6 million was withdrawn from the Office of the Australian Information Commissioner (OAIC), disbanding the entity and farming out its duties to other departments.

The OAIC was tasked with overseeing privacy issues, freedom of information issues, information management, and other functions.

Instead, the OAIC’s privacy and freedom of information functions are now in the hands of the Australian Human Rights Commission, Administrative Appeals Tribunal, the Commonwealth Ombudsman and the Attorney General’s Department.

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