Tax credit where it's due for NZ R&D

Hats off to the New Zealand Labour Party for looking at how it can boost technology and create much needed prosperity.

Hats off to the New Zealand Labour Party for looking at how it can boost technology and create much needed prosperity.

The party has proposed giving tax credits to help fund research and development in place of the current system of grants.

The move comes as one of the country's top scientists, Sir Paul Callaghan, said that New Zealand needs to do more if it is to climb out of current economic troubles, and technology offers a faster route to prosperity than farming or tourism.

Callaghan said as much at a Labour Party Conference last weekend, and it follows his criticism of the recent budget announced by the National-led government.

It is heartening to see the opposition finally taking the matter of wealth creation seriously, when in recent years it has seemed keener on spending it.

Certainly this is a debate that New Zealand needs to have. Technology promises a faster route to prosperity, and government has some role to play, but what?

New Zealand has a relatively small but successful technology sector. Trouble is, can governments or anyone "pick winners", and is it more a case of the country needing to develop more of an "enterprise culture"?

I doubt that those little tech companies in Wellington and Christchurch are going to lose much sleep over whether or not they can get a tax credit of 12.5 per cent on their R&D spend. I doubt very much that they will find it worthwhile to apply through a troublesome grants process, either.

And it seems that an R&D tax credits system can easily be abused by how businesses can reclassify their spending.

Bruce Simpson, on the Aardvark technology website, points to other issues — and is spot on.

Like he says, there are also matters of funding, and the banks seem little interested in helping when property tends to be a safer investment. This means that overseas firms tend to buy out innovative New Zealand firms, which then means the profits, and often the work, then moves offshore. Maybe, instead, we need a state-owned investment bank?

Despite a few flaws, Labour's tax credits proposal is worthy of consideration, and its renewed interest in wealth creation is encouraging.

If technology is where New Zealand is to seek its saviour, it is now up to National to see if it can come up with anything better!