Tax breaks and grants can help keep firms in NZ, says Institute report.

Government-funded rewards - including tax breaks and grants - could encourage high-performing companies to stay in this country rather than shift overseas or sell out to foreign buyers, says the New Zealand Institute of Economic Research.

Lifting Export Performance, a report conducted by the institute on behalf of lobby group ExportNZ, says existing taxpayer-funded initiatives focus on building up the capabilities of firms but there are few incentives aimed at keeping them here and tax concessions and other payments could fill that gap.

"Scale-mimicking initiatives like the Advanced Technology Institute [formally named Callaghan Innovation last week] may work well in boosting local knowledge but they may not do as much for retention of capability," the report said.

"This means that we might get a step increase in New Zealand's economic and export potential but miss out on a boost in growth rates."


NZIER deputy chief executive John Ballingall said it was not realistic to expect firms to retain all of their operations in this country.

"We're not suggesting that everything needs to stay onshore in New Zealand," Ballingall said.

"What we are suggesting is there has been a trend of firms getting to a certain size and then sold off to overseas companies rather than remaining in New Zealand. There are benefits from retaining those companies."

In the past decade, 33 of our biggest and most innovative tech companies have been snapped up by foreign buyers, according to figures from the Technology Investment Network.

Ballingall said companies tended to have their local operations scaled down after they were sold.

"We're not saying firms shouldn't have the ability to make that decision [to sell]," he said. "It would be nice if that decision was a little bit more difficult for them to make."

But Economic Development Minister Steven Joyce said a rewards scheme would result in a long line of firms claiming they would pull out of the country unless they got some money.

"It would be open to all sorts of manipulations," Joyce said. "If it's just about paying people cash to stay then I don't think it's the answer."


The report said a reward system would need to provide "carrots for future success in New Zealand" and not be "a long-service payment scheme".

In many cases the wider community would gain more benefit from firms staying in New Zealand than the companies themselves, so businesses needed to be suitably rewarded, the report said.

ExportNZ executive director Catherine Beard said the country faced a conundrum of companies reaching a certain size and then moving overseas, so any initiatives that could keep firms in New Zealand were worth exploring.

Employers and Manufacturers Association chief executive Kim Campbell said such a rewards scheme was a good idea as the "heart gets torn out" of firms after they get bought by foreign companies.

Bought out
Some of the 33 Kiwi technology firms sold in the past decade:

*Fisher & Paykel Appliances, whiteware
*NextWindow, digital touch screens
*Navman, navigation devices
*Right Hemisphere, 3D software
*Zeacom, call centre applications
*Flo-dry Engineering, byproduct processing systems

Source: Technology Investment Network