Creating a better NZ through R&D tax credits

March 2018

The Minister for Research, Science and Innovation, the Hon Dr Megan Woods (middle), meets new HERA CEO Dr Troy Coyle. IRANZ Chair Dr John Bright on left. Photo: Louise Thomas.

The team from IRANZ, with Dr Prue Williams and the Hon Dr Megan Woods. Photo: Louise Thomas.

“We want to create a better New Zealand where we are looking after our people, looking after our environment and we are planning for our future,” says the Science Minister the Hon Dr Megan Woods.

The Minister met with a packed room of Independent Research Organisation (IRO) representatives in Wellington on 21 March. She took the opportunity to outline the Government’s broad R&D strategy.

“The big thing in the science portfolio is the coalition agreement to lift R&D to 2% of GDP over a period of ten years. This won’t be all government investment in R&D; it obviously requires a substantial uplift in business investment in R&D as well.

“Taking it back a step from there, if we think about what the broad aims of the Government are, it is pretty simple. We want to create a better New Zealand where we are looking after our people, looking after our environment and we are planning for our future. Our R&D programme needs to be linked really closely with those objectives.

“One of our aims is to decarbonise our economy – to get to a net zero emissions by 2050. And, in a normal hydrological year, to get to 100% renewable electricity by 2035.

“It is obvious that a lot of research and science is needed to achieve these goals.

“One of the key mechanisms that we are working on, that is subject to the current budget bid round, is how can we assist businesses to get that uplift in expenditure. We are working through the design options of what an R&D tax credit in 2018 would look like. We should be able to circulate this work in the next three or so weeks. We would really value your input. It is fair to say that the 2008 scheme was a starting point, but it was only a starting point, and it is a decade on.

“One of the aims is not just increasing expenditure on R&D, but also driving innovation further down into our economy. At the moment something like 50% of R&D by businesses in our country is done by six or seven companies in New Zealand, and it is just not enough. That’s not the kind of innovative economy that lies at the heart of what any of us in this room are trying to do. People talk about getting more SMEs to invest, but actually there are a whole pile of larger companies that need to be investing a lot more as well.”

The Minister says that the energy sector is an example, “The investment from that sector is eight million dollars in R&D. There is huge potential for our big players to be doing a whole lot more research. So, we want to make sure we are designing a system that really is driving down into our economy.”

“One of the things that we have been aware of is to make our R&D tax credit rate competitive with Australia, because otherwise it acts as a disincentive for people to do their R&D on this side of the Tasman. Obviously the Australian situation is quite a lot more complicated; in our R&D tax credit we don’t have capital gains tax. We are confident of getting to a R&D tax credit rate which is competitive with our Australian counterparts, but we will be looking a lot more at tax incentives rather than direct grants.”

Looking at the current grants system, Dr Woods said that there will be a ‘grand parenting’ phase, “Anyone that has a grant – that will play out, but we will be looking at doing some amalgamation of grant funds into the tax credit.

She said that Callaghan Innovation won’t have the same role to play in terms of the offering grants, but it will still have a “strong role” to play in terms of being an innovation agency.

The Minister concluded with strongly encouraging IROs to submit feedback on the soon-to-be-released draft R&D tax credit scheme.